Per R.K. Gupta, Judicial Member. - These are eight appeals filed by assessee and department against the orders of CIT (Appeals). Out of eight appeals, five appeals arise from a consolidated order passed by the CIT(A) for the three Financial Years 1997-98, 1998-99 and 1999-2000 relevant to Assessment Years 1998-99 to 2000-01, respectively. The CIT(A) has partly confirmed the orders under section 201/201(1A) passed by the Assessing Officer holding the assessee to be in default for non-deduction of tax at source on payments made to non-resident parties for overhaul of its air-crafts, engines and components etc. She however held that such payments to the residents of UK and USA are not chargeable to tax keeping in view the provisions of the DTAAs with those countries. The Assessee is in the appeal before us for all the three years. The Revenue is in appeal for Financial Years 1998-99 to 1999-2000 only. As the issues are common in all the three years, these appeals are disposed of by a consolidated order.

2. The remaining three appeals are by assessee against sustenance of penalty under section 271C for these three years. We will take first the appeals of the assessee and department in regard to levy of interest under section 201 and 201(1A).

3. The brief facts of the case are that the assessee is a domestic company which had acquired four Boeing Cargo Aircrafts in mid-1997 from a foreign company. The assessee obtained license from the Director General of Civil Aviation (DGCA), the licensing authority, to operate these aircrafts on international routes only. It also engaged crew, technical personnel, engineers and other ground staff and wet-leased the aircrafts to a foreign cargo company. The assessee periodically made payments to non-residents on account of overhaul, repairs of its aircrafts, engines sub-assemblies and rotables (hereinafter referred to as ‘components’) in workshops abroad. No tax was deducted at source on such payments. No application under section 195(2) was filed with the Assessing Officer either. The Assessing Officer held that such payments were in the nature of ‘fees for technical services’ as defined in Explanation 2 to section 9(1)(vii)(b) of the Act, and were therefore chargeable to tax on which tax should have been deducted at source under section 195(1) of the Act. The Assessing Officer also rejected the plea of the assessee that the payments for repairs were incurred for earning income from sources outside India and therefore the assessee’s case fell within the exclusionary clause of section 9(1)(vii)(b). The Assessing Officer rejected another plea of the assessee that the business of aircraft leasing was carried on outside India. The assessee’s alternate plea that in any case the payments made to residents of USA, UK, Israel, Netherlands, Singapore and Thailand could be taxed as business profits only and not as fees for technical services keeping in view the relevant provisions of the DTAAs with those countries was also rejected. The Assessing Officer passed orders under section 201 of the Act deeming the assessee to be an assessee in default for the Financial Years 1997-98 to 1999-2000, and levied tax as well as interest under section 201(1A) of the Act.

4. In appeal, the CIT(A) also rejected the assessee’s contention that the payments made to the various non-residents for carrying out overhaul repairs were not chargeable to tax. She treated the payments made to Lufthansa Technik, a Germany company (hereinafter referred to as Technik), as the model for considering the question of taxability of payments made to all other foreign companies. CIT(A) took the view that such repairs require knowledge of sophisticated technology and trained engineers are employed by the non-residents for carrying out the overhaul repairs. According to her, the repairs per se constituted ‘fees for technical services’ and therefore tax should have been deducted at source.

4.1 Regarding payments made to residents of UK and US