ACIT CIRCLE-10(1), NEW DELHI vs. GLOBAL VECTRA HELICORP LTD, NEW DELHI
Facts
The assessee, Global Vectra Helicorp Ltd., is engaged in providing helicopter services. For AY 2015-16, the assessee disputed the computation of book profit under section 115JB, arguing the Assessing Officer incorrectly recalculated past adjustments to arrive at a lower deduction for brought forward loss or unabsorbed depreciation. For AYs 2011-12 to 2016-17, the Revenue challenged the deletion of disallowance under section 40(a)(i) for payments made to non-residents for helicopter repair/maintenance without TDS, asserting these were Fees for Technical Services (FTS). Additionally, for AY 2011-12, the Revenue challenged the deletion of disallowance of advances written off as bad debts, which the assessee claimed as a business loss.
Held
The Tribunal restored the assessee's appeal regarding section 115JB book profit computation to the AO for fresh verification. For the Revenue's appeals concerning payments to non-residents, the Tribunal upheld the CIT(A)'s decision, ruling that the services were not FTS as per DTAA provisions, thus no TDS was required. The Tribunal also upheld the deletion of disallowance for advances written off, affirming it as an allowable business loss under section 37.
Key Issues
1. The correct computation of deduction for brought forward loss or unabsorbed depreciation for book profit under section 115JB. 2. Whether payments made to non-residents for helicopter repair and maintenance, performed outside India, constitute Fees for Technical Services (FTS) requiring TDS under section 195, considering relevant DTAA provisions. 3. The allowability of advances written off as a business loss under section 37.
Sections Cited
Section 115JB, Explanation 1 to section 115JB (clause iii), Section 40(a)(i), Section 195, Section 9(1)(vii), Section 90(2), Section 37, Article 7, Article 22
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH: ‘D’ NEW DELHI
Before: SHRI SAKTIJIT DEY, VICE- & DR. B.R.R. KUMAR
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
The dispute in the present appeal is confined to computation
of book profit under section 115JB of Income-tax Act, 1961 (in
short ‘the Act’).
Briefly the facts are, the assessee, a resident corporate
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.
Before us, learned counsel appearing for the assessee
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
He submitted, the difference arose on account of
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
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Thus, he submitted, assessee’s claim can be factually
verified by the Assessing Officer and the book profit can be
computed accordingly.
Learned Departmental Representative agreed for restoration
of the issue to the Assessing Officer for factually verifying
assessee’s claim.
Having considered rival submissions and perused the
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
The common issue arising in all these appeals relates to
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.
As far as the issue of disallowance of Rs.13,48,32,835/-
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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Without prejudice, the assessee submitted that non-resident
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.
The Assessing Officer, however, did not find merit in the
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.
While doing so, learned Commissioner (Appeals) observed
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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Before us, learned Departmental Representative strongly
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.
Learned counsel for the assessee submitted, in respect of the
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.
Insofar as payment made to residents of UAE, learned
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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Without prejudice, he submitted that even payments made
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.
We have considered rival submissions in the light of
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.
On a careful reading of section 195(1) of the Act, it is very
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.
Insofar as taxability of FTS is concerned, treaties can be
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.
Insofar as the countries falling in the first category, such as,
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.
In the facts of the present appeal, the Assessing Officer has
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.
Insofar as the payments made to entities in UAE, admittedly,
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.
The only countries that are left now is the second category
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).
The only other surviving issue is in respect of ground no. 2
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.
Briefly the facts are, in the financial year relevant to
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.
We have considered rival submissions and perused the
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.
The Revenue has not brought any contrary materials on
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.
In the result, all the appeals of Revenue are dismissed.
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To sum up, assessee’s appeal is allowed for statistical
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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