Loading judgment…
No AI summary yet for this case.
Decore Exxoils P. Ltd. /ITANos.196 & 197/Ind/2018
the quantum. Accordingly, the submission made above in
respect of A.Y. 2015-16 in ITANo.197/Ind/2018 are adopted
mutatis and mutandis in the instant case also. Therefore, Ld.
counsel submitted that in the light of the judgments relied by
the assessee was not required to deduct tax at source.
Per contra Ld. DR opposed the submission and adopted the
same arguments as were in ITANo.197/Ind/2018.
We have heard rival submissions and perused the material
available on records. In respect of payment made to CAE Simuflite
Inc. USA, the facts are identical as were ITANo.197/Ind/2018. We
have decided the issue in par 10 to 14 by disposing of ground No.2
to 4 of the assessee’s appeal held as under:
Now coming to ground No.2 to 4 are against applicability of provisions of section 195 of the Act on payments towards mandatory training for pilots, to CAE simuflite Inc., USA (CAE)- Rs.61,80,162/-. Ld. counsel for the assessee vehemently argued that the authorities below were not justified in making the addition and sustaining the same in respect of payments made towards mandatory training for pilots. Ld. counsel further reiterated the submissions as made in the written submissions for the sake of clarity submission are reproduced as under:
A. Apropos Ground No. 02 to 04 – on payments made to non residents in the USA towards pilot training mandatorily required by DGCA, providing alerts on aircraft maintenance, providing route navigation, providing components under smart
Decore Exxoils P. Ltd. /ITANos.196 & 197/Ind/2018
parts plus agreement and service bulletins [S. No. 2 to 4 in table above] –
CAE Simuflite Inc. USA is engaged in the business of providing trainings to pilots. It provided training to the pilots of the appellant in compliance to the mandatory requirement by the Directorate General of Civil Aviation (DGCA). 2. As per the DGCA manual, the operator i.e. the appellant company has to mandatorily arrange for the training and proficiency tests of the pilots it has engaged for its flight operations. The training to pilots was given outside India and payments for the same are also made outside India. All the ingredients of the transaction are outside India. 3. The DGCA manual, ‘Civil Aviation Requirement’ (CAR) specifies the flight crew training and qualification requirements for scheduled and non-scheduled operators. This manual casts an onerous responsibility on the operator to ensure all of its compliance so as to hold a valid flight operator permit. In the instant case, appellant company is engaged as an operator of Learjet aircraft having non-scheduled operator permit. From the DGCA manual, certain key aspects which are mandatorily required to be complied by an operator are listed for reference [PB 114 – 139] – q. Clause 4.3 – All flight crew members hold an applicable and valid license acceptable to DGCA and are suitably qualified and competent to conduct duties assigned to them. [PB 116] r. Clause 6.1.6 – Each flight crew member undergoes the checks required by Para 9.2 (PPC) and the training and checks required by Para 9.5 (SEP) before commencing supervised line flying (SLF). [PB 117] s. Clause 8.1.2 – For multi-crew operations, the pilot completes an appropriate command course. [PB 118] t. Clause 8.2.3 – Undergo minimum training and checks as stipulated in Appendix 2 (Para 5) to this CAR [PB 119] u. Clause 9.2 – Pilot’s proficiency check (PPC): [PB 120] v. Clause 9.2.3 – The period of validity of a PPC shall be six months……[PB 120] w. Clause 9.3 – Instrument rating (IR) check: [PB 120] 44
Decore Exxoils P. Ltd. /ITANos.196 & 197/Ind/2018
x. Clause 9.3.3 – The period of validity of an instrument rating check shall be 12 months from the date of issue. [PB 120]
y. Clause 9.4 – Line Route Check: ………………….The period of validity of a line route check shall be 12 months. [PB 120-121] z. Clause 9.5 – Safety and emergency (SEP) procedures training and checking: …………. The period of validity of a line route check shall be 12 months. [PB 121] aa. Clause 9.6 – CRM: An operator shall ensure that i. 9.6.1 – Elements of CRM (refer Appendix 5) are integrated into all appropriate phases of the recurrent training and; ii. 9.6.2 – Each flight crew member undergoes specific modular CRM training. All major topics of CRM training shall be covered over a period not exceeding three years; [PB 121] bb. Clause 9.7 – Ground refresher training: An operator shall ensure that each flight crew member undergoes ground and refresher training at least every 12 months. [PB 121] cc. Clause 10 – Pilot Qualification to operate in either pilot’s seat [PB 122] dd. Clause 11 – Recent Experience [PB 122] ee. Clause 12.5 – The operator shall maintain a record sufficient to satisfy the DGCA of the qualification of the pilot and of the manner in which such qualification has been achieved. [PB 123] ff. Appendix 5 to CAR – The table given in the said appendix lists down all the core elements of training which are covered under the head “Recurrent Training” for overview. It is stated in the Note at the bottom of the table that Recurrent CRM training shall be carried out annually. [PB 134] .Copies of invoices raised by CAE Simuflite Inc., USA for providing different trainings to the pilots of the appellant operator were furnished before the Ld. TDS Officer. [PB 140 – 145] 5.The description in the invoice states – “Indian DGCA Standalone Check”; “Indian DGCA check pilot training including 20 hrs Ground School” [Notes: PPC + Check Pilot Training] [PB 140]
Decore Exxoils P. Ltd. /ITANos.196 & 197/Ind/2018
The invoice is issued from US and remittance details also contains place as Dallas TX, US. Another invoice states training description – “Lear Jet 60XR Pilot Recurrent”. [PB 141 and 145] Other invoices states training description – “Lear Jet 60XR Pilot Initial / International Procedures Initial”. [PB 142 - 144] 6. It is evident from the invoices that the training to pilots of the operator appellant have been arranged to meet the mandatory requirements of DGCA. There is a dependency factor inherent in the flight operating business of the appellant for maintaining an effective flight crew of pilot. The operator is mandatorily required to satisfy DGCA sufficiently for the qualifications of its pilot crew as stated in clause 12.5 of the CAR. The training availed by a pilot does not go for perpetuity and recurrent training is compulsory for flight operations. [PB 123] 7. Instant issue is directly covered by the decision of Hon’ble Mumbai ITAT in the case of United Helicharters Pvt Ltd in ITA No. 5135 & 5136/Mum/2011. [CLPB 28 – 31] Para 5 – “………………He has referred para 4 of Article 12 and submitted that as per the meaning given in para 4 of the Article 12 of the Indo-US DTAA the ‘fees for included services’ means inter alia if such services make available technical knowledge, experience, skill, know-how, or processes, or consists of the development and transfer of a technical plan or technical design. The training was given to the pilots and other engineering staff as per the requirement of DGCA therefore it does not amount to services make available technical knowledge, experience, skill, know-how etc.” [emphasis supplied] Para 9 – “……………………..we further noted that as per para 4(b) of Article 12 of Indo-US DTAA fees for included services means if such services made available technical knowledge, experience, skill, know-how, or processes, or consists of the development and transfer of a technical plan or technical design. The training in the case in hand was given to the pilots and other staff as per the requirement of the DGCA Rules therefore, it was only a part of the eligibility of the pilots and other staff for working in the industry of aviation and such training would not fall under the term “service make available”. [emphasis supplied]
Decore Exxoils P. Ltd. /ITANos.196 & 197/Ind/2018
Further, these are standard training services which are provided as per the DGCA norms referred in the invoices itself. Accordingly, reliance is placed on the decision of Hon’ble Supreme Court in the case of Kotak Securities Ltd (supra). 9. Ld. TDS Officer relied on Article 12, Para 4(b) of the India – USA DTAA to adopt an adverse view on the subject matter. [AO Page 39 – 43] Para 4(b) of Article 12 of the said DTAA states about make available technical knowledge, experience, skill, know-how or process. The MoU of DTAA very categorically states that “………The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skill, etc. are made available to the person purchasing the service within the meaning of para 4(b).” [emphasis supplied] Ld. TDS Officer relied on the decision of Hon’ble Karnataka High Court in the case of De Beers [2012] 21 taxmann.com 214 (Kar) which in fact rules in favor of the appellant. It is stated that the Hon’ble Court held that the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. 10. As already stated above, the appellant as an operator is dependent on the service provider to comply with the mandatory requirements of DGCA. There is no ‘make available’ of technology by the service provider to the appellant to make it independent for its future technical requirements. The decisive factor is not the fact of training services per se but the training services being of such a nature that it results in transfer of technology. In the instant case, there is no transfer of technology in the DGCA mandated training of pilots. Nothing remains with the appellant operator after the expiry of period after which the need to “recurrent training” arises as per the CAR of DGCA. 11. Training given by the Non-resident company is part of its routine business and does not involve transfer of any technology. The training involves use of technology by the training company but there is no technology transfer to the pilots of the assessee company. Consequently, the services cannot be regarded as technical in nature. Further, even in the 47
Decore Exxoils P. Ltd. /ITANos.196 & 197/Ind/2018
DTAA with USA, technical services is defined on 'included services' basis. In such cases both hardware and technology have to be transferred together which is not the case with party concerned herein. Above decision of Hon’ble Karnataka High Court has been followed by Hon’ble ITAT Ahmedabad Bench in the case of Veeda Clinical Research (P) Ltd [2013] 35 taxmann.com 577 (Ahd) holding in favor of the assessee by dealing with the issue of ‘make available’ aspect of technical services and referring to the MoU to India-US DTAA. [CLPB 26 – 27]
Article 7 of the India – USA DTAA is also not attracted owing to absence of a PE of the non-resident in India to create a business connection in India. Tax Residency Certificate (TRC) and Form 10F required under section 90(5) of the Act were furnished before the Ld. ITO. [PB 160 – 161] 13. Accordingly, the appellant was not required to deduct tax at source under section 195 of the Act on the payment made to CAE Simuflite Inc. USA, and hence not an assessee in default under section 201(1) of the Act. 14. In respect of payment to Camp Systems International Inc., USA, it is the world’s leading aircraft maintenance tracking solution provider. Appellant availed subscription for maintenance tracking services and electronic log books for its aircraft Lear jet 60.
Copy of invoice raised by CAMP Systems International Inc, USA for providing subscription for maintenance tracking services and electronic log books for its aircraft Lear jet 60 was furnished before the Ld. TDS Officer which is reproduced in the impugned order also. [AO page 44 and PB 203]
The description in the invoice states – “CAMP Maintenance Tracking Services for Lear 60, Updates and Support to CAMP’s Electronic Log Books [AO page 44 and PB 203] The invoice also states the ‘Start Date’ and ‘End Date’ along with ‘Subscription ID’. 17. Clause 4.10 of the Smart Parts Plus Agreement with Learjet Inc, USA also requires the appellant operator to properly record in the Aircraft log book all the details relating to aircraft flight. [PB 58]
Decore Exxoils P. Ltd. /ITANos.196 & 197/Ind/2018
Annual subscription charges paid to CAMP Systems International Inc, USA towards for obtaining standard maintenance tracking services for Lear 60, updates and support to CAMP’s electronic log books does not fall within the term ‘fees for technical services’ under the provisions of the Act. Nothing remains with the appellant operator after the expiry of subscription for the service provided.
Article 12 of the India – USA DTAA also does not cover the instant transaction within the meaning of included services of managerial, technical or consultancy. In the instant case, there is no transfer of technology in the subscription of services so availed by the appellant operator. The MoU of DTAA very categorically states that “………The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skill, etc. are made available to the person purchasing the service within the meaning of para 4(b).” [emphasis supplied] 19. Article 7 of the India – USA DTAA is also not attracted owing to absence of a PE of the non-resident in India to create a business connection in India. Tax Residency Certificate (TRC) and Form 10F required under section 90(5) of the Act were furnished before the Ld. ITO. [PB 162 – 164] 20. Accordingly, the appellant was not required to deduct tax at source under section 195 of the Act on the payment made to CAMP Systems International Inc. USA, and hence not an assessee in default under section 201(1) of the Act. 21. In respect of payment to Rockwell Collins, USA, it is engaged in providing avionics and information technology systems and services and enhanced map overlay services. Appellant availed subscription for enhanced map overlays and route navigation services. 22. Copy of invoice raised by Rockwell Collins, USA for providing subscription for enhanced map overlays and route navigation services for its aircraft Lear jet 60 was furnished before the Ld. TDS Officer which is reproduced in the impugned order also. [PB 204] The description in the invoice states – “Enhanced Map Overlays Subscription”. The invoice also states the ‘Start Date’ and ‘End Date’. 49
Decore Exxoils P. Ltd. /ITANos.196 & 197/Ind/2018
Annual subscription charges paid to Rock Collins, USA towards for obtaining standard enhanced map overlays and route navigation services for its aircraft Lear jet 60 does not fall within the term ‘fees for technical services’ under the provisions of the Act. Nothing remains with the appellant operator after the expiry of subscription for the service provided. Article 12 of the India – USA DTAA also does not cover the instant transaction within the meaning of included services of managerial, technical or consultancy. In the instant case, there is no transfer of technology in the subscription of services so availed by the appellant operator. The MoU of DTAA very categorically states that “………The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skill, etc. are made available to the person purchasing the service within the meaning of para 4(b).” [emphasis supplied] 24. In availing the above subscriptions from the non-residents, there was no human interaction or intervention. Ld. TDS Officer relied on the decision of Bharti Cellular Ltd by Hon’ble Delhi High Court [2008] 175 Taxman 573 (Del) which deals with the requirement of human element in providing services so as to give them the color of technical services as envisaged in section 9(1)(vii) of the Act. Hon’ble Supreme Court in its decision of Bharti Cellular Ltd [2010] 193 Taxman 97 (SC) stated in respect of human involvement in Para 7 – “……………………………Whether at that stage, any human intervention is involved is required to be examined, which again needs a technical data. We are only highlighting these facts to emphasise that these types of matters cannot be decided without any technical assistance available on record.” [emphasis supplied] In the instant case, there is no human element involved when CAMPS Systems International Inc, USA and Rockwell Collins, USA supplied their subscription services to the appellant operator for operation of its aircraft. [AO Page 19] 25. Article 7 of the India – USA DTAA is also not attracted owing to absence of a PE of the non-resident in India to create a business connection in India. Tax Residency Certificate (TRC) and Form 10F required under section 90(5) of the Act were furnished before the Ld. ITO. [PB 165 – 167] 50
Decore Exxoils P. Ltd. /ITANos.196 & 197/Ind/2018
Accordingly, the appellant was not required to deduct tax at source under section 195 of the Act on the payment made to Rock Collins USA, and hence not an assessee in default under section 201(1) of the Act.
“11. Ld. D.R. opposed the submissions and supported the orders of authorities below. Ld. DR submitted that essentially the services provided by the assessee fall within the technical services. 12. We have heard rival submissions and perused the material available on record and gone through the orders of lower authorities. The assessee company made payments towards for pilots mandatorily required as per Directorate General of Civil Aviation (DGCA) manual to CAE Simuflite Inc. USA of Rs. 61,80,162/-. Further, the assessee company made payments to Rockwell Collins, USA for providing services in respect of Route navigation of Rs.3,82,186/-. It is contended that as per the DGCA guidelines that all flight crew members hold an applicable and valid license acceptable to DGCA and were suitably qualified and competent to conduct duties assigned to them. Further, each flight crew member undergoes the checks required by para 9.2 (PPC) and the training and checks required by para 9.5(SEP) before commencing supervised line flying (SLF) and for multi-crew operations, the pilot completed an appropriate command course. It is contended that copies of invoice raised by CAE Simuflite Inc. USA for providing different training to the pilots of the assessee operator were furnished before the Ld. TDS Officer. The discretion in the invoice stated that “Indian DGCA Standalone check”, “Indian DGCA Check pilot training including 20 hrs ground school”. The invoices was issued from US and remittance details also contains place as Dallas TX, US. It is further submitted that it is evident from the invoice that the training to pilots of the operator appellant have been arranged to meet the mandatory requirement of DGCA. It is contended that the issue is squarely covered by the decision of the Coordinate Bench of this Tribunal rendered in the case of United Helicharters Pvt. Ltd. in ITANo. 5135 & 5136/Mum/2011. It is also contended that the decision relied by the Ld. CIT(A) and TDS Officer of Hon'ble Karnataka High Court in the case of De Beers (2012) 21 taxmann.com 214(Kar) which in fact rules in favour of the assessee. However, Ld. CIT(A) rejected the contention of the assessee. 51
Decore Exxoils P. Ltd. /ITANos.196 & 197/Ind/2018
“9. I have carefully considered the facts of the case, order and the submissions of the Appellant including the case laws relied upon and donot agree with the contentions of the Appellant on account of the following reasons; 9.1. CAE has provided training to the pilots of the Appellant and the AO has relied on the MOU to India - USA Tax Treaty to wherein provisions of "Technical Training" is considered as making available technical knowledge to the recipient of income. 9.2. Decision of Hon'ble Ahmedabad Tribunal in the case of ITO v Veeda Clinical Research Private Limited (ITA No. 1406/ Ahdj2009), relied upon by the Appellant is distinguishable on facts. The said judgment was ruled in the context of training pertaining to market awareness and development. These are soft skills training and not technical trainings. It was on the context of these soft skills trainings, Hon'ble Ahmedabad Tribunal ruled that no technology is involved and it is not making available any technical knowledge and skills to the recipient of services. In view of the same, the reliance placed by the Appellant on the decision of Hon'ble Ahmedabad Tribunal in case of Veeda Clinical Research is distinguishable as in the present case, service involved are technical in nature and imparting of training has resulted in transfer of technology, knowledge and / or experience. 9.3 Decision of Hori'ble Mumbai Tribunal in the case of United Helicharters Private Limited Vs ACIT (ITA No. 5136/ Mum/2011 & ITA No. 5135/Mum/2011) dealt with the issue of training services taxability which was mandated by the DGCA. In the case of United Helicharters, the Mumbai Tribunal has not considered the aspect whether the training resulted in transfer of knowledge, and merely on the basis that the training was mandatorily required under DGCA rules proceeded to hold that the services were not made available. For this reason, I am of the considered opinion that these