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TMI Blog2017 (2) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... d definition and no more. On the other hand, there is no such limitation in the DTAAs in question, in these cases. This constituted the most significant difference between the two sets of cases on the one hand, and British Airways (2001 (9) TMI 242 - ITAT DELHI-A ) on the other. For these reasons, this Court rejects the Revenue’s contentions. For the foregoing reasons, this Court answers the questions of law, framed in both sets of appeals, against the Revenue and in favour of the assessees; there is no infirmity in the impugned orders of the ITAT, which are affirmed. The appeals fail and are dismissed. - ITA 627/2016, ITA 610/2004, ITA 337/2005, ITA 1017/2006, ITA 1024/2006, ITA 1026/2006, ITA 1031/2006, ITA 1241/2006, ITA 856/2007, ITA 195/2008, ITA 765/2008, ITA 862/2011, ITA 877/2011, ITA 1162/2011, ITA 540/2016, ITA 259/2007, ITA 198/2008, - - - Dated:- 25-1-2017 - MR. S. RAVINDRA BHAT MR. NAJMI WAZIRI JJ. Through: Sh. Dileep Shivpuri, Sr. Standing Counsel, Sh. Sanjay Kumar, Jr. Standing Counsel and Sh. Vikrant. A. Maheshwari, Advocate, for Revenue in Item Nos. 2, 11 and 14. Sh. Parag. P. Tripathi, Sr. Advocate with Ms. Neelam Rathore, Advocate, for Lufthansa G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignature procedure, as applicable; (ii) maintenance of a message file containing all abovementioned messages for each flight, for ninety days; (iii) provision of headsets; (iv) providing ramp to light deck communications during tow in and/or under push back and providing ramp during engine starting; (v) fuel and oil (vi) liaising with fuel suppliers; (vii) supervise fuelling/defuelling operations (viii) drain water from aircraft fuel tanks and fuel/defuel the aircraft with quantities of products requested by carrier's designated representatives; (ix) check and verify the delivered fuel quality; (x) deliver the completed fuel order(s) to the carrier's designated representative; (xi) aircraft line maintenance (xii) perform line inspection in accordance with the carrier's current instructions. (xiii) enter the aircraft log and sign for the performance of the line inspection; (xiv) enter remarks in the aircraft log regarding defects observed during the inspection; (xv) Perform pre-departure inspection immediately before aircraft departure, according to carrier's instructions; (xvi) Perf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he work was visual inspection based, by the engineers; any replacement of defective components was replaced at IATP and, therefore, there was no extra cost of consumables by the Assessees. For earning income, the Assessees did not incur any additional expenditure. The earning of the Assessees were by exploiting their existing resources. The AO allowed deduction on account of amounts paid to engineers and mechanics out of the total engineering receipts and brought to tax the remaining amounts. The AO's orders were challenged before the CIT (A) who ruled that the profit derived from exploitation of excess capacity by rendering services to other airlines was taxable in India and that deduction of expenditure which the AO allowed was quite reasonable and did not interfere with it. The order of the CIT(A) was challenged before the ITAT, which reversed those findings. 6. The Revenue argued that the ITAT's previous decision in the case of British Airways Plc. vs. Dy. CIT (2001) 73 TTJ (Del) 519 Ed in a similar factual background, was a relevant precedent, and that, since the language of the Indo-UK, the Indo-German and Indo-Dutch DTAAs was similar, that precedent had to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyed excess staff for such purposes. Volume of receipts which is in crores for providing services also suggested that the providing of services by British Airways was a commercial activity. But in the case of the appellant, it has not been proved by the revenue that the extra staff was employed for providing services to other airlines. We have also noted that the services rendered and availed were as per IATP manual and, therefore, the profit was not taxable in India in view of Article 8(4) of DTAA. 39. We also find that Article 8(3) of DTAA between India and UK, provided that the term operation of aircrafts shall include......Charter of Aircrafts including the sale of tickets for such transportation..... . Such activity is not provided in the IATP manual. The IATP manual has provided the precise services, which could be rendered/availed by its members, which has been enumerated earlier. Therefore, it was clear that in the case of British Airways, the facilities provided to other airlines were beyond the scope of IATP objects and, therefore, the profit from rendering such services cannot be termed as profits from participation in a pool. But in the case of the appellant, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is undefined in the DTAA and, therefore, the IATP cannot be said to be the concerned pool referred to in the two DTAAs. The Revenue s counsel stressed that, exemption under the DTAA is based on reciprocity between two members of the pool for extending/obtaining the facilities. Such reciprocity should be direct. The facilities, therefore, should be extended to a particular airlines and the facility should be acquired from that particular airline. The services were extended to different parties, quite apart from those given by an entirely different set of parties. Furthermore, the concept of a pool meant that there had to be a unified management structure, shared by all, which administered the pool and in the running of which members had to show some participation. In the absence of a common structure or common administration, the mere extending of services by more than one party, based on certain minimum rates did not imply that they were participants of a pool. 8. Learned counsel stressed that the term pool involved an idea of bringing together the assets or the personnel of various airlines with the intention to carry on joint business and to share profits from the pool. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions. The pool provisions, therefore, should relate to the assessees business, jointly with pool operations relating to participation in an international pool and joint operations. 11. Learned senior counsel for the Assessees, Shri Parag Tripathi, and Shri Salil Agarwal, learned counsel argued that the Assessees are concededly international air carriers, who operate aircrafts in international traffic. They are members of the IATP, and participate in the pool sharing aircraft components, spare parts, aircraft tools, ground handling equipment and manpower across the world. The DTAAs in both cases, by Article 8(1) provide that profits from the operation of ships or aircrafts in international traffic shall be taxable only in the contracting state in which the place of effective management of the enterprises is situated. Indisputably, effective management of the Assessees are situated in Netherlands and Germany. The pool provisions in both the DTAAs provide that the provisions of Article 8(1) shall also apply to the profits from the participation in pool joint business of an international operating agency. Therefore, profits derived from participation in a pool are taxable in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes in India but did not avail services in India from any other airline. It was also stressed that the Assessees did not have any additional manpower to handle these facilities in India, but rather, provided facilities most of the times each week in India to other airlines and likewise availed services. But British Airways rendered services for which it was remunerated but has not availed services from any of the airlines. The counsel also stated that the expression pool emphasized in the British Airways (supra) cannot be read in isolation and should be construed together with international . The said phrase meant an arrangement such as IATP; in the absence of the Revenue showing any other international pool, the Revenue cannot dictate what according to it, alone constitutes a pool. In the context in which the expression is used, it means simply sharing resources through a common pool; the management of the pool is incidental; it can be merely through co-ordination, to achieve efficient sharing of essential resources. Learned counsel also submitted that the IATP manual is voluminous and it was the only pool recognized all over the world. Counsel further argued that the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply to the profits from the participation in a pool, a joint business or an international operating agency. 17. Articles 8 (1) and 8 (3) of the Indo-Dutch DTAA read as follows: ARTICLE 8 Air transport- 1. Profits from the operation of aircraft in international traffic shall be taxable only in the State in which the place of effective management of the enterprise is situated. 2. For the purpose of this Article: (a) profits from the operation in international traffic of aircraft include profits derived from the rental on a bareboat basis of aircraft if operated in international traffic if such rental profits are incidental to the profits described in paragraph 1; (b) interest on funds connected with the operation of aircraft in international traffic shall be regarded as profits derived from the operation of such aircraft and the provisions of Article 11 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. 18. A plain reading of the above provisions reveals that income is exempt in respect of two activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sine qua non of the existence of a pool. Besides this, it is quite contradictory first to say that the establishments were part and parcel of the appellant's business, which could not be served as separate establishments, and then to say that an unserved part was pooled with other establishments. In view of this, it is held that it cannot be said that the income of the appellant from the said activities is not taxable in India. It is further held that the revenues so generated represent the income of the appellant from the PE in India and, therefore, the same are taxable in India. 20. At the outset, it is necessary to notice that the Indo-UK DTAA is significantly different. Whilst Article 8 (1) is similar in its language with the Indo-German and Indo-Dutch DTAAs, the phraseology used in the other provisions is a departure in the Indo-UK DTAA. Article 8(2) of DTAA between India and UK provides that Article 8 (1) shall likewise apply in respect of participation in pools of any kind. The words pools of any kind was interpreted by the ITAT by taking the dictionary meaning of the word pools . Article 8(3) of DTAA between India and UK provided ...3. For the purposes of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in India are specified and determined and there is no scope for an interpretation which could bring something more into the fold. 22. Internationally, the only pool known to the aviation industry is IATP. The Revenue does not talk of or refer to any other internationally recognized pool in this regard. Its contention, rather is that a pool means not mere sharing of resources, but a structure or managing entity that administers the pool, which the participants are members of and that such centralized entity should facilitate the services. This Court is of the opinion that a pool cannot be stereotyped as the Revenue advocates. The internatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isualizes the compulsions of each airline to ensure compliance with air safety standards vis- -vis both passenger and cargo traffic, the economic advantages for sharing resources become obvious. But for a pooling arrangement of the kind which IATP provides, every airline irrespective of its size of operation or capital deployed, would be compelled to maintain ground handling services including the repairs, maintenance etc. in different continents, in several countries. This in turn would sap its capital and telephone its profitability. This adverse impact would mean that smaller airlines would be economically unfeasible. Even larger airlines would be driven to increase their costs which would impact adversely the end products and services, which would inevitably result in increase of passenger airline ticket fare and cargo or freight fare. The optimization of resources and to an extent services, not only makes economic sense but, in fact is a compulsion if the airlines industry is to continue and grow the way it is today. The shape of the airlines industry would have been entirely different in the absence of resource pooling and sharing perhaps one would not have seen as much a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ******************* *************** 23. Various forms of international cooperation exist in shipping or air transport. In this field international cooperation is secured through pooling agreements or other conventions of a similar kind, which lay down certain rules for up apportioning of the receipts, or profits from the joint business. 24 In order to clarify the taxation position of the participant in a pool, joint business or an international operating agency and to cope with any difficulties which may arise the contracting states may bilaterally add the following if the find necessary but only so much of the profits so derived as is attributable to the participant in proportion to its share in the joint operation. 26. The OECD 2008 version states that: 10. An enterprise that has assets or personnel in a foreign country for purposes of operating its ships or aircraft in international traffic may derive income from providing goods or services in that country to other transport enterprises. This would include (for example) the provision of goods and services by engineers, ground and equipment- maintenance staff, cargo handlers, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resort to the dictionary meaning or seek recourse to other external aids such as DTAAs between one State and another in the interpretation of such convention with third-party states. In this endeavour the Court s primary focus is the meaning that the contracting states intended to give to the expression in the provisions,which they agree to. That one of the contracting parties or states might have contracted with another state party, which may contain a similar provision but with slight modification would be entirely extraneous. In this respect the Court must be conscious of the fact that it is interpreting an international convention between sovereign nations. The Vienna Convention on the Law of Treaties under Article 31 guides the interpretation, which international agencies primarily have to follow. Article 31 reads as follows: Article 31, GENERAL RULE OF INTERPRETATION 1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the 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, inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure. There is, in the opinion of the Court, clear reciprocity as to the extension of services; IATP membership is premised upon each participating member being able to provide facilities for which it was formed (line services, OMR services, etc.) of a required mandated standard. As there was reciprocity in the rendering and availing of services, there was clearly participation in the pool; in terms of the two DTAAs (Indo-German and India-Netherlands) the profits from such participation were not taxable in India. 31. The terms of the India-UK DTAA as contrasted with the DTAA between India and Germany are dissimilar in some significant ways. The British Airways (supra) decision was based on the following facts- as held by the ITAT: (i) British Airways provided engineering and ground handling services at IGI Airport, New Delhi to 11 other airlines, at Chennai to 5 other airlines and certain other airlines at Mumbai. It has not availed any services/facilities from any airlines in India. Thus, there was no reciprocity in the agreement entered into between British Airways and other airlines; (ii) British Airways had a separate establishment and separate office set up ..... X X X X Extracts X X X X X X X X Extracts X X X X
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