India’s Income Tax Appellate Tribunal (ITAT) in Delhi has ruled that receipts earned by Ethiopian Airlines Group from providing flight simulator services are not subject to tax as “Fees for Technical Services” (FTS). The tribunal’s decision hinged on the finding that the airline provided standard, rather than customized, services to Indian pilots in Ethiopia.

The case involved Ethiopian Airlines Group, which had an agreement to provide flight simulator and pilot training services to Dubai-based FSTC. FSTC, in turn, had an Indian group entity, Flight Simulation Technique Centre (P) Ltd. (FSTL). FSTL had agreements with various Indian airlines, including Jet Airways and Vistara, for pilot training, which was carried out through the Dubai entity.

Ethiopian Airlines received 17 million rupees ($203,778) in revenue, which tax authorities had initially treated as FTS and deemed taxable in India.

However, the ITAT stated it found no reason to uphold the tax order, noting that neither Ethiopian Airlines nor the Dubai-based entity had a group company in India providing services that would be taxable in the country. The tribunal emphasized that Ethiopian Airlines merely provided flight simulators with standard operating mechanisms to Indian pilots in Ethiopia and did not offer any customized services.

The ruling cited a Supreme Court decision in the case of Kotak Securities Ltd. and a Delhi High Court decision in SFDC Ireland Ltd., where similar stances by tax authorities treating standard facilities as FTS were rejected. The ITAT concluded that the lower authorities had erred in treating the receipts from flight simulator services as FTS.

The bench that delivered the ruling comprised Judicial Member Satbeer Singh Godara and Accountant Member S. Rifaur Rahman. CA Rajiv Palpuri and Advocate P.K. Sahu represented Ethiopian Airlines Group, while Vizay B. Vasanta, CIT-DR, represented the tax department.

Head of Tax Markets at AKM Global, a tax and consulting firm, Yeeshu Sehgal, commented that the ruling “affirms an important principle of human intervention in technical services to qualify for being taxable under Indian domestic law and tax treaties.” He added that the distinction between a standard facility and customized services is “critical when determining the taxability of such cross-border arrangements.” 

Sehgal also highlighted that the services were rendered entirely outside India, with no fixed base or business presence in the country, which would have triggered domestic tax liability. He believes the ruling will strengthen the position of global service providers delivering offshore, tech-enabled solutions without customization or local presence in the aviation and other sectors.

($1 = 83.4250 Indian rupees)

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