AIRPORT AUTHORITY OF INDIA Vs. DIRECTOR OF INCOME TAX
AUTHORITY FOR ADVANCE RULINGS
AIRPORT AUTHORITY OF INDIA
DIRECTOR OF INCOME TAX
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P.V. Reddi, J. (Chairman) -
(1.) THE applicant (hereafter referred to as 'AAI') which is a Public Sector Undertaking set up under the Airport Authority of India Act has entered into a contract dated 11/12/2007 for "Automation Upgrade for third runway at IGI Airport, New Delhi" with Raytheon Company USA, (hereafter referred to as 'Raytheon'). The contract involves Raytheon supplying hardware, software and providing services in connection with installation. The cost of software is the major component of the contract. The applicant states that all the activities under the contract should be performed by Raytheon outside India and only some support activities relating to installation and site inspection tests are to be rendered in India. The support services are expected to last about 20 days. The contract specifically provides that the title and risk in the property (hardware and software) shall pass to AAI outside India. AAI is responsible for payment of import duties and customs clearances. As regards software and documentation, the contract grants to AAI a non -transferable, non -exclusive, royalty free licence for using the software only at Delhi. The applicant contends that the essence of the contract is only purchase of certain copyrighted software and hardware on outright basis subject to certain end -use restrictions. The applicant points out that the consideration stipulated for installation is approximately 0.10% of the total contract value. It is the case of the applicant that the amounts received by Raytheon for supply of hardware, software and support services are in the nature of business profits and would not be taxable in India in the absence of Permanent Establishment (PE) in India, having regard to the provisions of Article 7 of DTAA (Tax treaty) between India and USA. It is submitted that the payments received by Raytheon cannot be construed as giving rise to income by way of royalty and/or fees for technical services.
(2.) THE applicant has furnished a Note on 7th Jan 2010 containing general technical information regarding the automation upgrade system -third runway. The following facts and features of the contract are narrated:
Raytheon being the supplier of the original ATC Automation System, was engaged to execute the project for augmentation/upgradation of the ATC Automation System. Hence, the instant contract dated 11.12.2007 was executed between AAI & Raytheon.
The said contract envisages setting up of total 7 additional working positions (i.e. 5 for approach control operations and 2 for tower control operations). New hardware (including equipments and consoles) and corresponding software has been supplied by Raytheon to set up the said 7 additional working positions.
As a result of the said contract, additional new working positions have been set up, resulting in upgradation of the capabilities and capacity of the existing Automation System to cater to the increased operations on account of the 3rd runway.
The Automation System supplied under the contract broadly consists of the under mentioned items:
• Consoles (i.e. the specialized furniture into which the operational equipment is fitted into)
• Equipments (i.e. the servers, printers, LAN equipment, etc.)
Software & documentation
Customer -off -the -shelf (COTS) software required to run the system (e.g. Acrobat Reader, Solaris operating system, Netscape, etc.)
Raytheon's ATC Automation application software (i.e. Autotrac) along with documentation.
The copyrights in the COTS software would be belonging to the concerned party. The copyrights in Raytheon's ATC Automation application software belong to Raytheon.
The Autotrac ATC Automation software is a standardized software. However, the software requires site specific modifications/adaptations depending on the operational requirements of the concerned airport where it is installed.
The modification/adaptation would be to take into consideration factors such as, number of runways in use, number of radar sensors available, total air -space to be controlled, quantum of air traffic, etc.
Therefore, in the instant contract, the said standardized software was customized to suit the site specific requirements of the IGI Airport, New Delhi.
Raytheon has supplied the Automation System to AAI for use at Delhi Airport only. Although AAI is the owner of the installed software (customized according to its requirements), AAI does not have any right to use the software at another location. Raytheon is free to supply the standardized software (Autotrac) to AAI for other locations and also to other parties
The following questions are formulated by the applicant for seeking advance ruling:
(i) Whether payment received by M/s Raytheon Company under the transaction mentioned in Annexure I is liable to tax in India in the hands of the recipient non -resident US company?
(ii) Whether any tax is required to be deducted at source by the applicant on payments to be made to the recipient nonresident US company? If yes, then what is the applicable rate of withholding tax?
(3.) PRACTICALLY , the questions raised in this application are covered by the earlier rulings of this Authority in the case of the same applicant which is reported in : 304 ITR 216 and the earlier rulings in : 299 ITR 102 and : 273 ITR 437. We shall now refer to those rulings.;
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