Document Fragment View

Matching Fragments

(a) The payments made to the foreign companies are for execution of normal maintenance repairs without any involvement of or consultation with the assessee, and therefore these do not tantamount to "fees for managerial, consultancy or technical services" as defined in Explanation 2 to Section 9(1)(vii) of the Act;
(b) The income earned by the assessee from the activity of 'wet-leasing' of aircrafts is from sources outside India and therefore payments made for repairs were incurred for earning income from sources outside India.
4. Payment made to Ethiopian Airlines, Ethiopia should be taxed @ 15% under Section 115A of the Act. (This issue is relevant for the Financial Year 1997-98 relevant to assessment Year 1998-99 only).

6. We will take up first the Issue No. 1. In support of the plea that the payments to the non-resident workshops are not chargeable to tax under the provisions of the Act, the assessee has raised three pronged grounds, which are discussed under Issues No. 1(a), 1(b) & 1(c).

Issue 1(a) "Whether payments made to the foreign companies are for execution of normal maintenance repairs without any involvement of or consultation with the assessee, and therefore these do not tantamount to "fees for managerial, consultancy or technical services" as defined in Explanation 2 to Section 9(1)(vii) of the Act?"

15. It was explained that as per the International Conventions, every component containing rotable parts is allotted a unique identity number and its historical record is maintained in a tag which accompanies the component throughout its life. Such component including engines needs to be overhauled periodically in accordance with Boeing's manual. The assessee sends the components together with tag to the workshop abroad. Technik's workshops in Germany are duly authorised by the manufacturer, namely, the Boeing USA. Upon receipt, the Technik overhaul the component in accordance with the Manufacturer's Manual, as per the requirement of the DGCA. The assessee has no say in the matter. It does not even know as to what kind of repairs have been carried out as no employee of the assessee visits Technik's facilities in connection with the repair work. It is submitted that all that the assessee is interested in is that Technik returns the overhauled component certifying that it has carried out the prescribed overhaul repairs. It is evident from the invoices of Technik, ATC Lasham and others and those workshops replace parts at their own discretion in the course of overhaul of a component. The replaced parts however come with tags giving their unique identify number and history. They also issue warranty for free-of-defect functioning of the component for the requisite number of flying hours. It is therefore contended that the repair work carried out by Technik etc. is not in the nature of technical assistance by way of providing managerial, consultancy or technical services to the assessee. Technik performs the entire work on an inanimate object without any involvement or participation of assessee's personnel. That any mental or physical exertion by the engineers of the Technik is employed on the components sent to them and not by way of technical or advisory services rendered to the assessee. In other words, the components are sent out to the authorised workshops for caring out overhauling of components and not for seeking any technical or advisory services. The assessee thus satisfies the requirements of the DGCA for carrying out prescribed maintenance repairs of the aircraft. These repairs therefore do not constitute 'managerial' 'technical' and 'consultancy services as defined under Explanation 2 to Section 9(1) (vii)(b) of the Act.

"the scheme of Sub-section (1), (2) & (3) Section 195 and Section 197 leaves no doubt that the expression 'any other sum chargeable under the provisions of this Act' would mean 'sum' on which income-tax is leviable. In other words, the said sum is chargeable to tax and could be assessed to tax under the Act. The consideration would -- whether payment to the sum of the non-resident is chargeable to tax under the provisions of the Act or not?"

37. In conclusion, Technik carried out the repair work in the normal course of its business in Germany, without any involvement or participation of the assessee's personnel. The overhaul repairs involved were routine maintenance repairs. It cannot therefore be said that Technik rendered any managerial, technical or consultancy service to the assessee. In this view of the matter, we hold that the payments made by the assessee to non-residents workshops outside India do not constitute payment of fees for managerial, consultancy or Technical services as defined in Explanation 2 to Section 9(1)(vii). The assessee succeeds on this ground.