AIRPORTS AUTHORITY OF INDIA Vs. STATE

JUDGEMENT

(1.) 1. The Airports Authority of India, a public sector undertaking, set up under the Airports Authority Act, 1994, is the applicant in these applications. For Modernisation of Air Traffic Services (MATS) in Delhi and Mumbai, the applicant entered into two contracts-(1) supply contract and (2) service contract-with M/s Raytheon Company, USA (for short RC), for supply and installation of equipment (together with spares, training, documentation, software, etc.) on 19th March, 1993. Pursuant to those contracts, RC handed over equipment software, etc. at Delhi in March, 1998, and at Mumbai, in June, 1999, and thereafter the applicant has been operating and maintaining the equipments on its own without any assistance from RC. 'Having been in operation for 4-5 years, some assemblies failed which needed repairs and it was also felt that repairs would be needed from time to time so the applicant entered into two separate contracts with RC on 4th Feb., 2003 for :

(2.) In the case of repair of hardware, after detecting default, the applicant has to fill Site Anomaly Report (SAR) form and send the same to RC. The applicant has also to collect and supply additional failure data as and when required by RC. It is the responsibility of the applicant to pack properly and ship the failed parts to RC's facility which is outside India. The failed parts will be repaired by RC subject to certain maximum limit. If they are not repairable, RC would provide a compatible replacement. Repaired hardware part would be sent back to Delhi or Mumbai from RC's facilities. The part has to be checked up within the prescribed time and if found to be successful, SAR will be closed. However, if the part fails in the test, a new SAR will be opened with reference to the old SAR and the same procedure will be repeated.

(3.) THE Convention between the Government of United States of America and the Government of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income was concluded on the 18th Dec, 1990 (notified on 20th Dec, 1990), (for short the "Treaty"). RC being a tax resident of USA, is entitled to avail the provisions of the Treaty. RC does not have a permanent establishment (PE) in India for performing the contract and all activities in connection with the performance of the contract are carried out outside India. THE case of the applicant is that the amount paid by it under the said contracts is the business profits of RC and the same will not be liable to tax in India in view of Article 7 of the Treaty.