The Income Tax Appellate Tribunal (ITAT), Bangalore bench has held that the payment made for flight testing services by Hindustan Aeronautics Ltd to CGTM France cannot be treated as Fee for Technical Services (FTS).
The assessee is a public sector undertaking of the Govt. of India. The assessee is engaged in the business of design, development, manufacture, and maintenance of advanced fighters, piston and jet engine trainers, commercial aircraft, helicopters, and associated aero engines, aircraft systems, equipment, and avionics catering mainly to India’s defence needs. During the assessment proceedings, the Assessing Officer made an addition of Rs.13,80,672/- u/s 40a(ia) for non-deduction of tax on payments made to CGTM France towards flight testing services treating the same as Fee for Technical Services.
The assessee challenged the addition by contending that there was no technology that was made available by CGTM France to the assessee.
A two-judge bench of the Tribunal comprising Shri George George K, Judicial Member And Ms. Padmavathy S, Accountant Member observed that the perusal of the details of technical services provided by CGTM France to the assessee shows that the technicians/engineers of CGTM carried out Air intake Survey relating to Air inlet distortion and installation losses. On the basis of test results, the assessee would look into various issues involving in the Shakti Engine and would carry out the requisite test for improving its engine.
“The fees paid towards the services in question here is purely towards the testing of Shakti Engines in order to identify the issues of Air inlet distortion and installation losses,” the bench said.
Deleting the addition, the Tribunal said “In view of the above, we are of the considered opinion that fees paid by the assessee to CGTM France is not in the nature of fees for technical services and hence does not attract the provisions of sec. 195 with regard to the requirement for deduction of tax at source on payment of fees for technical services of a resident outside India. As a result, no disallowance is warranted u/s 40(a)(ia) of the expenses claimed by the assessee towards payment of service charges to CGTM France. Accordingly, we allow the appeal in favour of the assessee.”
Shri Ajit Kumar Jain & Siddhesh Chaugule appeared for the assessee.
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