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TMI Blog2001 (9) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... ir of persons, live-stock, goods or mail, and therefore, fall within the meaning of term 'operation of aircrafts', the profits from which are not taxable in India in terms of Article 8 of the DTAA; (iv) not accepting that the activity of rendering engineering and ground handling services are in pursuance of participation in pools of any kind, and therefore, the profits arising therefrom are exempt under paragraph 2 of Article 8 of the DTAA; (v) arbitrarily estimating the alleged income from engineering and ground handling services at 70% of the gross receipts without fully considering all the elements of expenditure incurred by the appellant on earning such income, as against the claim of the appellant that income is not taxable inIndia. 2. The view taken and the reasoning relied upon by the ld. CIT(A) in not accepting that the income from engineering and ground handling services is covered under Article 8 of the DTAA are vitiated and bad in law, and are based on the learned CIT(A) not correctly appreciating the principles of interpretation of statutes. 3. On the facts, evidence and material already on record and/or admitted, the learned CIT(A) should have held that: (i) the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ists of a single flight or series of flights.' 3. We would also set out Article 8 of the Double Taxation Avoidance Agreement (hereinafter referred to as DTAA) betweenIndiaandUnited Kingdom, which is as follows: '1. Profits derived from the operation of aircraft in international traffic by an enterprise of one of the Contracting States shall not be taxed in the otherContractingState. 2. The provisions of paragraph I of the Article shall likewise apply in respect of participation in pools of any kind by enterprises engaged in air transport. 3. For the purposes of this article the term 'operation of aircraft" shall include transportation by air of persons, live-stock, goods or mail, carried on by the owners or lessees or charterers of aircraft, including the sale of tickets for such transportation on behalf of other enterprise, the incidental lease of aircraft on a charter basis and any other activity directly connected with such transportation. 4. Gains derived by an enterprise of a Contracting State from the alienation of aircraft owned and operated by the enterprise, the income from which is taxable only in that State, shall be taxed only in that State." 4. Before we proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. R.9.2 Non-routine Services: R.9.2-1 Rectify defects entered in the aircraft log as reported by the crew or revealed during the inspection, to the extent requested by the Carrier. However, major repairs must be especially agreed upon between the Carrier and the Handling Company, R.9.2-2 Enter in the aircraft log and sign for the action taken. R.9.2-3 Report technical irregularities and actions taken to the Carrier's maintenance base in accordance with the Carrier's instructions. R.9.2-4 Maintain the Carrier's technical manuals, handbooks, catalogues, etc. R.9.2-5 Provide engineering facilities, tools and special equipment to the extent available.' "R.9.3 Material Handling: R.9.3-2 Provide periodic inspection of the Carrier's spare parts and/ or spare power plant. R.9.3-3 Provide suitable storage space for accommodation of the Carrier's spare parts and/or special equipment.' 5. According to the Assessing Officer the income derived by British Airways from these operations was taxable inIndiadue to the following reasons: " 1. These services are separate business activities and are not covered under 'Air Transport Services'. 2. These services are rendered by British Airwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the wording of the treaty that exemption extended to income beyond ticket and cargo receipts. (ii) As against the aforesaid the Assessing Officer took the view that the Article was very clear regarding what was exempt and what was not and it even went to the extent of giving example as to what was taxable and what was exempt. According to the Assessing Officer the activity under consideration had not been included in the definition of Article 8 and so was the position for the exchange of notes between the two Governments. The further observation of the Assessing Officer was that the activity was not of an insignificant nature that the same was over-looked. The Assessing Officer was also of the view that certification of airworthiness of the aircraft of British Airways by its own engineers was an activity directly connected to air transportation, but if the same activity was done for other airlines and money received on a fixed basis as per clearly defined terms and conditions under a contract the same did not come under the term 'Air Transport Service' vis-a vis the commentary on the model OECD treaty to take into account only the profits earned from the carriage of passenger ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overed under Article 8. According to the Assessing Officer the commentary further stated that keeping a hotel will come under Article 8 only 'if the hotel provides no persons other than the enterprise' passengers with night accommodation directly connected with their passage and if the cost of such accommodation are included in the price of passage ticket. It was reiterated by the Assessing Officer that the aforesaid activities if rendered by the airline to its passengers would extend the scope of the treaty, but if the same are rendered to any other person including passengers of other airlines then the same was not covered under Article 8. 9. The assessee contended that ground handling and engineering services were activities related to air transportation and the facilities for ground handling and engineering services were not business units, but support finance for the British Airways International Airline business. The further plea was that the company was inIndiato carry out its international airline business and the activities in question were inextricably linked to the direct operation of the service. According to the assessee it had complete infrastructure in place and was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'British Airways is ready to pay taxes on 10 per cent deemed profit basis." The aforesaid offer was made on the following lines : "1. That British Airways does not carry out handling for other carriers as a separate business, nor does it account for it as such. 2. Cost related to those recoveries are intrinsically linked to the British Airways worldwide operation and it is not possible to identify profit. 3. Most agreements are based on mutual provision of services with other carriers elsewhere in countries where British Airways does not have the capability to carry out its engineering and traffic handling any uplift to include profit margin will result in similar uplift by payment of British Airways. 4. Inreaching agreements British Airways has to look to U.K. Credit for Indian tax paid so that treating article 27 mutual agreements procedures does become an issue. The offer is made with a view to reaching early conclusion of the dispute, following our oral offer have carried out further research which shows that British Airways published accounts for the last two years reflect operating profits returns between 5.83% and 6.53% and section 44BBA of the Indian Income-tax Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter clear, we refer to the assessment order for assessment year 1996-97 wherein at page 21 is the assessee's calculation of income and taxes payable as under: 'Income from business & profession"; Rs. Engineering Service receipts 54,239,447 Traffic Handling receipts 617,169 Gross receipts 54,856,616 Deemed to be Income [@15% of the gross receipts] 8,228 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is to be computed as business income which the assessee himself has agreed as per the provisions of Article 7 of the Indo-UK DTAA British Airways has branch offices in India which constitute a permanent establishment and therefore the income related to engineering and traffic handling is taxable in India as the same is not covered under Article 8 of DTAA. Further, for doing this operation the airline enter into a separate agreement and the charges are based on per flight basis. Most of the work done is visual inspection by the engineer and any replacement of defective component is replaced at IATP and therefore, there is no cost of consumables. Once the flight lands, the engineer makes a visual inspection and signs the log book, that the aircraft is fit to fly. If there is any defect, it can be repaired, it is repaired and consumables are replaced at IATP and even the time till it is replaced the other carrier pays the rental charges. All these facts were confronted to Mr. Mike Rawlings and the A.R. of British Airways and they were explained that actually there is no additional cost incurred by British Airways for engineering/traffic handling. However, they were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. Similarly this may be spent inBombayandCalcuttaand Madras together. The total cost incurred by British Airways in all the four metros comes to Rs. 79,20,000.00. The assessee has claimed that, it has incurred Head Office Expenses, the same it to be allowed as per the provisions of section44C, which is 5% of the adjusted total income. 5% of Rs. 4,61,36,616.00 = Rs. 23,06,830.80 The abovesaid calculation is in-conformity with the number of flights of British Airways and the number of flights of other carriers handled by British Airways. In view of the above said facts income of the assessee in computed as follows : Engineering Services Receipts: Rs. 5,42,39,447 Traffic Handling receipts: Rs. 6,17,169 Gross Receipts: Rs. 5,48,56,616 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e beneficial to it and it was, therefore, contended that such provisions be applied. 18. If referring to paragraphs I and 2 of Article 8 it was submitted on behalf of the assessee that these were similar to Article 8 of the OECD Model Taxation Convention on Income & Capital 1977 and Article 8-B of the UN Model Taxation Convention between the Developed and Developing countries1980. Inregard to the OECD Model double Taxation Convention on Income & Capital, 1977 the observations of Klaus Vogel were referred to wherein it was mentioned that 'the term 'pool', 'joint business' and 'international operating agency' are not defined in the Convention. The terms are taken from the International Air Service Transit Agreement of7-12-1994. In that Agreement, they typify various forms of international co-operation by air transport enterprises which may take place in technological as well as commercial fields. Such cooperation ranges from pooling of supply of spare parts at airports, via the alternating operation of certain flight routes, to the merger of enterprises'. Reference was made to observations regarding the mode and method of the pooling arrangement and it was mentioned that "various fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and manpower with a view to achieve economic savings by reducing costs. It was further submitted that the service and facilities provided by British Airways to the other airlines did not involve any separate and distinct business activity from its business of operating aircraft in international traffic. The plea was that there was unity of management, control and finances which were inter-connected, inter-laced and inter-dependent. In placing reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Prithvi Insurance Co. Ltd. [1967] 63 ITR 632. It was contended that the services provided by British Air-ways to other airlines did not constitute a separate or distinct business activity. It was also the further submission that the term 'operation of aircraft' included any other activity directly connected with such transportation and it was specifically pointed out that providing ground handling services to its own aircraft as also the aircraft of any other airline was an activity directly connected with the transportation by air of persons, live-stock, goods etc. It was the subsequent argument that the Revenues generated from these services were exempt from tax in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the exemption in Article 8 to activities carried on by the airlines through a spare capacity of assets or personnel in the relevant jurisdiction even though those activities are not directly connected with operation of the airlines' own aircrafts." It was also mentioned in the said representation that the AEA was concerned about the profits derived by an international airline from the use of its assets and from services performed by its personnel during the period in which the assets and/or the personnel are not required for the purposes of carrying on the enterprises' own ships or aircrafts in international traffic. Examples of such profits were given such as the provision to other airlines, shipping enterprises of goods or services by enterprises, engineers, cargo handlers, catering staff and customer services personnel whose presence in the other State was necessary for the enterprise to operate its own ships or aircraft in the international traffic, but who are not occupied full time in doing so. According to the Assessing Officer it was not the understanding of the AEA or the OECD that exploitation of excess capacity of assets or personnel leading to revenues was exempt from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the hearings, the adjournments asked for as also various other submissions made with reference to the computation of profits. It is noted from paragraph 5.1 of the order of the CIT (Appeals) that the assessee after filing the returns took the stand by a written communication that its income was not taxable in the source country and which was reiterated in another written communication, but thereafter a conditional offer was made to get 10 per cent of the gross receipts taxed in India and which was further revised to 15 per cent. Attention of the Assessing Officer was invited to section 44BBA which contained special provisions for computing profits and gains of business of operation of aircraft in the case of a non-resident and which contained a deeming provision regarding the income of a non-resident engaged in the aforesaid activities to be taken at 5 per cent of the aggregate of the amount paid or payable in or out of India and the amount received or deemed to be received in India on behalf of the such assessees. The plea, in other words, was that it was not necessary to draw up a separate profit and loss account in respect of the PE inIndia. 25. As against the aforesaid th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he argument that provisions of section 44BBA and Rule 10 did not apply to the facts of the case and the instant case was covered under section44Cwhich dealt with the deduction of head office expresses in the case of non-residents. According to the Assessing Officer the assessee did not incur any substantial expenditure for providing ground handling services to other airlines as the requisite infrastructure and personnel were available with it for providing similar services to its own aircraft. It was stated before the CIT (Appeals) that substantial deduction on account of expenditure against the receipts from ground handling services had been allowed and there was a further deduction in respect of head office expenditure under section44C. The plea, in other words, was that no further expenditure was required to be allowed as was the case sought to be made out on behalf of the assessee. 27. Inconsidering the rival submissions the CIT (Appeals), at the outset, rejected the arguments of the assessee with reference to Article 265 of the Constitution of India observing that the same had not been elaborated. Coming thereafter to the issue on merits, the CIT (Appeals) on consideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices/engineering services to the aircraft of other airlines could not be said to be an activity directly connected with the transportation of the passengers and the cargo of the enterprise. It was further observed by the CIT (Appeals) that the Article had specifically taken note of the sale of tickets as an exempted activity, but no mention had been made of the provision of ground handling services to aircrafts of other airlines. According to him it was an accepted proposition of law that a fiction ended the moment its purpose was accomplished and it could not be carried further. The further observation was to the effect that if the sale of the tickets was included in the artificial meaning, then the ground handling services could have also been included, but which was not done. According to the CIT (Appeals) the fiction should not be read in a statute when it did not exist at all. 28. Incoming to the reliance Placed by the assessee on the provisions contained in OECD model, UN model and US model, the CIT (Appeals) observed that it was true that Article 8 had artificially extended the meaning of the expression "operation of aircraft" to a number of activities which included sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me derived from rendering engineering services/ground handling services to aircraft of other airlines was not exempt vis-a-vis paragraphs 1 and 3 of Article 8 and the said revenues being a clear case of exploitation of excess activity through a permanent establishment the same were taxable in India. Dealing thereafter with the submissions of the assessee that its case was also covered under paragraph 2 of the Article i.e., participation in pools, the CIT (Appeals) referred to the commentary on OFCD model by Klaus Vogel. The conclusions thereafter were as under: "Thus, a pool has to be a kind of joint venture, whose revenues or profits are apportioned between or among members. These views are quite distinct and different from the views expressed by Sh. Ranganathan in his opinion. The IATP agreement does not envisage bringing together of the assets or personnel under joint command, nor it envisages apportioning of receipts or profits. Therefore, it cannot be said that the impugned agreements constitute pools of any kind notwithstanding the nomenclature used in the agreements. Thus, the true position which emerges from this discussion is that there should first of all be a pool, in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to certain factual aspects i.e., the non-substantiation by the assessee of its estimate of profit at 15 per cent of the gross receipts and the inspection made by the Assessing Officer whereby it was noticed that the service rendered involved merely the visual inspection of the aircraft. As against the aforesaid the arguments on behalf of the assessee before the CIT (Appeals) were to the effect that the profit had been computed at a very high percentage i.e. 82 per cent of the gross receipts whereas the total "world income' was 7 per cent of the gross receipts. The plea was to the effect that provisions of section 44BBA and Rule 10 had been ignored. The case of the Assessing Officer, on the other hand, was that provisions of section44Cwere attracted. 31. Inconsidering the aforesaid the CIT (Appeals), at the outset, observed that the assessee's counsel did not furnish the annexures to the SGHA which gave the complete list of services rendered and neither did he furnish details or working of the actual expenditure incurred by the assessee in India in earning the revenue with reference to the ground handling services on the plea that no separate accounts were maintained. 32. Before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of own flights and the flights of other airlines handled by it. All these factors do lead to strong inference that the appellant does not even want to furnish the details which it could have furnished on general argument that separate accounts were not maintained. The assessee merely wants to rely upon the arguments rather than the facts, while the computation of income is basically a question of fact. Therefore, it is obvious that its income will have to be calculated on estimate basis. It also seems to be clear that the establishments are sources of high income as the receiving airlines do not have existing facilities to cater to their own aircraft, the expenses inIndia. will be the expenses on the aforesaid personnel, depreciation of the equipment and other incidental expenses, the spare parts used, if any, are to be replaced by the receiving airline. But, as mentioned earlier, the appellant has not furnished any details of the expenses. It is also true that the Id. Assessing Officer has not taken into account all the activities. Therefore, the profits will be somewhat less than the profits computed by the Id. Assessing Officer. In a situation like this, the profits will have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (viii) The object of the DTAA could not be ignored; (ix) In sub-clause (3) of Article 8 the word "include" had been used and this meant that the definition could not be exhaustive and the further use of the word 'including' meant that the same interpretation was required to be given for all the three limbs. Further earlier limb of the definition was enterprise based whereas the second limb was activity based; (x) The last part of sub-clause (3) used the words 'any other activity" and this envisaged something done prior to transportation and further the sale of tickets on behalf of another enterprise was mentioned and this necessarily meant that this was not catering to ones own passengers; (xi) The effective management of the airline was inUKand all other incidental activity which necessarily may not be for its own passengers was also covered under the activities of international transportation by air; (xii) Vis-a-vis the DTAA directly related activity was exempt from the purview of taxation; (xiii) The DTAA betweenIndiaandUKwas on the OECD model (reference made to page 166 paragraph 4 of the paper book vis-a-vis sub-clauses 4 to 6); (xiv) Vis-a-vis the 'doctrine of up-dati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his had been done only to buy peace with the Department rather than to enter into prolonged litigation; (iii) No adequate opportunity had been allowed by the Assessing Officer initially and thereafter by the CIT (Appeals) to enable the assessee to substantiate the figures; (iv) Consent between the parties could not lead to any amount being taxed since it was the law which was to determine whether a particular item was taxable or not; (v) On the assumption that the amount earned on ground handling services provided to other airlines was taxable in India, then the matter could be restored back to the file of the Assessing Officer for determining the correct taxable income; (vi) Section 44BBA spoke of taxation at 5 per cent and this was analogous to Article 8(1); and (vii) If part of the income was exempt and a part subject to taxation, then there need not be any apportionment of expenses between the taxable portion and the portion which was exempt.' 37. Insupport of the aforesaid arguments, the learned counsel referred at length to the compilation filed during the course of the hearing and he further placed reliance on various commentaries pertaining to DTAA, agreements and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o restrict itself/rely on either one or the other; (ix) The term 'likewise apply' was relevant for Article 8(2) and this referred to an arrangement for sharing profits by persons 'engaged in air transport'; (x) That there could be no reciprocity in pooling arrangements and the assessee in the present case had not placed on record copy of any agreement/arrangement between itself and other airlines for providing or obtaining ground/engineering services'; (xi) That till date the assessee had not specified the exact services, which were being rendered to other airlines; (xii) The Rules of interpretation of a statute should not be applied to DTAA as it was an agreement between the two parties and rights and liabilities had to be decided strictly on the terms of the agreement; (xiii) Similarly the concept of intention would not apply; (xiv) The concept of 'same business' had no relevance to the point at issue; (xv) There were two kinds of profit - one defined in Article 8 and the other in Article 7 and reliance was specifically placed on Articles 7(1), 7(2), 7(5) and 7(9); (xvi) That vis-a-vis the aforesaid Article it was the right of India Io tax profits of the nature arising to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41. Inreply to the submissions on behalf of the Revenue the learned counsel for the assessee submitted/reiterated the following "(1) The wording of Article 8 as also the intention supported/fortified the assessee's case; (2) DTAAs/treaties are a kind of mini legislation and all rules of interpretation would, therefore, apply; (3) OECD model indicated broad outlines and two countries could enter into an agreement within these parameters; (4) The terminology of Article 8 was most relevant for deciding the issue and the assessee was not pleading its case on grounds of magnanimity, equality or patriotism; (5) Article 8 (1) spoke of the profits derived from operation of aircraft and since this was a very narrow concept it had to be expanded to rope in other activities and Article (3), therefore, had to be enacted; (6) Reliance was placed on the second limb of Article 8(3) and not the first and the use of the term 'shall include" made it exhaustive. The second limb did not include the words 'owners' as was done in the first limb. That the words 'such transportation' had been used twice, in the second limb. This meant that the activities detailed in the second limb need not necess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the airport to ascertain the facts and figures and nothing was confronted to the assessee thereafter. 43. We have considered the rival contentions and also perused the material on record to which our attention was invited by the parties. The decisions cited at the Bar have also been considered. At the outset, we refer to section 90 of the Income-tax Act, 1961 [hereinafter called the Act] as follows: '90 [(1) The Central Government may enter into an agreement with the Government of any country outsideIndia- (a) for the granting of relief in respect of income on which have been paid both income-tax under this Act and income-tax in that country, or (b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country, or (c) for exchange of information for. the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country, or investigation of cases of such evasion or avoidance, or (d) for recovery of income-tax under this Act and under the corresponding law in force in that country, and may, by notification -in the Official Gazette, make such provisions as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered. As against this the learned senior counsel for the Revenue contended that the matter be decided with reference to the relevant clauses of the agreement and that there was no scope for any liberal or equitable construction. We agree with the learned senior counsel on behalf of Revenue to hold that the agreement being in the nature of a special law overrides the Act except where the provisions of the latter are beneficial and after such an option an assessee cannot ask for any favourable or liberal interpretation contending that income of such and such type from services rendered in India is not taxable under the agreement. 48. Inpreparing a DTAA and signing it the representatives of both contracting countries apply their minds and at that stage everything is thrashed out and discussed. Each is aware of its obligations and liabilities and one cannot later on at the assessment stage contend something, which is contrary to the agreement. In a DTAA there is no legislative intend, no speech of the mover of the bill and therefore a strict interpretation is to be made of the terms of the agreement and nothing is to be assumed and read into the agreement although a DTAA can be tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the term /expression 'pool' as follows : '(1) As per the New Webster's -Dictionary of the English Language pool as noun is defined as 'a combination of individuals or organizations formed for the purpose of speculation as for manipulating the prices of stocks....', 'a combination of interests or funds for common advantage', a service or facility shared by a number of people, as a car pool.' "Pool' as verb means to put as interest or money, into a Pool or common stock or fund.' (2) As per 'Words and Phrases Legally Defined', 'Pool' is defined thus: 'the definitions of the word *Pool' show that in order to constitute a 'Pool' there must be an aggregation of interest or a throwing of revenue or property into one common fund or a sharing of interest in that fund by all on an equal or previously agreed basis' Canadian Fur Auction Sales Co. (Quebec) Ltd. v. Neely (1954) 11, W.W.R. (N.S.) 254. (3) As per Stroud's Judicial Dictionary, 'a stock exchange 'Pool' is an arrangement between two or more persons for selling or buying some particular class of stock, shares or securities and apportioning the result among themselves ....... (4) As per Oxford Shorter English Dictionary, 'P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid features and this would have brought into existence a pool. 58. We agree with the view taken by the CIT(Appeals) and further hold that there are no smaller pools within the larger pools envisaged by the IATP document as canvassed by the learned counsel and which could meet the twin requirements of Article 8(2). In coming to the conclusion that we have arrived at, due note is taken of various models, conventions, commentaries etc. to which the parties had adverted during the course of the hearing. The relevant extracts placed on the paper books filed by the parties have been thoroughly perused. 59. Another argument advanced was that the assessee had its own staff for servicing its aircraft and it was only during the intervening period when such staff was free then their services were supplied to other airlines. We do not think that the ground handling services to other airlines are of such a casual nature since it is an accepted f act between the parties that there are agreements between the assessee and other airlines for rendering of such services, the assessee had qualified engineers and technicians at various metropolitan cities in the country to render such services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecified goods and even the term 'any other activity' has to be considered with reference to such 'transportation' as aiding it supporting it and incidental thereto. The tax authorities have referred to three such activities, namely : '(i) the operation of a bus service connecting a town with its airport; (ii) transportation of -goods by truck connecting a depot with the airport; and (iii) maintenance and running of a hotel by the airlines strictly for the use of its passengers for night accommodation and if the cost thereof is included in the price of the ticket and the hotel does not cater to any other category of persons.' 66. The above examples in our opinion do aptly qualify for inclusion in the category of 'any other activity directly connected with such transportation' and by no stretch of imagination would it include the engineering/ ground handling services provided by the assessee to other airlines. 67. It is clear from the discussion of the various clauses that the activities, which are tax exempt inIndiaare specified and determined and there is no scope for an interpretation which could bring something more into the fold. 68. We now advert to the various decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omplaint was filed only on8-8-1996so the court had no jurisdiction to take cognizance on the said complaint. 70. We really do not understand as to how the aforesaid judgment of the Hon'ble Supreme Court advances the case of the assessee. Their Lordships on the facts of the case have interpreted the words 'giving notice in writing" to hold that the same was not required to be restricted to be the customary mode of notice through postal service or even by personal delivery as the Legislature must be presumed to have been aware of modern devices and equipment already in vogue and also in store for future and by this their Lordships referred to technical advancements such as fax, E-Mail etc. It was probably one of the arguments of the learned counsel that we must consider the 'doctrine of up-dating construction' by giving a wider meaning to the agreement considering the present time when there had been so much technological advancement in the field. We are afraid that the aforesaid submission with reference to the decision relied upon is not applicable in the light of the view which we have already expressed to interpret the agreement specifically on the terms stated and strictly hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Supreme Court to the facts of the present case. 75. Jaswant Singh Charan Singh 's case : This was a case pertaining to the S ales Tax Acts and their Lordships on the facts of the case and considering the relevant terms in the enactments held that in interpreting items in the Sales Tax Acts resort should be had not to the scientific or tech cal meaning of such terms, but to their popular meaning or meaning attached to them by those dealing in them i.e. to say to their commercial sense. In the view that we have already taken to interpret the DTAA in a strict manner, we do not find the aforesaid judgment to be relevant in the present case. 76. Avadh Sugar Mills Ltd.'s case : This was also a matter pertaining to U.P. Sales Tax Act and their Lordships took the view that for the true meaning of the term 'oil seeds' the court had not to refer to dictionaries but to ascertaining the meaning ascribed to it in commercial parlance. This is also not applicable in the present case. 77. CST v. S.N. Brothers [1973] 31 STC 302 (SC): This case is identical to those already considered including the two just preceding and is, therefore, not found to be relevant to the facts of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction". It was his argument that we should not go strictly by the provisions of the DTAA, but should also take into account subsequent changes in the social conditions, the advancement and technology etc., but we have already held in the earlier part of the order that these facts are not required to be considered. On Behalf of the revenue: 82. Sterling Food's case : The assessee in this case was engaged in processing prawns and other sea foods, which it exported and had some import entitlements granted by the Central Government under an Export Promotion Scheme. The assessee was entitled to use the import entitlements itself or sell the same to others. It sold such import entitlements that it had earned to others and its total income for the assessment year 1979-80 included the sale proceeds for such import entitlements and it claimed relief under section 80-HH of the Income-tax Act,1961 inrespect of the sale proceeds of these import entitlements. The Tribunal took the view that such relief could not be granted although for earlier years the High Court had held that the income which the assessee made by selling the import entitlements was not a profit and gain which it had derive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of the facts stated aforesaid, we set aside the orders passed by the Commissioner of Income-tax (Appeals) vis-a-vis the point at issue and the matter is restored back to the file of the Assessing Officer for all the three years under appeal asking him to allow reasonable opportunity to the assessee to prove its facts and figures with whatever evidence it can. 88. The only other common ground in the assessee's appeals pertains to the charging of interest under sections 234A, 234B and234C. This is treated as consequential and the matter is restored back to the file of the Assessing Officer to be decided with reference to the quantum of income worked out and with reference to the relevant provisions of law. 89. Inthe result, the appeals of both the parties are treated as partly allowed, for statistical purposes. ITA NOS. 4653, 4654 AND 4655/DELHI/ 1999 AND 484, 485 AND 486/ DELHI/2000. (ASST. YEARS : 1996-97, 1997-98 AND 1998-99) (BRITISH AIRWAYS PLC.). Per Diva Singh, Judicial Member - I have gone through the draft order of the learned A.M., I am in full concurrence with his conclusion for restoring the issue back to the file of the Assessing Officer for all the years under a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other information, the following was specifically sought for by the Assessing Officer : '(v) Whether BA receiver, any payment abroad (globally) for the services rendered by it inIndia.' 9. Thereafter, the case was adjourned at the request of the assessee a few times and on21-10-1998, the assessee made a further request for adjournment as per order sheet entry dated21-10-1998. Thereafter, on13-1-1999, the order sheet entry of the assessment record shows that a further request for adjournment was made by the assessee. Thereafter, notice under section 143(2) was issued on25-2-1999for5-3-1999and on the said date, no details were filed. The Assessing Officer thereafter issued notice under section 131(1) for 12-3-1999 on which date, again an adjournment was sought which was rejected vide order sheet dated 15-3-1999. 10. During the proceedings before the Assessing Officer, initially the stand of the assessee was that the revenues generated by excess/surplus/idle capacity of engineers etc. is not taxable inIndiaby virtue of the fact that it is treaty protected. The argument has also been taken that the services provided by the British Airways to other airlines is on a reciprocal pool ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue authorities have given more than reasonable opportunity in order to accommodate the assessee who has casually initially offered 1096 of his gross receipts in India and thereafter, increased to 1596 and thereafter refused to justify the basis of the offer contending that his 'consent' will not give rise to a taxable event. Fully agreeing with the submission that the taxable event will arise only under the law of the land and not by any 'consent' or 'agreement' entered into or understood to be entered into by the assessee, the fact remains that the assessee has not brought on record any information in support thereof of the amount arbitrarily offered for tax while blocking all efforts to arrive at a correct determination of his taxable income arising out of its engineering/ground handling services rendered to other airlines in India. 14. The matter is being restored back despite holding that the assessee's conduct does not allow it to argue its case from the premises of violation of principles of natural justice, only for the reason that being conscious of the fact that the Tribunal is the highest fact finding atuthority under the scheme of the Income-tax Act of 1961 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or interference on that count is presumed to knock on the doors of Courts/Tribunal with clean hands and only then, if equity demands, can the well-known principles of natural justice can be pressed into action. 17. Thus, in the situation, it is necessary to state that in the facts of the case where the assessee has not placed on record any evidence, the Assessing Officer was fully justified in computing the taxable income of the assessee in the manner computed by him. Taking note of the consistent stand of the assessee that the British Airways incurred no extra cost to maintain engineers/technicians who in their 'spare' 'idle' time provided services to certain other airlines on payment and that even if these services were not provided to the other airlines, the British Airways anyway was required to meet the personnel for servicing their fleet. I am of the view that the Assessing Officer has been more than reasonable in reducing the expenditure on salaries etc. of these personnel to half on an estimate basis in the face of the stand of the assessee that all the engineering/ground handling personnel were anyway required for its own fleet. 18. It is also necessary to bring on recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e employees in terms of expenses on own aircraft and expenses of aircraft of other airlines. He has also not furnished the data regarding the number of own flights and the flights of other airlines handled by it. AU these factors do lead to strong inference that the appellant does not even want to furnish the details which it could have furnished on general argument that separate accounts were not maintained. The assessee merely wants to rely upon the arguments rather than the facts, while the computation of income is basically a question of fact. Therefore, it is obvious that its income will have to be calculated on estimate basis. It also seems to be clear that the establishments are sources of high income as the receiving airlines do not have existing facilities to cater to their own aircraft. The expenses inIndiawill be the expenses on the aforesaid personnel, depreciation of the equipment and other incidental expenses. The spare parts used, if any, are to be replaced by the receiving airline. But, as mentioned earlier, the appellant has not furnished any details of the expenses. It is also true that the ld. Assessing Officer has not taken into account all the activities. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e brought on record. This would necessarily bring on record the nature of the services provided to the particular airline as it may differ from airline to airline. The amount fixed f or the said payment by IATP and actually paid to the British Airways in US Dollars would also be placed on record and this may include either necessary evidence of payment through IATA clearing or any other mode of payment adopted by the concerned airlines. As such, the restoration is made at the cost of reiterating, only on the condition that the British Airways will fully cooperate with the Revenue authorities in order to enable it to determine the taxable income of the assessee in India, failing which the Assessing Officer is at liberty to complete the assessment with whatever material is available on record after giving the assessee an adequate opportunity. 24. 1 would also like to address the argument of the assessee which has been rejected by my Id. brother, i.e. 15% was offered by the assessee 'to buy peace' with the department and this consent of the assessee will not decide the taxability of an amount for which the assessee pressed Article 265 of the Constitution of India into action. Fully a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue authorities the manner in which the assessment is to be made. 27. For the same reason, as I have already observed, the Ld. CIT(A) without any facts and figures was not justified in granting relief to the assessee. 28. Having thus elaborated on the misconceived stand of the assessee, I would like to state that the endeavour at the Tribunal is also to determine the taxable income of the assessee in a fair, judicious and proper manner. Consequently, keeping this into consideration, the matter is being restored back to the file of the Assessing Officer in order to enable him to arrive at the correct taxable income which is fair both to the assessee as well as the Revenue. Thus, being guided by the principle that justice should not only be done but also seen to be done, there is no cogent reason to block the evidence simply relying on the past conduct of the assessee. Thus being of the view that if the assessee even at this belated stage is able to prove its bona fides and shows its willingness to cooperate with the department and enable it to determine the correct taxable income, then the evidence by way of full facts and figures should not be blocked and deserves to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rers of aircraft, including the sale of tickets for such transportation on behalf of other enterprise, the incidental lease of aircraft on a charter basis and any other activity directly connected with such transportation. 4. Gains derived by an' enterprise of a Contracting State from the alienation of aircraft owned and operated by the enterprise, the income from which is taxable only in that State, shall be taxed only in that State.' 32. Thus, on an examination of the provisions, it is clearly seen that the activity of operation of aircraft in international traffic does not envisage that profits earned from the spare/idle capacity of personnel by making their services available to other airlines at a price can be said to be profits incidental to activity under Article 8.1. When the services of these engineers etc. are aimed towards the maintenance of the fleet of aircraft of the assessee itself, no taxable event takes place but the moment these services even if no extra cost is incurred for providing them is made available to other airlines at a price to be paid by them for availing these services, the profits so earned are not treaty protected. The fact that non rendering of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lla of IATP was to generate savings to participating airlines by minimising investment etc. is fully in concurrence with the crux of the finding of my Id. brother with which I am in full agreement though I would like to state it slightly in a different manner ie. that if an airline of the stature of British Airways is maintaining its engineering staff, personnel and spare parts etc., then other airlines ie. user airlines who cannot afford to maintain the same infrastructure and keep their limited capital locked, would be availing of the capital employed of another airline ie. the Provider Airline (here British Airways) to meet safety regulations and other requirements in order to fly its aircrafts. 36. Coming back to IATP, I am of the view that apart from the other functions which IATP discharges, it also makes available information pertaining to the spare parts of the aircraft which any airline would require and the airline maintaining the spare part would make available not on a reciprocal basis but at a price the said spare part to the airline requiring it for the efficient functioning of its aircrafts. A perusal of the paperbook page 41 shows that Articles 6.1 and 6.2 of IATP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the wilful misconduct of the Management of the Provider. 3. If the User reimburses the Provider in kind, returns borrowed goods to the Provider or otherwise makes available services or goods under this Agreement, the liability and the obligation to indemnify and to hold harmless, of the respective companies shall be, mutatis mutandis, as provided above. 4. Nothing in this Agreement shall affect the mutual liability of the contracting parties in case of damage or claims or liabilities which have no connection with the performance of services by a Provider under this Agreement, this liability being subject to the rules as set out in any other agreement existing between the Provider and User or in absence of such rules, to the applicable laws (Not valid for I pool). 9. Disputes 1. Any disputes concerning the interpretation or effect of this Agreement or concerning any rights, liabilities or obligations arising out of this Agreement shall be referred to and finally settled by arbitration. 2. The arbitral tribunal shall (unless the parties to the dispute agree to the appointment of single arbitrator) consist of three arbitrators and the arbitrator(s) shall on the application of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rier. Article 7. Accounting and Settlement. 7.1 The Handling Company shall invoice the Carrier monthly with the charges arising from the provision of the handling services of Annex A as listed in Annex(es) B at the rates of charges set out in Annex(es) B. 7.2 Settlement shall be effected through the IATA Clearing House unless otherwise agreed in Annex(es) B.' 38. The learned AR has also placed on record from paperbook pages 63 to 86 'Standard Ground Handling Agreement' at Annexure 'A'. Paperbook pages 87 to 94 is the 'Standard Ground Handling Agreement' (Simplified Procedure) between British Airways and AirIndiafor Mumbai valid fromAugust 15, 1998. Similarly, paperbook pages 92 to 94 is the 'Standard Ground Handling Agreement (Simplified Procedure)' between Saudia Saudi Arabian Airlines and British Airways forDelhivalid from2nd December, 1995. A similar 'Standard Ground Handling Agreement (Simplified Procedure)' at paperbook page 95 has also been placed on record between Fl Al Israel Airlines and British Airways forBombayandDelhivalid from1st August, 1995. 39. Thus, a perusal of this entire material fully supports the conclusion arrived at by my learned brother with which I a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no ambiguity in the language of the Article. Thus, it is not necessary to resort to any interpretative process to unfold the intent of the contracting parties. Nevertheless, since both the sides have pressed various rules of interpretation in order to interpret the concerned Article. I would start from the premises that the issue pertaining to the interpretation of taxing provisions is fairly settled to the extent that generally, the rules of strict interpretation would apply. The arguments of the learned AR that the liberal construction should be applied to the present facts of the case have been rejected by my learned Brother. To this, I would merely like to state that even applying the rules of liberal construction as is advocated by the Id. AR, the activity of ground handling and engineering cannot be considered to be treaty protected either under Article 8.1, 8.2 or 8.3 of DTAA. Thus, as this activity cannot be considered to the operation of aircraft in international traffic or a 'pooling activity' as this would seem to suggest a bringing together of finances, personnel for profit apportionment amongst members and it also cannot be considered to be any other activity d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or both the contracting states the recourse can be taken to the development, if any, to the international tax language but even in that situation in the present case, the ordinary meaning supports the case of the Revenue and no case is made out to read a special meaning as advocated by the learned AR. 45. For the purpose of interpretation of double taxation treating, recourse is often taken to the Vienna Convention. The relevant provisions of Articles 31 and 33 of VCCT are being reproduced hereunder in order to support the conclusion that Articles 8.1, 8.2 and 8.3 read together in the context of the ordinary meaning would result in concluding that, earning of income from the activities in India by way of providing engineering/ground handling services gives rise to a taxable event in India. The relevant Articles of VCCT read as under: 'Article 31. - General rule of interpretation. 1. Atreaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to terms of the treaty in their context and in the light of its object and purpose. 2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount while interpreting how a notice is served upon a party. The said rule of updating construction by way laying down the principle that the legal jurisprudence should stay in step with technological development is an accepted principle but lends no support to the issue at hand as no amount of updating and developing rules of construction can it be stretched to encompass a situation in the present facts to conclude that income earned on account of engineering/ground handling services rendered by British Airways to other 'user' airlines as defined in IATP agreement can be treated to be treaty protected and hence, not taxable in India. 47. Thus, whether the issue of interpretation is looked from the aspect of construing the entire Article in a consistent manner with its sub-articles individually or whole to accept the contention of the assessee would lead manifestly to an absurd or anomalous situation not envisaged by the contracting states to the DTAA. 48. If the issue is addressed from the aspect of giving the Article alongwith its sub-articles, its ordinary meaning even then the assessee has no case. In the face of clear grammatical construction, it is clear that the meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the authorities below that the present activity cannot be taxed under section 44BBA of the Income-tax Act, 1961. 52. Similarly, provisions of section44Cpertaining to deduction of head office expenditure was held to be not applicable by the Assessing Officer as despite repeated requests, the assessee did not put forth any evidence to support the expenditure incurred. In fact, the consistent stand of the assessee has all along been that no extra cost has been incurred as the personnel are anyway required for the airworthiness of the fleet of British Airways and only the spare/idle capacity is utilised by way of rendering engineering/ground handling services to other airlines. 53. The fact that this income gives rise to a taxable event in India can be appreciated from a different angle also namely that there is no controversy over the issue that under Article 265 of the Constitution of India, only those taxes can be levied and collected under the law of the land. There is also no dispute, over the constitutionality of the Income-tax Act, 1961 of which section 90 which has already been reproduced in the earlier part of the order of my learned brother which makes provision for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als of the Revenue are partly allowed for statistical purposes. Per Mehta, VP.: 58. Two separate orders have been passed in these appeals by the Tribunal, the second order by the learned Judicial Member although both of us are agreed on every aspect of the matter. There are certain observations which inadvertently have crept into the order of my learned colleague on which I have to express my reservations. 59. There were two main issues raised and argued before the Tribunal by the parties, the first being whether receipts on account of ground handling services from other airlines were taxable in India or treaty protected and second if these were taxable then what was going to be the basis of computation and whether the assessee was required to be given any opportunity to prove the quantum of expenditure incurred to earn the income in question. 60. Coming to the first issue one of us (the Vice President) authored the order and by a detailed discussion it was held that receipts from other airlines on account of ground handling charges were taxable inIndiaand not treaty protected. I must categorically mention after reading the order of my learned colleague that the reasoning and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence simply relying on the past conduct of the assessee. Thus being of the view that if the assessee even at this belated stage is able to prove the bona fides and shows its willingness to cooperate with the department and enable it to determine the correct taxable income, then the evidence by way of full facts and figures should not be blocked and deserves to be brought on record.' 63. If the aforesaid is the view expressed by my learned colleague in conclusion then I do feel that there is really no need to comment on the bona fides of the assessee or for that matter to guide the Assessing Officer as to in which manner he should proceed since in para 23 of her order my learned colleague has asked the assessee to bring on record the details pertaining to the exact and particular arrangement with each and every airline entered into by it as also to bring on record the facts pertaining to the payment by IATP to the British Airways in US Dollars. I do not recollect that we at any stage of the hearing of the appeal before the Tribunal tried to ascertain as to what were the records which the assessee was maintaining and what it proposes to place before the Assessing Officer in case the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66. Inpara 19 of the order my learned colleague has referred to the requirements of Company Law in Britain and there is also a reference to the British Accounting Standard Board, but I must categorically state that neither in the orders of the tax authorities and nor at the hearing of the appeals before the Tribunal was any reference made by any of the authorities to the aforesaid. 67. Areference may also be made to para 22 of the order of my learned colleague: 'After referring to the above, I would merely like to confine myself to the reasons for restoration which, despite the conduct of the assessee, we have arrived at the same conclusion that it is fair and proper to both the parties concerned to finally have the full facts and figures on record before deciding the amount to be taxed. The restoration is justified in view of this fact that as has also been observed by my Id. brother, in the draft order, that the Id. AR in his alternative argument has contended that if the issue of taxability is decided against him, restoration of the same to the file of the Assessing Officer may be made as now he is in a position to give full facts and figures.' 68. The matter can go on and o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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