2022 (10) TMI 342 - AT - Income Tax

Income deemed to accrue or arise in India - Income from the operation of aircrafts for the international traffic i.e. transportation of passengers and cargo - whether the collection charges paid by AAI to the assessee is income derived from operation of aircraft not liable to tax in India as per Article 8 of DTAA between India and Germany? - Whether CIT (A) erred in not accepting the contentions of the Appellant that collection charges allowed to the Appellant by Airport Authority of India (AAI) on payments made by them to AAI within a stipulated given period is a discount in nature and not in the nature of commission income taxable in the hands of the Appellant in India? - HELD THAT - As decided in own case 2022 (3) TMI 1432 - ITAT DELHI UDF is levied at the Indian airports as a measure to increase revenues of the airport operator. UDF is levied to brdge any revenue shortfall so that the airport operator is able to get a fair rate of return on investment. The quantum of UDF varies from airport to airport and the rate of UDF at airports is determined by the Airports Economic Regulatory Authority of India (AERA) for major airports and ministry of civil aviation for not major airports. Presently UDF collection charge at a flat rate of Rs.5/- per passenger (all inclusive) is allowed to airlines subject to payment of UDF collection to AAI within 15 days of receipt of bill. Airlines will make full payment of UDF to AAI and raise a separate invoice for the collection charges on UDF to AAI. The collection charges paid by AAI to the assessee in whatever name called i.e., either discount or commission is nothing but service charges paid, for assessee collecting UDF and passing it on to AAI. The collection charges paid by AAI to assessee cannot be said to be the income derived from operation of aircraft. In assessee s case on identical facts for the assessment year 2013-14 the Ld. DRP approved the order of the assessing officer in holding that the collection charges received by the assessee from AAI on remitting the UDF within the stipulated time as income from business taxable in India and such income is not derived from operation of aircraft falling under Article 8 of DTAA between India and Germany. In these circumstances and for the above reasons, we hold that the collection charges received by the assessee from AAI are not income derived from operation of aircraft falling under Article 8 of DTAA between India and Germany. Thus we confirm the orders of the Revenue authorities and accordingly assessee s appeal is dismissed.

Summary

Issues:
1. Taxability of collection charges received by the assessee from Airport Authority of India.
2. Interpretation of Article 8 of the DTAA between India and Germany.
3. Applicability of penalty proceedings under section 271(1)(c) of the Act.
4. Compliance with principles of natural justice.

Issue 1: Taxability of Collection Charges
The appeal addressed the taxability of collection charges received by the assessee from the Airport Authority of India (AAI). The assessing officer considered the collection charges as income from commission and not from the operation of aircraft. The contention was that the collection charges were not incidental to the operation of aircraft and were more of a commercial activity independent of the aircraft operation. The Revenue authorities upheld this view, leading to the addition of the collection charges as taxable income.

Issue 2: Interpretation of Article 8 of DTAA
The key argument presented by the assessee was that the collection charges were exempt under Article 8 of the DTAA between India and Germany. The Tribunal analyzed the provisions of Article 8, emphasizing that profits from the operation of aircraft in international traffic are taxable only in the Contracting State where the place of effective management of the enterprise is situated. The Tribunal concluded that the collection charges received were not income derived from the operation of aircraft and hence not taxable under Article 8 of the DTAA.

Issue 3: Penalty Proceedings
The appellant contested the initiation of penalty proceedings under section 271(1)(c) of the Act, asserting that the actions were bona fide. However, the Tribunal did not delve into this issue specifically in its judgment, focusing primarily on the taxability of the collection charges.

Issue 4: Compliance with Principles of Natural Justice
The appellant raised concerns about the order being contrary to the facts, law, and principles of natural justice. However, the Tribunal did not provide detailed reasoning on this aspect in the judgment, as the primary focus was on the interpretation of tax provisions and DTAA clauses.

In summary, the judgment by the Appellate Tribunal ITAT Delhi addressed the taxability of collection charges received by the assessee from the Airport Authority of India, interpreting the provisions of Article 8 of the DTAA between India and Germany. The Tribunal ruled in favor of the assessee, holding that the collection charges were not derived from the operation of aircraft and thus not taxable under the DTAA. The judgment did not extensively discuss penalty proceedings or compliance with principles of natural justice, focusing primarily on the tax implications of the collection charges.