2020 (6) TMI 1 - AT - Income Tax

Accrual of income in India - revenue receipts as from operation of aircraft in international traffic - India and France (DTAA) - Revenue contended that the assessee provides its services both to airlines who are members of IATA/IATP as well as members who are not members of IATP and does not receive any reciprocal services in India and considering the scale of activities both inside India as well as outside thus an independent commercial and business activity which is in no way ancillary or connected to the business in the operation of aircraft as defined by Article 8(4) of the DTAA between India France - HELD THAT - Assessee company is a member of IATP and the DTAA between India France clearly set out that those who are members of pool are exempt from tax in India. AO was not right in rejecting the claim of the assessee that profit from technical handling services is covered by Article 8 and in treating the Technical Income as fee for technical services covered u/s 115A read with Section 44D and taxed the same at 20% of the gross receipts. CIT(A) rightly held that the assessee s income from ground handling and technical handling services is covered by Article 8 of the Indo-French DTAA. But the CIT(A) further held that income earned from rendering service to Iberworld a non IATP member would be taxed under Article 7, that is what challenged before us by the assessee. IATP manual clearly set out that there is no bar on member airline to provide service to non IATP Pool member and in fact, even non IATP Pool members if takes such service from a pool would be considered as a pool service to them. Thus, the 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. Thus, appeal of the assessee is allowed. Validity of reopening of assessment u/s 147 - HELD THAT - After going through the reasons it can be seen that the Assessing Officer has prima facie reason to believe that there is escapement of income as no return was filed by the assessee which is admitted fact. Thus, initiating proceedings u/s 148 of the Act are just and proper.

Issues Involved:
1. Taxability of income from technical handling services under Article 8 of the DTAA between India and France.
2. Whether the appellant's income from technical handling services to non-IATP pool members is taxable under Article 7 of the DTAA.
3. Validity of the assessment orders under Sections 143(3) and 144C of the Income Tax Act, 1961.
4. Assumption of jurisdiction under Section 148 for reassessment.
5. Applicability of Article 8 of the DTAA to the appellant’s income from technical handling services.
6. Penalty proceedings under Sections 271(1)(c), 271A, and 271B.
7. Charging of interest under Section 234 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Taxability of Income from Technical Handling Services under Article 8 of the DTAA:
The appellant, a foreign company engaged in the operation of aircraft in international traffic, claimed that its income from technical handling services is exempt under Article 8 of the DTAA between India and France. The appellant argued that the services provided to IATP Pool Members fall under the definition of "operation of aircraft" and thus should be taxed only in France. The Tribunal agreed with the appellant, stating that the services rendered to IATP Pool Members are part of the pool activity and are covered under Article 8 of the DTAA, making them exempt from taxation in India.

2. Taxability of Income from Technical Handling Services to Non-IATP Pool Members:
The Revenue contended that income from services rendered to non-IATP Pool Members should be taxed under Article 7 of the DTAA. The Tribunal, however, noted that the IATP manual allows services to non-IATP Pool Members to be considered as pool services. Consequently, the Tribunal ruled that the income from such services also falls under Article 8 of the DTAA and is exempt from taxation in India.

3. Validity of the Assessment Orders under Sections 143(3) and 144C:
The appellant challenged the assessment orders on the grounds that they were time-barred and not based on correct facts. The Tribunal dismissed these grounds, stating that the orders were passed within the stipulated time and were based on a thorough examination of the facts.

4. Assumption of Jurisdiction under Section 148 for Reassessment:
The appellant argued that the reassessment proceedings initiated under Section 148 were invalid as there was no new material to suggest income had escaped assessment. The Tribunal dismissed this argument, noting that the Assessing Officer had prima facie reasons to believe that income had escaped assessment, especially since no return was filed by the appellant initially.

5. Applicability of Article 8 of the DTAA to the Appellant’s Income from Technical Handling Services:
The Tribunal extensively reviewed the provisions of Article 8 of the DTAA and relevant case laws, including the decisions in Lufthansa German Airlines and KLM Royal Dutch Airlines. It concluded that the appellant’s income from technical handling services, being part of the IATP pool, is covered under Article 8 and thus exempt from taxation in India.

6. Penalty Proceedings under Sections 271(1)(c), 271A, and 271B:
The Tribunal did not specifically address the penalty proceedings in detail, but it implied that since the main issue of taxability under Article 8 was resolved in favor of the appellant, the related penalty proceedings would also be affected accordingly.

7. Charging of Interest under Section 234:
The Tribunal did not specifically address the issue of charging interest under Section 234, but it can be inferred that the resolution of the main taxability issue in favor of the appellant would impact the interest calculations as well.

Conclusion:
The Tribunal allowed the appellant's appeals for the assessment years 2004-05, 2005-06, and 2006-07, holding that the income from technical handling services is exempt under Article 8 of the DTAA between India and France. The Revenue's appeal was dismissed, and the reassessment proceedings under Section 148 were upheld as valid. The Tribunal's decision was based on a thorough analysis of the DTAA provisions, relevant case laws, and the specific facts of the appellant’s case.

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