ITAT rules in favor of Hindustan Aeronautics Ltd

ITAT rules in favor of Hindustan Aeronautics Ltd

The assessing officer had charged technical services fee from the Government of India undertaking

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has held that the payment made for flight-testing services by Hindustan Aeronautics Ltd (HAL) to CGTM (Confédération Générale du Travail de la Martinique) France cannot be treated as a fee for technical services (FTS).

The assessee, a public sector undertaking of the Government of India, is engaged in the business of aircraft-related systems that cater to the country's defence services needs. It includes designing, developing, manufacturing, and maintenance of advanced fighter jets, piston and jet engine trainers, commercial aircraft, helicopters, associated aero engines, aircraft systems, types of equipment, and avionics.

During the assessment proceedings, the assessing officer (AO) had made an addition of Rs.13,80,672 under the Income Tax Act. It charged a fee for technical services for non-deduction of tax on payments made to CGTM towards flight-testing services.

The assessee contended that CGTM had not provided any technology services and challenged the additional amount.

A two-judge bench of the tribunal comprising Judicial Member George George K, and Accountant Member Padmavathy S observed that the details of the services provided to the assessee showed that CGTM engineers had carried out an air-intake survey relating to the inlet distortion and installation losses. The results showed that the tests were related to improving the HAL manufactured Shakti engines, which the assessee would want to look into.

The bench ruled, "The fees paid towards the services were purely towards the testing of Shakti engines in order to identify the issues of air inlet distortion and installation losses. Therefore, the fee paid by the assessee to CGTM is not for technical services. Hence, it does not come under the IT Act."