ACIT CIRCLE- 10(1), NEW DELHI vs. GLOBAL VECTRA HELICORP LTD, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘D’ NEW DELHI

BEFORE SHRI SAKTIJIT DEY, VICE-PRESIDENT AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER

ITA No.1397/Del/2020 Assessment Year: 2015-16

M/s. Global Vectra Helicorp Vs. DCIT, Ltd., Circle-10(1), A-54, Kailash Colony, New Delhi New Delhi PAN :AADCA9318F (Appellant) (Respondent)

With ITA Nos.1482 to 1487/Del/2020 Assessment Years: 2011-12 to 2016-17 ACIT Vs. M/s. Global Vectra Helicorp Ltd., Circle-10(1), A-54, 3rd Floor, Kailash Colony, New Delhi New Delhi PAN :AADCA9318F (Appellant) (Respondent)

Assessee by Sh. Deepak Chopra, Advocate Sh. Anmol Anand, Advocate Ms. Priya Tandon, Advocate Department by Ms. Binita Devi Naorem, CIT (DR) Date of hearing 10.01.2024 Date of pronouncement 31.01.2024

ORDER PER BENCH

Captioned appeals, one by the assessee and rest by the

Revenue, arise out of separate orders of learned Commissioner of

ITA Nos. 1397/Del/2020 & 1482 to 1487/Del/2020 AYs: 2011-12 to 2016-17

Income-tax (Appeals) pertaining to assessment years 2011-12,

2012-13, 2013-14, 2014-15, 2015-16 and 2016-17. Since, the

issues are common in all these appeals and facts relating to such

issues arising in the appeals are more or less identical, they have

been clubbed together and disposed of in a consolidated order, for

the sake of convenience.

ITA No.1397/Del/2020 (Assessee’s Appeal) AY: 2015-16

of book profit under section 115JB of Income-tax Act, 1961 (in

short ‘the Act’).

entity, is stated to be engaged in the business of flying, operating,

letting on hire, lease and charter hire of helicopters and providing

aviation services in respect of helicopters. For the assessment

year under dispute, the assessee filed its return of income on

30.11.2015 declaring NIL income under the normal provisions of

the Act and book-profit of Rs.10,72,11,670/- under section

115JB of the Act. In course of assessment proceedings, while

examining the book-profit computed by the assessee, the 2 | P a g e

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Assessing Officer noticed that the assessee has reduced an

amount of Rs.43,60,42,388/-, being the lower of the brought

forward loss or unabsorbed depreciation, in terms of clause (iii)

under Explanation 1 to section 115JB of the Act. Noticing this,

the Assessing Officer called upon the assessee to furnish a

detailed working. In response, the assessee furnished its reply,

stating that the deduction has been incorrectly computed and the

correct figure of deduction should be Rs. 51,20,83,841/-. In this

context, the assessee furnished a detailed working of deduction.

However, while completing the assessment, the Assessing Officer

was of the view that the figure of brought forward loss and

unabsorbed deprecation were required to be considered

separately, independent of each other, and after reducing current

year’s profit by the lesser of the two for the purpose of carry

forward to the next year, the closing balance of the immediately

preceding year was required to be treated as opening balance of

the succeeding year. Accordingly, the Assessing Officer re-

computed the lower of brought forward loss or unabsorbed

depreciation and allowed deduction for an amount of

Rs.32,29,19,988/- in terms of clause (iii) of Explanation 1 to

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section 115JB of the Act. While deciding assessee’s appeal on the

issue, learned Commissioner (Appeals) did not interfere.

submitted that the difference between the revised deduction

claimed by the assessee of Rs.51,20,83,841/- and the deduction

allowed by the Assessing Officer of Rs. 32,29,19,988/- is

Rs.18,91,63,853/-. He submitted, the differential figure of Rs.

18,91,63,853/- comprises of following:

bad and 36,29,245 Relevant extract from AY 2011-12: Provision for income tax return of doubtful debts, which was disalloowed Appellant for AY while computing income under normal 2011-12 is attached provisions as well as added back while herewith as Annexure computing book profit under section —1. 115JB. AY 2012-13: Income tax paid or payable 1,25,92,882 Relevant extract from of income tax return or its provision including the amount of Appellant for AY deferred tax and the provision thereof, 2012-13 is attached which was added back while computing herewith as Annexure book profit under section 115JB — 2 AY 2013-14: Profit after tax as shown in 6,85,31,485 Relevant extract from of P&L as well as income tax return. income tax return AY Appellant for 2013-14 is attached herewith as Annexure — 3 AY 2014-15: This amount is the sum of: 10,44,10,241 Relevant extract from return of income tax Profit after tax 5,49 14,375 AY Appellant for 2014-15 is attached Income tax paid, which 4,94,95,866 for herewith as Annexure was added back — 4 purposed of section 115JB 10,44,10,24 1

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18,91,63,853/ Total

miscalculation by the Assessing Officer and there was no legal

basis to reconsider the additions/deductions made by the

assessee in its return of income for preceding years while

calculating book profits for the current year as per section 115JB

of the Act. He submitted, as per section 115JB of the Act,

calculation of book profits must relate to the entries made in the

books for the relevant year and such calculation must start from

the profit as shown in P&L account. Thereafter, the amount of

loss brought forward or unabsorbed deprecation, whichever is

less, as per the books of account, must be considered in terms of

clause (iii) under Explanation 1 to section 115JB of the Act. Thus,

he submitted, the disallowance made by the Assessing Officer is

unjustified as the adjustments made to the deduction claimed are

not in terms with section 115JB read with clause (iii) of

Explanation 1. To buttress his submission, learned counsel

furnished the following Chart showing revised calculation of

allowable deduction under clause (iii) of Explanation 1 to section

115JB of the Act as well as the book profit after deduction: 5 | P a g e

ITA Nos. 1397/Del/2020 & 1482 to 1487/Del/2020 AYs: 2011-12 to 2016-17

verified by the Assessing Officer and the book profit can be

computed accordingly.

of the issue to the Assessing Officer for factually verifying

assessee’s claim.

materials on record, we are of the view that assessee’s claim of

deduction for computing book profit under section 115JB of the

Act requires fresh verification in the light of the Chart furnished 6 | P a g e

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by the assessee, which has been reproduced in the order.

Accordingly, the issue is restored back to the Assessing Officer for

fresh adjudication after factually verifying assessee’s claim by

referring to the Chart depicted above. Needless to mention, the

Assessing Officer must provide reasonable opportunity of being

heard before deciding the issue. Grounds are allowed for

statistical purposes.

ITA Nos.1482 to 1487/Del/2020 (Revenue’s Appeals) AYs: 2011-12 to 2016-17

disallowance made under section 40(a)(i) of the Act. Of course, in

ITA No.1482/Del/2020 pertaining to assessment year 2011-12,

there is additional issue of deletion of disallowance of Rs.

62,62,516/-, being advances written off.

under section 40(a)(i) of the Act are concerned, briefly the facts

are, as discussed earlier, the assessee is engaged in the business

of providing helicopter services in India for offshore

transportation, exploration of oil and gas etc. by adhearing to the

guidelines issued by the Director General of Civil Aviation (DGCA). 7 | P a g e

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In terms with the said guidelines, the assessee was required to

keep the helicopters owned/operated by it in airworthy condition.

For keeping them so, the assessee has to incur expenses towards

maintenance, repairs and overhaul charges towards the spare

parts etc., which were debited in the profit and loss account. The

major part of the expenses incurred was towards payment made

to non-residents. In course of assessment proceedings, the

Assessing Officer, having noticed that the payments have been

made to non-residents without deducting tax at source under

section 195 of the Act, called upon the assessee to show-cause as

to why the payments made should not be disallowed under

section 40(a)(i) of the Act. In reply to the show-cause notice, the

assessee submitted that part of the payment was towards

purchase of materials/spare parts, whereas, the balance amount

was towards repair and maintenance charges. It was further

submitted that repair and maintenance work was carried out

outside India and no part of it was carried out in India. Therefore,

no taxable event qua the non-residents happened in India

requiring deduction of tax at source under section 195 of the Act.

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companies to whom payments were made are residents of other

countries with whom India had entered into Double Taxation

Avoidance Agreements (DTAAs). It was submitted by the assessee

that as per the provisions of relevant DTAAs, in absence of

Permanent Establishment (PE) of such non-resident companies in

India, business profit cannot be taxed in India. It was further

submitted, even if, the payments are for technical services, since,

all the DTAAs, except DTAA with UAE, require technical services

to be made available to the service recipient, which has not

happened in case of the assessee, payments cannot be treated as

FTS. Insofar as payments made to UAE entities, it was submitted,

in absence of a specific provision dealing with FTS under the

treaty, no tax can be levied at the hands of the UAE entities in

absence of PE in India, either under Article 7 or 22 of the treaty

provision. Therefore, there was no statutory requirement upon the

assessee to deduct tax at source.

submissions of the assessee. He held that activity of repair and

maintenance of helicopters constituted consultancy, technical

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and managerial services, hence, qualifies as FTS under Section

9(1)(vii) of the Act. Accordingly, he completed the assessments for

all the assessment years under dispute by treating the payments

made to the foreign entities as FTS and thereby disallowing

payments under section 40(a)(i) of the Act. Against the additions

so made, assessee preferred appeals before learned Commissioner

(Appeals). Being convinced with the submissions of the assessee,

learned Commissioner (Appeals) deleted the additions in all the

assessment years.

that the repair and maintenance activities are undertaken on

helicopter parts and not on the helicopters per se and those parts

were sent outside India for repairs and after repairing the repaired

parts were sent to India. He further held that make available

condition as available in the relevant DTAAs remained unfulfilled.

Accordingly, he held that the payments made to non-residents are

not taxable in India. Hence, there is no obligation on the part of

the assessee to deduct tax at source. Accordingly, he decided the

appeals in favour of the assessee.

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relied upon the observations of the Assessing Officer and

submitted that certain services rendered by the assessee to non-

resident entities are technical in nature, hence, payments made

are to be treated as FTS.

payments made to residents of USA, UK, Canada and Singapore,

in terms with the provisions contained in DTAAs entered by India

with these countries, to treat the payment as FTS/FIS, make

available condition has to be satisfied. He submitted, the

Assessing Officer has failed to demonstrate that in course of

rendition of services, the non-resident entities have made

available technical knowledge, know-how, skill, etc. to the

assessee to use them independently without the aid and

assistance of the non-resident service providers. Thus, he

submitted, the payments made to the residents of the aforesaid

countries, under no circumstances, can be treated as FTS/FIS.

counsel submitted, India - UAE DTAA does not contain any

provision for FTS. Thus, he submitted, the receipts can either be

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taxed as business income or as other income in terms of Article 7

or 22 of the treaty, respectively. He submitted, the receipts cannot

be treated as business income in terms of Article 7 as the

residents of UAE did not have any PE in India. He submitted,

even the receipts cannot be assessed as other income in India in

terms of Article 22. As per the said provision, it can only be taxed

in the country of residence, i.e., UAE. However, he fairly

submitted, payments were also made to residents of Spain,

Netherlands and France with whom, though, India has entered

into DTAAs, however, the definition of FTS under the respective

treaties are much wider in scope and does contain the make

available condition. He submitted, though, learned first appellate

authority has applied the make available condition by relying

upon the Most Favoured Nation (MFN) clause in the Protocol,

however, in view of the ratio laid down by the Hon’ble Supreme

Court in case of Assessing Officer (International Taxation) Vs.

Nestle SA [2023] 458 ITR 756 (SC), the make available condition

contained in other DTAAs cannot be imported into the treaties

with Spain, Netherlands and France without specific notification

by the Government.

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to the residents of Spain, Netherlands and France cannot fall into

the category of FTS as they are not in the nature of technical,

consultancy or managerial services. He submitted, the services

are for repair/overhaul of parts of the helicopters sent to those

countries and no part of the service was rendered in India. He

submitted, the services are in the nature of routine maintenance

and repair of helicopter parts and, as such, are standardized

services. Thus, he submitted, they cannot fall in the definition of

FTS, either under Section 9(1)(vii) of the Act or the respective

treaty provisions. In support of such contention, he relied upon a

decision of the Hon’ble Supreme Court in case of CIT Vs. Kotak

Securities Ltd. [2016] 383 ITR 1 (SC). He also relied upon a

decision of Madras High Court in case of Skycell

Communications Ltd. Vs. DCIT [2001] 251 ITR 53 (Mad.).

Referring to the Circular No.715, dated 08.08.1995 issued by the

Central Board of Direct Taxes (CBDT), he submitted that as per

the said circular, the activities of repair and maintenance are in

the nature of works contract, hence, exigible to deduction of tax

under section 194C of the Act. Thus, he submitted, the receipts, if

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at all, can be considered as the business income of the non-

residents and in absence of a PE in India, are not taxable.

Therefore, there was no requirement for deduction of tax at

source while making payment to the non-residents.

decisions relied upon and perused the materials on record.

Undisputedly, in the assessment years under dispute, the

assessee had made payments to certain non-residents towards

repair and maintenance of helicopter parts. As per the process

followed by the assessee for repair and maintenance, it’s

engineering department identifies helicopter parts required for or

are due for maintenance/overhaul in terms with DGCA

guidelines. Once the engineering department identifies the

helicopter parts required for maintenance/overhaul, it puts up a

request to the Procurement Department. On receipt of request,

the Procure Department issues repair orders and sends the parts

to be repaired to the respective non-resident entities, who

undertake the repairing/overhauling of such parts. On receipt of

such repair order and parts, the non-resident entities issue an

estimate/quote of charges for repair and maintenance work. On

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approval of such estimate/quote by the Procurement Department,

the non-resident companies undertake necessary repair and

maintenance work of the said parts. After repair/overhaul, the

non-resident entities send the repaired parts/item along with

invoices for repair and maintenance work carried out. On receipt

of the invoices and helicopter parts, the assessee makes the

payments after taking necessary declaration and documents from

the non-resident entity. It is further evident, to support its

contention that there was no requirement for deduction of tax at

source as the income of the non-residents are not taxable in

India, the assessee had furnished the details of

maintenance/repair, sample copies of invoices, sample copies of

airway bills evidencing that the parts of the helicopters were sent

outside India for carrying out necessary repair and sample copies

of Form 15CB and 15CA etc. The Assessing Officer, however, held

that the services rendered by the non-residents are technical and

consultancy in nature, hence, quantifies as FTS requiring

withholding of tax under section 195.

much clear that the provision gets triggered only when the

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payment made to the non-resident entity is chargeable to tax

under the provisions of the Act. Thus, what is required to be

examined is whether the payments made by the assessee to non-

residents are chargeable to tax under the provisions of Act. As

discussed earlier, in the assessment years in dispute the assessee

has made payment to entities resident in USA, UK, UAE,

Australia, Canada, Singapore, Spain, Netherlands and France.

Undisputedly, India has entered into DTAAs with all these

countries. However, the provisions in the treaties with the

respective countries are at variance.

classified in the following categories:

i. In the first category USA, UK, Australia, Canada and

Singapore are placed since the definition of FTS under these

treaties are more or less identical and contain make

available condition to qualify as FTS.

ii. In the second category countries like, Netherlands, Spain

and France can be put in as the definition of FTS in the

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treaties are wider in scope and do not contain make

available clause.

iii. In the third category UAE can be put as in the treaty with

UAE there is no provision concerning FTS.

USA, UK, Australia, Canada and Singapore, admittedly, the treaty

provisions have make available clause. Therefore, to treat a

particular receipt to be in the nature of FTS, it has to be

demonstrated that in course of rendition of services, the service

provider had made available technical knowledge, know-how, skill

etc. to the service recipient so as to enable him to perform such

services in future independently without any assistance of the

service provider.

failed to demonstrate with cogent evidence that the make

available condition enshrined in the concerned treaties are

satisfied. In fact, learned first appellate authority has recorded a

categorical factual finding that in course of rendition of service

technical knowledge, know-how, skill, etc. has not been made

available to the service recipient by the service provider. Thus, in 17 | P a g e

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absence of any contrary material brought on record by the

Revenue, we concur with the view expressed by learned first

appellate authority. Once the payments do not qualify as FTS

under the respective treaty provisions, in terms with section 90(2)

of the Act, treaty provisions being more beneficial would override

the provisions contained in the domestic law. That being the legal

position, in our view, the payments made to the residents of USA,

UK, Australia, Canada and Singapore, being not chargeable to tax

in India, section 195 is not applicable. Accordingly, we hold that

the assessee was not required to deduct tax at source while

making payment to residents of the aforesaid countries.

in India – UAE treaty, there is no provision concerning taxability

of FTS. Thus, in absence of any such provision, the payments

made to the residents of UAE can either be taxed as business

income or as other income in terms with Article 7 or 22,

respectively. On reading of Article 7 it becomes clear that

business profits can be taxed in the source country only if the

resident of other country has a PE in the source country. In the

facts of the present appeal, admittedly, none of the entities had

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any PE in India. Therefore, the payments made to them cannot be

taxed in India as business profits. Even, they cannot be taxed as

other income in India as Article 22 of India – UAE treaty makes it

clear that the other income can only be taxed in the country of

residence. Thus, in our view, the payments made to the entities in

UAE are not taxable in India as per the treaty provisions, hence,

there is no requirement for deduction of tax at source on the

payments made.

comprising of Netherlands, Spain and France. Admittedly, the

definition of FTS in the treaty provisions with these countries are

wider in scope and do not contain the make available clause.

However, it requires to be examined whether the nature of

services would fall within the category of technical consultancy or

managerial services. As per the work process followed by the

assessee, as discussed earlier, certain parts of helicopters are

sent for routine repair/overhaul in terms with the guidelines of

DGCA to keep the helicopters airworthy. The parts of helicopters

were sent outside India for repair/overhaul and the

repair/overhaul is carried out outside India. The

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repaired/overhauled parts are sent back to India to be fixed in the

helicopters. In fact, learned Commissioner (Appeals) has given a

categorical factual finding to the aforesaid effect. The Revenue has

failed to bring any material on record to demonstrate that any

non-resident technical personnel visited to render any technical

service in India or the repair and maintenance work was carried

out through any PE in India. When, the entire repair and

maintenance of helicopter parts was carried out outside India and

nothing was done in India by the non-resident payees, in our

view, the payments made to the non-residents are not chargeable

to tax in India. Therefore, there was no obligation on the assessee

to withhold tax under section 195 of the Act. Accordingly, we

uphold the decision of learned Commissioner (Appeals).

of ITA No. 1482/Del/2020. In the said ground, the Revenue has

challenged deletion of disallowance of Rs.62,62,516/-

representing advances written off.

assessment year 2011-12, the assessee has written off an amount

of Rs.63,27,447/- as bad debts and debited to its profit and loss

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account. Noticing this fact, the Assessing Officer called upon the

assessee to furnish the details of bad debts. After examining the

details furnished by the assessee, the Assessing Officer held that

an amount of Rs.62,62,516/-, being advances written off, cannot

be allowed as deduction as the assessee failed to furnish evidence

to indicate that they were part of income of the assessee for

earlier year. While deciding the issue in appeal, learned

Commissioner (Appeals) allowed the claim with a finding that the

amount represents advances given earlier by the assessee in the

normal course of its business for the purchase of spares &

consumables, helicopter maintenance & overhaul, freight &

clearing forwarding charges, lodging boarding charges, etc. He

also found that the amount had become irrecoverable owing to

non-fulfillment of certain conditions. Thus, he held that it

represented the business loss of the assessee, which is allowable

as deduction under section 37 of the Act.

materials on record. Undisputedly, the Assessing Officer has

disallowed assessee’s claim primarily for the reason that the

assessee failed to furnish adequate evidence in support of its

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claim. However, learned Commissioner (Appeals) after examining

the facts and materials on record has recorded the following

factual findings:

i. The amount in dispute represents the advances given earlier

by the assessee in its normal course of business for

purchase of spare & consumables, repairs and maintenance,

freight & clearing forwarding charges, lodging boarding

charges, etc.

ii. The amount has become irrecoverable owing to non-

fulfillment of certain conditions.

iii. Advances were pertaining to two to three years prior to

assessment year 2011-12 and that no expenses were booked

by the assessee.

record to disturb the aforesaid factual finding of learned

Commissioner (Appeals). Therefore, we do not find any infirmity in

the decision of learned first appellate authority. Ground raised is

dismissed.

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purposes and Revenue’s appeals are dismissed.

Order pronounced in the open court on 31.01. 2024

Sd/- Sd/- (DR. B.R.R. KUMAR) (SAKTIJIT DEY) ACCOUNTANT MEMBER VICE-PRESIDENT Dated: 31.01.2024. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi

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