Case Law Details

Case Name : DHL Air Ltd. Vs. Dy. CIT (IT) (ITAT Mumbai)
Appeal Number : ITA No. 1438/Mum/2017
Date of Judgement/Order : 04/10/2017
Related Assessment Year : 2012- 13
Courts : All ITAT (5168) ITAT Mumbai (1632)

DHL Air Ltd. Vs. Dy. CIT (IT) (ITAT Mumbai)

The impugned expenditure has been incurred by the assessee in pursuance of maintenance contract between the assessee and M/s. EAT, Germany. In the case of Kandla Port Trust (supra), it was held that the payment made for annual maintenance contracts would not fall under the category of fee for technical services within the meaning of provisions of section 194J of the Act. In the case of DDRC SRL Diagnostic (P) Ltd. (supra), the co-ordinate bench has noticed that the CBDT has expressed the view in Circular No. 715 (supra) that routine, normal maintenance contracts which includes supply of spares will be covered by section 194C of the Act. The bench further noticed that the revenue could not produce any material to show that the clarifications issued by the CBDT would not apply to the facts available in the case before it. Accordingly the bench held that the provisions of section 194C shall apply to the payment made towards maintenance contracts.

In the instant case also, no material was placed before us to show that the clarifications issued by the CBDT would not apply to the facts of the present case. Hence, consistent with the view taken in the above cited cases, we hold that the payment made towards annual maintenance contracts would fall under the category of works contract. In that view of the matter, the payment given by the assessee would constitute business receipts in the hands of M/s. EAT and the same is not taxable in India, since it does not have PE in India. In that case, there is merit in the contentions of the assessee that it is not required to deduct tax at source under section 195 of the Act, as no part of the amount paid to M/s. EAT is chargeable in India in the hands of M/s. EAT. Accordingly we set aside the order passed by assessing officer on this issue and direct him to delete the impugned additions.

Tax deduction at sourceUnder section 195Payment for normal annual maintenance contract

Conclusion: Payment made for annual maintenance contracts could not be classified as fee for technical services within the meaning of provisions of section 194J. Such payments constituted business receipts in the hands of non-resident recipient and as the same was not having PE in India, liability to withhold tax under section 195 did not get attracted.

Full Text of the ITAT Order is as follows:-

The assessee has filed this appeal challenging the order dated 27-1-2017 passed by the assessing officer under section 143(3) read with section 144C(13) of the Act of the Act pursuant to the direction given by the Dispute Resolution Panel (Dispute Resolution Panel).

2. At the time of hearing learned Authorized Representative did not press ground No. 5. Accordingly the same is dismissed as not pressed.

3. Remaining grounds give rise to following issues :–

(a) Dis allowance made under section 40(a)(i) of the Act in respect of maintenance of aircraft and engine/repairs and maintenance of aircraft.

(b) Dis allowance under section 40(a)(i) of the Act in respect of traveling and accommodation charges.

4. The assessee has taken an alternative ground that if income is computed under section 44BBA of the Act, the above said dis allowances are not called for.

5. Facts relating to the case are stated in brief. The assessee- company is tax resident of UK. It filed its return of income declaring total loss of Rs. 174.40 lakhs. The assessee took an aircraft under dry lease agreement from DHL Aviation, Netherlands B.V, and in turn, leased out the same under wet lease agreement to an Indian company named M/s. Blue Dart Aviation Limited (BDAL). Both assessee- company and BDAL are held at Deutsche Post AG and hence the assessee- company and BDAL are associated enterprises (AE).

6. Under wet lease agreement, lessor shall provide aircraft to the lessee and is also fully responsible for functioning of the aircraft, i.e., it should also provide competent personnel for operation of the aircraft and should also ensure that there is no interruption in service due to strike or injuries to crew members or due to inferior quality working. The assessee should also ensure that the aircraft is properly maintained and all necessary maintenance services are carried out at regular intervals.

7. During the year under consideration, the assessee claimed following expenses :–

(a) Maintenance of aircraft and engine  : Rs. 113.50 lakhs
(b) Repairs and maintenance of aircraft  : Rs. 175.93 lakhs
(c) Reimbursement of traveling and accommodation charges : Rs. 149.62 lakhs

The assessing officer took the view that the assessee should have deducted tax at source from the above said payments. Since the assessee has failed to deduct tax at source, the assessing officer took the view that the above said expenditure are liable to be disallowed under section 40(a)(i) of the Act for the failure to deduct tax at source. The view so taken by the assessing officer was also confirmed by learned Dispute Resolution Panel. Accordingly, the assessing officer passed final assessment order disallowing the above expenditure claimed by the assessee under section 40(a)(i) of the Act.

8. The dis allowances listed as (i) and (ii) relate to expenditure incurred on maintenance of aircraft and engine/repairs and maintenance of aircraft. Hence both the issues are addressed together.

9. The assessee submitted before the Tax authorities that a sum of Rs. 113.50 lakhs and further a sum of Rs. 175.93 lakhs was incurred towards repairs and maintenance of aircraft leased out to M/s. Blue Dart Aviation Ltd. The assessee had to incur these expenses for the purpose of maintaining of aircraft in working condition as per mandatory requirement of lease agreement. For carrying out the repairs of all air crafts operated by the assessee, it had entered into an agreement with M/s. European Air Transport Leipzig Gmbh, (EAT) Germany for providing maintenance, repairs and overhaul services and the said company charged the assessee on the basis of per flight hour support in respect of its air crafts operated by the assessee. Accordingly, EAT was paid flight hour rate based on the flight hour flown by the air crafts covered by the contract. The assessee further submitted that EAT is a company incorporated in Germany and hence tax resident of Germany. It is entitled to benefits of India-Germany Double Taxation Avoidance Agreement. The assessee submitted that it is liable to deduct tax on payments made to EAT under section 195(1) of the Act, only if such payment is chargeable to tax in India. It is submitted that the payment made to EAT was for providing repairs service and hence the same constitute business profits in the hands of EAT. Since, EAT does not have permanent establishment in India, payment received by it is not taxable in India. Accordingly, it was submitted that both the payments made to EAT for repairs and maintenance of aircraft/engine is not liable for tax deduction at source under section 195(1) of the Act, as the said payment is not chargeable to tax in India in the hands of EAT. Learned Dispute Resolution Panel did not agree with the contentions of the assessee and accordingly rejected the same with following observations :–

4. Objection No. 2–Dis allowance of payments of Rs. 1,13,50,933 made to EAT towards maintenance of aircraft engines under section 40(a)(i) of the Act

Grounds of Objections

“On the facts and circumstances of the case, and in law, the assessing officer has erred in proposing to disallow the payments towards maintenance of aircraft engines made to European Air Transport Leipzig Gmbh; Germany (‘EAT’) amounting to Rs. 1,13,50,933 under section 40(a)(i) of the Act.)

On the facts and circumstances of the case, and in law, the assessing officer erred in holding that the payment made towards maintenance of aircraft engines to EAT constitutes Fees for Technical Services (‘FTS’) under Article 12 of the India-Germany tax treaty.

On the facts and circumstances of the case, and in law, the assessing officer erred in holding that the payment made towards maintenance of aircraft engines to EAT arises in India as per the India–Germany tax treaty.

The Assessee prays that the assessing officer be directed to allow deduction in respect payments made to EAT towards engine PBH amounting to Rs. 1,13,50,933”.

Facts of the Case

4.1 The assessee has to mandatorily undertake regular, periodic maintenance of the aircraft in order to ensure the airworthiness of the aircraft. In order to ensure that the maintenance requirements are complied with, the assessee has entered into a contract with European Air Transport Leipzig GmbH, Germany (EAT) for availing maintenance, repair and overhaul services on the basis of per flight hour support in respect of its air-crafts operated by the assessee. Accordingly, EAT is paid flight hour rate based on the flight hours flown by the air crafts covered under the contract. A statement giving the details of the payment made to EAT amounting to Rs. 1,13,50,933 in respect of Engine Power by Hour (PBH) charges along with a copy of the relevant invoices were submitted by the assessee.

4.2 The PBH involves replacing internal components of the aircraft engines (known as rotable components) if these components have exceeded their prescribed flying hours or if these components have become unusable / defective.

4.3 Since the payment towards maintenance of aircraft engines are not taxable in India, TDS provisions are not applicable.

AO’s Contentions

4.4 The assessing officer held that the payment made to EAT towards maintenance of aircraft engines is covered under Article 12 (Royalty and Fees for Technical Services) of India and Germany tax treaty and since no tax was deducted, the expense was disallowed under 40(a)(i) of the Act.

Assessee’s Submissions

4.5 “The EAT has the capability to provide certain maintenance, engineering and logistic support of the aircraft and the above payments represents business receipts of EAT. EAT does not have a PE in India as per Article 5 of the tax treaty between India and Germany. Therefore the said payment to EAT is not taxable in India as per the India Germany tax treaty. Consequently no tax is required to be deducted at source in respect of the payment made by the assessee to EAT.

Further, the payments made to EAT for engine PBH do not constitute FTS both under the Act as well as under Article 12 of the India-Germany tax treaty since the payments have been made for standard services/ facilities. Since the dominant purpose of the above transaction is purchase/ replacement of old part with a new one and that the above services are in the nature of routine repairs and replacement from the perspective of an airline company like the assessee.

In the following decisions the Courts have upheld the view that payments towards standard services/ facilities do not constitute ITS :–

Kandla Port Trust v. DOT (50 SOT 109) (Rajkot)

DDRC SRL Diagnostic (P) Ltd. (2016) 157 1TD 92 (Mumbai-Trib.)

ADIT v. BHEL-GE-Gas Turbine Servicing (P) Ltd. (2012) 53 SOT 460 (Hyderabad)

In view of the above, the assessee submits that payments made to EAT are towards standard services/ facilities and therefore do not constitute FTS under section 9(1)(vii) of the Act as well as the Article 12 of the India-Germany tax treaty.

Without prejudice to the above, Assessee also submits that even if the aforesaid payments are characterized as FTS under Act, the same do not constitute FTS under the Article 12 of the India-Germany tax treaty on account of the following reasons :–

Para 6 of the India-Germany tax treaty provides that

In the facts of the present case, the payments being made by DHL Air to EAT would

“Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a land or a political subdivision, a local authority or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.”

In the facts of the present case, the payments being made by DHL Air to EAT would be regarded as FTS arising in India under the above mentioned para if the (cumulative conditions) mentioned below are satisfied :–

Condition 1: the person paying the FTS i.e., the assessee has a PE in India in connection with which the liability to pay the FTS was incurred; and

Condition 2: such FTS are borne by the PE of the assessee

The aforesaid payments are being made by the assessee to EAT pursuant to the cost sharing agreement. The said agreement is a global agreement and not India specific. The payments are being made for repairs and maintenance of the 22 specified B-757 air crafts operated by the assessee. Further, the repairs and maintenance activities are undertaken outside India. Moreover this agreement was entered in December 2002 even before the PE came into existence in India. Therefore these payments are not connected with the PE of the assessee which came into existence later. The payment recorded in the books of the assessee’s PE in India merely represents an allocation of the overall payment made to EAT based on the based on the number of air crafts and the number of days the aircraft was present in India only for the purpose of computing profits taxable in India. Therefore the assessee submits that the liability to make the aforesaid payments to EAT was not connected with the PE of the assessee in India.

Since Condition 1 prescribed in para 6 of the Article 12 of the India- Germany tax treaty is not fulfilled, the payments made to EAT would not qualify as FTS under the aforesaid article. In view of this, the payment made to EAT would be taxable in India only if EAT has a PE in India. The Assessee submits that EAT does not have any PE in India.

Based on the above facts and in law, the dis allowance of payment to EAT as proposed by the assessing officer is not justified and ought to be deleted”.

Directions of the Dispute Resolution Panel on Objection No. 2

4.6 We have considered the arguments of the learned Authorized Representative. The contract with European Air Transport Leipzig GmbH, Germany (EAT in short) is for availing maintenance, repair and overhaul services on the basis of per flight hour support in respect of its air crafts operated by the assessee. These are highly specialized services requiring the technical expertise to keep the airworthiness of the aircraft at all times. It is not just an agreement for the sale of spare parts as being projected by the assessee. This is further supported by the fact that the bills are raised not based on supply of spare parts but based on number of hours of flight undertaken by the air crafts. Thus, the substance of the contract is service and not mere supply of spares. When overall scope of contract is in nature of works contract, the dominant purpose test cannot be applied and all other ancillary obligation pale into the main contract. This view gets support from decision of 5 member bench of the Hon’ble Supreme court in case of Kone Elevator India (P) Ltd. v. State of T.N., (2014) 7 SCC 1. Thus, change of defective or damaged parts is only incidental to the overall composite obligation of maintenance support services being undertaken by EAT. Hence, the services rendered by EAT would be in nature of technical service within the meaning of section 9(1)(vii).

4.7 It is contended that EAT is resident of Germany. As per article 12(4) of the DTAA with Germany, the fee for technical services means: The term ‘fees for technical services” as used in this Article means payments of any amount in consideration for the services of managerial, technical or consultancy nature, including the provision of services by technical or other personnel, but does not include payments for services mentioned in Article 15 of this Agreement.

4.8 Thus the technical services rendered by EAT are taxable as FTS under the DTAA also.

4.9 Further, as per article 12(6), the FTS arises in the contracting state if the payer has a PE in that state and that the payments are borne by such PE then the FTS shall be deemed to accrue or arise in the state in which PE is situated. The argument of the appellant is that since the payments are made by appellant to EAT under global cost sharing agreement based on allocated cost to the aircrafts operated by assessee in India, the condition that such payments should be borne by PE is not satisfied. We are unable to agree with this proposition of the assessee because what is required under the 12(6) is that such cost is borne by the PE. Undisputedly the payments made to EAT are recorded in the books of PE for computing profits of the PE and hence the same can be said to be borne by the PE. It makes no difference whether such cost is based on allocated cost under the global agreement. The other contention of appellant that the agreement was executed before the PE of assessee came into existence is also not relevant as the period of service for which the payment has been made under the global agreement; the PE had come into existence. The trigger of PE is not to be seen from date of agreement; rather the existence of PE is to be reckoned at the time when services were received and the payments were made by such PE thereafter. Hence the argument of the appellant that payments made by it to EAT were not in nature of fee for technical services under section 9(1)(vii) of the Act nor under Article 12 of the DTAA with Germany, thereby creating no tax withholding liability under section 195, is untenable and the same is hereby rejected. The action of the assessing officer of making the dis allowance of Rs. 1,13,50,933 is upheld. The objection filed by the assessee is dismissed.

5. Objection No. 3–Dis-allowance of payments of Rs. 1,75,93,595 made to EAT towards repairs and maintenance under section 40(a)(i) of the Act.

Grounds of Objections

“On the facts and circumstances of the case, and in law, the assessing officer has erred in proposing to disallow the payment towards repair and maintenance made to EAT amounting to Rs. 1,75,93,595 under section 40(a)(i) of the Act. On the facts and circumstances of the case, and in law, the assessing officer erred in holding that the payment made towards repairs and maintenance to EAT constitutes FTS under Article 12 of the India-Germany tax treaty.

On the facts and circumstances of the case, and in law, the assessing officer erred in holding that the payment made towards maintenance of aircraft engines to EAT arises in India as per the India Germany tax treaty.

The Assessee prays that the assessing officer be directed to allow deduction in respect payments made to EAT towards repairs and maintenance amounting to Rs. 1,75,93,595”.

Facts of the Case

5.1 The assessee had availed repairs and maintenance services under the cost sharing contract with EAT. The services were in the nature of routine aircraft repair and maintenance. These expenses have to be incurred in order to maintain the airworthiness of the air crafts. A statement giving the details of the payment made to EAT amounting to Rs. 1,75,93,595 in respect of repairs and maintenance charges along with a copy of the sample invoice were submitted by the assessee.

5.2 Since the payment towards repairs and maintenance are not taxable in India, TDS provisions are not applicable.

AO’s Contentions

5.3 The assessing officer held that the payment made to EAT towards maintenance of aircraft engines is covered under Article 12 (Royalty and Fees for Technical Services) of India and Germany tax treaty and since no tax was deducted, the expense was disallowed under 40(a)(i) of the Act.

Assessee’s Submissions

5.4 “The EAT has the capability to provide certain maintenance, engineering and logistic support of the aircraft and the above payments represents business receipts of EAT. EAT does not have a PE in India as per Article 5 of the tax treaty between India and Germany. Therefore the said payment to EAT is not taxable in as per the India Germany tax treaty. Consequently no tax is required to be deducted at source in respect of the payment made by the assessee to EAT.

Further, the payments made to EAT for engine PBH do not constitute FTS both under the Act as well as under Article 12 of the India-Germany tax treaty since the payments have been made for standard services/facilities. Since the dominant purpose of the above transaction is purchase/replacement of old part with a new one and that the above services are in the nature of routine repairs and replacement from the perspective of an airline company like the assessee. In the following decisions the Courts have upheld the view that payments towards standard services/ facilities do not constitute FTS :–

— Kandla Port Trust v. DCIT (50 SOT 109) (Rajkot)

— DDRC SRL Diagnostic (P) Ltd. (2016) 157 ITD 92 (Mumbai-Trib.)

— ADIT v. BHEL-GE-Gas Turbine Servicing (P) Ltd. (2012) 53 SOT 460 (Hyderabad)

In view of the above, the assessee submits that payments made to EAT are towards standard services/facilities and therefore do not constitute FTS under section 9(1)(vii) of the Act as well as the Article 12 of the India-Germany tax treaty.

Without prejudice to the above, Assessee also submits that even if the aforesaid payments are characterized as FTS under Act, the same do not constitute FTS under the Article 12 of the India-Germany tax treaty on account of the following reasons :–

Para 6 of the India-Germany tax treaty provides that

“Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a land or a political subdivision, a local authority or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties pr fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.”

In the facts of the present case, the payments being made by DHL Air to EAT would be regarded as FTS arising in India under the above mentioned para if the (cumulative conditions) mentioned below are satisfied :–

— Condition 1: the person paying the FTS i.e., the assessee has a PE in India in connection with which the liability to pay the FTS was incurred; and

— Condition 2: such FTS are borne by the PE of the assessee

The aforesaid payments are being made by the assessee to EAT pursuant to the cost sharing agreement. The said agreement is a global agreement and not India specific. The payments are being made for repairs and maintenance of the 22 specified 8-757 air crafts operated by the assessee. Further, the repairs and maintenance activities are undertaken outside India. Moreover this agreement was entered in December 2002 even before the PE came into existence in India. Therefore these payments are not connected with the PE of the assessee which came into existence later. The payment recorded in the books of the assessee’s PE in India merely represents an allocation of the overall payment made to EAT based on the bused on the number of air crafts and the number of days the aircraft was present in India only for the purpose of computing profits taxable in India. Therefore the assessee submits that the liability to make the aforesaid payments to EAT was not connected with the PE of the assessee in India.

Since Condition I prescribed in para 6 of the Article 12 of the India- Germany tax treaty is not fulfilled, the payments made to EAT would not qualify as FTS under the aforesaid article. In view of this, the payment made to EAT would be taxable in India only if EAT has a PE in India. The Assessee submits that EAT does not have any PE in India.

Based on the above facts and in law, the dis allowance of payment to EAT for repairs and maintenance as proposed by the assessing officer is not justified and ought to be deleted”.

Directions of the Dispute Resolution Panel on Objection No. 3

5.5 The appellant has raised objection against the action of the assessing officer for dis-allowance under section 40(a)(i) of the payment made to EAT amounting to Rs. 1,75,93,595 in respect of repairs and maintenance charges. As the reasons given by assessing officer as well the arguments given by appellant is similar to the one as discussed in objection number 2 above and nature of services also being similar as well as the recipient of the amounts is also the same, therefore, for the same reasons given by us while giving directions to objection number 2 above, the objections raised by the appellant is found untenable and the same is rejected. The action of the assessing officer of making the dis-allowance of Rs. 1,75,93,595 is upheld. The objection filed by the assessee is dismissed.

10. The learned Authorized Representative submitted that the German entity, viz., EAT did not enter Indian soil at all, in order to repair the air crafts, i.e., the aircraft was taken outside India and the maintenance services were carried out outside India. Further, the expenses claimed by the assessee are not aircraft specific, but it was allocation made out of over all expenses to the aircraft leased out in India. The learned Authored Representative submitted that the assessing officer has treated the impugned payments as fee for technical services. He invited our attention to Article 12 of India-Germany treaty relating to “Royalties and Fees for Technical Services”. He submitted that clause (1) of Article 12 states that the royalty and fee for technical services arising in the contracting state and paid to a resident of other contracting state may be taxed in the other state. He submitted that the payment was made to a German company and hence it may be taxed only in Germany. He submitted that the tax authorities have placed their reliance on clause (6) of Article 12, which reads as under :–

“(6) Royaties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a land or political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting state a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.”

The learned Authorized Representative submitted that the above said clause shall apply only if the liability was incurred in connection with the PE. He submitted that the assessee had incurred overall expenditure on repairs and maintenance outside India and it has allocated the same to the Indian aircraft on an equitable basis. Accordingly he submitted that the liability was not incurred in Indian PE. He submitted that such kind of allocation cannot also be considered to be a liability incurred in connection with PE and hence the provisions of Article 12(6) shall not apply to the assessee’s case. In support of this contention, the learned Authorized Representative invited our attention to an illustration given by OECD on taxability of interest under Article 11. He submitted that the clause 11(5) relating to Interest payments and clause 12(6) relating to payment of royalty and fees for technical services are identically worded. He submitted that the OECD has examined different kinds of situations vis-a-vis the taxability of interest income under Article 11(5). One of the situations is that, if the loan is contracted by the head office of the enterprise and its proceeds are used for several permanent establishments situated in different countries. It has been specifically explained that the above said situation falls outside the provisions of paragraph 5, as it precludes the attribution of more than one source to the same loan. Accordingly the learned Authorized Representative contended that the expenditure incurred outside India and allocated to an Indian PE shall fall outside the scope of Article 12(6).

11. The learned Authorized Representative further submitted that the Annual Maintenance contract given to carryout repairs and maintenance works is a “works contract” and hence the same constitutes business profit. In this regard, the learned Authorized Representative placed reliance on the following case law :–

(a) Kandla Port Trust (50 SOT 109)

(b) DDRC SRC Diagostics (P) Ltd. (2016) (157 ITD 92)

He submitted that the co-ordinate benches have placed reliance on the Circular No. 715 dt. 8-8-1995 issued by CBDT, where in the Board has clarified as under :–

“Q.No. 29 : Whether a maintenance contract including supply of spares would be covered under section 194C or 194J of the Act?

Ans: Routine, normal maintenance contracts which includes supply of spares will be covered under section 194C. However, where technical services are rendered, the provisions of section 194J will apply in regard to tax deduction at source.”

Accordingly he submitted that the annual maintenance contracts would fall outside the scope of section 194J, which is related to fees for technical services. He submitted that the definition of the expression “fees for technical services” is identically worded both under the Act and India-German DTAA. Hence the impugned payments constitute payment made for “works contract” and hence shall constitute business profits in the hands of M/s. EAT. Since EAT does not have permanent establishment in India, the business profits are not taxable in India. Since the impugned payments are not taxable in India, there is no liability to deduct tax at source under section 195 of the Act.

12. On the contrary, the learned Departmental Representative placed strong reliance on the orders passed by learned DRP/AO.

13. We have heard rival contentions on this issue and perused the record. The impugned expenditure has been incurred by the assessee in pursuance of maintenance contract between the assessee and M/s. EAT, Germany. In the case of Kandla Port Trust (supra), it was held that the payment made for annual maintenance contracts would not fall under the category of fee for technical services within the meaning of provisions of section 194J of the Act. In the case of DDRC SRL Diagnostic (P) Ltd. (supra), the co-ordinate bench has noticed that the CBDT has expressed the view in Circular No. 715 (supra) that routine, normal maintenance contracts which includes supply of spares will be covered by section 194C of the Act. The bench further noticed that the revenue could not produce any material to show that the clarifications issued by the CBDT would not apply to the facts available in the case before it. Accordingly the bench held that the provisions of section 194C shall apply to the payment made towards maintenance contracts.

14. In the instant case also, no material was placed before us to show that the clarifications issued by the CBDT would not apply to the facts of the present case. Hence, consistent with the view taken in the above cited cases, we hold that the payment made towards annual maintenance contracts would fall under the category of works contract. In that view of the matter, the payment given by the assessee would constitute business receipts in the hands of M/s. EAT and the same is not taxable in India, since it does not have PE in India. In that case, there is merit in the contentions of the assessee that it is not required to deduct tax at source under section 195 of the Act, as no part of the amount paid to M/s. EAT is chargeable in India in the hands of M/s. EAT. Accordingly we set aside the order passed by assessing officer on this issue and direct him to delete the impugned additions.

15. The next issue contested by the assessee relates to the dis allowance under section 40(a)(i) of the Act in respect of traveling and accommodation charges. The learned Authorized Representative submitted that M/s. Blue dart Aviation Ltd. (BDAL) had incurred certain expenses on behalf of the assessee, being in the nature of traveling and accommodation charges of crew members. He submitted that M/s. BDAL had deducted tax at source, wherever required while making payment on behalf of the assessee. The assessing officer was of the view that the assessee should have deducted tax at source while reimbursing the amount to M/s. BDAL and accordingly disallowed the claim of the assessee under section 40(a)(i) of the Act. The learned Authorized Representative placed reliance on the decision rendered by co-ordinate bench in the case of ASK Wealth Advisors (P) Ltd. v. ACIT in (ITA No. 6007 (Mum.) of 2012, (assessment year 2008-09), date 18-7-2014) and submitted that the co-ordinate bench has held that no dis allowance can be made in the hands of subsidiary company on the reimbursements made by it to the Holding company, if the holding company has deducted tax at source from the payments. The learned Authorized Representative submitted that M/s. BDAL has already deducted tax at source, wherever required and accordingly contended that the assessing officer was not correct in law in invoking the provisions of section 40(a)(i) for making the impugned dis allowance.

16. We have heard learned Departmental Representative and perused the record. At the time of hearing, the assessee was asked to furnish break-up details of reimbursements duly describing the details of deduction of tax at source. However, till the date of finalizing this order, the same has not been received. In any case, the claim of the assessee requires verification at the end of the assessing officer. Accordingly we set aside the order passed by the assessing officer on this issue and restore the same to his file with the direction to examine this issue afresh by duly following the ratio of decision rendered in the case ofASK wealth advisors (P) Ltd. (supra).

17. In the result, the appeal of the assessee is treated as allowed for statistical purposes.

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