ITAT Delhi on Non-Applicability of Section 195 to Payments for Repairs and Replacement Work Rendered Abroad.

Headnote:

The Delhi Bench “D” of the Income Tax Appellate Tribunal held that payments made by Hal Offshore Ltd. to Brunvoll AS, Norway for replacement and repair of defective ship parts were not in the nature of “fees for technical services” (FTS) under Section 9(1)(vii) of the Income Tax Act, 1961 or Article 12 of the India–Norway DTAA. As the non-resident had no Permanent Establishment (PE) in India and its personnel stayed in India for less than three months, the income was not taxable in India. Consequently, the assessee was not liable to deduct tax at source under Section 195, and could not be treated as an “assessee in default” under Section 201(1)/201(1A).

Facts:

• The assessee, Hal Offshore Ltd., made payments to Brunvoll AS, Norway, a non-resident company, for replacing defective parts in its ships.

• The vendor’s personnel visited India for only 29 days to install the replacement parts.

• The Assessing Officer held that the payments constituted FTS, raised a demand of ₹16,80,590 under Sections 201(1) and 201(1A), and treated the assessee as an assessee in default.

• The CIT(A) upheld the order, prompting the present appeal.

Assessee’s Contention:

• The services were in the nature of work contracts incidental to sale of spare parts, not technical or consultancy services.

• Under Article 7 of the India–Norway DTAA, the income was not taxable in India as the Norwegian company had no PE in India.

• Personnel presence in India was less than three months under Article 5(3), excluding it from PE definition.

• No tax was deductible under Section 195.

Revenue’s Contention:

• The services rendered were technical in nature and utilized for the assessee’s business in India.

• Payments constituted FTS under Section 9(1)(vii) and Article 12(3) of the India–Norway DTAA.

• The assessee was required to deduct tax at source on such payments.

Tribunal’s Observations:

• The Tribunal noted that the work undertaken by Brunvoll AS involved replacement of defective parts and routine repair activities, which constituted a work contract and not rendering of technical or consultancy services.

• No transfer of technical knowledge or skill occurred; the Norwegian company merely performed repairs abroad and installed parts through limited presence in India.

• Routine maintenance and replacement activities are outside the ambit of “FTS.”

• The Tribunal relied on precedents, including:

– Lufthansa Cargo India Pvt. Ltd. v. DCIT (91 ITD 133)

– BHEL–GE Gas Turbine Servicing Pvt. Ltd. v. ADIT (ITA No. 976/Hyd/2011, dated 31.07.2012)

– Hindustan Aeronautics Ltd. v. State of Karnataka (55 STC 314)

Held:

Payments for repairs and replacement of defective ship parts carried out by a non-resident company without any PE in India do not constitute “fees for technical services.” Hence, no tax is deductible under Section 195. The assessee cannot be treated as an assessee in default under Section 201(1)/201(1A).

Result: Appeal allowed in favour of the assessee.

Citation: 2025:ITAT:DEL:2084

Case: Hal Offshore Ltd. v. Income Tax Officer, Ward International Taxation 2(1)(1), New Delhi

Court: Income Tax Appellate Tribunal, Delhi Bench “D”

Coram: Shri S. Rifaur Rahman (Accountant Member) & Shri Yogesh Kumar U.S. (Judicial Member)

Appeal No.: ITA No. 2084/Del/2023 (A.Y. 2018–19)