Commissioner Of Income Tax, Internationaltaxation-1, New Delhi v. Goodrich Corporation

$~23*IN THE HIGH COURT OF DELHI AT NEW DELHI %Date of Decision: 23.05.2025 +ITA 173/2025, CM APPL. 31921/2025 & CM APPL. 31922/2025 COMMISSIONER OF INCOME TAX, INTERNATIONALTAXATION-1, NEW DELHI.....AppellantThrough:Mr Puneet Rai, SSC, Mr AshviniKumar and Mr Rishabh Nangia, JSCsand Mr Nikhil Jain, Advocate. versus GOODRICH CORPORATION .....Respondent Through:None. CORAM:HON'BLE MR. JUSTICE VIBHU BAKHRUHON'BLE MR. JUSTICE TEJAS KARIA VIBHU BAKHRU, J. (ORAL) 1.The Revenue has filed the present appeal under Section 260A of theIncome Tax Act, 1961 [Act] impugning an order dated 22.08.2024[impugned order] passed by the learned Income Tax Appellate Tribunal in ITA No.988/Del/2024 for Assessment Year 2018-19captioned Goodrich Corporation v. ACIT. 2.The Assessee had preferred the aforementioned appeal before thelearned ITAT assailing the order dated 05.01.2024 passed by the AssessingOfficer under Section 147 read with Section 144C(13) of the Act. 3.The Assessee is a company, which is tax resident of the United Statesof America . The Assessee has also furnished a Tax ResidencyCertificate from the concerned authorities of the said country. Signature Not Verified During the previous year relevant to the AY 2018-19, the Assessee hadreceived certain amounts for the services rendered by it from residententities. According to the AO, the said receipts were chargeable to tax asfees for technical services under the Act as well as “Conventionbetween the Government of the United States of America and theGovernment of the Republic of India for the Avoidance of Double Taxationand Prevention of Fiscal evasion with respect to taxes on income” [India-US DTAA].The learned ITAT rejected the said view and allowed theAssessee’s appeal as it did not concur with the AO’s view that the servicesrendered entail any transfer of technology, knowhow or skill and thereforethe receipts were not taxable as fees for included services underArticle 12(4) of the India-US DTAA. 4.The Revenue has projected the following questions for considerationof this court in the present appeal: “A.Whether on the facts and in the circumstances of the case, andin law, the Hon’ble ITAT erred in holding that the receipts ofthe assessee from Indian customers is not taxable as Fee forTechnical Services as per India -USA DTAA as well asSection 9(1)(vii) of the Act?in law, the Hon’ble ITAT erred in holding that the receipts ofthe assessee from Indian customers is not taxable as Fee forTechnical Services as per India -USA DTAA as well asSection 9(1)(vii) of the Act? B.Whether on the facts and in the circumstances of the case, andin law, the Hon’ble ITAT erred in holding that the paymentsreceived by the assessee from Indian customers does notsatisfy the criterion of “Make Available” as per Article 12(4)of India-USA DTAA?in law, the Hon’ble ITAT erred in holding that the paymentsreceived by the assessee from Indian customers does notsatisfy the criterion of “Make Available” as per Article 12(4)of India-USA DTAA? C.Whether on the facts and in the circumstances of the case, andin law, the Hon’ble ITAT failed to consider that the paymentsreceived by the assessee from Indian customers does notsatisfy the criterion of “Make Available” as the case of theassessee involves development and transfer of technical planor technical design within the meaning of Article 12(4) ofin law, the Hon’ble ITAT failed to consider that the paymentsreceived by the assessee from Indian customers does notsatisfy the criterion of “Make Available” as the case of theassessee involves development and transfer of technical planor technical design within the meaning of Article 12(4) of India-USA DTAA?” C.Whether on the facts and in the circumstances of the case, andin law, the Hon’ble ITAT failed to consider that the paymentsreceived by the assessee from Indian customers does notsatisfy the criterion of “Make Available” as the case of theassessee involves development and transfer of technical planor technical design within the meaning of Article 12(4) ofin law, the Hon’ble ITAT failed to consider that the paymentsreceived by the assessee from Indian customers does notsatisfy the criterion of “Make Available” as the case of theassessee involves development and transfer of technical planor technical design within the meaning of Article 12(4) of India-USA DTAA?” 5.As noted above, the Assessee is a tax resident of USA and is engagedin the business of providing services which are in the nature of repair andmaintenance of aircraft equipment. During the previous year relevant to AY2018-19, the Assessee received an amount of ₹51,50,28,965/- towards repairs and maintenance services. Additionally, it also received an amountof ₹1,28,46,717/- on account of corporate allocation charges which it claimed were in the nature of reimbursement of costs incurred by it such asIT expenses, legal charges, back office support on behalf of M/s GoodrichAerospace Services Pvt. Ltd. 6.According to the Assessee, the receipts were not chargeable to tax andtherefore it did not file its return of income for AY 2018-19. The AO on thebasis of information flagged by risk management strategy, issued a notice on30.03.2022. 7.In response to the same, the Assessee filed its return of income on02.07.2022 declaring an income of ₹52,78,75,682/-, which according to it was not taxable. The AO confirmed that during the previous year, theAssessee’s customers (six in numbers), which included five airline operatorshad paid an aggregate amount of ₹51,50,28,965/- on account of repair and maintenance services of aircrafts. Additionally, the Assessee had received anamount of ₹1,28,46,717/-. As noted above, the Assessee claimed that the said amount was in the nature of reimbursement of charges incurred onbehalf of GASPL. 8.The AO examined the services and observed that the Assessee isrendering services of the nature such as advise/support, which the AOconcluded were in the nature of imparting knowledge to recipient. It alsoobserved that any support provided by the Assessee would not be required infuture course. Additionally, the AO noted that its agreement with GASPLalso require it to impart training and accordingly passed a draft assessmentorder dated 31.03.2023 under Section 144C(1) of the Act. 9.The Assessee filed its objections to the draft assessment order beforethe Dispute Resolution Panel which were rejected by an order dated27.12.2023.During the proceedings before the DRP, the Assessee alsofurnished additional evidence including with regard to allocation ofcorporate charges and repair and maintenance services. However, the DRPupheld the draft assessment order. 10.On the aforesaid basis, the AO passed the final assessment order,which is essentially on the same lines as the draft assessment order. 11.The Assessee states repair services provided by it follows two typesof arrangements. The explanation regarding the said arrangements, as notedby the DRP in its order, is reproduced below: “Firstly, the Indian customer intimates the assessee aboutfaulty aircraft equipment and sends the aircraft equipment tothe designated facility (repair workshop) of the assessee inUSA for repair services. On receipt of equipment fromcustomer, the assessee sends the estimate of the proposedservice work for the approval of the customer. Once the repaircharges are approved the assessee performs the required repairservices and sends back the equipment to the Indian customer.The assessee had also email correspondences in relation to 11.The Assessee states repair services provided by it follows two typesof arrangements. The explanation regarding the said arrangements, as notedby the DRP in its order, is reproduced below: “Firstly, the Indian customer intimates the assessee aboutfaulty aircraft equipment and sends the aircraft equipment tothe designated facility (repair workshop) of the assessee inUSA for repair services. On receipt of equipment fromcustomer, the assessee sends the estimate of the proposedservice work for the approval of the customer. Once the repaircharges are approved the assessee performs the required repairservices and sends back the equipment to the Indian customer.The assessee had also email correspondences in relation to workorder/ repair orders executed during the year on samplebasis as Annexure7 (copy of submission dated 13 March 2023along with the relevant annexures is enclosed as Item 3 ofPaper-book 1) Further, no activity has been performed byassessee in India. Secondly, the assessee enters into a comprehensive agreementwith the customer wherein all terms and conditions are pre-determined. Further, the pricing is agreed upfront basis thenumber of landings during a particular period of time. As andwhen repairs are required, the customer sends the equipment tothe repair facility. The assessee will either provide thecustomerwithafullyrefurbishedreplacementunitinexchange for the customer’s equipment or assessee will repairthe customer’s equipment and send that back to the Indiancustomer.” 12.The DRP did not accept the said contention. The reasons for rejectingthe said contention as articulated by the DRP and as noted by the learnedITAT in its order reads as under: “5.The ld. DRP held that “repair and maintenance services ofaircraft parts is a very specialized field requiring technicalexpertise skill and experience at every stage. They are specific andcustomer based. Customer of the assessee are airlines whichoperate passenger and goods carrier. They are not equipped inhandling the issues related to break down of aircraft. It is acomplete and separate science and art in itself. The servicesprovided by way of repair and maintenance are technical in natureand fall under ambit of services under Fee for Technical Services.As discussed above, once it is established that the services whichhave been provided are specialized customer-based services, whatremains to s ee is whether they pass the test of make available ornot under India USA D TAA. Interpretation of make availableclause will differ with specific areas of the services underconsideration. For instance, interpretation of make available for aconcern providing services for the agricultural sector vis-à-viseducation sector would be vastly different from each other. In thesame way interpretation of make available is different for a concern engaged in providing services revolving around a highlyspecialized sector such as Aircraft industry. The make availableclause deals with not only making available technical knowledge orknow-how or processes or consist of the development and transferof a technical plan or technical design but also deals withimparting experience and skill. Within the make available clauseitself the enduring benefit would be different for all the itemsmentioned in it for example the enduring benefit of a technicaldesign or know-how cannot be same as enduring benefit comingfrom imparting of skill or experience. In the former case enduringbenefit will outlive the enduring benefit brought in by the latter. Incase of assessee company, the enduring benefit and make availablefall under skill/experience which is shared by assessee companywith its customers. Both the parties in these service transactionsare engaged in highly specialized work which can be rendered andavailed by them only and once the skill/experience is rendered, itcontinues to give benefit until required again. When it comes toservices rendered as skill and experience, the make available andenduring benefit, will almost always have a comparatively shortshelf life in this context. This being the case, it cannot be ignoredthat the make available clause and enduring benefits are satisfiedand the service is not of the nature which is so highly technical andspecialized that it should be taxed as Fee for Technical Services.” 13.The learned ITAT found the aforesaid reasons unsustainable and heldthat the charges for such services could not be construed as fees for includedservices within the scope of Article 12(4) of the India-USA DTAA.The relevant extract of the India-USA DTAA is set out below: “ARTICLE 12 Royalties and Fees for Included Services 1. Royalties and fees for included services arising in aContracting State and paid to a resident of the other ContractingState may be taxed in that other State. 2. However, such royalties and fees for included services mayalso be taxed in the Contracting State in which they arise and according to the laws of that State; but if the beneficial owner ofthe royalties or fees for included services is a resident of theother Contracting State, the tax so charged shall not exceed: (a)inthecaseofroyaltiesreferredtoinsubparagraph (a) of paragraph 3 and fees for includedservices as defined in this Article (other than servicesdescribed in subparagraph (b) of this paragraph):(i) during the first five taxable years for which thisConvention has effect, (A) 15 percent of the gross amount of theroyalties or fees for included services as defined inthis Article, where the payer of the royalties or feesis the Government of that Contracting State, apolitical subdivision or a public sector company; and (B) 20 percent of the gross amount of theroyalties or fees for included services in all othercases, and (ii) during the subsequent years, 15percent of the gross amount of royalties or fees forincluded services; and (b)inthecaseofroyaltiesreferredtoinsubparagraph (b) of paragraph 3 and fees for includedservices as defined in this Article that are ancillary andsubsidiary to the enjoyment of the property for whichpayment is received under paragraph 3(b) of this Article,10 percent of the gross amount of the royalties or fees forincluded services. 3. The term “royalties” as used in this Article means: (a) payments of any kind received as a considerationfor the use of, or the right to use, any copyright of aliterary,artistic,orscientificwork,includingcinematograph films or work on film, tape or other meansof reproduction for use in connection with radio ortelevision broadcasting, any patent, trademark, design ormodel, plan, secret formula or process, or for informationconcerning industrial, commercial or scientific experience,including gains derived from the alienation of any suchright or property which are contingent on the productivity, use, or disposition thereof, and 3. The term “royalties” as used in this Article means: (a) payments of any kind received as a considerationfor the use of, or the right to use, any copyright of aliterary,artistic,orscientificwork,includingcinematograph films or work on film, tape or other meansof reproduction for use in connection with radio ortelevision broadcasting, any patent, trademark, design ormodel, plan, secret formula or process, or for informationconcerning industrial, commercial or scientific experience,including gains derived from the alienation of any suchright or property which are contingent on the productivity, use, or disposition thereof, and (b) payments of any kind received as considerationfor the use of, or the right to use, any industrial,commercial, or scientific equipment, other than paymentsderived by an enterprise described in paragraph 1 ofArticle 8 (Shipping and Air Transport) from activitiesdescribed in paragraph 2(c) or 3 of Article 8. 4. For purposes of this Article, “fees for included services”means payments of any kind to any person in consideration forthe rendering of any technical or consultancy services (includingthrough the provision of services of technical or other personnel)if such services: (a) are ancillary and subsidiary to the application orenjoyment of the right, property or information for which apayment described in paragraph 3 is received; or (b) make available technical knowledge, experience,skill,know-how,orprocesses,orconsistofthedevelopment and transfer of a technical plan or technicaldesign. 5. Notwithstanding paragraph 4, “fees for included services”does not include amounts paid: (a) for services that are ancillary and subsidiary, aswell as inextricably and essentially linked, to the sale ofproperty other than a sale described in paragraph 3(a); (b) for services that are ancillary and subsidiary tothe rental of ships, aircraft, containers or other equipmentused in connection with the operation of ships or aircraft ininternational traffic; (c) for teaching in or by educational institutions; (d) for services for the personal use of the individualor individuals making the payment; or (e) to an employee of the person making thepayments or to any individual or firm of individuals (other than a company) for professional services as defined inArticle 15 (Independent Personal Services). 6. The provisions of paragraphs 1 and 2 shall not apply if thebeneficial owner of the royalties or fees for included services,being a resident of a Contracting State, carries on business in theother Contracting States, in which the royalties or fees forincluded services arise, through a permanent establishmentsituated therein, or performs in that other State independentpersonal services from a fixed base situated therein, and theroyalties or fees for included services are attributable to suchpermanent establishment or fixed base. In such case theprovisionsofArticle7(BusinessProfits)orArticle15(Independent Personal Services), as the case may be, shall apply. 7. (a) Royalties and fees for included services shall be deemed toarise in a Contracting State when the payer is that State itself, apolitical subdivision, a local authority, or a resident of that State.Where, however, the person paying the royalties or fees forincluded services, whether he is a resident of a Contracting Stateor not, has in a Contracting State a permanent establishment or afixed base in connection with which the liability to pay theroyalties or fees for included services was incurred, and suchroyalties or fees for included services are borne by suchpermanent establishment or fixed base, then such royalties orfees or included services shall be deemed to arise in theContracting State in which the permanent establishment or fixedbase is situated. 7. (a) Royalties and fees for included services shall be deemed toarise in a Contracting State when the payer is that State itself, apolitical subdivision, a local authority, or a resident of that State.Where, however, the person paying the royalties or fees forincluded services, whether he is a resident of a Contracting Stateor not, has in a Contracting State a permanent establishment or afixed base in connection with which the liability to pay theroyalties or fees for included services was incurred, and suchroyalties or fees for included services are borne by suchpermanent establishment or fixed base, then such royalties orfees or included services shall be deemed to arise in theContracting State in which the permanent establishment or fixedbase is situated. (b) Where under subparagraph (a) royalties or fees forincluded services do not arise in one of the Contracting States,and the royalties relate to the use of, or the right to use, the rightor property, or the fees for included services relate to servicesperformed, in one of the Contracting States, the royalties or feesfor included services shall be deemed to arise in that ContractingState. 8. Where, by reason of a special relationship between thepayer and the beneficial owner or between both of them. andsome other person, the amount of the royalties or fees forincluded services paid exceeds the amount which would have been paid in the absence of such relationship, the provisions ofthis Article shall apply only to the last-mentioned amount. Insuch case, the excess part of the payments shall remain taxableaccording to the laws of each Contracting State, due regard beinghad to the other provisions of the Convention.” 14.In CIT v. De Beers India Minerals P. Ltd.: (2012) 346 ITR 467, theKarnataka High Court had explained the import and meaning of ‘makeavailable’ as used in Article 12(4) of the India-USA DTAA as under: “21.What is the meaning of "make available". The technical orconsultancy service rendered should be of such a nature that it"makes available" to the recipient technical knowledge, know-howand the like. The service should be aimed at and result intransmitting technical knowledge, etc., so that the payer of theservice could derive an enduring benefit and utilize the knowledge orknow-how on his own in future without the aid of the serviceprovider. In other words, to fit into the terminology "makingavailable", the technical knowledge, skills, etc., must remain with theperson receiving the services even after the particular contract comesto an end. It is not enough that the services offered are the product ofintense technological effort and a lot of technical knowledge andexperience of the service provider have gone into it. The technicalknowledge or skills of the provider should be imparted to andabsorbed by the receiver so that the receiver can deploy similartechnology or techniques in the future without depending upon theprovider. Technology will be considered "made available" when theperson acquiring the service is enabled to apply the technology. Thefact that the provision of the service that may require technicalknowledge, skills, etc., does not mean that technology is madeavailable to the person purchasing the service, within the meaning ofparagraph (4)(b). Similarly, the use of a product which embodiestechnology shall not per se be considered to make the technologyavailable. In other words, payment of consideration would beregarded as "fee for technical/included services" only if the twin testof rendering services and making technical knowledge available atthe same time is satisfied.” 15.This court in a recent decision in CIT v. Relx Inc.: (2024) 470 ITR611 had concurred with the view of this court in CIT v. Bio-RadLaborataries (Singapore) Pte. Ltd.: (2023) 459 ITR 5 and observed asunder: 15.This court in a recent decision in CIT v. Relx Inc.: (2024) 470 ITR611 had concurred with the view of this court in CIT v. Bio-RadLaborataries (Singapore) Pte. Ltd.: (2023) 459 ITR 5 and observed asunder: 15.Similarly, in order for that income to fall within the ambit of“fees for included services”, it was imperative for the Department toestablish that the assessee was rendering technical or consultancyservices and which included making available technical knowledge,experience, skill, know-how or processes. As has been found by theTribunal, the access to the database did not constitute the renderingof any technical or consultancy services and in any case did notamount to technical knowledge, experience, skill, know-how orprocesses being made available. 16.We note that while explaining the meaning liable to beascribed to the expression “make available”, the court in CIT v. Bio-Rad Laborataries (Singapore) Pte. Ltd. had affirmed the followingopinion as expressed by the Tribunal. This is evident from a readingof paras 14, 14.1 and 15, which is extracted below (459 ITR p. 7):(SCC OnLine Del paras 14 and 15) “14. According to the Tribunal, the agreement between therespondent-assessee and its Indian affiliate had been effective from1-1-2010, and if, as contended by the appellant-Revenue, technicalknowledge, experience, skill, and other processes had been madeavailable to the Indian affiliate, the agreement would not have run itscourse for such a long period. 14.1. Notably, this aspect is adverted to in paras 17 to 23 of theimpugned order. For convenience, the relevant paras are extractedhereafter: ‘A perusal of the aforementioned provision shows that in order toqualify as fees for technical services, the services rendered ought tosatisfy the “make available” test. Therefore, in our consideredopinion, in order to bring the alleged managerial services within theambit of fees for technical services under the India-USA DoubleTaxation Avoidance Agreement, the services would have to satisfythe “make available” test and such services should enable the personacquiring the services to apply the technology contained therein.… … agreement is effective from 1-1-2009 and we are in AssessmentYears 2018-2019 and 2019-2020. In our considered opinion, if theassessee had enabled the service recipient to apply the technology onits own, then why would the service recipient require such serviceyear after year every year since 2009? This undisputed fact in itself demolishes the action of the assessingofficer/Dispute Resolution Panel. The facts on record show that therecipient of the services is not enabled to provide the same servicewithout recourse to the service provider i.e. the assessee. In our humble opinion, mere incidental advantage to the recipient ofservices is not enough. The real test is the transfer of technology andon the given facts of the case, there is no transfer of technology andwhathasbeenappreciatedbytheassessingofficer/learnedCommissioner of Income Tax (Appeals) is the incidental benefit tothe assessee which has been considered to be of enduring advantage. In our understanding, in order to invoke make available clauses,technical knowledge and skill must remain with the person receivingthe services even after the particular contract comes to an end andthe technical knowledge or skills of the provider should be impartedto and absorbed by the receiver so that the receiver can deploysimilar technology or techniques in the future without dependingupon the provider.’ (emphasis is ours) 15. We tend to agree with the analysis and conclusion arrived at bythe Tribunal.” 17.As we examine the nature of the transaction between anIndian subscriber and the assessee, it becomes manifest and apparentthat it neither comprises of a transfer of copyright nor does it includea transfer of a right to apply technology and other related aspectswhich are spoken of in Article 12(4)(b) of the Double TaxationAvoidance Agreement. (emphasis is ours) 15. We tend to agree with the analysis and conclusion arrived at bythe Tribunal.” 17.As we examine the nature of the transaction between anIndian subscriber and the assessee, it becomes manifest and apparentthat it neither comprises of a transfer of copyright nor does it includea transfer of a right to apply technology and other related aspectswhich are spoken of in Article 12(4)(b) of the Double TaxationAvoidance Agreement. 18.We thus find no justification to interfere with the view asexpressed by the Tribunal. The appeal fails and shall consequentlystand dismissed on the aforesaid terms.” 16.The issue involved in the present case is covered by the several decisions of this court including CIT v. Relx Inc. We find no infirmity withthe view of the learned ITAT in regard to taxability of repair andmaintenance charges as FIS. 17.Insofar as the corporate allocation charges are concerned, the learnedITAT had accepted the Assessee’s case that it was not rendering anyservices, which absolved the recipients from availing similar services infuture.The learned ITAT also unequivocally stated that none of itsemployees had visited India for rendering any training. On examining thefacts on record, the learned ITAT returned the following findings: “11.From the facts on record, we find that the amounts have beenreceived by the assessee as reimbursement from Goodrich AerospaceServices Pvt. Ltd. an Indian company and it collected the aforesaidcharges on the basis of actual expenses incurred. The assessee was notengaged in providing any kind of ‘technical’ or ‘consultancy services’or training which would enable the Indian customer to perform theservices independently in future. It was merely customer basedinformation and guidance to the recipient. There was no problemsolving skill or operations or knowledge or technology which has beenmade available to the client. Hence, we hold that the provisions ofFTS as per the Article of India-USA DTA are not attracted on theservices.” 18.The findings as returned by the learned ITAT in respect of allocationof charges are essentially fact centric. We also do not find any material toindicate that the Assessee had received any amount for transfer of skill,knowledge, knowhow or process to its associate entity in India which couldbe construed as FIS within the meaning of Article 12(4) of the India-USADTAA. 19.In view of the above, no substantial question of law arises for Signature Not Verified consideration of this court in the present appeal.The appeal is accordinglydismissed. Pending applications are also dismissed. VIBHU BAKHRU, J TEJAS KARIA, JClick here to check corrigendum, if any MAY 23, 2025‘gsr’