By Geeta Jani, Dhishat B. Mehta, Chartered Accountants
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Article 12, Indo U.S. DTAA, section 9-Training to pilots does not make available technical knowledge – Payment for training not taxable in India.
Facts:
The taxpayer was engaged in the business of charter hire of helicopters. During the year under consideration, a US company provided training to pilots and other staff of the taxpayer in consideration of which the taxpayer made payments to a US company.
The taxpayer contended that the receipt of the US Company were business profits, which, in absence of PE of US company in India, were not chargeable to tax in India. However, the AO treated the payments as FTS in terms of Explanation 2 to section 9(1)(vii) of the Act and hence, chargeable to tax.
The issue before the Tribunal was, whether expenditure on training of pilots was in the nature of FTS under Article 12(4) of India-USA DTAA?
Held:
In terms of Article 12(4)(b) of India-USA DTAA, to constitute FTS the services should have ‘made available’ technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design.
The training given to the pilots and other staff was as per the requirement of the regulator and was necessary for eligibility of the pilots and other staff working in aviation industry. Such training does not fall under the term ‘make available’ under India-USA DTAA. Since the training expenses were not taxable in India in hands of non-resident company, the taxpayer was not required to deduct tax at source while making payment.
The ITAT ruled that such training does not make available technical skills etc. without considering education institution exclusion.
