In a complex tax scenario governed by Sections 9, 195, and 40(a)(i) of the Income-Tax Act, 1961, coupled with the provisions of Double Taxation Avoidance Agreements (DTAA) between India and various countries, a case unfolds regarding payments made by an assessee for the repair and maintenance of helicopter parts. This analysis spans assessment years 2011-12 to 2016-17, exploring the nuances of taxability and withholding obligations.
The assessee, engaged in offshore transportation and oil and gas exploration through helicopter services, faced a tax challenge. Payments made for repair and maintenance to entities in the USA, UK, Australia, Canada, and Singapore were treated by the Assessing Officer as Fee for Technical Services (FTS). This triggered tax withholding obligations under Section 195.
Assessing Officer’s Stand
The Assessing Officer contended that the services rendered were of a technical and consultancy nature, qualifying as FTS. Consequently, tax should be withheld under Section 195, leading to the disallowance of payments under Section 40(a)(i).
Commissioner (Appeals) Perspective
On appeal, the Commissioner (Appeals) delved into the nature of services, emphasizing that technical knowledge, know-how, or skill had not been made available to the service recipient during the repair and maintenance activities. As the “make available” condition from relevant DTAA clauses remained unmet, the Commissioner ruled in favor of the assessee.
Analyzing Tax Implications for Payments to Residents of UAE
Moving on to payments made to residents of the UAE, the analysis under Sections 9, 195, and 40(a)(i) and relevant articles of the India-UAE DTAA unfolded. The crux was the absence of specific provisions concerning the taxability of FTS in the treaty.
Legal Interpretation
The Tribunal clarified that without FTS provisions, payments to UAE residents could be taxed either as business income or other income under the treaty. Notably, none of the entities had a Permanent Establishment (PE) in India, rendering the payments non-taxable in India as per treaty provisions.
Untangling Tax Web for Payments to Residents of Netherlands, Spain, and France
The third scenario involved payments to entities in the Netherlands, Spain, and France, scrutinized under Sections 9, 195, and 40(a)(i) and respective DTAAs. The defining factor was the absence of the “make available” clause in the DTAA with these countries.
Crucial Findings
The Commissioner (Appeals) highlighted that the repair and maintenance occurred entirely outside India, with no involvement of non-resident payees within Indian territory. Given the lack of evidence of technical services within India, the payments were deemed non-taxable, absolving the assessee of Section 195 obligations.
