2001 (9) TMI 242 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of receipts from engineering and ground handling services in India.
2. Applicability of Article 8 of the Double Tax Avoidance Agreement (DTAA) between India and the UK.
3. Estimation and computation of income from engineering and ground handling services.
4. Charging of interest under sections 234A, 234B, and 234C.

Summary:

1. Taxability of Receipts from Engineering and Ground Handling Services:
The primary issue was whether the receipts from engineering and ground handling services provided by the assessee (a UK-based airline) to other airlines in India were taxable in India. The Assessing Officer (AO) held that these services constituted a separate business activity not covered under "Air Transport Services" and were thus taxable in India. The assessee argued that these services were part of its international air transport operations and should be exempt under Article 8 of the DTAA.

2. Applicability of Article 8 of the DTAA:
The assessee contended that the engineering and ground handling services were covered under Article 8 of the DTAA, which exempts profits from the operation of aircraft in international traffic from being taxed in the other contracting state. The AO and CIT(A) disagreed, stating that these services were not directly connected with the transportation of the assessee's own passengers and cargo and thus did not qualify for exemption under Article 8. The Tribunal upheld this view, stating that the services to other airlines were a separate business activity and not covered under the DTAA.

3. Estimation and Computation of Income:
The AO estimated the income from these services at 70% of the gross receipts, considering the lack of detailed expenditure information provided by the assessee. The CIT(A) reduced this estimation, allowing 30% of the gross receipts as expenses. The Tribunal, noting the lack of cooperation from the assessee in providing detailed accounts, restored the matter to the AO for a fresh computation, directing the assessee to provide full facts and figures to substantiate its claimed expenses.

4. Charging of Interest under Sections 234A, 234B, and 234C:
The assessee also contested the charging of interest under sections 234A, 234B, and 234C. The Tribunal treated this issue as consequential, directing the AO to recompute the interest based on the revised taxable income.

Conclusion:
The Tribunal concluded that the receipts from engineering and ground handling services were taxable in India as they constituted a separate business activity not covered under Article 8 of the DTAA. The matter of income computation was remanded to the AO for a fresh determination, with a directive to the assessee to provide detailed accounts. The issue of interest under sections 234A, 234B, and 234C was to be recomputed based on the revised income assessment.