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TMI Blog2013 (4) TMI 575X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee by the above decisions of the ITAT for AY 2004-05 to 2007-08. The Revenue is already in appeal before the Hon'ble Jurisdictional High Court in the earlier years. However, so long as the decision of earlier year is not modified or reversed by the Hon'ble Jurisdictional High Court, ordinarily, the same should be followed by the subsequent Coordinate Bench. Merely because the Revenue is not satisfied with the decision of the ITAT in earlier year would not be a sufficient ground for referring the matter to the Larger Bench. In view of the above, respectfully following the decision of ITAT the income from ground handling and technical handling services is not taxable in India. Accordingly, the assessee's appeal is allowed. - ITA No.4637/Del/2011 - - - Dated:- 12-4-2013 - Shri G. D. Agrawal And Shri Chandra Mohan Garg,JJ. For the Appellant : Shri Salil Aggarwal, Advocate. For the Respondent : Shri D. K. Gupta, CIT-DR. ORDER Per G. D. Agrawal, VP:- This appeal by the assessee is directed against the order of learned Deputy Director of Income Tax, Circle-3(1), International Taxation, New Delhi dated 5th October, 2011 for the AY 2008-09. 2. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of hearing and the written submissions dated 15-05-2012 submitted by my predecessor before the Hon'ble Bench. ITATs' decisions in the assessee's case: 2. The issue involved in the appeal is as to whether the charges received by the assessee from various airlines on account of rendering of ground handling services are covered under article 8 of the Indo- Netherlands Double Taxation Avoidance Agreement (in short "Treaty"). The department's stand has been that such charges are not covered under article 8 of the Treaty and hence are taxable under article 7 of the Treaty. Though this issue has been decided by the Hon'ble Tribunal against the department in earlier assessment years it is humbly submitted that the same requires reconsideration. The first decision of the ITAT was for the assessment year 2004-05 and 2005-06 in ITA Nos. 403 and 404/D/2010 (PB 123). The ITAT's decision starts from para 9 (PB 128). In para 9 the ITAT has stated that the sole issue for consideration is whether ground handling services and technical handling services were part of business of assessee from operation of Air craft in International traffic or they were separate distinct activity. With d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explain the meaning of 'profit from the operation of ships or aircrafts'. As would be seen from the subsequent discussion the ITAT's decision in the case of Lufthansa is practically silent on this aspect. Further IATP does not authorize its members to share aircrafts or aircrafts pooling pooling. It only authorizes its members to share aircraft recovery kits, aircraft parts and tooling, ground handling equipment and manpower/ facilities. 2.3 The ITAT has stated that in Lufthansa's case the ITAT had considered the relevant clauses of IATP manual and thereafter concluded that any receipt received by the assessee due to participation in the pool was covered under article 8 of Indo German Treaty. It is submitted that in Lufthansa's case relevant clauses of IATP manual were not referred/considered. Moreover the ITAT did not elaborate as to whether entering into agreement with other airlines amounted to 'pool', as contemplated in the treaty. 2.4 The ITAT held that in the assessee's case there was no disparity of facts and the learned DR except raising argument that ground handling services were different activities then operation of any aircraft failed to bring any rules, regulations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings and there is no heroism in perpetuating a mistake. In the present case there is enough justification for taking a view different from the earlier years. Lufthansa's decision: 3. It is submitted that in the assessee's case the Lufthansa's decision is not applicable. In the aforesaid decision, as mentioned above, not all the aspects have been considered. Moreover facts of the assessee's case are different. Parawise comments on the operative part of the Lufthansa's decision are as under:- 3.1. Para 24:-In this para the ITAT has held that exemption is available to two items viz. profit from operation of aircraft and profits from participation from pool, joint business or an international agency, separately separately. Unfortunately except mentioning this the ITAT has not given any reasons whatsoever as to how the exemption is available to these two items separately. In fact this is the crux of the entire matter. The major issue involved is as to whether ground handling services are part of profit from operation of aircraft under article 8 or not. This being the core issue was required to be adjudicated in detail particularly when the coordinate bench in the case of BA afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n certain rules for apportioning the receipts or profits from joint business. The commentary further says that in order to clarify the taxation position of the participation in a pool, joint business or in an international operating agency the following may be added bilaterally. "but only to so much of the profits so derived as is attributable to the participant in proportion to its share in the joint operation." In fact, the issue as to what amounts to pooling has been elaborately discussed in the BA's case (para 52 to58 of AM's decision and 29,33,42,43, etc of JM's decision) As regards reciprocity of services, unlike in Lufthansa's case, in the assessee's case there is no reciprocity. This can be seen from the AO/DRP's order. The assessee has not been able to show that in India it had provided and availed services from the member airlines. Thus on this account the assessee's case is not similar to Lufthansa's case. 3.3. Para 26 27: In this para the ITAT has narrated the facts of BA's case and has compared the same with Lufthansa's case. The same are discussed below. Point No. BA s facts Assessee s facts i British airways has provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia UK provided that the terms operation of aircraft shall include ---charter of aircraft including the sale of tickets for such transportation on behalf of other enterprises-----. These activities could not be carried on without excess capacity. Indo Netherland Treaty has also extended the meaning of profit from operation of aircraft by including rental on a bare boat basis of aircraft in article 8(2). In any case, as mentioned above, the assessee also has excess capacity. vii After meeting the requirement of its own flights, the parts of the employees were acquired for handling the operation of other aircrafts for generating income. Same is the position in the assessee s case. From the above it can be seen that the facts of the assessee's case, even as per the Lufthansa's decision, are exactly the same as in BA's case. 3.4. Para 28: The ITAT has stated that there was 'IATP manual' and in BA's case only certain extracts of IATP manual were filed which did not prove the existence of IATP manual. According to the ITAT when there was IATP manual there was no need of interpreting the word 'pool'. Comments: With due respect, it is not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground Handling Agreement (SGHA) prescribed by IATP ( copies enclosed). In fact, as can be seen from the BA's decision [para 3(ii),19,20,22,29,35(xxiii), 56 of AM's decision and para 34 to 38, 46 JM's decision] agreements in BA's case were also in IATP form. Moreover even in the assessee's case all the agreements are not in the prescribed form and is in simplified procedure (PB 61). As regards the ITAT's observation that in BA's case handling charges were as per IATA Rules and not as per IATP manual, the same has no relevance. In fact, there is no distinction between IATP and IATA . The payments in all the cases are made through IATA clearing house. This can be seen from the copies of various SGHAs. In any case in BA's case also charges were as per IATP manual and the same were cleared through IATA clearing house. Same is the position with regard to the agreements entered into by the assessee with various airlines ( PB 49, 51,52,53,57,61,62,64,69,etc). In fact the ITAT misconstrued that different handling charges were prescribed by IATP manual and IATA Rules. The fact is that both go together. In any case, as mentioned above, the treaty does not recognized IATP as a pool as cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sen due to participation in a pool. Whether article 8 covers 'any' profit earned by an airline or it covers only those profits which are earned from the 'operation of aircrafts' in international traffic is the major bone of contention. Thus, profit earned from rendering ground handling services is covered under article 8 or not, even if it is from participation in a pool, is one of the major issues to be decided in these cases. As mention before, while in Lufthansa's case this issue has not been adjudicated, in BA's and Delta's case the same has been elaborately discussed and decided against the taxpayers. Therefore, it is not correct to say that there is no dispute if 'any' profit is earned due to participation in a pool. Further, in BA's case the ITAT did not hold that income from ground handling services had arisen in India merely due to PE. It was held to be taxable as the same was not covered under article 8 of the treaty (para 16 of the AM's decision and 31 of JM's decision). 3.8 Para 37: The ITAT has held that admittedly if the profit had arisen due to participation in a pool, the same was not taxable in India. It also held that since the assessee had received Rs. 49.64 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that for claiming exemption under article 8 the only requirement was that an airline should be member of IATP and profit should be earned only from those activities which were as per IATP manual and any other profit would be taxable. Most humbly it is submitted that the aforesaid view of the ITAT is not correct for the reasons discussed above. Further, in BA's case it was nobody's case that in addition to ground handling services the airline had earned revenues from charter of aircraft or sale of tickets. The precise issue before the ITAT in that case was whether income from ground handling services was taxable in India or not. Whether the services which were supposedly beyond IATP manual were provided or not was not at all the question before the ITAT. The ITAT decided the issue precisely on profits earned from ground handling services. In BA's return of income also receipts were shown from such services (para 1,2,4,28,29,50, etc. of BA's decision). Thirdly, in any case, in Indo Netherland treaty also the activities are beyond IATP manual as in article 8(2) rental on bare boat basis is treated as profit from operation of air transport. Thus, going by Lufthansa's logic in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciprocity was found, in the assessee's case there is no such reciprocity. iii) In Lufthansa's case it was found that in BA's case it was a commercial activity wherein receipts were received in crores. Same is the position in the assessee's case. iv) In Lufthansa's case being member of IATP was held to be the sufficient compliance and it was held that it was not so in BA's case. For the reasons discussed above this view of the ITAT is not correct. v) Meaning of 'joint business' was not correctly interpreted by the ITAT. vi) In BA's case also payments were cleared through IATA clearance house. In Lufthansa's case this was considered to be a distinguishing feature. vii) The ITAT held that in Indo UK treaty activities were beyond IATP's activities. Though the aforesaid view is not correct but in any case in Indo Netherland treaty also activities are beyond IATP manual. viii) ITAT held that in BA's case agreements were not in IATP's prescribed form. As mentioned above this was not factually correct. In any case in assessee's case also all the agreements are not in the prescribed form. ix) According to the ITAT, in BA's case charges were not as per IATP manual but as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 'pool', etc have been elaborately discussed. Most importantly, the facts of the assessee's case are exactly the same as in BA's case. It may also be mentioned that the ratio laid down in BA's case has been followed by the ITAT, Mumbai in the case of Delta Airlines (copy enclosed). In Delta Airlines case also the issue has been elaborately discussed." 5. Learned CIT-DR also stated that if the Bench is not prepared to take a different view than what is taken in the earlier years, it would be appropriate to refer the matter to the Larger Bench. 6. We have carefully considered the arguments of both the sides and perused the material placed before us. We find that the ITAT has considered this issue in AY 2004-05 2005-06 vide ITA No.403 404/Del/2010. The ITAT, after considering the arguments of both the sides and also the relevant Double Tax Avoidance Agreements, decided the issue in favour of the assessee with the following finding:- "9. We have duly considered the rival contentions and gone through the record carefully. The sole issue for our adjudication is whether ground handling services and technical handling services rendered by the assessee to other airlines in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets for such transportation on behalf of other enterprises, the incidental lease of aircraft on a character basis and any other activity directly connected with such transportation. 3. For the purposes of this Article, interest on funds connected with the operation of ships or aircraft in international traffic shall be regarded as profits derived from the operation of such ships or aircraft, and the provisions of Article Incometax Officer, shall not apply in relation to such interest. 3. The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency. 3.For the purposes of this Article the term operation of aircraft shall include transportation by air of persons livestock, goods or mail, carried on by the owners or lessees or characters of aircraft, including the sale of tickets for such transportation on behalf of other enterprises, the incidental lease of aircraft on a character basis and any other activity directly connected with such transportation. 4. The provisions of Paragraph 1 shall also apply to profits from the participation in a pool, a joint business or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en British Airways. The Indo-Netherlands treaty is similar to that of Indo-German and not in parity with Indo UK Treaty. In view of the above discussion, we do not find any merit in these appeals. They are dismissed." 7. That in AY 2006-07, again, the same issue arose before the ITAT and, in this year also, the Revenue raised an argument that the earlier decision of the ITAT should not be followed. However, the ITAT, in its order dated 20th January, 2012, dismissed the appeal of the Revenue following the order of the Tribunal for AY 2004-05 2005-06 in ITA No.403 404/Del/2010. The relevant finding of the ITAT reads as under:- "5. In the case of Lufthansa Airlines, Tribunal has considered this aspect more elaborately. There is no disparity on facts. The appeals against the orders of the Tribunal are stated to be pending before the Hon'ble Delhi High Court. In our opinion, in the case of Lufthansa Airlines though section 44BBA has not been taken into consideration, but Tribunal has explained the meaning of operation of aircraft in international traffic and arrived at a conclusion that ground handling services and technical services rendered to other airlines at Indian airport ..... 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