September 2019

Article 12 of India-UAE DTAA; Article 12 of India-Germany DTAA; Article 12 of India-Singapore DTAA; sections 9 and 195 of the Act – Since hiring of simulator by itself has no purpose, fee paid for simulator is not royalty – Payment to foreign companies for flight simulation training was in the nature of FTS – In absence of FTS article in India-UAE DTAA, it was to be treated as business income which, in absence of PE of foreign company in India, was not taxable – TDS obligation cannot be fastened on the assessee because of retrospective amendment if such obligation was not there at the time of payment

Geeta Jani | Dhishat B. Mehta
Chartered Accountants

22.  Kingfisher Airlines Ltd. vs. DDIT ITA No.: 86 & 87/Bang./2011 and 143 & 144/Bang./2011 A.Ys.: 2007-08 & 2008-09 Date of order: 17th July, 2019; Members: N.V. Vasudevan (V.P.) and Jason P. Boaz (A.M.) Counsel for Assessee / Revenue: None / Harinder Kumar

 

Article 12 of India-UAE DTAA; Article 12 of India-Germany DTAA; Article 12 of India-Singapore DTAA; sections 9 and 195 of the Act – Since hiring of simulator by itself has no purpose, fee paid for simulator is not royalty – Payment to foreign companies for flight simulation training was in the nature of FTS – In absence of FTS article in India-UAE DTAA, it was to be treated as business income which, in absence of PE of foreign company in India, was not taxable – TDS obligation cannot be fastened on the assessee because of retrospective amendment if such obligation was not there at the time of payment

 

FACTS

The assessee was an Indian company in the business of running an airline. During the relevant years, it had deputed its pilots and cockpit crew to non-resident companies located in Dubai (UAE Co), Germany (German Co) and Singapore (Sing Co) for training on flight simulators. The assessee had made payments to the three foreign companies towards charges for use of simulators and for training of its personnel. The assessee had not deducted tax from the payments made to non-residents.

 

According to the AO, the main purpose of the assessee was to lease the simulator, which also included charges of trainers. Hence, the payment was in the nature of ‘royalty’ u/s 9(1)(vi) of the Act. In respect of payments made to the three foreign companies, the AO concluded as follows:

 

In respect of the UAE Co, since the payment was for use of equipment and also for imparting information concerning industrial, commercial or scientific experience, knowledge or skill, it constituted ‘royalty’ under Article 12 of the India-UAE DTAA.

 

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