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2022 (10) TMI 600 - AT - Income TaxIncome deemed to accrue or arise in India - profit derived Profits derived from the operation of ships or aircraft in international traffic - Indo-Bhutan DTAA - taxation in the contracting state - AO rejected the claim of the assessee only on the ground that the term Profits derived from the operation of ships or aircraft in international traffic has been more elaborately explained to include the transportation of air passengers - HELD THAT - As per the law laid down by the Hon ble Supreme Court in the case of Union of India vs. AzadiBachaoAndolan 2003 (10) TMI 5 - SUPREME COURT where a specific provision is made in the DTAA, that provision will prevail over the general provisions contained in the Income Tax Act if, the same is more beneficial to the assessee as provided under section 90(2) of the Income tax Act. Since there article 8 of the Indo Bhutan DTAA is more beneficial to the assessee, therefore the profits derived by the assessee from the operation of ships or aircraft in international traffic are liable to be taxed in the contracting state in which its place of effective management of the enterprise is situated, which undisputedly is Bhutan. From definition the profit derived Profits derived from the operation of ships or aircraft in international traffic , in the India- Singapore DTAA is exhaustive enough not only to include the air passengers but also mail, livestock or goods. There is nothing mentioned in the India-Singapore DTAA to make an inference that the profits from transport of air passengers should not be covered under Article 8 of the Indo-Bhutan DTAA. - Decided in favour of assessee.
Issues:
1. Taxability of income from sale of tickets, insurance, and fuel charges in India for an airline with establishment in Bhutan. 2. Interpretation of Permanent Establishment (PE) and Place Of Effective Management (POEM) for taxation under the India-Bhutan Double Taxation Avoidance Agreement (DTAA). 3. Application of relevant provisions of section 9 and section 90 of the Income Tax Act. 4. Analysis of Article 8 of the Indo-Bhutan DTAA regarding taxation of profits from the operation of ships or aircraft in international traffic. Issue 1: Taxability of Income in India The judgment involves cross-appeals by the Revenue and the assessee regarding the taxability of income from the sale of tickets, insurance, and fuel charges in India for an airline based in Bhutan. The Revenue contended that the income was taxable in India due to the presence of a Permanent Establishment (PE) in India, while the assessee argued that the Place Of Effective Management (POEM) being in Bhutan made the income taxable only in Bhutan under the India-Bhutan DTAA. Issue 2: Interpretation of PE and POEM The Assessing Officer initially held that the assessee's income was taxable in India for AY 2017-18 and 2018-19 due to the existence of a PE in India. However, the Dispute Resolution Panel directed a determination of the POEM to decide the place of taxation under the DTAA. The tribunal found that the POEM being in Bhutan made the income taxable only in Bhutan, as per Article 8 of the DTAA. Issue 3: Application of Relevant Provisions The judgment extensively referred to sections 9 and 90 of the Income Tax Act, highlighting the deemed accrual of income in India and the provisions for agreements with foreign countries to avoid double taxation. The tribunal emphasized that specific provisions in DTAA prevail over general provisions in the Income Tax Act if more beneficial to the assessee, as per section 90(2). Issue 4: Analysis of Article 8 of the Indo-Bhutan DTAA Article 8 of the Indo-Bhutan DTAA governs the taxation of profits from the operation of ships or aircraft in international traffic. The tribunal analyzed the definition of "Profits derived from the operation of ships or aircraft in international traffic," concluding that the term includes transportation of air passengers. The judgment favored the assessee, ruling that the profits were liable to be taxed in Bhutan, where the POEM was situated. In conclusion, the tribunal allowed the appeal of the assessee and dismissed the appeal of the Revenue, determining that the income from the operation of ships or aircraft in international traffic for the airline based in Bhutan was taxable only in Bhutan, in accordance with the provisions of the India-Bhutan DTAA.
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