Airport Authority of India, New Delhi V. ITO, New Delhi

ITA 5163/DEL/2012

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 5273 (ITAT-DELHI)
• Duration Of Justice: 8 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-08-2017
• Assessment Year: misc
• Appeal Filed On: 05-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SOHAIL MALIK
• Assessee Lawyers: ASHISH GUPTA
• Keywords: Presumptive income; Double taxation relief; Source of fund; Permanent establishment; Advance ruling; TDS
• Section: 5(2); 194C; 195; 43; 48; 115A; 13; 22; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SH. K. N. CHARY, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 5162/DEL/2012 : ASSTT. YEAR : 2010-11 ITA NO. 5163/DEL/2012 : ASSTT. YEAR : 2011-12 AIRPORTS AUTHORITY OF INDIA, RAJIV GANDHI BHAVAN, SAFDARJUNG AIRPORT, NEW DELHI-110003 VS INCOME TAX OFFICER(TDS), WARD-1(1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AA ACA6412D ASSESSEE BY : SH. ASHISH GUPTA, ADV. REVENUE BY : SH. SOHAIL MALIK, SR. DR DATE OF HEAR ING: 24 . 0 2 .20 2 1 DATE OF PRONOUNCEMENT: 04.05 .20 2 1 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEALS HAVE BEEN FILED BY THE ASSESSE E AGAINST THE ORDERS OF LD. CIT(A)-XXIX, NEW DELHI DA TED 03.07.2012 AND 03.08.2012. 2. SINCE, THE ISSUES INVOLVED IN BOTH THE APPEALS ARE COMMON, THEY WERE HEARD TOGETHER. TDS ON PAYMENT TO FEDERAL AVIATION AGENCY FAA -US A: 3. THE AIRPORT AUTHORITY OF INDIA (AAI) HAS ENTERED INTO MEMORANDUM OF AGREEMENT WITH FEDERAL AVIATION ADMINISTRATION, USA (FAA), FOR PROVIDING TECHNICAL ASSISTANCE TO ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 2 AAI BY WAY OF PROVIDING ITS PERSONNEL AND MEETING O N ATFM REQUIREMENTS AND ASSISTING AAI IN CONNECTION WITH A TFM BY DEVELOPMENT OF DETAILED QUANTITATIVE REQUIREMENTS, DETAILED ATFM SYSTEM ARCHITECTURE AND DRAFT ATFM IMPLEMENTAT ION PLAN. 4. THE CONSIDERATION TO BE PAID WAS AS UNDER: 1. US$ 1,33,142 TOWARDS COST OF THREE SPECIALISTS FROM FAA AND VNTSC FOR 10 DAYS FOR PARTICIPATING IN MEETING. 2. US$ 25,800 TOWARDS REVIEW OF THE AERONAUTICAL INFORMATION 3. US$ 37,800 TOWARDS ANALYSES OF INDIAS FUTURE ATFM PLAN 4. US$ 1,17,300 TOWARDS DOCUMENTATION OF THE QUALITATIVE REQUIREMENT 5. US$ 1,62,000 TOWARDS PREPARATION OF THE SYSTEM ARCHITECTURE AND SPECIFICATIONS 6. US$ 1,51,200 TOWARDS PREPARATION OF THE ROAD MAP, DRAFT IMPLEMENTATION PLAN. US$ 4,94,100 5. THE AO TREATED THESE AMOUNTS PAID AS FEES FOR TE CHNICAL SERVICES (FTS), CHARGEABLE TO TAX @10% + SURCHARGE + CESS ON THE GROSS AMOUNT AS PER SECTION 115A OF THE INCOME TAX ACT, 1961. THE REASONING GIVEN BY THE AO IS AS UNDER: THE CONTENTION OF THE APPLICANT THAT FAA IS A SOVER EIGN ENTITY AND ENTITLED TO IMMUNITY FROM TAXATION UNDER THE AC T IS NOT WELL FOUNDED IN LAW AND FACTS. SOVEREIGN IMMUNITY CAN ONLY BE CLAIMED IN RESPECT O F THE ACTS DONE IN ITS SOVEREIGN CAPACITY (ACTA JURE IMPERII) BUT NOT DONE IN CAPACITY OF PRIVATE LAW OR COMMERCIAL CHARACTER (ACTA JURE GESTIONIS). ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 3 ANY IMMUNITY FROM TAXATION TO ANY SOVEREIGN STATE C AN ONLY BE TESTED AGAINST THE CONSTITUTION OF INDIA. THERE WOU LD BE NO IMMUNITY FROM TAXATION TO ANY SOVEREIGN STATE UNLES S SPECIFICALLY PROVIDED EITHER BY THE CONSTITUTION OF INDIA OR ANY OTHER ENACTMENT. ARTICLE 285 AND ARTICLE 289 OF THE CONSTITUTION OF INDIA SPECIFICALLY PROVIDE THAT PROPERTIES OF TH E UNION OF INDIA SHALL BE IMMUNE FROM STATE TAXATION ON ONE HA ND AND PROPERTIES AND INCOME OF THE STATE SHALL BE IMMUNE FROM UNION TAXATION UNLESS OTHERWISE PROVIDED BY THE PARLIAMEN T. THE CONCEPT OF GENERAL IMMUNITY FROM TAXATION TO A SOVEREIGN IS NOT AVAILABLE. THERE IS NO IMMUNITY FROM TAX TO A SOVEREIGN UNLESS IT IS SPECIFICALLY, GRANTED. IF THERE IS NO IMMUNITY TO G OVERNMENT OF INDIA THE QUESTION OF AVAILABILITY OF SUCH AUTOMATI C IMMUNITY TO A FOREIGN SOVEREIGN DOES NOT ARISE. THE AO RELIED ON THE SECTION 10(15A) TO EXEMPLIFY T HE STATED IMMUNITIES VIZ. ANY PAYMENT MADE, BY AN INDIAN COMPANY ENGAGED IN THE BUSINESS OF OPERATION OF AIRCRAFT, TO ACQUIRE AN AIRCRAFT OR AN AIRCRAFT ENGINE (OTHER THAN A PAYMENT FOR PROVIDING SPARES, FACILIT IES OR SERVICES IN CONNECTION WITH THE OPERATION OF LEASED AIRCRAFT) O N LEASE FROM THE GOVERNMENT OF A FOREIGN STATE OR A FOREIGN ENTERPRI SE UNDER AN AGREEMENT [NOT BEING AN AGREEMENT ENTERED INTO BETW EEN THE 1 ST DAY OF APRIL, 1997 AND 31 ST DAY OF MARCH, 1999] AND APPROVED BY THE CENTRAL GOVERNMENT IN THIS BEHALF: [PROVIDED THAT NOTHING CONTAINED IN THIS CLAUSE SHA LL APPLY TO ANY SUCH AGREEMENT ENTERED INTO ON OR AFTER THE [1 ST DAY OF APRIL, 2007]................... ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 4 THE ARTICLE 28 OF VIENNA CONVENTION, WHICH HAS BEEN REFERRED BY THE EMBASSY, HAD BEEN INCORPORATED BY WAY OF SEC TION 10(6)(II) OF THE ACT, WHICH PROVIDES THAT REMUNERAT ION TO DIPLOMATS AND EMBASSY OFFICIALS ENGAGED IN SERVICE IN SUCH CAPACITY WOULD BE EXEMPT FROM TAX. THERE ALSO THE P RINCIPLE OF RECIPROCITY IS EMBODIED AND EXCLUDES THE BUSINESS O R PROFESSIONAL ACTIVITIES OF SUCH PERSONS. IT IS WELL SETTLED LEGAL POSITION THAT THE ACT IS A SELF CONTAINED CODE. IN THE CASE OF RAO BAHADUR RAVULU SUBBA RAO V S CIT [1956] 30 ITR 163 (SC) ALTHOUGH THE APPLICANT HAS PRESENTED A PICTURE THAT THE TWO AGREEMENTS ARE SEPARATE AND, THEREFORE, EACH HAS TO BE VIEWED IN ISOLATION TO THE OTHER, HOWEVER, THE CRUCIAL FAC T THAT THE APPLICANT FAILED TO MENTION INITIALLY IS THAT THESE AGREEMENTS ARE INFACT APPENDICES/ ANNEXURES TO THE MEMORANDUM OF AGREEMENT NUMBER NATT-4407 ENTERED INTO BETWEEN THE FEDERAL AVIATION ADMINISTRATION (FAA) AND THE APPLI CANT. THE APPLICANT WAS ASKED TO PRODUCE THE COPY OF MEMORAND UM OF AGREEMENT. THE SAME HAS BEEN PRODUCED AND IS PLACED ON RECORD. PERUSAL OF MEMORANDUM GIVE THE FOLLOWING: THIS MEMORANDUM OF AGREEMENT (THE AGREEMENT) ESTAB LISHES THE TERMS AND CONDITIONS UNDER WHICH THE FAA MAY PROVID E ASSISTANCE TO THE MOCA IN DEVELOPING AND MODERNIZING THE CIVIL AV IATION INFRASTRUCTURE OF INDIA IN THE MANAGERIAL, OPERATIO NAL AND TECHNICAL AREAS. FOR THIS PURPOSE, THE FAA SHALL, SUBJECT TO THE AVAILABILITY OF APPROPRIATED FUNDS AND NECESSARY RESOURCES, PROVIDE PERSONNEL, RESOURCES, AND RELATED SERVICES TO ASSIST THE MOCA TO THE EXTENT CALLED FOR IN THE ANNEXURES AND APPENDICES TO THIS AGREEMENT. THEREAFTER THE ATTACHMENT-A TO ANNEXURE-XX TO THE M EMORANDUM OF AGREEMENT GIVES AGAIN THE OBJECTIVE AS UNDER: ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 5 THE PURPOSE OF THIS EFFORT IS FOR THE U.S. DEPARTM ENT OF TRANSPORTATION'S VOLPE NATIONAL TRANSPORTATION SYST EMS CENTER TO ASSIST THE FAA AND THE AIRPORT AUTHORITY OF INDIA ( AAI) IN THE DEVELOPMENT, JUSTIFICATION, AND DEFINITION OF A PLA N THAT WILL ADDRESS INDIA'S GROWING AIR TRAFFIC ACTIVITY AND NEED FOR A MODERNIZED ATM SYSTEM TO COVER ALL INDIAN FLIGHT INFORMATION REGIO NS (FIRS); PROVIDE A GLOBAL CONCEPT OF OPERATIONS; DEFINE QUALITATIVE REQUIREMENT IN SUFFICIENT DETAIL TO OBTAIN A COMMON UNDERSTANDING BETWEEN GOVERNMENTS ON THE CAPABILITIES NEEDED; PREPARE A S YSTEM ARCHITECTURE AND SYSTEM SPECIFICATIONS; AND LAY OUT A ROAD MAP TO INCREMENTALLY DEVELOP THE SERVICES, PRODUCTS, TECHN OLOGIES, WITH A FOCUS ON (HE AIR TRAFFIC FLOW MANAGEMENT (ATFM), NE CESSARY TO MAKE INDIA'S AIR TRAFFIC MANAGEMENT SYSTEM A REALITY. TH E WORK COVERED IN THIS PROPOSAL IS THE NECESSARY FOUNDATION TO SET-UP ATFM IN INDIA.' THIS MEMORANDUM ALSO DEFINES THE SCOPE OF WORK, WHI CH MENTIONS AS UNDER: THE SCOPE OF WORK WILL PRIMARILY INCLUDE THE FOLLO WING: 1. DEVELOPMENT OF DETAILED QUALITATIVE REQUIREMENT (QRS) FOR THE PROPOSED ATFM SYSTEM. 2. PREPARATION OF A DETAILED SYSTEM ARCHITECTURE A ND SPECIFICATIONS - HARDWARE (SERVICES/ OPERATING SYST EM, DISPLAY UNITS), SOFTWARE, VARIOUS ATFM TOOLS, BASELINE DATA REQUIREMENTS, INTERFACE WITH INTERNAL AND EXTERNAL SYSTEMS, COMMU NICATION SYSTEM REQUIREMENTS, AND PROTOCOLS AND OTHER ASSOCIATED SY STEMS, ETC. 3. PREPARATION OF A DRAFT IMPLEMENTATION PLAN WITH TIME FRAME ALONGWITH REQUIREMENT OF MANPOWER, TRAINING AND ATF M PROCEDURES. THEREAFTER THE STATEMENT OF TASKS GIVES THE FURTHER BREAKUP OF INDIVIDUAL ACTIVITIES AND THEIR OBJECTIVE WHICH WOU LD BE PERFORMED FOR THE PURPOSE OF ACHIEVING THE MAIN OBJ ECTIVE. IN ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 6 RESPECT OF PARTICIPATION IN AN INDIAN AIR TRAFFIC M ANAGEMENT REQUIREMENT MEETINGS IT IS MENTIONED AS UNDER: TO ENSURE A COMMON AND COLLECTIVE UNDERSTANDING OF THE REQUIREMENTS WITH RESPECT TO FUNCTIONS, DATA, EQUIP MENT, TOOLS, AND PEOPLE, A MEETING WILL BE ORGANIZED IN DELHI WITH P ARTICIPANTS FROM AAI, THE FAA AIR TRAFFIC CONTROL SYSTEM COMMAND CEN TER (ATCSCC), AND VOLPE CENTER. DISCUSSIONS WILL BE ORGANIZED ARO UND A DESCRIPTION OF THE EXISTING ATM SYSTEM IN INDIA, DEVELOPMENT OF USER NEEDS, ANALYSIS OF REQUIREMENT, AND CONSIDERATION OF FUTUR E DIRECTIONS. THIS MEETING WILL INCLUDE ONLY PARTICIPANTS FROM AAI THA T (A) HAVE BASIC UNDERSTANDING OF ATFM PROVIDED AT THE OCTOBER 20-21 , 2008 ATFM SEMINAR HOSTED BY THE US/ INDIA AVIATION COOPERATIO N PROGRAM (ACP); (B) UNDERSTAND AND CAN DISCUSS INDIAS EXPEC TATIONS OF ATFM; AND (C) HAVE GOOD UNDERSTANDING OF INDIA'S EXISTING AIR TRAFFIC CONTROL (ATC) CAPABILITIES AND FUTURE PLANS. THE MEETING MA Y BE ENHANCED IF PARTICIPATION FROM AIR CARRIERS CAN BE OBTAINED, AS THEIR AUTOMATION CAPABILITIES MAY BE USEFUL TO ESTABLISHING THE INIT IAL ATFM SYSTEM. TRAVEL PARTICIPANTS FROM THE U.S. (VOLPE AND ATCSCC ) WILL BE LIMITED TO INDIVIDUALS THAT UNDERSTAND ATFM AND WILL PARTIC IPATE IN THE DEVELOPMENT OF REQUIREMENTS, FUNCTIONAL SPECIFICATI ONS, AND ROADMAP. OBTAINING THIS COLLECTIVE UNDERSTANDING OF THE CURR ENT ATM ENVIRONMENT WILL HELP ELICIT MEANINGFUL AND VALID Q UALITATIVE REQUIREMENTS AND GUIDE THE DEVELOPMENT OF THE ENVIS IONED ATFM ROAD MAP........ INCLUDED IN THIS REVIEW WILL BE DISCUSSION ON THE I SSUE OF TRAINING. TRADITIONAL AIR TRAFFIC CONTROL (ATC) SPE CIALISTS ARE NOT TYPICALLY EXPOSED TO THE PROCEDURES AND APPLICATION S THAT CHARACTERIZE ATFM. THEREFORE, AS WE FORMULATE A PLA N TO BRING THE ATFM TECHNOLOGY TO BEAR ON THE SITUATION IN IND IA, WE NEED TO PLAN HOW TO TRAIN PERSONNEL TO TAKE ON THE ROLE OF TRAFFIC ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 7 MANAGER. THIS PLAN WILL INVOLVE IDENTIFYING THE TYP ES OF PEOPLE WITHIN INDIA'S ATC ORGANIZATION WHO ARE CANDIDATES FOR TRAFFIC MANAGER AND SUMMARIZING THEIR BACKGROUNDS. WE EXPEC T TO ACCOMPLISH THIS TASK, AT LEAST TO THE LEVEL TO STAR T PLANNING A TRAINING PROGRAM, DURING THE TEAM VISIT TO INDIA ME NTIONED PREVIOUSLY. WORKING WITH THE FAA ACADEMY IN OKLAHOM A CITY, OKLAHOMA AND USING THE PERSONNEL DATA, WE WILL FORM ULATE LESSON PLANS, HANDS-ON TRAINING, AND TIMING FOR A COMPREHENSIVE TRAFFIC MANAGEMENT TRAINING CURRICULU M SIMILAR TO THAT PROVIDED BY VOLPE CENTER FOR FAA TRAFFIC MA NAGERS. THE FINANCIAL PROVISIONS ARE PROVIDED IN ARTICLE-V TO THE MEMORANDUM OF AGREEMENT, WHICH MENTIONS AS UNDER: A. THE AAI SHALL REIMBURSE THE FAA FOR AIL COSTS INCUR RED IN PROVIDING SERVICES UNDER THIS ANNEX. B. THE ESTIMATED COST OF THE RELATED SERVICES FOR COMP LETING PHASE 1, 2 AND 3 ACTIVITIES UNDER THIS ANNEX IS FOU R HUNDRED AND NINETY FOUR THOUSAND ONE HUNDRED U.S. DOLLARS ( US$ 494,100). PAYMENT BY THE AAI UNDER THIS ANNEX SHALL BE MADE IN ACCORDANCE WITH THE FOLLOWING SCHEDULE: 1. THE AAI SHALL PAY IN ADVANCE THE SUM OF TWENTY FIVE THOUSAND EIGHT HUNDRED U.S. DOLLARS (US$ 25,800) WH ICH IS THE ESTIMATED COST FOR REVIEW OF AERONAUTICAL INFORMATION AAI (ATTACHMENT A, TASK 1, PARAGRAPH 1. 1). UPON RECEIPT OF PAYMENT FROM THE AAI, THE FAA AND V OLPE CENTER SHALL COMMENCE ACTIVITIES FOR THIS MILESTONE . 2. THE AAI SHALL PAY IN ADVANCE THE SUM OF THIRTY-SEVE N THOUSAND EIGHT HUNDRED U.S. DOLLARS (US$ 37,800), W HICH IS THE ESTIMATED COST FOR ANALYSIS OF INDIAS FUTUR E PLANS (ATTACHMENT A, TASK 1, PARAGRAPH 1.3). UPON RECEIPT OF PAYMENT FROM THE AAI, THE FAA AND VOLPE CENTER SHAL L COMMENCE ACTIVITIES FOR THIS MILESTONE. ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 8 3. THE AAI SHALL PAY IN ACCORDANCE WITH THE SUM OF THE ONE HUNDRED SEVENTEEN THOUSAND THREE HUNDRED U.S. DOLLA RS (US$ 117,300), WHICH IS THE ESTIMATED COST OF DOCUMENTATION OF QUALITATIVE REQUIREMENTS ACTIVITIE S (ATTACHMENT A, TASK 1, PARAGRAPH 1.4). UPON RECEIPT OF PAYMENT FROM THE AAI, THE FAA AND VOLPE CENTER SHAL L COMMENCE ACTIVITIES FOR THIS MILESTONE. 4. THE AAI SHALL PAY IN ADVANCE THE SUM OF ONE HUNDRED SIXTY-TWO THOUSAND U.S. DOLLARS (US$ 162,000), WHIC H IS ESTIMATED COST OF PREPARATION OF SYSTEM ARCHITECTUR E AND SYSTEM SPECIFICATIONS (ATTACHMENT A, TASK 2). UPON RECEIPT OF PAYMENT FROM THE AAI, THE FAA AND VOLPE CENTER SHALL COMMENCE ACTIVITIES FOR THIS MILESTONE . 5. THE AAI SHALL PAY IN ADVANCE THE SUM OF ONE HUNDRED FIFTY-ONE THOUSAND TWO HUNDRED U.S. DOLLARS (US$ 151,200), WHICH IS THE ESTIMATED COST OF PREPARATIO N OF ROAD MAP DRAFT IMPLEMENTATION PLAN ACTIVITIES (ATTACHMENT A, TASK 3). UPON RECEIPT OF PAYMENT FRO M THE AAI, THE FAA AND VOLPE CENTER SHALL COMMENCE ACTIVI TIES FOR THIS MILESTONE. ...(III) THE ABOVE ANALYSIS WOULD CLEARLY PROVE ALL CONTENTIONS OF THE APPLICANT TO BE INCORRECT. IT IS VERY CLEAR FRO M THE ANALYSIS OF THE AGREEMENT THAT IT IS A INTEGRATED CONTRACT F OR PROVIDING CONSULTANCY BY THE FAA TO AAI FOR THE PURPOSE OF UP GRADATION OF ATFM CAPABILITIES, PREPARATION OF DETAILED SYSTEM A RCHITECTURE AND SPECIFICATION AND PREPARATION OF A ROAD MAP FOR IMPLEMENTATION PLAN WITH REQUIREMENTS FOR LABOUR, T RAINING AND ATFM PROCEDURES. THE SUM AND SUBSTANCE OF THE AGREE MENT IS THAT FAA WOULD BE PROVIDING TECHNICAL SERVICES, WHI CH CONSISTS OF DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN/ TE CHNICAL DESIGN. TO THIS EXTENT THE SERVICES RENDERED BY FAA FAILS UNDER THE CATEGORY OF FEES FOR TECHNICAL SERVICES AS PER SECTION ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 9 9(1)(VII) OF THE ACT AND ALSO AS FEES FOR INCLUDED SERVICES UNDER ARTICLE 12(4)(B) OF THE INDO-US DTAA. IT NEED TO BE ALSO MENTIONED THAT CLAUSE (B) OF ARTICLE 12(4) HAS TWO LIMBS AND 'MAKE AVAILABLE' CONDITION APPLIES TO FIRST LIMB CO MPRISING TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESS. WHEREAS SECOND LIMB CONSISTS OF DEVELOPMENT AND TRA NSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. THE PRESENT SER VICES CONSIST OF DEVELOPMENT AND TRANSFER OF TECHNICAL PLAN. THER EFORE, THE JUDGMENTS AND ARGUMENTS IN RESPECT OF MAKE AVAILAB LE' QUALIFICATION ARE OF NO USE. IN THE PRESENT CASE SI NCE THE NATURE OF SERVICES INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL IS FOR THE PURPOSE AND CONSISTS OF DEVELOPMENT AND TRANSFER OF TECHNICAL PLAN NAMELY THE ATFM PLAN FOR INDIAN OPERATIONS. THE CONDITIONS OF THE DTAA ARE SATISFIE D. (IV) THE APPARENT WATERTIGHT DIVISION BETWEEN THE T WO CONTRACTS,- WHICH THE APPLICANT HAS TRIED TO PRESENT, IS NOT CO RRECT, IN FACT IT IS PART AND PARCEL OF SAME MEMORANDUM OF AGREEMENT WIT H AN INTEGRATED OBJECTIVE. IN THIS BACKGROUND EACH AND E VERY PAYMENT FOR A SUB TASK OR AN ACTIVITY CANNOT BE VIEWED IN ISOLA TION WHEN IT IS PART OF SERIES OF TRANSACTION TAKING PLACE FOR A CRYSTAL LIZED OBJECTIVE. (V) COMING TO THE ASPECT OF RENDERING OF SERVICES O UTSIDE INDIA AND THE RELIANCE PLACED ON THE DECISION OF ISHIKAWAJIMA -HARIMA HEAVY INDUSTRIES CO. LTD. (SUPRA), THE FIRST AND FOREMOST IT IS TO BE APPRECIATED THAT THE HON'BLE SUPREME COURT IN THE S AID CASE HAD ANALYZED THE PROVISIONS OF SECTION 9(1)(VII)(C) OF THE ACT, WHEREAS FOR THE PRESENT PURPOSE IT IS SECTION 9(1)(VII)(B), WHICH WILL BE APPLICABLE, BECAUSE THE PAYER IN THE PRESENT CASE A AI IS A RESIDENT THE WORDINGS OF SECTION 9(1)(VII)(B) AND 9(1)(VII)( C) ARE DIFFERENT, THEREFORE, THE RATIO OF THE DECISION WOULD HAVE LIM ITED APPLICABILITY FOR PRESENT PURPOSE. IN FACT THE DECISION OF HON'BL E SUPREME COURT AND THE TERRITORIAL NEXUS DOCTRINE HAS BEEN ANALYZE D IN DETAIL BY THE ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 10 HON'BLE AUTHORITY FOR ADVANCE RULINGS ('AAR') IN TH E CASE OF WORLEYPARSONS SERVICES PTY. LTD. [312 ITR 273]. IN THE SAID CASE THE HON'BLE AUTHORITY HAS HELD THAT EVEN IF THE PART OF THE SERVICES ARE RENDERED IN INDIA THAT IS SUFFICIENT TO CONSTITUTE TERRITORIAL NEXUS AND THEREBY THE TAXABILITY WOULD BE IN RESPECT OF WHOLE OF SUCH SERVICES NO LIMITED TO THE PART BEING PERFORMED IN INDIA. IN THE PRESENT CASE CLEARLY UNDER THE MEMORANDUM OF AGREEMENT SEVERAL S ERVICES WOULD BE PERFORMED IN INDIA INCLUDING VISITS OF TECHNICAL PERSONS, IMPLEMENTATION AND TRAINING OF PERSONNEL. THEREFORE , THE TERRITORIAL NEXUS CONDITION LAID DOWN BY THE HON'BLE SUPREME CO URT AS EXPLAINED BY THE HON'BLE AAR IN THE CASE OF WORLEY PARSONS ARE SATISFIED AND THE FULL CONSIDERATION REPRESENTING F EES FOR TECHNICAL SERVICES U/S 9(1)(VII) OF THE ACT READ WITH ARTICLE 12(4)(B) OF INDO- US DTAA IS CHARGEABLE TO TAX IN INDIA. 6. THE MATTER REACHED TO LD. CIT (A) WHO CONSIDERED VARIOUS SUBMISSIONS OF THE ASSESSEE, QUOTING VARIOUS CLAUSE S OF THE AGREEMENT BETWEEN FAA & AAI HELD THAT PAYMENTS MADE TO FAA ARE INDEED IN THE NATURE OF FIS AND TAXABLE IN INDI A. 7. THE RATIONALE GIVEN BY THE LD. CIT (A) IS AS UND ER: ON THE ISSUE SOVEREIGNTY: 5.2 IN THE VERY FIRST PLACE, IT HAS NOT BEEN ESTAB LISHED BY THE APPELLANT THAT FAA IS FOREIGN 'GOVERNMENT AND NOT A COMMERCIAL ENTITY OF THE FOREIGN GOVERNMENT AS AAI IS TO INDIA N GOVERNMENT. NOTHING IS CLEAR FROM COPY OF MOA ITSELF. THE MOA I S SIGNED BY FEDERAL AVIATION ADMINISTRATION, DEPARTMENT OF TRAN SPORTATION, UNITED STATES OF AMERICA AND AIRPORTS AUTHORITY OF INDIA, MINISTRY OF CIVIL AVIATION, GOVERNMENT OF INDIA. FROM IT, IT AP PEARS THAT STATUS OF FAA IS THE SAME AS THAT OF AAI. THEREFORE, IT CANNO T BE SAID THAT FAA IS FOREIGN GOVERNMENT. ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 11 5.3 THE ARGUMENT OF THE APPELLANT IS THAT GOVERNMEN T IN CLAUSE (I) ABOVE SHOULD BE READ AS ANY GOVERNMENT WHETHER INDI AN OR FOREIGN. THIS CONTENTION IS FALLACIOUS BECAUSE THE SECTION H AS TO BE READ AS WHOLE AND THEN HARMONIOUS INTERPRETATION HAS TO BE MADE. THE WORD GOVERNMENT HAS NOT BEEN DEFINED IN INCOME TAX ACT . AS PER SECTION 3(23) OF GENERAL CLAUSES ACT, 1897, THE WORD GOVER NMENT HAS BEEN DEFINED AS TO INCLUDE BOTH CENTRAL AND STATE GOVERN MENTS OF INDIA. THOUGH THE WORD GOVERNMENT IN THE SECTION IS UNQU ALIFIED, YET IT FINDS ITSELF IN COMPANY OF OTHER THREE ENTITIES WHI CH ARE RBI, INDIAN CORPORATION AND INDIAN MUTUAL FUND. THEREFORE, APPL YING THE PRINCIPLE OF NOSCITUR A SOCITIS, THE WORD GOVERNMENT HAS TO BE GIVEN A MEANING WITH REFERENCE TO OTHER ENTITIES MENTIONED AT SR. NO. (II) TO (IV) ABOVE, WHICH ARE NOTHING BUT INDIAN ENTITIES. THIS RULE OF INTERPRETATION HAS BEEN ADVOCATED BY HONBLE SUPREM E COURT IN ITS RECENT DECISION IN CASE OF CIT VS BHARTI CELLULAR L TD. (2010-TII-05- SC-INTL). APPLYING THIS RULE OF INTERPRETATION, THE WORD GOVERNMENT AS MENTIONED IN CLAUSE (I) ABOVE WOULD MEAN INDIAN GOVERNMENT WHICH INCLUDES BOTH CENTRAL AND STATE GOVERNMENTS. BY NO STRETCH OF IMAGINATION, IT CAN BE DEEMED TO INCLUDE FOREIGN GO VERNMENT ALSO. 5.4 IT IS ALSO TO BE SEEN ALL THE ENTITIES MENTIONE D FROM SR. NO. (I) TO (IV) ARE EXEMPTED FROM PAYING INCOME TAX. THEREF ORE, SECTION 196 MAKES SENSE THAT THERE SHOULD NOT BE ANY REQUIREMEN T OF DEDUCTING TAX AT SOURCE ON INCOME PERTAINING TO THESE EXEMPTE D ENTITIES, THIS SECTION CANNOT BE MADE APPLICABLE TO ANY ENTITY WHI CH IS NOT EXEMPTED UNDER INCOME TAX ACT. NO GENERAL IMMUNITY FROM TAX HAS BEEN PROVIDED TO A FOREIGN SOVEREIGN IN INDIAN IT A CT, 1961. IT HAS BEEN HELD IN CASE OF DCIT VS ROYAL JORDANIANS AIRLI NES (ITAT, DEL-SB) 98 ITD 1 THAT NO IMMUNITY FROM TAX IS AVAILABLE TO A SOVEREIGN UNLESS IT HAS BEEN SPECIFICALLY GRANTED. IN SECTION 10 OF THE ACT, WHICH DEALS WITH VARIOUS INCOMES WHICH ARE EXEMPTED FROM TAX, CERTAIN INCOMES ACCRUING TO FOREIGN GOVT. HAS BEEN MADE EXEMPT. FOR ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 12 EXAMPLE, SECTION 10(15A) EXEMPTS ANY PAYMENT MADE B Y INDIAN COMPANY ENGAGED IN BUSINESS OF OPERATION OF AIRCRAF T, TO ACQUIRE AN AIRCRAFT OR AN AIRCRAFT ENGINE ON LEASE FROM FOREIG N GOVERNMENT. EVEN THIS SECTION DOES NOT EXEMPT PAYMENTS MADE FOR PROV IDING SPARES, FACILITIES OR SERVICES IN CONNECTION WITH OPERATION OF LEASED AIRCRAFT. THIS SECTION 10(15A) DOES NOT APPLY TO AGREEMENT EN TERED INTO ON OR AFTER 01-04-2007. THIS MEANS THAT EVEN SAID EXEMPTI ON HAS BEEN WITHDRAWN WITH REFERENCE TO AGREEMENT ENTERED INTO AFTER PRESCRIBED DATE. FURTHER, ARTICLE 265 OF CONSTITUTION OF INDIA SAYS: NO TAX SHALL BE LEVIED OR COLLECTED EXCEPT BY AUTH ORITY OF LAW. THUS, CONSTITUTION GIVES POWER TO PARLIAMENT TO MAK E LAWS REGARDING LEVY AND COLLECTION OF TAXES. ARTICLE 285 SAYS THAT: EXEMPTION OF PROPERTY OF THE UNION FROM STATE TAXAT ION. (1) THE PROPERTY OF THE UNION SHALL, SAVE IN SO FA R AS PARLIAMENT MAY BY LAW OTHERWISE PROVIDE, BE EXEMPT FROM ALL TAXES IMPOSED BY A STATE OR BY ANY AUTHORITY WITHIN A STATE. (2) NOTHING IN CLAUSE (I) SHALL, UNTIL PARLIAMENT BY LAW OTHERWISE PROVIDES, PREVENT ANY AUTHORITY WITHIN A STATE FROM LEVYING ANY TAX ON ANY PROPERTY OF THE UNION TO WHI CH SUCH PROPERTY WAS IMMEDIATELY BEFORE THE COMMENCEMENT OF THIS CONSTITUTION LIABLE OR TREATED AS LIABLE, SO LONG A S THAT TAX CONTINUES TO BE LEVIED IN THAT STATE. ARTICLE 289 SAYS THAT: EXEMPTION OF PROPERTY AND INCOME OF A STATE FROM UN ION TAXATION. (1) THE PROPERTY AND INCOME OF A STATE SHALL BE EX EMPT FROM UNION TAXATION. ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 13 (2) NOTHING IN CLAUSE (1) SHALL PREVENT THE UNION FROM IMPOSING, OR AUTHORIZING THE IMPOSITION OF, ANY TAX TO SUCH EXTENT, IF ANY, AS PARLIAMENT MAY BY LAW PROVIDE IN RESPECT OF A TRADE OR BUSINESS OF ANY KIND CARRIED ON BY, OR ON BEHALF OF , THE GOVERNMENT OF A STATE, OR ANY OPERATIONS CONNECTED THEREWITH, OR ANY PROPERTY USED OR OCCUPIED FOR THE PURPOSES OF S UCH TRADE OR BUSINESS, OR ANY INCOME ACCRUING OR ARISING IN CONN ECTION THEREWITH. (3) NOTHING IN CLAUSE (2) SHALL APPLY TO ANY TRADE OR BUSINESS, OR TO ANY CLASS OF TRADE OR BUSINESS, WHICH PARLIAMENT MAY BY LAW DECLARE TO BE INCIDENTAL TO THE ORDINARY FUNCTIONS OF GOVERNMENT. THE COMBINED READING OF ABOVE ARTICLES OF CONSTITUT ION OF INDIA REVEALS THAT EVEN UNION AND/OR STATE GOVERNMENTS DO NOT ENJOY BLANKET IMMUNITY FROM TAXES. THEREFORE, IT IS NOT L EGALLY TENABLE TO PRESUME THAT FOREIGN GOVERNMENT IS EXEMPT FROM I NCOME TAX WITHOUT ANY SUCH SPECIFIC EXEMPTION PROVIDED UNDER THE ACT. IN VIEW OF DISCUSSION SUPRA, IT IS CLEAR THAT PROVISIO NS OF SECTION 196 ARE NOT APPLICABLE TO PRESENT CASE. ON THE ISSUE OF REIMBURSEMENT 5.5 THE CONTENTION OF THE APPELLANT IS THAT PAYMENT S MADE BY IT ARE JUST REIMBURSEMENTS AND SINCE THERE IS NO INCOME EL EMENT IN IT, THESE ARE NOT CHARGEABLE TO TAX IN INDIA AND CONSEQ UENTLY NOT SUBJECT TO WITHHOLDING OF TAX U/S 195. IT S SEEN TH AT AS PER PROVISIONS OF SECTION 195(1), LIABILITY TO DEDUCT T AX AT SOURCE ARISES WHEN SUM PAYABLE TO A NON-RESIDENT IS CHARGEABLE TO TAX IN INDIA. THE LAW ON THIS ISSUE HAS BEEN LAID DOWN BY HONBLE SUPREME COURT IN ITS DECISION IN CASE OF GE INDIA TECHNOLOGY CENT RE PVT. LTD. V. CIT (2010) 327 ITR 456 (SC). THE RELEVANT OBSERVATIONS OF THE HONBLE SC ARE REPRODUCED BELOW: ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 14 7. IT MAY BE NOTED THAT SECTION 195 CONTEMPLATES N OT MERELY AMOUNTS, THE WHOLE OF WHICH ARE PURE INCOME PAYMENT S, IT ALSO COVERS COMPOSITE PAYMENTS WHICH HAS AN ELEMENT OF I NCOME EMBEDDED OR INCORPORATED IN THEM. THUS, WHERE AN AM OUNT IS PAYABLE TO A NON-RESIDENT, THE PAYER IS UNDER AN OB LIGATION TO DEDUCT TDS IN RESPECT OF SUCH COMPOSITE PAYMENTS. T HE OBLIGATION TO DEDUCT TDS IS, HOWEVER, LIMITED TO THE APPROPRIA TE PROPORTION OF INCOME CHARGEABLE UNDER THE ACT FORMING PART OF THE GROSS SUM OF MONEY PAYABLE TO THE NON-RESIDENT. THIS OBLIGATI ON BEING LIMITED TO THE APPROPRIATE PROPORTION OF INCOME FLO WS FROM THE WORDS USED IN SECTION 195(1), NAMELY, CHARGEABLE U NDER THE PROVISIONS OF THE ACT. THIS PRINCIPLE HAS BEEN REITERATED IN CASE OF FOLLO WING JUDICIAL DECISIONS: - MAHARASTRA STATE ELECTRICITY BOARD V CIT (2004) 90 ITD 793(MUM), - VAN OORD ACZ INDIA P. LTD. V. CIT 230 CTR 365 (DEL) AND - PRASAD PRODUCTIONS 3 ITR (TRIB) 58 CHENNAI (SB) THEREFORE, WE HAVE TO SEE WHETHER THE PAYMENTS MADE BY THE APPELLANT TO THE NON-RESIDENT FAA ARE CHARGEABLE TO TAX IN INDIA IN HANDS OF FAA. THE TAXABILITY OF NON-RESIDENT IS GOV ERNED BY SECTION 5(2) OF THE ACT, WHICH IS REPRODUCED AS BELOW: SUBJECT TO PROVISIONS OF THIS ACT, THE TOTAL INCOM E OF ANY PREVIOUS YEAR OF A PERSON WHO IS NON-RESIDENT INCLUDED ALL I NCOME FROM WHATEVER SOURCE DERIVED WHICH- A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON; OR B) ACCRUES OR ARISES OR DEEMED TO ACCRUE OR ARISE TO H IM IN INDIA DURING SUCH YEAR ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 15 IT IS NOT THE CASE OF THE AO THAT PAYMENTS MADE BY THE APPELLANT ARE RECEIVED OR DEEMED TO BE RECEIVED BY THE NON-RESIDE NT IN INDIA. THEREFORE, SECTION 5(2)(A) IS NOT APPLICABLE. THE A OS CASE IS THAT SUCH PAYMENTS ARE DEEMED TO ACCRUE OR ARISE IN INDI A AND ARE IN NATURE OF FTS UNDER EXPLANATION 2 TO SECTION 9(1)(V II) R.W. SECTION 5(2)(B) OF THE ACT. IT IS NOT THE CASE OF AO THAT N ON-RESIDENT HAS BUSINESS CONNECTION AND PE IN INDIA. ON THE ISSUE OF FIS 5.6 EVEN, APPELLANT HAS NOT DISPUTED THE NATURE OF SERVICES PROVIDED BY FAA AS TECHNICAL SERVICES WITHIN THE ME ANING OF EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. THE APPELLANT HAS CONTENDED THAT SERVICES ARE NOT TECHNICAL SERVICES AS PER ARTICLE 12(4) OF INDO-USA DTAA BECAUSE MAKE AVAILABLE CLA USE IS NOT SATISFIED AND MOREOVER, PAYMENTS REPRESENT JUST REI MBURSEMENT OF EXPENSES INCURRED BY FAA AND HENCE THERE IS NO INCO ME ELEMENT INVOLVED. ARTICLE 1(A) OF MO A DATED 13-11-2006 ENT ERED INTO BETWEEN DEPARTMENT OF TRANSPORTATION, USA AND MINIS TRY OF CIVIL AVIATION, GOVERNMENT OF INDIA SAYS THAT: THIS MEMORANDUM OF AGREEMENT ESTABLISHES THE TERMS AND CONDITIONS UNDER WHICH FAA MAY PROVIDE ASSISTANCE T O MOCA IN DEVELOPING AND MODERNIZING THE CIVIL AVIATION INFRA STRUCTURE OF INDIA IN THE MANAGERIAL, OPERATIONAL AND TECHNICAL AREAS. FOR THIS PURPOSE, FAA SHALL, SUBJECT TO THE AVAILABILITY OF APPROPRIATED FUNDS AND NECESSARY RESOURCES, PROVIDE PERSONNEL, R ESOURCES AND RELATED SERVICES TO ASSIST THE MOCA TO THE EXTENT C ALLED FOR IN THE ANNEXES AND APPENDICES TO THIS AGREEMENT. THERE IS A APPENDIX 2 TO ANNEX 3 TO MOA ENTERED INT O ON 25-09- 2009, ARTICLE II OF WHICH SAYS THAT: ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 16 A. THE FAA. SHALL PROVIDE THREE (3) SPECIALISTS, F ROM THE FAA AND THE VOLPE NATIONAL TRANSPORTATION SYSTEMS CENTRE, W ITH BACKGROUND IN AIR TRAFFIC FLOW MANAGEMENT (FATM) TO TRAVEL TO NEW DELHI, DURING THE FOURTH QUARTER OF FISCAL YEAR 2009FOR A PERIOD OF APPOX. 10 DAYS INCLUDING TRAVEL. B. THE SPECIALISTS SHALL ASSIST THE AAI BY PARTICIP ATING IN INDIAN NATIONAL AIR TRAFFIC REQUIREMENTS MEETING ON AFTM R EQUIREMENTS WITH AAI AND INDUSTRY REPRESENTATIVES.' THERE IS ANOTHER ANNEX 4 TO MOA DATED 25-09-2009, A RTICLE II OF WHICH SAYS THAT: A. THE AAI PLANS TO IMPLEMENT OPERATIONAL ATFM SE RVICES TO ADDRESS INDIAS GROWING AIR TRAFFIC ACTIVITY WHILE TRANSITIONING TO A MODERNIZED AIR TRAFFIC MANAGEMENT SYSTEM TO COVER A LL INDIAN FLIGHT INFORMATION REGIONS, B. IN SUPPORT OF THIS OPERATIONAL REQUIREMENT, THE FAA, IN COOPERATION WITH DOTS VOLPE NATIONAL TRANSPORTATIO N SYSTEM CENTRE, SHALL ASSIST AAI IN DEVELOPMENT OF: I. DETAILED QUALITATIVE REQUIREMENTS FOR THE PROPOSED ATFM CAPACITY II. DETAILED ATFM SYSTEM ARCHITECTURE AND SPECIFICATION S, AND III. DRAFT A TFM IMPLEMENTATION PLAN. C. THE FAA SHALL SEPARATELY PROVIDE THE AAI WITH A DETAILED PROJECT PLAN, BASED ON PARTIES PRIOR DISCUSSION, DE SCRIBING THE INTENDED SCOPE AND CONTENT OF FAAS ASSISTANCE IN D EVELOPMENT OF QRS AFTM SYSTEM ARCHITECTURE AND SPECIFICATIONS AN D A DRAFT AFTM IMPLEMENTATION PLAN. FURTHER, ARTICLE III OF SAID ANNEX SAYS AS UNDER: ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 17 A. SUBJECT TO AVAILABLE RESOURCES, THE FAA AND VOLP E CENTRE SHALL IMPLEMENT THIS PROJECT IN THREE (3) PHASES AS FOLLO WS: PHASE I: DEVELOPMENT OF DETAILED QUALITATIVE REQUIR EMENTS (QRS) TO INCLUDE: I REVIEW OF US A TFM CAPABILITIES, INCLUDING OPERAT ING OPERATIONS AND SYSTEMS. II ANALYSES OF INDIAS FUTURE ATM PLAN, AND II DOCUMENTATION OF QRS PHASE II: PREPARATION OF DETAILED SYSTEM ARCHITECTU RE AND SPECIFICATIONS THAT WILL SATISFY THE DETAILED QRS E LICITED IN THE PREVIOUS TASK, PHASE III: PREPARATION OF A ROAD MAP DRAFT IMPLEMEN TATION PLAN TO INCLUDE A TIME FRAME ALONG WITH REQUIREMENTS FOR LA BOUR, TRAINEES AND ATFM PROCEDURES. 5.7 PERUSAL OF THESE ABOVE REFERRED CLAUSES OF MOA AND ANNEXES SHOW THAT NATURE OF SERVICES TO BE PROVIDED BY FAA SQUARELY FALL WITHIN PURVIEW OF EXPLANATION 2 TO SECTION 9(1)(VII ) OF THE ACT. EVEN, APPELLANT HAS NOT DENIED IT. THE APPELLANT HAS TAKE N TWO ARGUMENTS, ON BASIS OF WHICH IT HAS CONTENDED THAT PAYMENTS AR E NOT CHARGEABLE TO TAX IN INDIA: (A) THE SERVICES PROVIDED BY FAA THOUGH TECHNICAL S ERVICES AS PER DEFINITION UNDER DOMESTIC ACT ARE NOT TECHNICAL SERVICES UNDER ARTICLE 12(4) OF DTAA BECAUSE MAKE AVAILABLE CLAU SE IS NOT SATISFIED. (B) THE PAYMENTS ARE PURELY IN NATURE OF REIMBURSEM ENT AND THEREFORE THERE IS NO ELEMENT OF INCOME CONTAINED I N THESE PAYMENTS. IN ORDER TO DEAL WITH THESE ARGUMENTS, ARTICLE 12(4 ) OF INDO-USA DTAA IS REPRODUCED AS UNDER: ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 18 FOR PURPOSES OF THIS ARTICLE, FEES FOR INCLUDED S ERVICES MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THROUGH THE PROVISION OF SERVICES OF TECHNICAL OR O THER PERSONNEL) IF SUCH SERVICES: (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIBED IN PARAGRAPH 3 IS RECEIVED / OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW, OR PROCESSES, OR CONSIST OF THE DEVELOPME NT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. THE CASE OF THE APPELLANT FALLS WITHIN PURVIEW OF C LAUSE (B) OF ARTICLE 12(4). IT IS PERTINENT TO NOTE THAT SAID CLAUSE (B) CONSISTS OF TWO LIMBS; MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIEN CE, SKILL, KNOW- HOW, OR PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. THE REQUIREMENT OF MAKE AVAILABLE5 GOES WITH FIRST LIMB ONLY AND NOT WITH S ECOND LIMB. THIS HAS BEEN HELD SO BY HONBLE ITAT KOLKATA IN CASE OF GENTEX MERCHANT (P) LTD. VS DDIT (2005-TII-07-ITAT-KOL-INTL). THERE FORE, IF CASE OF THE APPELLANT HAPPENS TO FALL WITHIN PURVIEW OF SEC OND LIMB, THEN THERE IS NO REQUIREMENT OF MAKE AVAILABLE. PERUSA L OF VARIOUS ARTICLES OF MOA AND ANNEXES AS REPRODUCED ABOVE SHO W THAT FAA SHALL BE HELPING AAI IN MODERNIZATION OF CIVIL AVIA TION INFRASTRUCTURE OF INDIA IN THE MANAGERIAL, OPERATIONAL AND TECHNIC AL AREAS AND FAA SHALL AFTER DUE PROCESS OF REVIEW AND ANALYSIS OF R EQUIREMENTS, PREPARE AND DELIVER A TECHNICAL PLAN FOR THE PURPOS E. THUS, THE NET OUTCOME OF SERVICES TO BE PROVIDED BY FAA IS PREPAR ATION OF TECHNICAL PLAN WHICH SHALL BE DELIVERED TO AAI FOR CARRYING O UT THE PROCESS OF MODERNIZATION OF CIVIL AVIATION INFRASTRUCTURE IN I NDIA. THE CASE OF THE APPELLANT CLEARLY FALLS WITHIN SCOPE OF SECOND LIMB OF CLAUSE (B) ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 19 OF ARTICLE 12(4) AND THEREFORE SERVICES PROVIDED BY FAA ARE IN NATURE OF TECHNICAL SERVICES. 5.8 THE APPELLANT HAS CONTENDED THAT MO A, APPENDIX 2 TO ANNEX 3 TO MO A, ANNEX 4 TO MOA AND THREE PHASES AS MENTION ED IN ARTICLE IIIA OF ANNEX 4 SHOULD BE READ INDEPENDENTLY AND SE PARATELY AS IF THESE WERE SEPARATE INDEPENDENT AGREEMENTS AS SUCH. THIS CONTENTION OF THE APPELLANT IS FALLACIOUS AS THERE IS, IN FACT ONLY ONE AGREEMENT IN FORM OF MOA DATED 13-11-2006. OTHER TW O ANNEXES ARE JUST IN CONTINUATION OF SAID MOA. ARTICLE IIIA OF A NNEX 4 IS REGARDING STAGES IN WHICH SERVICES WILL BE PROVIDED BY FAA. B Y NO STRETCH OF IMAGINATION, IT CAN BE SAID THAT ALL THESE ARE INDE PENDENT AND SEPARATE AGREEMENTS. THIS IS PARTICULARLY SO AFTER DECISION OF HONBLE APEX COURT IN CASE OF VODAFONE INTERNATIONAL HOLDIN GS BV NETHERLANDS VS UOI 345 ITR 1 (SC), WHEREIN PRINCIPL E OF LOOK AT AND NOT LOOK THROUGH HAS BEEN PRESCRIBED. THE RATIO OF SAID DECISION OF HONBLE SUPREME COURT HAS BEEN FOLLOWED BY AAR IN F OLLOWING RECENT DECISIONS: - ROXAR MAXIMUM RESERVOIR PERFORMANCE WLL (2012-TII-2 4-ARA- INTL) - ALSTOM TRANSPORT SA VS DIT (2012-T1I-28-ARA-INTL) SIMILARLY, HONBLE ITAT KOLKATA HAS FOLLOWED THE SA ID RATIO IN CASE OF DONGFANG ELECTRIC CORPORATION (2012-TII-66-ITAT-KOL -INTL) WHEREIN IT HAS BEEN HELD THAT: WHILE ONE MAY HAVE LEGITIMATE ISSUES AS TO WHETHER THESE OBSERVATIONS REGARDING 'LOOKING AT THE TRANSACTIONS AS A WHOLE AND NOT ADOPTING DISSECTING APPROACH' CAN INDEED BE APP LIED IN ALL CASES IN WHICH SEPARATE CONTRACTS ARE ENTERED INTO FOR OFFSHORE SUPPLIES AND ONSHORE SERVICES, IN OUR CONSIDERED VI EW, THESE OBSERVATIONS ARE CERTAINLY APPLICABLE IN THE CASES IN WHICH THE VALUES ASSIGNED TO THE ONSHORE SERVICES ARE PRIMA F ACIE ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 20 UNREASONABLE VIS-A-VIS VALUES ASSIGNED TO THE OFFSH ORE SUPPLIES, WHICH MAKE NO ECONOMIC SENSE WHEN VIEWED IN ISOLATI ON WITH OFFSHORE SUPPLIES CONTRACT. TO THAT LIMITED EXTENT, OUR VIEWS ARE THE SAME AS OF THE LEARNED AUTHORITY FOR ADVANCE RU LING. THUS, HONBLE ITAT KOLKOTA HAS A GONE A STEP FURTHE R AND OBSERVED THAT PRINCIPLE OF LOOK AT CAN BE APPLIED EVEN WHE RE THERE ARE TWO SEPARATE CONTRACTS FOR OFFSHORE SUPPLIES AND ONSHOR E SERVICES BUT VALUES ASSIGNED TO ONSHORE SERVICES ARE UNREASONABL E VIS-A-VIS VALUES ASSIGNED TO OFFSHORE SUPPLIES. IN PRESENT CA SE, THERE IS ONLY ONE MOA WHICH CANNOT BE DISSECTED IN ANY CASE BECAU SE IT IS ABOUT PROVISION OF SERVICES FOR ONE GOAL ONLY WHICH IS MO DERNIZATION OF CIVIL AVIATION INFRASTRUCTURE IN INDIA. IN VIEW OF THIS, THE CONTENTION OF THE APPELLANT TH AT MOA AND ITS ANNEX SHOULD BE SEPARATED OUT AND READ INDEPENDENTL Y IS NOT LEGALLY TENABLE. 5.9 NOW, EVEN APPELLANT HAS ACCEPTED THAT THERE IS DEVELOPMENT AND TRANSFER OF TECHNICAL PLAN BY FAA TO AAI, THOUG H THE APPELLANT HAS REFERRED TO PHASE II AND III AS MENTIONED IN AN NEX 4 FOR THIS PURPOSE. THE CONTENTION OF THE APPELLANT THAT ARTIC LE II OF APPENDIX 2 TO ANNEX 3 TO MOA AND PHASE I OF ARTICLE IIIA OF AN NEX 4 TO MOA SHOULD BE SEVERED AND READ SEPARATELY FROM PHASE II AND III OF ARTICLE IIIA OF ANNEX 4 TO MOA IS NOT LEGALLY TENAB LE AS DISCUSSED SUPRA. THEREFORE, ENTIRE PAYMENT MADE TO FAA IS HEL D TO BE IN NATURE OF FTS. 5.10 ANOTHER CONTENTION OF THE APPELLANT IS THE PA YMENTS ARE IN NATURE OF REIMBURSEMENT ONLY AND THEREFORE THERE IS NO ELEMENT OF INCOME CONTAINED IN THESE. THE APPELLANT HAS REFERR ED TO ARTICLE VI OF MOA, ARTICLE III OF APPENDIX 2 TO ANNEX 3 TO MOA AN D ARTICLE V OF ANNEX 4 TO MOA WHICH ARE REGARDING FINANCIAL PROVIS IONS. HERE, IT IS PERTINENT TO SEE THAT WHAT FOR THE APPELLANT HAS MA DE PAYMENTS. THE ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 21 PAYMENTS HAVE BEEN MADE FOR GETTING TECHNICAL SERVI CES FROM FAA. FROM PERSPECTIVE OF PAYER, THESE ARE UNDOUBTEDLY IN NATURE OF FTS. LOOKING FROM PERSPECTIVE OF PAYEE, THESE ARE IN NAT URE OF FTS AGAINST WHICH PAYEE HAD INCURRED CERTAIN EXPENSES A ND AFTER DEDUCTING THOSE EXPENSES, THERE MAY NOT BE ANY PROF IT IN HANDS OF PAYEE. BUT, AS PER DOMESTIC ACT AND DTAA BOTH, WHER E THERE IS NO PE IN INDIA, FTS ARE TAXABLE ON GROSS BASIS ON CERTAIN RATE AND NO DEDUCTION WHATSOEVER IS ALLOWED FROM THE FTS. THERE FORE, THESE PAYMENTS ARE IN NATURE OF FTS WHICH ARE TAXABLE ON GROSS BASIS @ 10% AS PER DTAA. RELIANCE IS PLACED ON RECENT DECIS ION GIVEN BY JURISDICTIONAL HONBLE ITAT, DELHI IN CASE OF CSC T ECHNOLOGY SINGAPORE PTE. LTD., (2021-TII-35-ITAT-DEL-INTL), W HEREIN IT HAS BEEN HELD THAT: HOWEVER, THE POSITION OF REIMBURSEMENT OF TRAVELIN G EXPENSES IS QUITE DIFFERENT, THESE EXPENSES HAVE BEEN INCURRED IN CONNECTION WITH TECHNICAL SERVICES AGREEMENT. THEREFORE, THE E XPENDITURE HAS BEEN INCURRED FOR EARNING ROYALTY/FTS. IN SPITE OF THE FACT THAT THE AGREEMENT PROVIDES INTER-ALIA FOR ADEQUATE LEVEL OF SUPPORT AND POSTING ITS PERSONNEL, THE EXPENSES FOR WHICH WILL BE REIMBURSED, THE FACT REMAINS THAT THE EXPENDITURE HAS BEEN INCU RRED FOR EARNING THE ROYALTY/FTS. THE EXPENDITURE IS THAT OF THE ASSESSEE AND NOT THAT OF THE INDIAN SUBSIDIARY COMPANY. ARTI CLE 12 PROVIDES FOR TAXATION OF ROYALTY/FTS IN THE SOURCE COUNTRY O N GROSS BASIS AT A CONCESSIONAL RATE OF TAX. THIS MEANS THAT THE EXP ENDITURE INCURRED FOR EARNING ROYALTY/FTS IS NOT DEDUCTIBLE IN COMPUTING GROSS ROYALTIES OR GROSS FTS RECEIVED BY THE ASSESS EE COMPANY. THE ASSESSEE HAS FOUND THAT TAXATION UNDER THE INCO ME TAX ACT, 1961 IS NOT MORE BENEFICIAL TO IT. THEREFORE, THE R ECEIPTS HAVE BEEN OFFERED FOR TAXATION UNDER ARTICLE 12 OF THE D TAA, IT IS CLEAR FROM THE LANGUAGE THAT THIS ARTICLE TAXES ROYALTY/F TS ON GROSS BASIS AND DOES NOT PERMIT DEDUCTION OF EXPENSES. TH EREFORE, IT IS HELD THAT THE ALLEGED REIMBURSEMENT OF EXPENSES FOR TRAVELING OR THE EXPENSES OF THE ASSESSEE-COMPANY ARE ITS EXPENS ES, LIABLE TO ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 22 BE INCLUDED IN ITS GROSS RECEIPTS. ALTHOUGH THE DEC ISION IN THE CASE OF CIT & ANOTHER VS. HALLIBURTON OFFSHORE SERVICES INC. WAS RENDERED UNDER SECTION 44BB, YET, IT DEALS WITH THE AMOUNTS RECEIVED BY THE ASSESSEE IN INDIA ON ACCOUNT OF PRO VISION OF SERVICES AND FACILITIES IN CONNECTION WITH, OR SUPP LY OF PLANT AND MACHINERY ON HIRE, USED OR TO BE USED, IN THE PROSP ECTING FOR, OR EXTRACTION OR PRODUCTION OF MINERAL OILS. IT HAS BE EN HELD THAT THE REIMBURSEMENTS WILL HAVE TO BE INCLUDED IN THE RECE IPTS FOR ARRIVING AT THE PRESUMPTIVE INCOME, BEING 10% OF TH E RECEIPTS. THIS DECISION DOES SUPPORT OUR AFORESAID CONCLUSION THAT GROSS RECEIPTS WILL INCLUDE REIMBURSEMENT OF EXPENDITURE INCURRED BY THE ASSESSEE FOR THE PURPOSE OF COMPUTING GROSS RECEIPT S; THE ISSUE IN THE PRESENT CASE HAS BEEN RESOLVED BY THE HONBLE ITAT IN THE ABOVE MENTIONED DECISION. IN CASE OF COCHIN REFINERIES VS. CIT [1996] 222 ITR 354 (KER), SAME PRINCIPLE HAS BEEN L AID DOWN. THEREFORE, THE CONTENTION OF THE APPELLANT THAT PAY MENTS ARE MERELY IN NATURE OF IMBURSEMENT AND HENCE NOT TAXABLE IS N OT CORRECT. 8. IN VIEW OF DISCUSSION SUPRA, THE LD.CIT(A) HELD THAT ENTIRE PAYMENTS MADE BY THE APPELLANT TO FAA ARE IN NATURE OF FTS AND HENCE CHARGEABLE TO TAX IN INDIA UNDER DTAA . ACCORDINGLY, IT WAS HELD THAT THE APPELLANT IS UNDE R OBLIGATION TO DEDUCT TAX FROM THESE PAYMENTS U/S 195 OF THE AC T. 9. AGGRIEVED WITH THE ORDER OF THE LD. CIT (A), THE ASSESSEE FILED APPEAL BEFORE US. 10. DURING THE HEARING BEFORE US, THE LD. AR TAKEN VARIOUS ARGUMENTS TAKEN BEFORE THE LD. CIT (A) (AS MENTIONE D IN ORDER FROM PAGE NOS. 2 TO 15) ALTERNATIVELY AND IN CONSON ANCE, THE GIST OF WHICH IS AS UNDER: ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 23 IN THE FIRST CONTENTION, THE APPELLANT HAS SUBMITTE D THAT THE PAYMENTS MADE RELATE TO THE COST WHICH THE FAA IS EXPECTED TO INCUR IN RENDERING THE SERVICES. THE PA YMENTS ARE SIMPLY REIMBURSEMENT OF COST WHICH DOES NOT INC LUDE ANY ELEMENT OF PROFIT THEREIN. THE APPELLANT HAS MA DE DETAILED SUBMISSION ON THIS GROUND WHICH IS AS UNDE R: THE MINISTRY OF CIVIL AVIATION (MOCA) OF THE GOVERN MENT OF INDIA HAS ENTERED INTO A MEMORANDUM OF AGREEMENT WI TH THE FEDERAL AVIATION ADMINISTRATION (FAA) OF THE DEPARTMENT OF TRANSPORTATION OF THE UNITED STATES O F AMERICA VIDE AGREEMENT DATED 13.11.2006. THE AGREEM ENT HAS BEEN ENTERED INTO WITH AN OBJECT THAT THE FAA M AY PROVIDE ASSISTANCE TO THE MOCA IN DEVELOPING AND MODERNIZING THE CIVIL AVIATION INFRASTRUCTURE OF IN DIA IN THE MANAGERIAL, OPERATIONAL AND TECHNICAL AREAS. THE FIRST PARA OF THE PREAMBLE TO THE MOA STATES AS UNDER: WHEREAS, THE FEDERAL AVIATION ADMINISTRATION (FAA) OF THE DEPARTMENT OF TRANSPORTATION OF THE UNITED STATES O F AMERICA IS DIRECTED TO ENCOURAGE THE DEVELOPMENT OF CIVIL A ERONAUTICS AND THE SAFETY OF AIR COMMERCE, AND IS AUTHORIZED T O FURNISH ON A REIMBURSABLE BASIS TO FOREIGN GOVERNMENTS CERT AIN TECHNICAL ASSISTANCE TO THAT END; THUS, IT IS CLEAR FROM THE PREAMBLE TO THE MOA THAT THE FAA IS DEPARTMENT OF TRANSPORTATION OF THE GOVERNME NT OF USA. THE FAA HAS BEEN ORGANIZED BY THE GOVERNMEN T OF USA WITH A VIEW TO ENCOURAGE THE DEVELOPMENT OF CIVIL AERONAUTICS AND THE SAFETY OF AIR COMMERCE. ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 24 FURTHER, THE FAA HAS BEEN AUTHORIZED THAT IT MAY PROVIDE TECHNICAL ASSISTANCE TO A FOREIGN GOVERNMEN T ON A REIMBURSABLE BASIS. ARTICLE VI- FINANCIAL PROVISIONS OF THE MOA CLEARLY PROVIDES THAT THE MOCA SHALL REIMBURSE THE FAA, IN ACCORDANC E WITH THE PROVISIONS SET FORTH IN THIS AGREEMENT AND ITS ANNEXES AND APPENDICES, FOR ALL COSTS ASSOCIATED WITH THE T ECHNICAL ASSISTANCE PROVIDED BY THE FAA. (REFER PAGE NO 4 OF THE PAPER BOOK) IN OTHER WORDS, THE FAA HAS BEEN ESTABLISHED BY THE GOVERNMENT OF USA FOR THE PURPOSE OF ENSURING THE SAFETY OF AIR COMMERCE. FURTHER, TO ACHIEVE THE AFORESAID OBJECTIVE, IT HAS BEEN FURTHER AUTHORIZED TO RENDER ASSISTANCE TO A GOVERNMENT OF FOREIGN COUNTR Y. HOWEVER, IT HAS BEEN SPECIFICALLY PROVIDED THAT SUC H ASSISTANCE SHOULD BE PROVIDED BY FAA ON A COST REIMBURSABLE BASIS. IN OTHER WORDS, THE INTENT OF T HE FAA IS NOT TO EARN ANY PROFIT OUT OF THE ASSISTANCE RENDERED BY IT. IN VIEW OF THE ABOVE AND TO ENCOURAGE THE SAFE AND ORDERLY GROWTH OF CIVIL AVIATION OF INDIA, THE GOVE RNMENT OF INDIA HAS ENTERED INTO A MEMORANDUM OF AGREEMENT WITH THE FAA OF THE GOVERNMENT OF USA. THE INTENT O F THIS AGREEMENT WAS TO ENSURE THE BROAD TERMS AND CONDITIONS SUBJECT TO WHICH FAA WILL PROVIDE ASSIST ANCE TO THE INDIAN GOVERNMENT. IT HAS BEEN CATEGORICALLY PROVIDED IN THE AGREEMENT THAT THE SPECIFIC TECHNIC AL ASSISTANCE TO BE PROVIDED BY THE FAA FOR THE MOCA S HALL ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 25 BE DELINEATED BY ANNEXES AND APPENDICES TO THIS AGREEMENT. FOR THE PURPOSE OF ENTERING INTO THE ANN EXES AND APPENDICES, FAA HAS BEEN AUTHORIZED BY THE GOVERNMENT OF USA AND DIRECTORATE OF GENERAL CIVIL AVIATION AND AIRPORT AUTHORITY OF INDIA (THE ASSESS EE) HAS BEEN AUTHORIZED BY THE GOVT. OF INDIA. IN PURSUANCE OF THE AFORESAID GENERAL MEMORANDUM OF AGREEMENT (MOA), THE ASSESSEE ENTERED INTO AGREEMEN TS WITH THE FAA. THE FIRST AGREEMENT NAMELY APPENDIX 2 AND ANNEX 3 TO THE MOA WAS ENTERED INTO BETWEEN THE ASSESSEE AND THE FAA ON 25.09.2009. THIS AGREEMENT PROVIDES IN DETAIL THE SPECIFIC ASSISTANCE WHICH FA A WILT PROVIDE IN PURSUANCE OF THE AFORESAID AGREEMENT. IT HAS BEEN PROVIDED IN THE AGREEMENT THAT THE FAA SHALL PROVIDE THREE SPECIALISTS, FROM THE FAA AND THE VOL PE NATIONAL TRANSPORTATION SYSTEMS CENTRE, WITH BACKGROUND IN AIR TRAFFIC FLOW MANAGEMENT (FATM) TO TRAVEL TO NEW DELHI, INDIA, TO ASSIST THE ASSESSEE BY PARTICIPATING IN AN INDIAN NATIONAL AIR TRAFFIC REQUIREMENTS MEETING ON ATFM REQUIREMENTS WITH THE ASSESSEE AND THE INDUSTRY EXPERTS, IN OTHER WORDS, THE SPECIALISTS FROM THE FAA WILL SIMPLY PROVIDE THEIR INPUTS IN THE MEETINGS AT THE TIME OF DISCUSSION. IT IS CL EAR THAT THE THREE SPECIALISTS WILL NOT MAKE AVAILABLE ANY TECHNICAL KNOW-HOW OR OTHER RELATED THINGS TO THE ASSESSEE DURING THE COURSE OF THE MEETINGS. THE FINANCIAL PROVISIONS FOR THE AFORESAID ASSISTAN CE ARE CONTAINED IN ARTICLE III OF THE APPENDIX/ ANNEX. IT ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 26 PROVIDES THAT THE ESTIMATED COST FOR THE THREE SPEC IALISTS FOR THE REFERENCE PERIOD IS US$ 1,33,142, WHICH INC LUDES SALARY AND BENEFITS, TRANSPORTATION, PER DIEM AND F AA SUPPORT. IN OTHER WORDS, IT HAS SPECIFICALLY BEEN PROVIDED IN THE APPENDIX / ANNEX THAT THE ASSESSEE SHALL BE RESPONSIBLE TO PAY THE COST WHICH FAA WOULD INCU R IN SENDING THEIR SPECIALISTS TO INDIA. THE SECOND AGREEMENT HAS BEEN ENTERED INTO BY THE ASSESSEE WITH THE FAA ON 25.09.2009 NAMELY ANNEX 4 TO THE MOA. THIS APPENDIX / ANNEX PROVIDES THAT THE FA A SHALL ASSIST THE ASSESSEE IN THE FOLLOWING ACTIVITI ES: I. DEVELOPMENT OF DETAILED QUALITATIVE REQUIREMENTS FO R THE PROPOSED A TFM CAPACITY II. DEVELOPMENT OF DETAILED ATFM SYSTEM ARCHITECTURE AN D SPECIFICATIONS, AND III. DEVELOPMENT OF DRAFT IMPLEMENTATION PLAN. IT HAS BEEN PROVIDED IN THE AGREEMENT THAT THE FAA SHALL PROVIDE THE AFORESAID ASSISTANCE TO THE ASSESSEE IN THE FOLLOWING THREE SEPARATE PHASES: PHASE I: DEVELOPMENT OF DETAILED QUALITATIVE REQUIR EMENTS (QRS) TO INCLUDE: I. REVIEW OF US ATFM CAPABILITIES, INCLUDING OPERATING OPERATIONS AND SYSTEMS. II. ANALYSES OF INDIAS FUTURE A TM PLAN, AND III. DOCUMENTATION OF QRS ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 27 PHASE II: PREPARATION OF DETAILED SYSTEM ARCHITECTU RE AND SPECIFICATIONS THAT WILL SATISFY THE DETAILED QRS E LICITED IN THE PREVIOUS TASK PHASE III: PREPARATION OF A ROAD MAP DRAFT IMPLEMEN TATION PLAN TO INCLUDE A TIME FRAME ALONG WITH REQUIREMENTS FOR LABOUR, TRAINEES AND ATFM PROCEDURES. THE COST WHICH FAA WOULD INCUR IN PROVIDING THE AFO RESAID SERVICES HAS BEEN DETAILED IN ARTICLE V FINANCIAL P ROVISIONS. THE ARTICLE CONTAINS IN DETAIL THE SEPARATE COST FO R EACH PHASE. THE COST HAS BEEN IDENTIFIED SEPARATELY BECA USE OF THE FACT THAT THE PHASES ARE SEPARATELY IDENTIFIABL E AND IN CASE OF TERMINATION OF THE AGREEMENT, THE ASSESSEE SHALL BE LIABLE TO PAY THE COST INCURRED UPTO THE PHASES COM PLETED. IT HAS BEEN CLEARLY PROVIDED IN ARTICLE V FINANCIAL PR OVISIONS THAT THE TOTAL COST OF COMPLETING THE ENTIRE PHASES WOULD BE US$ 4,94,100. A DISPUTE OFTEN ARISES WHEN THE PAYER OF THE AMOUNT TO THE NON-RESIDENT FEELS THAT THE AMOUNT TO BE REMITTED B Y HIM IS NOT RECIPIENTS INCOME CHARGEABLE UNDER THE INDI AN INCOME-TAX ACT. SHOULD THE PAYER IN SUCH A CASE DED UCT TAX AT SOURCE? THE LD. AR RELIED ON THE FOLLOWING JUDGMENTS: HIGH COURT/AAR CIT VS DUNLOP RUBBER CO. LTD. [142 ITR 493 (CAL)] DECTAVS CIT [23 7 ITR 190 (AAR)] ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 28 TATA ENGINEERING & LOCOMOTIVE COMPANY LIMITED (2000 ) 245 ITR 823 SIEMENS, 310 ITR 320 (BOM) ITAT CLIFFORD CHANCE, 82 ITD 106 (BOM) RAYMOND LTD., 86 ITD 791 (BOM) MODICON NETWORK, 14 SOT 204 (DEL) IT WAS ARGUED THAT FROM THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT AS WELL AS OTHER HIGH COU RTS THAT THE REIMBURSEMENT OF EXPENSES UNDER NO CIRCUMSTANCE S CAN BE REGARDED AS INCOME. THEREFORE, IN THE INSTAN T CASE, WHAT HAS BEEN PAID BY THE ASSESSEE TO THE NON-RESID ENT, I.E. FAA IS NOTHING BUT THE REIMBURSEMENT OF EXPENS ES WHICH THE FAA WOULD INCUR IN PROVIDING SUCH SERVICE S. THEREFORE, THE SUM PAID BY THE ASSESSEE TO THE NON- RESIDENT IS NOT CHARGEABLE TO TAX IN INDIA. UNDER THE AFORESAID CIRCUMSTANCES, IF THE SUM PAID TO THE FAA IS NOT CHARGEABLE TO TAX IN INDIA, THEN THE PRO VISIONS OF SECTION 195 CANNOT BE APPLIED. THEREFORE, WE RESPECTFULLY SUBMIT THAT THE SUM PAID BY THE ASSESS EE TO THE FAA MAY KINDLY BE ALLOWED TO BE REMITTED WITHOU T ANY DEDUCTION OF TDS. THE SECOND CONTENTION OF THE APPELLANT IS THAT IT I S A PAYMENT TO THE GOVERNMENT; THEREFORE, THE PROVISION S OF SECTION 196 SHALL APPLY. AND ACCORDINGLY, NO TDS IS REQUIRED TO BE DEDUCTED IN THE INSTANT CASE ON THE ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 29 PAYMENTS MADE BY THE ASSESSEE. IN THIS REGARD, THE APPELLANT HAS SUBMITTED AS UNDER: SECTION 196 OF THE INCOME-TAX ACT PROVIDES AS UNDER : NOTWITHSTANDING ANYTHING CONTAINED IN THE FOREGOING PROVISIONS OF THIS CHAPTER, NO DEDUCTION OF TAX SHA LL BE MADE BY ANY PERSON FROM ANY SUMS PAYABLE TO.. I. THE GOVERNMENT, OR II. THE RESERVE BANK OF INDIA, OR III. ............ IV. ............ WHERE SUCH SUM IS PAYABLE TO IT BY WAY OF INTEREST OR DIVIDEND IN RESPECT OF ANY SECURITY OR SHARES OWNED BY IT OR IN WHICH IT HAS FULL BENEFICIAL INTEREST, OR ANY OT HER INCOME ACCRUING OR ARISING TO IT. IT IS CLEAR FROM THE AFORESAID REPRODUCED PROVISION THAT THE PROVISION OF TDS SHALL NOT APPLY IN CASE PAYMENT IS TO BE MADE TO A GOVERNMENT. IN THE INSTANT CASE, THE ASSE SSEE IS MAKING PAYMENT TO THE GOVERNMENT. THEREFORE, THE PROVISIONS OF SECTION 196 SHALL APPLY. PROVISIONS O F 196 OVERRIDE THE PROVISIONS CONTAINED IN SECTION 195. T HEREFORE, WE RESPECTFULLY SUBMIT THAT APPLYING THE PROVISION OF SECTION 196, NO TDS SHOULD BE DEDUCTED IN THE INSTANT CASE. THE LD. AO IN ITS ASSESSMENT ORDER AT PAGE 2 TO 4 O F ORDER HAS OBSERVED THAT NO IMMUNITY FROM TAXATION HAS BEE N GRANTED BY REFERRING TO VARIOUS PROVISIONS OF THE I NCOME-TAX ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 30 ACT AND SOME OF THE DECISIONS OF THE COURTS. HOWEVE R, THE LD. AO HAS NOT MADE ANY REFERENCE TO THE PROVISION OF S ECTION 196. THEREFORE, WE RESPECTFULLY SUBMIT THAT THE PRO VISIONS OF SECTION 196 ARE CLEARLY APPLICABLE IN THE INSTANT C ASE, AND ACCORDINGLY, NO TDS CAN BE DEDUCTED ON PAYMENT MADE TO GOVERNMENT. IN ADDITION TO THE AFORESAID, DURING THE COURSE OF HEARING THE ASSESSEE HAS SUBMITTED AS UNDER: IN A TAXING ACT, ONE HAS TO LOOK MERELY AT WHAT IS CLEARLY SAID. THERE IS NO ROOM FOR ANY INTENDEMENT. THERE I S NO EQUITY ABOUT A TAX. THERE IS NO PRESUMPTION TO TAX. NOTHING IS TO BE READ IN, NOTHING IS TO BE IMPLIED. ONE CAN ONLY LOOK FAIRLY AT THE LANGUAGE USED. IN THIS REGARD, THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F MODI SUGAR MILLS LIMITED AIR 1961 SC 1047. THE THIRD CONTENTION TAKEN BY THE APPELLANT IS THAT THERE ARE TWO SEPARATE AGREEMENTS, WHICH THE APPELLANT HA S SIGNED WITH THE FAA, IN RESPECT OF THE FIRST AGREEM ENT, IT WAS SUBMITTED THAT THE ASSISTANCE BY THE FAA DOES N OT MAKE AVAILABLE ANY TECHNOLOGY TO THE ASSESSEE. THER EFORE, NOTHING UNDER THIS AGREEMENT SHOULD BE HELD AS TAXA BLE IN INDIA. IN RESPECT OF THE SECOND AGREEMENT, IT WAS SUBMITTED THAT THE MAXIMUM AMOUNT WHICH COULD BE HE LD AS FEES FOR INCLUDED SERVICES AMOUNT TO US$ 3,13,20 0 RELATING TO THE ASSISTANCE MENTIONED IN PHASE II AN D III OF ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 31 THE AGREEMENT. THE APPELLANT HAS FILED DETAILED SUB MISSION IN THIS REGARD, WHICH IS AS UNDER: IT IS CLEAR FROM THE AFORESAID DETAILS THAT IN PURS UANCE OF THE GENERAL MOA ENTERED INTO BETWEEN GOVT. OF USA A ND GOVT. OF INDIA, THE ASSESSEE HAS ENTERED INTO TWO D IFFERENT AND SEPARATE AGREEMENTS FOR THE PURPOSE OF ACHIEVIN G THE GENERAL PURPOSE OF ENCOURAGING SAFETY IN AIR TRAFFI C. THE AGREEMENTS CONTAIN IN DETAIL THE PURPOSE FOR WHICH THE AGREEMENT HAS BEEN ENTERED INTO BY THE ASSESSEE WIT H THE FAA. FURTHER, THE COST WHICH THE FAA WOULD INCUR IN PROVIDING THE ASSISTANCE MENTIONED IN THE AGREEMENT , HAS BEEN DETAILED IN THE EACH OF THE AGREEMENTS. IN THIS RESPECT, IT WAS SUBMITTED THAT THE TAXABILI TY OF THE FAA WILL BE SUBJECT TO THE PROVISIONS OF DOUBLE TAX ATION AVOIDANCE AGREEMENT WHICH INDIA HAS SIGNED WITH USA . IT IS A WELL SETTLED AND INTERNATIONALLY ACCEPTED PRIN CIPLE THAT IN CASE OF CONFLICT BETWEEN DTAA AND THE DOMESTIC L AW, THE PROVISIONS OF DTAA WILL PREVAIL. PROVISIONS OF DOME STIC LAW MAY BE GIVEN EFFECT ONLY IN CASE THEY ARE MORE BENE FICIAL TO THE ASSESSEE. REFERENCE IN THIS CONNECTION MAY B E MADE TO SUPREME COURT DECISION IN CASE OF AZADI BACHAO A NDOLAN 263 ITR 706. FEES FOR INCLUDED SERVICES HAS BEEN DEFINED IN PARA 4 OF ARTICLE 12. THE ARGUMENTS OF THE LD. AR ARE AS UNDE R: FOR PURPOSES OF THIS ARTICLE, FEES FOR INCLUDED S ERVICES MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 32 THROUGH THE PROVISION OF SERVICES OF TECHNICAL OR O THER PERSONNEL) IF SUCH SERVICES: (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATIO N OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIBED IN PARAGRAPH 3 IS RECEIVED; OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW, OR PROCESSES, OR CONSIST OF THE DEVELOPME NT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. IT IS CLEAR FROM THE DEFINITION THAT IF PAYMENT HAS BEEN MADE IN RESPECT OF ANY OF THE SERVICES PRESCRIBED IN CLAUSE (A) OR (B) OF THE ABOVE REPRODUCED ARTICLE, THEN THE SUM PAID SHA LL BE TREATED AS PAID FOR FEES FOR INCLUDED SERVICES. CLAUSE (B) OF THE ARTICLE PROVIDES TWO LIMBS, VIZ: I. MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKI LL, KNOW- HOW OR PROCESSES II. CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNI CAL PLAN OR TECHNICAL DESIGN. APPLICABILITY OF FIRST LIMB THIS CLAUSE PROVIDES THAT THE SERVICES SHALL BE TRE ATED AS FEES FOR INCLUDED SERVICES, IF IT MAKE AVAILABLE THE TECHN OLOGY OR OTHER EXPERTISE. THE WORD MAKE AVAILABLE HAS BEEN INTER PRETED IN VARIOUS JUDGMENTS OF THE HONBLE HIGH COURT AND AUTHORITY F OR ADVANCE RULINGS. IN THE CASE OF ERNEST AND YOUNG P. LTD. DA TED 19.03.2010 AND BHARATI AXA GENERAL INSURANCE CO LTD DATED 06.0 8.2010, THE HONBLE AAR HELD THAT MAKE AVAILABLE MEANS WHEN T HE PERSON ACQUIRING THE TECHNOLOGY IS ENABLED TO APPLY THE TE CHNOLOGY. THE PHRASE MAKE AVAILABLE HAS BEEN EXPLAINED IN T HE MOU OF THE DTAA BETWEEN INDIA AND USA AS FOLLOWS: ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 33 GENERALLY SPEAKING, TECHNOLOGY WILL BE CONSIDERED MADE AVAILABLE WHEN THE PERSON ACQUIRING THE SERVICE IS ENABLED TO APPLY THE TECHNOLOGY. THE FACT THAT THE PROVISION O F THE SERVICE MAY REQUIRE TECHNICAL INPUT BY THE PERSON PROVIDING THE SERVICE DOES NOT PER SE MEAN THAT TECHNICAL KNOWLEDGE, SKIL LS ETC., ARE MADE AVAILABLE TO THE PERSON PURCHASING THE SERVICE , WITHIN THE MEANING OF PARAGRAPH 4(B). SIMILARLY, THE USE OF PR ODUCT WHICH EMBODIES TECHNOLOGY SHALL NOT PER SE BE CONSIDERED TO MAKE TECHNOLOGY AVAILABLE. THEREFORE, IN ORDER TO BE COVERED BY THIS PROVISION , IT IS A NECESSARY CONDITION THAT THE SERVICE PROVIDED SHOULD MAKE AVA ILABLE THE TECHNOLOGY WHICH ENABLES THE PERSON ACQUIRING THE S ERVICE TO APPLY THE TECHNOLOGY. APPLICABILITY OF SECOND LIMB THIS CLAUSE PROVIDES THAT IF SERVICES CONSIST OF TH E DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN, T HEN PAYMENT FOR SUCH SERVICES SHALL BE TREATED AS FEES FOR INCLUDED SERVICES. IN THE INSTANT CASE, THE ASSESSEE HAS ENTERED INTO TWO SEP ARATE AGREEMENTS WITH THE FAA. AND THE AGREEMENTS DEFINE SEPARATELY THE REIMBURSEMENT AMOUNT WHICH THE ASSESSEE WILL BE LIA BLE TO PAY FOR THE VARIOUS ASSISTANCES. THEREFORE, THE APPLICABILI TY OF THE AFORESAID CLAUSES HAS TO BE CHECKED WITH REFERENCE TO EACH AG REEMENT INDIVIDUALLY. THE LD AO AT PAGE 7 AND 8 OF THE ORDER HAS OBSERVED THAT THE ACTIVITY CANNOT BE CONSIDERED IN ISOLATION WHEN IT IS A PART OF SERIES OF TRANSACTIONS TAKING PLACE FOR A CRYSTALLIZED OBJ ECTIVE. AND THEREAFTER, THE LD. AO HAS DECIDED THE APPLICABILIT Y OF THE TDS CONSIDERING BOTH THE AGREEMENTS TOGETHER WITHOUT CO NSIDERING THE INDIVIDUAL TRANSACTIONS AS DETAILED IN THE AGREEMEN T. ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 34 IN THIS RESPECT, WE RESPECTFULLY SUBMIT THAT THE HO NBLE AUTHORITY FOR ADVANCE RULINGS IN THE CASE OF ROTEM COMPANY, IN RE , 279 ITR 165 HAS HELD THAT WHERE THE AGREEMENT PROVIDES FOR VARI OUS SERVICES, AND CONTAINS BREAK-UP OF THE CONTRACT PRICE WITH REFERE NCE TO THE SERVICES, THEN EACH SERVICE HAS TO BE EXAMINED INDI VIDUALLY FOR THE PURPOSE OF DETERMINING THE APPLICABILITY OF TAXABIL ITY IN INDIA. IN THE INSTANT CASE ALSO, THE AGREEMENTS CONTAIN BR EAK UP OF EACH OF THE ASSISTANCE WHICH THE FAA WOULD PROVIDE TO THE A SSESSEE. THEREFORE, APPLYING THE DECISION OF THE AAR, WE CON TEND THAT EACH AGREEMENT SHOULD BE EXAMINED SEPARATELY AND FURTHER , EACH PHASE IN THE AGREEMENT SHOULD ALSO BE EXAMINED SEPARATELY FO R THE PURPOSE OF EXAMINING THE TAXABILITY IN INDIA. ACCORDINGLY, WE HEREBY SUBMIT OUR AGREEMENTS ON THE TAXABILITY OF DIFFERENT AGREEMENTS: ANALYSIS OF THE FIRST AGREEMENT (APPENDIX 2 AND ANN EXE 3 TO THE MOA) THIS AGREEMENT PROVIDES IN DETAIL THE SPECIFIC ASSI STANCE WHICH FAA WILL PROVIDE IN PURSUANCE OF THE AFORESAID AGREEMEN T. IT HAS BEEN PROVIDED IN THE AGREEMENT THAT THE FAA SHALL PROVID E THREE SPECIALISTS, FROM THE FAA AND THE VOLPE NATIONAL TR ANSPORTATION SYSTEMS CENTRE, WITH BACKGROUND IN AIR TRAFFIC FLOW MANAGEMENT (FATM) TO TRAVEL TO NEW DELHI, INDIA, TO ASSIST THE ASSESSEE BY PARTICIPATING IN AN INDIAN NATIONAL AIR TRAFFIC REQ UIREMENTS MEETING ON ATFM REQUIREMENTS WITH THE ASSESSEE AND THE INDU STRY EXPERTS. THE AFORESAID ASSISTANCE PROVIDED BY THE FAA DOES N OT MAKE AVAILABLE TO THE ASSESSEE ANY TECHNICAL KNOWLEDGE O R OTHER THINGS AS CONTEMPLATED IN ARTICLE 12(4)(B). THIS IS BECAUSE O F THE FACT THAT THE PARTICIPATION OF THE SPECIALISTS IN THE MEETING HEL D IN INDIA DOES NOT PROVIDE THE ASSESSEE THE CAPABILITY TO USE THE KNOW LEDGE AND ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 35 EXPERIENCE OF THE SPECIALISTS. THEREFORE, IT CAN BE CONCLUDED THAT THE FIRST LIMB OF ARTICLE 12(4)(B) DOES NOT APPLY IN TH E INSTANT CASE. THE SECOND LIMB PROVIDES THAT IF THE SERVICES CONSI ST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TEC HNICAL DESIGN, THEN PAYMENT FOR SUCH SERVICES SHALL BE TREATED AS FEES FOR INCLUDED SERVICES, IN THE INSTANT CASE, IT IS CLEAR FROM THE AGREEMENT ITSELF THAT NO SUCH PLAN OR DESIGN WILL BE PROVIDED BY THE SPECIALISTS WHO WILL VISIT INDIA, THEREFORE, THIS LIMB OF THE ARTIC LE IS ALSO NOT APPLICABLE IN THE INSTANT CASE. THEREFORE, THE ASSISTANCE PROVIDED BY THE FAA IN TH E FIRST AGREEMENT BY NO STRETCH OF IMAGINATION CAN BE SAID TO FALL WI THIN THE DEFINITION OF THE FTS AS CONTAINED IN ARTICLE 12 OF THE INDO-U SA DTAA. UNDER THE CIRCUMSTANCES, SUCH ASSISTANCE CAN AT THE MOST FALL WITHIN THE MEANING OF BUSINESS PROFITS AS CONTAINED IN ARTICLE 7 OF THE DTAA. HOWEVER, ARTICLE 7 PROVIDES THAT THE SUM WILL BE TA XABLE IN INDIA ONLY IN A CASE WHERE THE NON-RESIDENT (I.E. THE FAA) HAS ANY PERMANENT ESTABLISHMENT IN INDIA. IN THE INSTANT CASE, IT HAS ALREADY BEEN SUBMITTED BEFORE THE LD. AO THAT THE FAA DOES NOT H AVE ANY PERMANENT ESTABLISHMENT IN INDIA AND THIS FACT HAS ALSO NOT BEEN DOUBTED BY THE AO. THEREFORE, WE RESPECTFULLY SUBMI T THAT THE COST REIMBURSED TOWARDS THE FIRST AGREEMENT AMOUNTING TO USD 1,33,142 IS NOT TAXABLE IN INDIA. ANALYSIS OF THE SECOND AGREEMENT (ANNEXE 4 TO THE M OA) THE SECOND AGREEMENT HAS BEEN ENTERED INTO BY THE A SSESSEE WITH THE FAA ON 25.09.2009 VIDE ANNEX 4 TO THE MOA. THIS APPENDIX/ ANNEX PROVIDES THAT THE FAA SHALL ASSIST THE ASSESS EE IN THE FOLLOWING ACTIVITIES: A. DEVELOPMENT OF DETAILED QUALITATIVE REQUIREMENTS FO R THE PROPOSED A TFM CAPACITY ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 36 B. DEVELOPMENT OF DETAILED ATFM SYSTEM ARCHITECTURE AN D SPECIFICATIONS, AND C. DEVELOPMENT OF DRAFT IMPLEMENTATION PLAN. IT HAS BEEN PROVIDED IN THE AGREEMENT THAT THE FAA SHALL PROVIDE THE AFORESAID ASSISTANCE TO THE ASSESSEE IN THE FOLLOWI NG THREE SEPARATE PHASES: PHASE I: DEVELOPMENT OF DETAILED QUALITATIVE REQUIR EMENTS (QRS) TO INCLUDE: I. REVIEW OF US ATFM CAPABILITIES, INCLUDING OPERAT ING OPERATIONS AND SYSTEMS, J. ANALYSES OF INDIAS FUTURE ATM PLAN, AND K. DOCUMENTATION OF QRS PHASE II: PREPARATION OF DETAILED SYSTEM ARCHITECTU RE AND SPECIFICATIONS THAT WILL SATISFY THE DETAILED QRS E LICITED IN THE PREVIOUS TASK PHASE III: PREPARATION OF A ROAD MAP DRAFT IMPLEMEN TATION PLAN TO INCLUDE A TIME FRAME ALONG WITH REQUIREMENTS FOR LA BOUR, TRAINEES AND ATFM PROCEDURES. THE AGREEMENT VIDE ARTICLE V - FINANCIAL PROVISIONS PROVIDES FOR THE PHASE WISE COST, WHICH THE FAA WOULD INCUR IN COMPL ETION OF THE DIFFERENT PHASES, IT PROVIDES THAT THE ESTIMATED CO ST OF COMPLETING PHASE 1, 2 AND 3 ACTIVITIES UNDER THIS ANNEX IS US $ 4,94,100, THE ASSESSEE SHALL PAY TO THE FAA ALL COST INCURRED IN PROVIDING SERVICES UNDER THE ANNEX, IN ACCORDANCE WITH THE FOLLOWING S CHEDULE: US$ 25,800 TOWARDS REVIEW OF THE AERONAUTICAL INFOR MATION US$ 37,800 TOWARDS ANALYSES OF INDIAS FUTURE ATFM PLAN US$ 1,17,300 TOWARDS DOCUMENTATION OF THE QUALITATI VE REQUIREMENT US$1,62,000 TOWARDS PREPARATION OF THE SYSTEM ARCHI TECTURE ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 37 AND SPECIFICATIONS USS 1,51,200 TOWARDS PREPARATION OF THE ROAD MAP, D RAFT IMPLEMENTATION PLAN. US$4,94,100 THEREFORE, IT BECOMES NECESSARY THAT THE TAXABILITY OF EACH OF THE PHASES SHOULD BE EXAMINED SEPARATELY. THE FIRST PHASE INVOLVES ANALYSIS OF THE EXISTING A TFM SYSTEM IN INDIA AND ITS COMPARISON WITH THE SYSTEM IN USA AND THEREAFTER, DOCUMENTING THE QRS. THIS ASSISTANCE NEITHER INVOLV ES DEVELOPMENT OF ANY PLAN OR DESIGN OR IT MAKES AVAILABLE ANY OTH ER TECHNICAL KNOWLEDGE. THEREFORE, THE ASSISTANCE PROVIDED BY TH E FAA IN THE FIRST PHASE CANNOT BE HELD AS TAXABLE AS INDIA. THE SECON D AND THIRD PHASE OF ASSISTANCE PREPARATION OF ROAD MAP AND DRA FT IMPLEMENTATION.. 11. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. 12. THE PARTIES MAINLY ARGUED ON THREE ISSUES WITH REGARD TO LIABILITY OF DEDUCTION TDS, A. WHETHER THE PAYMENT IS MADE TO A SOVEREIGN STATE (F AA) BY ANOTHER SOVEREIGN STATE (AAI) IS NOT TAXABLE AND HENCE NO TDS IS DEDUCTIBLE OR NOT ? B. WHETHER BASED ON THE AGREEMENTS, THE PAYMENT IS IN THE NATURE OF REIMBURSEMENT ARE NOT ? C. WHETHER THE SERVICES RENDERED ARE IN THE NATURE OF FTS CHARGEABLE TO TAX UNDER DTAA OR NOT ? WHETHER THE PAYMENT IS MADE A SOVEREIGN STATE (FAA) BY ANOTHER SOVEREIGN STATE (AAI) IS NOT TAXABLE AND HE NCE NO TDS IS DEDUCTIBLE OR NOT ? ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 38 13. WE HAVE GONE THROUGH THE ENTIRE FACTUM OF THE C ASE. THE ARGUMENT OF THE APPELLANT THAT SINCE PAYMENT IS MAD E TO FAA WHICH IS A US GOVERNMENT ORGANIZATION, IT CANNOT BE SUBJECTED TO TDS AS PER SECTION 196 CANNOT BE ACCEPTED. WE FI ND THAT AAI IS A GOVERNMENT ORGANIZATION UNDER MINISTRY OF CIVI L AVIATION IS A MINI RATNA, CATEGORY-1, PUBLIC SECTOR UNDERTAKING RUNNING ORGANIZATION UNDER COMMERCIAL TERMS, EARNING PROFIT AND PAYING TAXES TO THE GOVERNMENT OF INDIA WHICH IS A PART OF CONSOLIDATED FUND OF INDIA. SIMILARLY, THE FAA IS AN ORGANIZATIO N INVOLVED IN AIRPORT MANAGEMENT, AIRCRAFT CERTIFICATION, ADVISOR Y AND CONSULTANCY. THE MAIN SOURCES OF INCOME ARE GRANTS, AIRPORT AND AIRWAYS TRUST FUND (AATF). THUS, IT CAN ALSO BE CONSIDERED AS AN ORGANIZATION UNDER THE GOVERNMENT WITH BUDGET ARY SUPPORT OF THE STATE AND RECOURSES OF ITS OWN BUT N OT A GOVERNMENT UNTO ITSELF. THE EMPLOYEES OF BOTH THE ORGANIZATIONS NAMELY AAI AND FAA ARE CALLED GOVERNM ENT EMPLOYEES FOR THE CONVENIENCE OF IMPLEMENTATION AGR EEMENTS. THE AGREEMENT BETWEEN AAI AND FAA IS OF A COMMERCIA L CHARACTER ( ACTA JURE GESTIONIS) AND STATE IS NOT LIABLE FOR THE ACTIONS OR CONTRACTS ENTERED BETWEEN THE PARTIES WH ICH IS DIFFERENT FROM ACTS OF STATE AND ITS SOVEREIGN CAPA CITY ( ACTA JURE IMPERII ). HENCE, THE PAYMENTS ARE NOT EXCLUDED FROM THE PURVIEW OF SECTION 196 ON THIS GROUND. FAA PER SE CANNOT BE TREATED AS A FOREIGN SOVEREIGN GOVERNMENT. THERE IS NO GENERAL IMMUNITY FROM TAXATION UNLESS SPECIFIED WHICH IS FO UND ABSENT BY GOING THROUGH THE AGREEMENTS ENTERED BETWEEN THE TWO ORGANIZATIONS. THAT LEADS TO A CONCLUSION THAT THE TAXABILITY IS DETERMINED BASED ON THE LAW OF THE LAND AND THE TRE ATIES ENTERED BETWEEN TWO NATIONS AS SOVEREIGN ENTITIES. IN CASE OF PRESENCE OF A TREATY OR AGREEMENTS LIKE DTAA, THEY MAY TAKE ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 39 PRECEDENCE IN DETERMINATION OF THE TAXABILITY OF TH E ENTITIES INVOLVED. REFERENCE IS ALSO INVITED TO THE PROVISIO NS OF SECTION 10(15A) WHEREIN THE PAYMENTS MADE TO FOREIGN GOVERN MENT ARE EXEMPT. ARTICLE 285 AND ARTICLE 289 PROVIDES FOR CO LLECTION OF TAXES AND THE EXEMPTION OF ITEMS FROM THE PURVIEW O F TAXATION. THUS, WE FIND THAT WHEREVER THE LEGISLATURE INTENDE D TO ACCORD EXEMPTION, THEY HAVE BEEN SPECIFICALLY PROVIDED FOR IN THE INCOME TAX ACT. THE WORDS USED THE GOVERNMENT CAN NOT BE USED TO CONNOTE A FOREIGN GOVERNMENT TOO. 14. TO CONCLUDE, WE HEREBY HOLD THAT THE TRANSACTIO NS BETWEEN THE AAI AND FAA AND THE PROFITS ARISE THEREOF WOULD BE SUBJECTED TO PROVISIONS OF INDIAN INCOME TAX ACT. B. WHETHER BASED ON THE AGREEMENTS, THE PAYMENT IS IN THE NATURE OF REIMBURSEMENT ARE NOT ? 15. ON GOING THROUGH THE AGREEMENTS, WE FIND THAT T HE AGREEMENT DATED 13.11.2006 SIGNED BETWEEN THE JOINT SECRETARY, MINISTRY OF CIVIL AVIATION AND THE FAA A DMINISTRATOR WAS PRIMARILY ON THE PEDESTAL OF INCURRING OF EXPEN SES ON REIMBURSEMENT BASIS FOR PROVIDING TECHNICAL ASSISTA NCE. 16. THE FIRST PARA READS AS UNDER: 1) WHEREAS, THE FEDERAL AVIATION ADMINISTRATION (FA A) OF THE DEPARTMENT OF TRANSPORTATION OF THE UNITED STATES O F AMERICA IS DIRECTED TO ENCOURAGE THE DEVELOPMENT OF CIVIL AERO NAUTICS AND THE SAFETY OF AIR COMMERCE, AND IS AUTHORIZED TO FU RNISH ON A REIMBURSABLE BASIS TO FOREIGN GOVERNMENTS CERTAIN T ECHNICAL ASSISTANCE TO THAT END. ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 40 17. ARTICLE VI READS AS UNDER: 2) ARTICLE VI- FINANCIAL PROVISIONS THE MOCA SHALL REIMBURSE THE FAA, IN ACCORDANCE WIT H THE PROVISIONS SET FORTH IN THIS AGREEMENT AND ITS ANNE XES AND APPENDICES, FOR ALL COSTS ASSOCIATED WITH THE TECHN ICAL ASSISTANCE PROVIDED BY THE FAA. IN THE EVENT OF A T ERMINATION BY EITHER PARTY UNDER ARTICLE XI OF THIS AGREEMENT, THE MOCA SHALL PAY: 1. ALL COSTS INCURRED BY THE FAA PRIOR TO THE DATE OF SUCH TERMINATION; AND 2. ALL TERMINATION COSTS INCURRED BY THE FAA DURING TH E 120 DAY CLOSE OUT PERIOD. 18. THE MOA BETWEEN FAA AND AAI DATED 02.08.2009 SI GNED BETWEEN ASSISTANT ADMINISTRATOR- FAA AND EXECUTIVE DIRECTOR- AAI, ARTICLE III FINANCIAL PROVISIONS PROVIDES FO R DEPUTING THREE SPECIALISTS FROM FAA FOR PARTICIPATING IN AIR TRAFFIC FLOW MANAGEMENT (ATFM) AND AAI SHALL REIMBURSE THE FAA F OR ALL COSTS INCURRED BY FAA IN PROVIDING THE SERVICES. TH E AMOUNTS ARE PAID TO FAA ACCOUNT OF US TREASURY, FEDERAL RES ERVE BANK OF NEW YORK. 19. ARTICLE VI- TERMINATION OF COSTS. THIS ARTICLE PROVIDES THAT THE AAI SHALL PAY THE COSTS INCURRED BY THE FAA IN CASE THE AGREEMENT IS TERMINATED. ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 41 20. ON GOING THROUGH THE ABOVE, WE FIND THAT FAA IS PROVIDING ASSISTANCE IN DEVELOPING AND MODERNIZING CIVIL AVIA TION INFRASTRUCTURE IN INDIA IN THE MANAGERIAL, OPERATIO NAL AND TECHNICAL AREAS. THE AGREEMENT DID NOT SPECIFY ANY MARK UP AMOUNTS OR PERCENTAGE OR SERVICE CHARGES BUT IT ONL Y TALKS ABOUT REIMBURSEMENT OF EXPENSES INCURRED BY FAA. 21. THUS, WE FIND THAT THE AGREEMENT MAINLY REVOLVE S AROUND SPECIFICATION OF ASSISTANCE, ITS COSTING AND REIMBU RSEMENT THEREOF. HAVING SAID THAT, THE PROVISIONS OF THE IN COME TAX ACT WITH REGARD TO TDS ON REIMBURSEMENTS ARE BEING EX AMINED. 22. SECTION 195 OF THE ACT READS AS UNDER: ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDEN T, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTEREST OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYE E OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHE QUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATES IN FORCE: 23. THE ACT CLEARLY SPECIFIES THAT THE TDS PROVISIO NS ARE INVITED WHEN THE PAYMENTS ARE CHARGEABLE UNDER THE PROVISIONS OF THIS ACT. WE ARE GUIDED BY THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CE N. P. LTD VS CIT 327 ITR 456. THE HONBLE COURT HELD THAT ON ANALYSIS OF VARIOUS PROVISIONS OF CHAPTER XVII ONE FINDS USE OF DIFFERENT EXPRESSIONS, HOWEVER, THE EXPRESSION 'SUM CHARGEABL E UNDER THE PROVISIONS OF THE ACT' IS USED ONLY IN SECTION 195. FOR EXAMPLE, SECTION 194C CASTS AN OBLIGATION TO DEDUCT TAX IN ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 42 RESPECT OF 'ANY SUM PAID TO ANY RESIDENT'. SIMILARL Y, SECTIONS 194EE AND 194F PROVIDE FOR DEDUCTION OF TAX IN RESP ECT OF 'ANY AMOUNT' REFERRED TO IN THE SPECIFIED PROVISIONS. IN NONE OF THE PROVISIONS THE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT', WHICH AS STATED ABOVE, IS AN EXPRESSIO N USED ONLY IN SECTION 195(1). IT FOLLOWS, THEREFORE, THAT THE OBLIGATION TO DEDUCT TAX ARISES ONLY WHEN THERE IS A SUM CHARGEAB LE UNDER THE ACT. SECTION 195(2) IS NOT MERELY A PROVISION T O PROVIDE INFORMATION TO THE ITO(TDS). IT IS A PROVISION REQU IRING TAX TO BE DEDUCTED AT SOURCE TO BE PAID TO THE REVENUE BY THE PAYER WHO MAKES PAYMENT TO A NON- RESIDENT. THEREFORE, S ECTION 195 HAS TO BE READ IN CONFORMITY WITH THE CHARGING PROV ISIONS, I.E., SECTIONS 4, 5 AND 9. THIS REASONING FLOWS FROM THE WORDS 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' IN SECT ION 195(1). THE FACT THAT THE REVENUE HAS NOT OBTAINED ANY INFO RMATION PER SE CANNOT BE A GROUND TO CONSTRUE SECTION 195 WIDEL Y SO AS TO REQUIRE DEDUCTION OF TAX EVEN IN A CASE WHERE AN AM OUNT PAID IS NOT CHARGEABLE TO TAX IN INDIA AT ALL. THE MOMENT T HERE IS REMITTANCE THE OBLIGATION TO DEDUCT TAX DOESNT ARI SE AUTOMATICALLY. DOING SO, WOULD MEAN OBLITERATION OF THE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' FROM SECTION 195(1). WHILE INTERPRETING A SECTION O NE HAS TO GIVE WEIGHTAGE TO EVERY WORD USED IN THAT SECTION. WHILE INTERPRETING THE PROVISIONS OF THE INCOME TAX ACT O NE CANNOT READ THE CHARGING SECTIONS OF THAT ACT DE HORS THE MACHINERY SECTIONS. AS HELD IN THE CASE OF C.I.T. VS. ELI LIL LY & CO. (INDIA) (P.) LTD. [312 ITR 225] THE PROVISIONS FOR DEDUCTIO N OF TAS WHICH IS IN CHAPTER XVII DEALING WITH COLLECTION OF TAXES AND THE CHARGING PROVISIONS OF THE I.T. ACT FORM ONE SINGLE INTEGRAL, INSEPARABLE CODE AND, THEREFORE, THE PROVISIONS REL ATING TO TDS ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 43 APPLIES ONLY TO THOSE SUMS WHICH ARE 'CHARGEABLE TO TAX' UNDER THE I.T. ACT APPLIES ONLY TO THOSE SUMS WHICH ARE C HARGEABLE TO TAX UNDER THE I.T. ACT. 24. THE LAW HAS BEEN LAID DOWN CLEARLY THAT NO TDS IS REQUIRED ON THE AMOUNTS PAID ARE NOT CHARGEABLE UNDER THE PR OVISIONS OF THE INCOME TAX ACT. THIS LEADS US TO AN ISSUE AS TO WHETHER REIMBURSEMENTS ARE LIABLE TO TDS OR NOT? 25. THE WORD REIMBURSEMENT IN GENERAL ECONOMIC PA RLANCE IS TO BE UNDERSTOOD AS PAYBACK AS IT HAS NOT BEEN DE FINED SPECIFICALLY IN THE INDIAN INCOME TAX ACT. THE CAMB RIDGE ENGLISH DICTIONARY REIMBURSEMENT MEANS TO PAY BACK MONEY TO SOMEONE WHO HAS SPENT IT FOR YOU OR LOST IT BECAUSE OF YOU. REIMBURSEMENT IS NEITHER REWARD NOR COMPENSATION NO R INCOME FOR INCOME TAX PURPOSE. SINCE, IT DOESNT INCLUDE P AYMENT FOR SERVICES OVER AND ABOVE, IT CANNOT BE TREATED AS RO YALTY OR FEES. THERE HAS BEEN NO MARK UP OF EXPENSES HERE. IN THE INSTANT CASE, AAI HAS TO INCUR THE TRAVELLING, SALARY EXPEN SES TO THE THREE EMPLOYEES DEPUTED BY FAA FOR ASSISTING THE AA I. IN THIS SITUATION, THE AAI CAN PAY TRAVELLING EXPENSES AND SALARY FOR THE PERIOD OF 10 DAYS STIPULATED OR FAA CAN FOOT THE TR AVELLING BILL EXPENSES, PAY SALARY AND GET IT REIMBURSED FROM AAI . IN SUCH A SITUATION, FAA DOESNT GET ANY BENEFIT NOR IT IS DE TRIMENTAL TO AAI DO SO. IT IS A MATTER OF CONVENIENCE FOR THE PA RTIES INVOLVED. HENCE, THE PAYMENTS RECEIVED BY FAA WOULD NOT INVOLVE ANY ELEMENT OF PROFIT WHICH MAKES IT LIABLE TO PAY TAX IN INDIA. 26. PROVISIONS OF SECTION 4(2) READS IN RESPECT OF INCOME CHARGEABLE UNDER SUB-SECTION (1), INCOME-TAX SHALL BE DEDUCTED ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 44 AT THE SOURCE OR PAID IN ADVANCE, WHERE IT IS SO DE DUCTIBLE OR PAYABLE UNDER ANY PROVISIONS OF THIS ACT. 27. PROVISIONS OF SECTION 195(1) READS ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTEREST -[***] OR ANY OTHER S UM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT (NOT BE ING INCOME CHARGEABLE UNDER THE HEAD SALARIES [***]) SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYE E OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, D EDUCT INCOME-TAX THEREON AT THE RATES IN FORCE: 28. A CONCURRENT READING OF SECTION 4(2) AND SECTIO N 195(1), DENOTES THAT THE LIABILITY TO DEDUCT TAX ARISE ONLY WHEN THE PAYEE IS A NON-RESIDENT AND THE AMOUNT PAYABLE TO H IM IS CHARGEABLE TO TAX IN INDIA. 29. FROM THE PERUSAL OF THE AGREEMENT, SINCE THE PA YMENTS ARE ON COST TO COST BASIS WHICH DO NOT INVOLVE ANY ELEM ENT OF PROFIT, THE REIMBURSEMENT IS NOT LIABLE FOR ANY INCOME TAX PAYABLE AND ACCORDINGLY THE PROVISIONS OF TDS ARE NOT TO BE ATT RACTED. 30. THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DUNLOP RUBBER COMPANY LTD. 142 ITR 493 HELD THAT REIMBURSE MENT OF ACTUAL EXPENDITURE FROM AN INDIAN COMPANY CANNOT BE TREATED AS TAXABLE. REIMBURSEMENT BY THE VARY DEFINITION DO ESNT INCLUDE INCOME ELEMENT AND HENCE PROVISIONS OF TDS ARE NOT ATTRACTED. RELIANCE IS BEING PLACED ON THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS IND USTRIAL ENGINEERING PROJECTS 202 ITR 1014 (DEL.) WHEREIN IT WAS HELD ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 45 THAT REIMBURSEMENT EXPENSES CANNOT BE REGARDED AS R EVENUE RECEIPT, HENCE, NO TDS IS DEDUCTIBLE. WHETHER THE SERVICES RENDERED ARE IN THE NATURE OF FIS CHARGEABLE TO TAX UNDER DTAA OR NOT ? 31. THIS REQUIRES EXAMINATION OF, A. SERVICES RENDERED BY FAA AND B. ARTICLE 12(4) OF INDIA-USA DTAA 32. THE SERVICES RENDERED AS PER THE AGREEMENT ARE AS UNDER: FAA SHALL PROVIDE NECESSARY RESOURCES, PERSONAL AND RELATED SERVICES TO ASSIST THE AAI. TO ASSIST AAI BY PARTICIPATING IN INAT REQUIREMENTS , MEETING ON ATFM REQUIREMENTS. FAA SHALL ASSIST IN DEVELOPMENT OF I. DETAILED QUALITATIVE REQUIREMENTS FOR THE PROPOSED ATFM CAPACITY. II. DETAILED ATFM SYSTEM ARCHITECTURE AND SPECIFICATION S, AND III. DRAFT ATFM IMPLEMENTATION PLAN. FAA SHALL REVIEW US ATFM CAPABILITY VIS--VIS INDIA ATFM PLAN AND DOCUMENTATION OF QUALITATIVE REQUIREMENT. PREPARATION OF DETAILED SYSTEM ARCHITECTURE WITH TH E REGARD TO ABOVE QRS. PREPARATION OF ROAD MAP FOR DRAFT IMPLEMENTATION ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 46 33. IN THE BACKGROUND OF THE ABOVE ASSISTANCE OF FA A TO AAI, THE PROVISIONS OF ARTICLE 12(4) OF DTAA ARE EXAMINE D WHICH READ AS UNDER: ARTICLE 12 - ROYALTIES AND FEES FOR INCLUDED SERVI CES 1. ROYALTIES AND FEES FOR INCLUDED SERVICES ARISING IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTH ER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH ROYALTIES AND FEES FOR INCLUDED SE RVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THE Y ARISE AND ACCORDING TO THE LAWS OF THAT STATE; BUT IF THE BEN EFICIAL OWNER OF THE ROYALTIES OR FEES FOR INCLUDED SERVICES IS A RESIDENT OF THE OTHER CONTRACTING STATE, THE TAX SO CHARGED SHALL N OT EXCEED: (A) IN THE CASE OF ROYALTIES REFERRED TO IN SUB-PAR AGRAPH (A) OF PARAGRAPH 3 AND FEES FOR INCLUDED SERVICES AS DEFIN ED IN THIS ARTICLE [OTHER THAN SERVICES DESCRIBED IN SUBPARAGR APH (B) OF THIS PARAGRAPH] : (I) DURING THE FIRST FIVE TAXABLE YEARS FOR WHICH T HIS CONVENTION HAS EFFECT, (A) 15 PER CENT OF THE GROSS AMOUNT OF THE ROYALTIES OR FEES FOR INCLUDED SERVICES AS DEFINED IN THIS ARTICLE, W HERE THE PAYER OF THE ROYALTIES OR FEES IS THE GOVERNMEN T OF THAT CONTRACTING STATE, A POLITICAL SUB-DIVISION OR A PUBLIC SECTOR COMPANY ; (B) AND (B) 20 PER CENT OF THE GROSS AMOUNT OF THE ROYA LTIES OR FEES FOR INCLUDED SERVICES IN ALL OTHER CASES ; AND ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 47 (II) DURING THE SUBSEQUENT YEARS, 15 PER CENT OF TH E GROSS AMOUNT OF ROYALTIES OR FEES FOR INCLUDED SERVICES ; AND (B) IN THE CASE OF ROYALTIES REFERRED TO IN SUB-PAR AGRAPH (B) OF PARAGRAPH 3 AND FEES FOR INCLUDED SERVICES AS DE FINED IN THIS ARTICLE THAT ARE ANCILLARY AND SUBSIDIARY TO T HE ENJOYMENT OF THE PROPERTY FOR WHICH PAYMENT IS RECEIVED UNDER PARAGRAPH 3(B) OF THIS ARTICLE, 10 PER CENT OF THE GROSS AMOUNT OF THE ROYALTIES OR FEES FOR INCLUDED SERVIC ES. 3. THE TERM ROYALTIES AS USED IN THIS ARTICLE MEA NS : (A) PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FO R THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OR A LIT ERARY, ARTISTIC, OR SCIENTIFIC WORK, INCLUDING CINEMATOGRA PH FILMS OR WORK ON FILM, TAPE OR OTHER MEANS OF REPRODUCTIO N FOR USE IN CONNECTION WITH RADIO OR TELEVISION BROADCAS TING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECR ET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE, IN CLUDING GAINS DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT OR PROPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVITY, USE, OR DISPOSITION THEREOF ; AND (B) PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY INDUSTRIAL, COMMER CIAL, OR SCIENTIFIC EQUIPMENT, OTHER THAN PAYMENTS DERIVE D BY AN ENTERPRISE DESCRIBED IN PARAGRAPH 1 OF ARTICLE 8 (SHIPPING AND AIR TRANSPORT) FROM ACTIVITIES DESCRI BED IN PARAGRAPH 2(C) OR 3 OF ARTICLE 8. ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 48 4. FOR PURPOSES OF THIS ARTICLE, FEES FOR INCLUDED SERVICES MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THROUGH THE PROVISI ON OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) IF SUCH S ERVICES : (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIBED IN PARAGRAPH 3 IS RECEIVED ; OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW, OR PROCESSES, OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. 5. NOTWITHSTANDING PARAGRAPH 4, FEES FOR INCLUDED SERVICES DOES NOT INCLUDE AMOUNTS PAID : (A) FOR SERVICES THAT ARE ANCILLARY AND SUBSIDIARY, AS WELL AS INEXTRICABLY AND ESSENTIALLY LINKED, TO THE SALE OF PROPERTY OTHER THAN A SALE DESCRIBED IN PARAGRAPH 3(A) ; (B) FOR SERVICES THAT ARE ANCILLARY AND SUBSIDIARY TO T HE RENTAL OF SHIPS, AIRCRAFT, CONTAINERS OR OTHER EQUIPMENT USED IN CONNECTION WITH THE OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC ; (C) FOR TEACHING IN OR BY EDUCATIONAL INSTITUTIONS ; (D) FOR SERVICES FOR THE PERSONAL USE OF THE INDIVIDUAL OR INDIVIDUALS MAKING THE PAYMENTS ; OR (E) TO AN EMPLOYEE OF THE PERSON MAKING THE PAYMENTS OR TO ANY INDIVIDUAL OR FIRM OF INDIVIDUALS (OTHER ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 49 THAN A COMPANY) FOR PROFESSIONAL SERVICES AS DEFINED IN ARTICLE 15 (INDEPENDENT PERSONAL SERVICES). 6. THE PROVISIONS OF PARAGRAPHS 1 AND 2 SHALL NOT A PPLY IF THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR INCLU DED SERVICES, BEING A RESIDENT OF A CONTRACTING STATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE, IN WHICH THE ROYALTIES OR FEES FOR INCLUDED SERVICES ARISE, THROUGH A PERMANENT ESTABL ISHMENT SITUATED THEREIN, OR PERFORMS IN THAT OTHER STATE I NDEPENDENT PERSONAL SERVICES FROM A FIXED BASE SITUATED THEREI N, AND THE ROYALTIES OR FEES FOR INCLUDED SERVICES ARE ATTRIBU TABLE TO SUCH PERMANENT ESTABLISHMENT OR FIXED BASE. IN SUCH CASE THE PROVISIONS OF ARTICLE 7 (BUSINESS PROFITS) OR ARTIC LE 15 (INDEPENDENT PERSONAL SERVICES), AS THE CASE MAY BE SHALL APPLY. 7. (A) ROYALTIES AND FEES FOR INCLUDED SERVICES SHA LL BE DEEMED TO ARISE IN A CONTRACTING STATE WHEN THE PAYER IS T HAT STATE ITSELF, A POLITICAL SUB-DIVISION, A LOCAL AUTHORITY , OR A RESIDENT OF THAT STATE. WHERE, HOWEVER, THE PERSON PAYING THE R OYALTIES OR FEES FOR INCLUDED SERVICES, WHETHER HE IS A RESIDEN T OF A CONTRACTING STATE OR NOT, HAS IN A CONTRACTING STAT E A PERMANENT ESTABLISHMENT OR A FIXED BASE IN CONNECTI ON WITH WHICH THE LIABILITY TO PAY THE ROYALTIES OR FEES FO R INCLUDED SERVICES WAS INCURRED, AND SUCH ROYALTIES OR FEES F OR INCLUDED SERVICES ARE BORNE BY SUCH PERMANENT ESTABLISHMENT OR FIXED BASE, THEN SUCH ROYALTIES OR FEES FOR INCLUDED SERV ICES SHALL BE DEEMED TO ARISE IN THE CONTRACTING STATE IN WHICH T HE PERMANENT ESTABLISHMENT OR FIXED BASE IS SITUATED. ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 50 (B) WHERE UNDER SUB-PARAGRAPH (A) ROYALTIES OR FEES FOR INCLUDED SERVICES DO NOT ARISE IN ONE OF THE CONTRA CTING STATES, AND THE ROYALTIES RELATE TO THE USE OF , OR THE RIGHT TO USE, THE RIGHT OR PROPERTY, OR THE FEES FOR INCLUDED SERVICE S RELATE TO SERVICES PERFORMED, IN ONE OF THE CONTRACTING STATE S, THE ROYALTIES OR FEES FOR INCLUDED SERVICES SHALL BE DE EMED TO ARISE IN THAT CONTRACTING STATE. 34. ON GOING THROUGH THE ARTICLE 12(4) OF THE INDO- US DTAA, WE FIND THAT THE PROVISIONS OF ARTICLE 12(4)(A) ARE NOT APPLICABLE TO THE FACTS OF THE CASE. THE DISPUTE BETWEEN THE R EVENUE AND THE ASSESSEE IS WHETHER SUCH SERVICES MENTIONED ABO VE FALL UNDER THE CATEGORY OF MAKE AVAILABLE TECHNICAL KN OWLEDGE, EXPERIENCE, KNOW-HOW.... OR CONSISTS OF DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN AS PER ARTICLE 12(4)(B). 35. PARAGRAPH 4(B) OF ARTICLE 12 REFERS TO TECHNICA L OR CONSULTANCY SERVICES THAT MAKE AVAILABLE TO THE PER SON ACQUIRING THE SERVICES, TECHNICAL KNOWLEDGE, EXPERI ENCE, SKILL, KNOW-HOW,, OR PROCESSES, OR CONSIST OF THE DEVELOPM ENT AND TRANSFER OF A TECHNICAL PLANT OR TECHNICAL DESIGN T O SUCH PERSON. (FOR THIS PURPOSE, THE PERSON ACQUIRING THE SERVICE SHALL BE DEEMED TO INCLUDE AN AGENT, NOMINEE, OR TRANSFEREE OF SUCH PERSON). THIS CATEGORY IS NARROWER THAN THE CATEGOR Y DESCRIBED IN PARAGRAPH 4(A) BECAUSE IT EXCLUDES ANY SERVICE T HAT DOES NOT MAKE TECHNOLOGY AVAILABLE TO THE PERSON ACQUIRING T HE SERVICE. GENERALLY SPEAKING, TECHNOLOGY WILL BE CONSIDERED MADE AVAILABLE WHEN THE PERSON ACQUIRING THE SERVICE IS ENABLED TO APPLY THE TECHNOLOGY. THE FACT THAT THE PROVISION O F THE SERVICE ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 51 MAY REQUIRE TECHNICAL INPUT BY THE PERSON PROVIDING THE SERVICE DOES NOT PER SE MEAN THAT TECHNICAL KNOWLEDGE, SKILLS, ETC. ARE MADE AVAILABLE TO THE PERSON PURCHASING THE SERVICE , WITHIN THE MEANING OF PARAGRAPH 4(B). SIMILARLY, THE USE OF A PRODUCT WHICH EMBODIES TECHNOLOGY SHALL NOT PER SE BE CONSIDERED TO MAKE THE TECHNOLOGY AVAILABLE. 36. TYPICAL CATEGORIES OF SERVICES THAT GENERALLY I NVOLVE EITHER THE DEVELOPMENT AND TRANSFER OF TECHNICAL PLANTS OR TECHNICAL DESIGNS, OR MAKING TECHNOLOGY AVAILABLE AS DESCRIBE D IN PARAGRAPH 4(B), INCLUDE: 1. ENGINEERING SERVICES (INCLUDING THE SUB-CATEGORIES OF BIO- ENGINEERING AND AERONAUTICAL, AGRICULTURAL, CERAMIC S, CHEMICAL, CIVIL, ELECTRICAL, MECHANICAL, METALLURGI CAL, AND INDUSTRIAL ENGINEERING); 2. ARCHITECTURAL SERVICES: AND 3. COMPUTER SOFTWARE DEVELOPMENT. UNDER PARAGRAPH 4(B), TECHNICAL AND CONSULTANCY SER VICES COULD MAKE TECHNOLOGY AVAILABLE IN A VARIETY OF SET TINGS, ACTIVITIES AND INDUSTRIES. SUCH SERVICES MAY, FOR E XAMPLES, RELATE TO ANY OF THE FOLLOWING AREAS: 1. BIO-TECHNICAL SERVICES; 2. FOOD PROCESSING; 3. ENVIRONMENTAL AND ECOLOGICAL SERVICES; 4. COMMUNICATION THROUGH SATELLITE OR OTHERWISE; 5. ENERGY CONSERVATION; 6. EXPLORATION OR EXPLOITATION OF MINERAL OIL OR NATUR AL GAS; 7. GEOLOGICAL SURVEYS; 8. SCIENTIFIC SERVICES; AND 9. TECHNICAL TRAINING. ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 52 37. THE FOLLOWING HYPOTHETICAL EXAMPLES INDICATE TH E SCOPE OF THE CONDITIONS IN PARAGRAPH 4(B): 38. EXAMPLE-1 FACTS: A U.S. MANUFACTURER HAS EXPERIENCE IN THE USE OF PR OCESS FOR MANUFACTURING WALLBOARD FOR INTERIOR WALLS OF HOUSE S WHICH IS MORE DURABLE THAN THE STANDARD PRODUCTS OF ITS TYPE . AN INDIAN BUILDER WISHES TO PRODUCE THIS PRODUCT FOR ITS OWN USE. IT RENTS A PLANT AND CONTRACTS WITH THE U.S. COMPANY TO SEND EXPERTS TO INDIA TO SHOW ENGINEERS IN THE INDIAN COMPANY HOW T O PRODUCE THE EXTRA-STRONG WALLBOARD. THE U.S. FIRM CONSIDERE D TO BE PAYMENTS FOR INCLUDED SERVICES? ANALYSIS: THE PAYMENTS WOULD BE FEES FOR INCLUDED SERVICES. T HE SERVICES ARE OF A TECHNICAL OR CONSULTANCY NATURE, IN THE EX AMPLE, THEY HAVE ELEMENTS OF BOTH TYPES OF SERVICES. THE SERVIC ES MAKE AVAILABLE TO THE INDIAN COMPANY TECHNICAL KNOWLEDGE , SKILL AND PROCESS. 39. EXAMPLE 2 FACTS: A U.S. MANUFACTURER OPERATES A WALLBOARD FABRICATIO N PLANT OUTSIDE INDIA. AN INDIAN BUILDER HIRES THE U.S. COM PANY TO PRODUCE WALLBOARD AT THAT PLANT FOR A FEE. THE INDI AN COMPANY PROVIDES THE RAW MATERIALS, AND THE U.S. MANUFACTUR ER FABRICATES THE WALLBOARD IN ITS PLANT, USING ADVANC ED TECHNOLOGY. ARE THE FEES IN THIS EXAMPLE PAYMENTS FOR INCLUDED SERVICES? ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 53 ANALYSIS: THE FEES WOULD NOT BE FOR INCLUDED SERVICES. ALTHOU GH THE U.S. COMPANY IS CLEARLY PERFORMING A TECHNICAL SERVICE, NO TECHNICAL KNOWLEDGE, SKILL ETC. ARE MADE AVAILABLE TO THE IND IAN COMPANY, NOR IS THERE ANY DEVELOPMENT AND TRANSFER OF A TECH NICAL PLANT OR DESIGN. THE U.S. COMPANY IS MERELY PERFORMING A CONTRACT MANUFACTURING SERVICE. 40. EXAMPLE 3: FACTS: AN INDIAN FIRM OWNS INVENTORY CONTROL SOFTWARE FOR USE IN ITS CHAIN OF RETAIL OUTLETS THROUGHOUT INDIA. IT EXPAND S ITS SALES OPERATION BY EMPLOYING A TEAM OF TRAVELLING SALESME N TO TRAVEL AROUND THE COUNTRYSIDE SELLING THE COMPANYS WARE. THE COMPANY WANTS TO MODIFY ITS SOFTWARE TO PERMIT THE SALEMEN TO ASSESS THE COMPANYS CENTRAL COMPUTERS FOR INFORMAT ION ON WHAT PRODUCTS ARE AVAILABLE IN INVENTORY AND WHEN THEY C AN BE DELIVERED. THE INDIAN FIRM HIRES A U.S. COMPUTER PR OGRAMMING FIRM TO MODIFY ITS SOFTWARE FOR THIS PURPOSE. ARE T HE FEES WHICH THE INDIAN FIRM PAYS TREATED AS FEES FOR INCLUDED S ERVICES? ANALYSIS: THE FEES ARE FOR INCLUDED SERVICES. THE U.S. COMPAN Y CLEARLY PERFORMS A TECHNICAL SERVICE FOR THE INDIAN COMPANY , AND IT TRANSFERS TO THE INDIAN COMPANY THE TECHNICAL PLAN (I.E. THE COMPUTER PROGRAMME) WHICH IT HAS DEVELOPED. ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 54 41. EXAMPLE 4: FACTS: THE INDIAN VEGETABLE OIL MANUFACTURING FIRM HAS MAS TERED THE SCIENCE OF PRODUCING CHOLESTEROL FREE OIL AND WISHE S TO MARKET THE PRODUCT WORLDWIDE. IT HIRES AND AMERICAN MARKET ING CONSULTING FIRM TO DO A COMPUTER SIMULATION OFF THE WORLD MARKET FOR SUCH OIL AND TO ADVERSE IT ON MARKETING STRATEGIES. ARE THE FEES PAID TO THE U.S. COMPANY FOR INCLUDED SERVICES? ANALYSIS: THE FEES WOULD NOT BE FOR INCLUDED SERVICES. THE AM ERICAN COMPANY IS PROVIDING A CONSULTANCY SERVICE WHICH IN VOLVES THE USE OF SUBSTANTIAL TECHNICAL SKILL AND EXPERTISE. I T IS NOT, HOWEVER, MAKING AVAILABLE TO THE INDIAN COMPANY ANY TECHNICAL EXPERIENCE, KNOWLEDGE OR SKILL, ETC. NOR IS IT TRAN SFERRING A TECHNICAL PLAN OR DESIGN. WHAT IS TRANSFERRED TO TH E INDIAN COMPANY THROUGH THE SERVICE CONTRACT IS COMMERCIAL INFORMATION. THE FACT THAT TECHNICAL SKILLS WERE RE QUIRED BY THE PERFORMER OF THE SERVICE IN ORDER TO PERFORM THE CO MMERCIAL INFORMATION SERVICE DOES NOT MAKE THE SERVICE A TEC HNICAL SERVICE WITHIN THE MEANING OF PARAGRAPH 4(B). 42. THE CONCEPT OF MAKE AVAILABLE REQUIRES THAT THE FRUITS OF THE SERVICES SHOULD REMAIN AVAILABLE TO THE SERVICE RECIPIENT IN SOME CONCRETE SHAPE SUCH AS TECHNICAL KNOWLEDGE, EX PERIENCE, SKILLS, ETC. THE ASSISTANCE PROVIDED BY FAA IN PREP ARATION OF QRS AND DEVELOPMENT OF ATFM SYSTEM ARE NEITHER ANY LICE NSED PRODUCT OF FAA NOR EXCLUSIVE PATENTS OF FAA. THE AS SISTANCE RENDERED ON REIMBURSABLE BASIS IS BASED ON THE AGRE EMENT BETWEEN MOCA AND FAA OF US. THE ATFM TECHNOLOGY PER SE HAS NOT BEEN MADE AVAILABLE TO THE AAI FOR ANY PERPETUA L USE. THE ITA NO. 5162 & 5163/DEL/2012 AIRPORT AUTHORITY OF INDIA 55 PROVISION OF ASSISTANCE TO MOCA IN DEVELOPING AND MODERNIZATION OF CIVIL AVIATION STRUCTURE, REVIEW A NALYSIS AND DOCUMENTATION OF A TRAFFIC FLOW MANAGEMENT SYSTEM I S A DYNAMIC PROCESS REQUIRING FURTHER DEVELOPMENT OF TH E PROCESS BY THE MOCA, INDIA. THIS IS A CASE OF ASSISTANCE AN D TECHNICAL COOPERATION BETWEEN FAA AND AAI SANS ANY COMMERCIAL INTEREST BY THE RENDERING PARTY. 43. WE HAVE ALSO GONE THROUGH THE ORDER OF THE HON BLE HIGH COURT OF DELHI IN THE CASE OF DIT VS GUY CARPENTER & CO. LTD. IN ITA 202/2012 DATED 23.04.2012 TO EXAMINE THE MAKE AVAILABLE CLAUSE AND TO DETERMINE THE APPLICABILIT Y TO THE FACTS OF THE INSTANT CASE. WE FIND THAT BASED ON THE MANN ER OF TRANSACTING, AGREEMENTS, SERVICES PROVIDED, REIMBUR SEMENT RECEIVED, WE UNHESITATINGLY HOLD THAT AS THE 'MAKE AVAILABLE' CLAUSE CONTAINED IN ARTICLE 12(4)(B) HAS NOT BEEN S ATISFIED IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, THE PA YMENT MADE BY THE ASSESSEE COULD NOT BE REGARDED AS FOR THE PU RPOSE OF FEES FOR INCLUDED SERVICES (FIS). 44. AS A RESULT, BOTH THE APPEALS OF THE ASSESSEE A RE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/05/2021. SD/- SD/- (K. N. CHARY) (DR. B. R. R. KUMAR) JUDICIAL MEMBER ACC OUNTANT MEMBER DATED: 04/05/2021 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR