N.K. Choudhry ORDER
N.K. Choudhry, Member (A)
1. These appeals have been preferred by the Revenue Department against the orders dated 09.06.2017 and 30.06.2017, impugned herein, passed by the learned Commissioner of Income-tax (Appeals)-42, New Delhi (in short "Ld. Commissioner"), u/s. 250 of the Income-tax Act, 1961 (in short 'the Act') for the assessment year 2017-18.
2. As the issues and facts involved in the instant appeals are exactly similar, therefore, for the sake of brevity, we are deciding ITA No. 5662/Del/2017 as a lead case and the result of the same shall be applicable mutatis mutandis to the connected appeal i.e. ITA no. 5663/Del/2017 as well.
3. Brief facts, relevant for adjudication of the appeal, are that the Assessee had entered into an agreement with M/s. GSI Engine B.V., {a tax resident of Netherland, having its head office at Netherland} qua an aircraft engine having serial No. 779201 taken for the purpose of Assessee's own flight operation on a lease rent of US$ 65000 per month and user charges.
3.1. The Assessee had filed an application u/s. 195 of the Act for issue of certificate at "Nil" before the ITO(TDS), Ward 1(1)(1), New Delhi. The said application filed by the Assessee was rejected by the Assessing Officer by holding that the rental payment for engine hired by the Assessee is taxable as royalty @ 10% under Article 12(4) of the DTAA between India and Netherland. The Assessing Officer further held that the 'engine' is a part of aircraft and cannot be said to be an 'aircraft'. Therefore, the contention of the Applicant/Assessee does not seem to be correct. The payment is being made for the rent of engine, which is covered as equipment under Article 12(4) of the DTAA between India and Netherland and is taxable as royalty @ 10%. Therefore, the payer is authorized to make maximum payment of US$65000 per month during the F.Y. 2014-15 at 10% withholding.
The Assessing Officer further held that this certificate is provisional and is subject to final determination of tax at the time of regular assessment.
4. The Assessee being aggrieved with the order u/s. 195(2) of the Act, preferred first appeal before the ld. Commissioner, who vide impugned order, allowed the appeal of the assessee by holding that the rental income of aircraft engine does not get covered under Article 12 of India - Netherland DTAA. Further, Article 7 is also not applicable as there is no PE of M/s. GSI Engine B.V. in India. Accordingly, the rental income of aircraft engine is not chargeable to tax in India as per DTAA.
4.1. The Ld. Commissioner further held that it is a settled position that liability to deduct tax under section 195 arises only when the "sum" being paid is chargeable to tax under the Income Tax Act and since in the present case, there is no sum chargeable to tax under the provisions of the Act in view of Article 7 & 12 of the Avoidance of Double Taxation Treaty between India and Netherland, there is no requirement to withhold tax on such remittance.
5. The Revenue, being aggrieved with the findings and determination of the ld. Commissioner, is in appeal before us. In support of its case, the ld. DR relied upon the order passed by the Assessing Officer u/s. 195 of the Act and submitted that the impugned order is perverse and improper and hence, liable to be set aside.
5.1. On the contrary, the Assessee drew our attention to the order dated 23-04-2021 passed by the Hon'ble Coordinate Bench of the Tribunal {in Assessee's own case i.e. ITA Nos. 2260, 2261 and 2262/Del/2017 for second, third and fourth quarter of A.Y. 2013-14} and claimed that the Hon'ble Coordinate Bench deleted the identical addition made by the Assessing Officer and affirmed by the ld. Commissioner, by holding as under:
"13. Keeping in view the facts inter alia that engine is a part of aircraft and cannot be said to be an aircraft and payment made for rent of engine are covered under equipment as per Article 12 (4) of the DTAA between India and Netherlands; that under Article 12(4) of the DTAA between India and Netherlands, the term "royalty" does not cover use of, or the right to use equipment itself; that rental of aircraft engine is neither a copyright nor a payment of any information; that under Article 12(6) of the DTAA, fee for technical services also does not include the amount paid for services that are ancillary and subsidiary to the rental of ships, aircrafts, containers or other equipment used in connection with the operation of ships or aircrafts in international traffic; the assessee is entitled for beneficial provisions of DTAA.
14. So, following the order passed by the coordinate Bench of the Tribunal in cases of DDIT (IT-II), Pune vs. Serum Institute of India Ltd., DCIT vs. M/s. Infosys BPO Ltd. and the judgment of Hon'ble Delhi High Court in case of Danisco India Pvt. Ltd. vs. UOI, we are of the considered view that ld. CIT(A) has erred in holding that in this case, provisions contained u/s. 206AA overrides beneficial provisions of DTAA between India and Netherlands. Consequently, assessee has rightly deducted the tax @ 10% as per provisions contained under DTAA as section 206AA cannot have overriding effect on DTAA, hence no demand is payable by the assessee. Hence, question framed is decided in favour of the assessee. So, additions made by the AO and confirmed by the ld. CIT(A) to the tune of Rs. 73,00,719.77, Rs. 80,82,662.74 & Rs. 57,05,582.11 for second quarter, third quarter and fourth quarter of FY 2012-13 respectively is ordered to be deleted. Consequently, all the appeals filed by the assessee are allowed."
6. We have given our thoughtful consideration to the peculiar facts and circumstances of the case. Question involved in this case relates to withholding the tax on payment made to the nonresident/foreign entity who do not have 'PE' in India. It is trite to say that the liability to deduct tax under section 195 arises only, when the amount being paid is chargeable to tax under the Income Tax Act of India and if the person or supplier or manufacturer to whom payment made, is a tax resident of a foreign country or nonresident, having no 'PE' in India, then such entity can not be subjected to taxation in India and consequently payment made to it not liable to deduct any TDS under Section 195 of the Income Tax Act 1961.
In this case M/s. GSI Engine B.V. from whom the Assessee had taken 'Aircraft Engine' on a lease rent basis, admittedly is a tax resident of Netherland, having no 'PE' in India and consequently cannot be subjected to taxation in India and thus payment made to M/s. GSI Engine B.V. does not attract the provisions of Act for withholding the tax, hence we are inclined to sustain the impugned order passed by the Ld. Commissioner, as the same does not suffers from any perversity, impropriety and/or illegality. Consequently, the appeal of the Revenue Department is dismissed.
7. In view of our decision in ITA no. 5662/Del/2017, the appeal i.e. ITA no. 5663/Del/2017 filed by the Revenue Department is also dismissed.
8. In the result, both the appeals of the Revenue Department stands dismissed.
Order pronounced in the open court on 20/07/2022.
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