The Delhi Bench of Income Tax Appellate Tribunal Delhi ruled that the replacement of defective parts are not covered under the ‘Fees For Technical Services’.
The Division bench of Yogesh Kumar U.S. (Judicial Member) And S. Rifaur Rahman (Accountant Member) observed that the contract was primarily for sale of spare parts and replacement of defective parts which was incidental to the sale of spare parts, the whole contract is deserves to be considered as work contract.
Background
The assessee M/s Hal Offshore Ltd. has made remittance to foreign countries and in respect of some of the remittances tax at source had not been deducted by the assessee company.
As per Central Action Plan circulated by the Central Board of Direct Taxes, the cases in which foreign remittances were made without deduction of taxes were to be selected on the basis of parameter contained in the said Central Action Plan and necessary verification were required to be made by the jurisdictional AO for ascertaining the veracity of claim made by the person remitting the funds out of India.
Accordingly, case was selected and permission for initiating enquiries u/s 133(6) of the Act was sought from Commissioner of Income Tax, International Taxation-2, New Delhi and notices for verification of details furnish in Form no. 15CA proceedings u/s 201(1)/201(1A) were issued time to time.
The assessing officer has created demand along with interest of Rs. 16,80,590/- and passed order u/s 201(1)/201(14) of the Income Tax Act, 1961.
Arguments
Advocate Rakesh Gupta, Counsel for the Assessee, submitted that the authorities below committed error in treating the Assessee Company as ‘Assessee in default’, ignoring the fact that the Assessee did not have any PE in India and the income of the Assessee was not liable to tax in India as per Article 7 of DTAA between India and Norway.
He further submitted that the personnel of vendor company stayed in India for only 29 days which is less than three months as provided in Article 5 paragraph 3 of DTAA between India and Norway and even if the activities of the Assessee are considered to be installation contract, the income was not taxable in India, therefore, no tax was deductable u/s 195 of the Act.
It was also argued by the Counsel for the Assessee, that the contract was primarily for sale of spare parts and replacement of defective parts through their personnel which was incidental to the sale of spare parts, therefore, whole of the contract partakes the character of work contract.
Department submitted that the services rendered by the vendor is technical in nature and made available to the Assessee Company whenever requisitioned and the services rendered by the vendor company are utilized by the Assessee company for its business in India, therefore, nature of services are in the nature of FTS as per the provisions of Section 9 (1)(vii) of the Act and Article 12 (3) of DTAA between India and Norway, therefore, the Assessee was liable to deduct/withheld the tax on the payment made as per the provision of Section 195 r.w Section 115A of the Act.
Observation of the Tribunal
The bench noted that M/s Brunvoll AS, has undertaken work of replacing the defective parts of its ship and activities of the said company are in the nature of carrying out work contract and not the nature of rendering Technical Services. The part supplied by the said Company were found to be defective and installed those parts in Assessee’s ships during its dry dock.
The bench further noted that person of the vendor visited India and stayed in India for aggregate period of 29 days for replacement/installation of spare parts and the said Norway Company being a tax resident of Norway, has no PE India. For the said services of repairs, the Assessee made payment of above sums without deducting TDS. As the said Company has no PE in India and the activities undertaken by the vendor were in the nature of work contract, the said income was not taxable in India as per Article 7 of DTAA between India and Norway. Further, the personnel of Vendor Company stayed in India for only for 29 days, which is less than ‘three months’ as provided in Article 5 Paragraph 3 of DTAA.
The tribunal observed that Even if the said activities are considered as installation contract, the said income was not taxable in India. The payments made by the Assessee were also not covered under ‘Fees for technical Services’ as defined in Section 9(1)(vii) or Article 12 of the DTAA as the work carried out by the vendor company falls under Article 7 leading to commercial profits.
The bench opined that the authorities below have committed error in treating the Assessee company as the ‘Assessee in default’ for non-deduction of TDS u/s 201(1)/201(1A), therefore the bench deleted the additions confirmed by the CIT(A).
Case Details
Case Title: M/s Hal Offshore Ltd. v/s Income Tax Officer
Case No.: ITA No. 2084 /Del/2023 (A.Y. 2018-19)
Counsel for the Assessee: Dr. Rakesh Gupta, Adv, and Somil Agrawal, Adv
Revenue Department by: Vikram Singh Sharma, Sr. DR
Date of Order: 17/10/2025
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