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TMI Blog2005 (6) TMI 479X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had entered into agreements with Air India (AI) for wet leasing the aircraft at the disposal of AI. AI paid rental amounts to CBJ as per the terms of the agreement entered into between them. When the assessing authority sought to assess the income of the assessee under the regular provisions of the Income-tax Act, 1961, the assessee contended that its income should be assessed under section 44BBA. Alternatively, the contention of the assessee was that income deeming to accrue or arise in India is only such portion as is attributable to the operations carried out by the assessee in India and, therefore, in terms of section 9(1)(i), only the proportionate amount could be considered as taxable income in India. The assessee-company has also raised so many other alternate grounds before the assessing authority. But the assessing authority on the basis of detailed reasons mentioned in his order, held that the entire income arising to the assessee-company out of the wet leasing of aircraft to AI arose or accrued in India and, therefore, liable to be taxed under the regular provisions of the Income-tax Act, 1961. The assessing authority held that provisions of section 44BBA could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he quantum estimate of income at 29.7 per cent of gross receipts is erroneous and arbitrary? 6. Shri P.F. Kaka, the learned counsel appearing for the assessee, argued the case at length. The contentions advanced by the learned counsel on facts of the case are summarized below: 6.1 CBJ is in the business of operation of aircrafts and it operates several aircrafts in international sectors on behalf of different International Airlines. 6.2 Wet leasing consisted of providing aircrafts together with operating crew with full responsibility for the operation, maintenance and with aircraft insurances including third party liability. 6.3 Even though commercial term used in the transaction is 'wet leasing', no lease is involved. CBJ derived income from Air India for the carriage of passengers, mails and goods on International Airlines. The assessee did not receive a fixed monthly or daily rental irrespective of carriage of passengers. Wet lease is a separate type of carrying on international flying business. 6.4 The assessee fulfilled all the essential requirements of being engaged in "business of operation of aircraft". The responsibility for the actual operation of the aircraft, i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act, Air India cancels many flights for lack of passengers for which no payments are made to the assessee. 6.9 Ordinarily for lease agreements, the lease rentals are usually payable on a monthly/annual basis regardless of the use of asset by the lessee whereas in the present case, the rentals were payable on the basis of Block Hours flown by the aircraft while carrying on passengers, mail and goods. 6.10 As the assessee's operations qualify for assessing the income under section 44BBA, the assessment would have been completed on the income computed at 5 per cent of the amounts paid or payable, or received or deemed to be received in India on account of carriage of passengers, mail, goods, etc. 7. The learned counsel submitted that alternatively, if the machinery for computing the profits under section 44AB fails in the present case, no assessment could be made at all on the basis of the principle of non-taxability of a receipt on failure of the machinery provision necessary for computation of income as held by Supreme Court in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 2941. 8. On the various alternative grounds raised by the assessee, the learned counsel argued as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterialize. 10. The learned counsel further submitted that the contention of the assessee regarding applicability of section 44BBA was initially accepted by the department while issuing No Objection Certificate under section 195 for the purpose of making remittance outside India. The learned counsel has produced before us copies of a number of No Objection Certificates issued by the department permitting the Air India to make remittance outside India. 11. In support of the extensive arguments made by the learned counsel on different propositions raised in the matter, reliances have been placed on the following decisions : 1.CIT v. Bengal River Service Co. Ltd. [1968] 70 ITR 100 (Cal.) 2.Dy. CIT v. Reliance Industries Ltd. 81 TTJ (Mum.) 787 3.CIT v. Lady Kanchanbai [1970] 77 ITR 123 (SC) 4.Rhodesia Metals Ltd. v. Commissioner of Taxes [1941] 9 ITR 45 (Privy Council) 5.Sarpem SPA v. Dy. CIT [2004] 88 ITD 213 (Delhi) (TM) 6.MVS Kathirvelu Nadar v. Commr. of Agricultural Income-tax [1968] 68 ITR 786 (Mad.) 7.CBDT v. Chowgule & Co. Ltd. [1991] 192 ITR 40 (Kar.) 8.V.M. Salgaocar & Bros. Ltd. v. Deputy Controller, Reserve Bank of India [1991] 187 ITR 381 (Kar.) 9.CIT v. Avatar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.7 per cent. The assessing authority has acted upon evidence and not arbitrarily. 13.6 The learned CIT relied upon the case laws relied on by the lower authorities. 13.7 The learned CIT further contended that the present case is not covered by Double Taxation Avoidance Agreement. Therefore, the case is to be administered under the regular provisions of the Income-tax Act, 1961. The assessee itself was not owner of the aircraft brought under wet lease to India. The aircrafts were taken on lease by the assessee itself. The wet leasing agreement entered into by the assessee with Air India was a case of sub-leasing. Even though the assessing authority had insisted to produce the original lease agreements, the assessee had with the original lesser, those agreements were not produced for the verification of the assessing authority. She submitted that the assessee was entitled for fixed rentals per aircraft per month in addition to the variable rent. The assessee was guaranteed of minimum rental income as lease rent. Fixed and variable rentals were collected by the assessee in advance. The flights were flown under the flight of Air India. All the commercial functions were undertaken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of section 44BBA into service. In the present case, the assessee has entered into wet lease agreement with Air India on the basis of which the assessee leased out its aircrafts to Air India with its crew members. Every industry or business has got its own special features and characteristics. In the case of civil aviation, the responsibility of maintenance and technical upkeep of aircrafts are usually borne by the lessers, themselves. In many cases the crew members are also provided by the lessors. These are the different modalities of leasing out of aircrafts. Wet leasing of aircraft is different from dry leasing of aircrafts inasmuch as in wet leasing, the lesser used to shoulder some additional responsibilities. Such additional responsibilities may include providing of crews, responsibility towards repairs and maintenance, botheration on other technical, navigational and operational activities. These additional responsibilities undertaken by lesser/operators are in fact in the nature of Value Added Services. On the other hand, they do not make any fundamental distinction between dry leasing and wet leasing. The basic context and colour of both the transactions is nothing but l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d attached to carrying on the business of operation of aircrafts meant for transporting passengers, mails and goods are borne by Air India. The assessee was leasing out the aircrafts and providing mechanical support. When the crews of the assessee are flying the aircraft, Air India need not appoint any other agency to provide for navigational facilities. 19. Therefore, in our view, all the arguments advanced by the assessee on its operational and mechanical responsibilities did not change the character of lease into that of operation of aircraft. All such arguments advanced by the assessee are synthetic in nature. Therefore, we hold that the assessee was in fact leasing out its aircrafts to Air India and not carrying on "business of operation of aircraft". Therefore, we agree with the lower authorities that the income of the assessee is not to be brought to tax under the provisions of section 44BBA of the Act. 20. The next ground of the assessee on exemption under section 10(15A) is not discussed by us as the same was not pressed at the time of hearing and also for the reason that the assessee has not satisfied the essential conditions thereto. 21. With regard to the question of ..... 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