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2023 (2) TMI 1165 - AT - Income TaxIncome taxable in India - income from technical handling services - India France DTAA - HELD THAT - As respectfully following the decision of the Coordinate Bench in assessee s own case 2020 (6) TMI 1 - ITAT DELHI we hold that the income from technical handling services is not taxable in India as it is covered under Article 8(2) read with Article 8(1) of India France DTAA. Accordingly, the additions made in all theses assessment years are directed to be deleted. Income from Technical Handling Services to Non-IATP Members - whether income derived from technical handling services provided to non-IATP member airlines in India will be covered under Article 8(2)? - HELD THAT - On carefully going through IATP pool manual as placed in the paper-book, it is observed that there is no restriction or bar imposed therein to the extent that services cannot be provided to non-IATP pool members. As relying on assessee own case 2020 (6) TMI 1 - ITAT DELHI held assessee being a pool member and providing service in that capacity to the guest members comes under the purview of Article 8(2) of the DTAA between India and France. Therefore, the CIT(A) was not right in sustaining the taxability under Article 7 of the DTAA - we direct the Assessing Officer to delete the addition. Taxability of Interest Income - AO noticed that the assessee, though, had earned interest on fixed deposits, however, they were not offered to tax - HELD THAT - Undisputedly, it is a fact on record that the fixed deposits made by the assessee are out of funds connected with the operation of aircraft in international traffic, hence, covered under Article 8(1) as the assessee has no other business. Therefore, in our view, the interest earned on such fixed deposits will be covered under Article 8(3), hence, not taxable. Therefore, the Assessing Officer is directed to delete these additions in all the assessment years. These grounds are allowed. Income from Collection Charges - AO did not accept the claim of the assessee and brought it to tax by linking it to the PE in India. The addition made was upheld by the first appellate authority - HELD THAT - The amount retained by the airlines from UDF/PSF is known as discount or commission. It is the claim of the assessee that even assuming that it is in the nature of income, however, it will be covered under Article 8 of the tax treaty. It is observed, assessee s claim has been accepted by learned DRP in assessment yea 2012-13 and by learned Commissioner (Appeals) in assessment year 2013-14. However, on examining the nature of receipts, we are of the view that it has no connection with assessee s business of operation of aircrafts in international traffic. Rather, the assessee gets some incentive for making timely payment of UDF/PSF to the airports. Therefore, the collection charges are not directly connected to assessee s business of operating aircraft in international traffic, as per Article 8(1) read with Article 8(4) of India France DTAA. Therefore, we uphold the addition. Ground raised is dismissed. Income from Commission - income connected to operation of aircraft in international traffic - HELD THAT - The facts on record reveal that when a passenger travels in assessee s airlines, for instance, from Paris to New Delhi and then to Chennai the assessee books ticket for the entire travel including the domestic leg, though, the domestic leg travel is taken up by the domestic airlines. A part of the cost of tickets of the domestic travel payable to the domestic airlines is retained by the assessee as commission. Thus, entire journey of the passenger from the starting point to the destination is arranged by the assessee, though, the domestic leg of travel is completed by a domestic carrier. Thus, in our view, the commission income earned by the assessee is directly connected to operation of aircraft in international traffic, hence, covered under Article 8(1) read with Article 8(4), therefore, is exempt from taxation in India. Accordingly, ground raised by the assessee is allowed, whereas, the Revenue s ground is dismissed.
Issues Involved:
1. Taxability of Technical Handling Income Received from IATP Members. 2. Taxability of Technical Handling Income Received from Non-IATP Members. 3. Taxability of Interest Income. 4. Taxability of Collection Charges. 5. Taxability of Commission Income. Detailed Analysis: (i) Technical Handling Income Received from IATP Members: The primary issue was whether the technical handling income received by the assessee, a branch office of a non-resident entity incorporated in France, from IATP members is exempt under Article 8 of the India-France DTAA. The assessee argued that this income is exempt as it is part of the operation of aircraft in international traffic. The Assessing Officer disagreed, treating the income as Fees for Technical Services (FTS), and taxed it at 40% after expenses. The Tribunal, referencing its earlier decisions and the Delhi High Court's ruling in Director of Income Tax Vs. KLM Royal Dutch Airlines, held that the income from technical handling services is covered under Article 8(2) read with Article 8(1) of the India-France DTAA and is not taxable in India. The Tribunal directed the deletion of the additions made by the Assessing Officer. (ii) Technical Handling Income Received from Non-IATP Members: The dispute centered on whether income from technical handling services provided to non-IATP members is covered under Article 8(2) of the India-France DTAA. The Commissioner (Appeals) had denied the benefit for services to non-IATP members. The Tribunal noted that the IATP manual does not restrict services to non-IATP members and that such services are considered pool services. Following its earlier decision, the Tribunal directed the deletion of the addition, holding that income from services to non-IATP members is also covered under Article 8(2). (iii) Taxability of Interest Income: The issue was whether interest earned on fixed deposits made from surplus funds generated from the operation of aircraft in international traffic is taxable. The Assessing Officer treated the interest as income from other sources, not connected with the operation of aircraft. The Tribunal, referencing Article 8(3) of the India-France DTAA, held that interest on funds connected with the operation of aircraft in international traffic should be regarded as profits derived from such operation and is thus exempt from tax. The Tribunal directed the deletion of the additions made by the Assessing Officer. (iv) Income from Collection Charges: The assessee received amounts from various airports for collecting User Development Fee (UDF) and Passenger Service Fee (PSF) from passengers, which the Assessing Officer taxed by linking it to the PE in India. The Tribunal held that these charges are not directly connected to the operation of aircraft in international traffic under Article 8(1) read with Article 8(4) of the India-France DTAA. Therefore, the Tribunal upheld the addition made by the Assessing Officer. (v) Income from Commission: The issue was whether commission income received from domestic carriers for the domestic leg of international travel is exempt under Article 8. The Tribunal found that the commission is directly connected to the operation of aircraft in international traffic, as the entire journey, including the domestic leg, is arranged by the assessee. Thus, the commission income is exempt from taxation under Article 8(1) read with Article 8(4) of the India-France DTAA. The Tribunal allowed the assessee's claim and dismissed the Revenue's appeal. Conclusion: The Tribunal partly allowed the appeals filed by the assessee and dismissed the appeal filed by the Revenue, providing a detailed issue-wise analysis and upholding the principles of the India-France DTAA in determining the taxability of various incomes.
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