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TMI Blog2020 (6) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 115A read with Section 44D and taxed the same at 20% of the gross receipts. CIT(A) rightly held that the assessee s income from ground handling and technical handling services is covered by Article 8 of the Indo-French DTAA. But the CIT(A) further held that income earned from rendering service to Iberworld a non IATP member would be taxed under Article 7, that is what challenged before us by the assessee. IATP manual clearly set out that there is no bar on member airline to provide service to non IATP Pool member and in fact, even non IATP Pool members if takes such service from a pool would be considered as a pool service to them. Thus, the assessee being a pool member and providing service in that capacity to the guest members comes under the purview of Article 8(2) of the DTAA between India and France. Therefore, the CIT(A) was not right in sustaining the taxability under Article 7 of the DTAA. Thus, appeal of the assessee is allowed. Validity of reopening of assessment u/s 147 - HELD THAT:- After going through the reasons it can be seen that the Assessing Officer has prima facie reason to believe that there is escapement of income as no return was filed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Indo- French DTAA. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the AO on account of receipts from rendering engineering and ground handling services to third party airlines, even though such receipts are not covered under Article 8 of the Double Taxation Avoidance Agreement between India and France. 3. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the AO on account of receipts from rendering engineering and ground handling services to third party airlines are not directly connected to operation of aircrafts in international traffic as envisaged in Article 8 of the Indo- France DTAA and accordingly, the receipts from such activities are taxable in India. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the AO on account of receipts from rendering engineering and ground handling services to third party airlines, by relying upon the decisions of ITAT, New Delhi in the cases of Lufthansa German Airlines and KLM Royal Dutch Airlines, while ignoring the decision of the Hon ble I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 5. Being aggrieved by the assessment order the assessee filed an appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. 6. The Ld. AR submitted that as per the general rules specified under the IATP manual, wherein, for activities covered, under ground maintenance equipment and aircraft recovery is identified under standard agreements is E whereas the identification to be affixed on such standard agreements at the time of entering into such agreements by the member airlines for line maintenance services, the code is to be used L and which has been consistently done and followed by the assessee airlines. Everywhere on the agreement and the description of the services being made is that of Technical Services. Thus it is clear that no Ground Handling Activity is undertaken or carried out by the assessee Airlines. The Ld. AR further submitted that only Technical Handling Services has been undertaken. Local company with AF (HO) as a shareholder and a Local Indian company as the other shareholder had floated a Pvt. Ltd. Co. in the name and style of Air France Ground Handling India Pvt. Ltd. which was for the object and main purpose of being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no transaction of money and provision of TDS does not make any receipt as taxable. The Ld. AR further submitted that service tax is a levy which is different from Income Tax Act and is levied on services being provided by one part to another and such services are chargeable to service tax in India. In the instant case, it is not a dispute and other services being rendered by assessee airlines but on the other hand, the dispute is whether the services rendered by the assessee airlines is part and parcel as pool arrangement and subjected to tax at home base rather than source. It is not a dispute as to whether service has been rendered by assessee airlines to other airlines or not. The Ld. AR further submitted that no monies were paid or received in India on account of services rendered by the assessee airlines to other airlines which are part and parcel of pool. But only notional credits and debits are given through pool accounting mechanism i.e. IATA Clearing House. The facilities extended by the assessee airlines are in the nature of line maintenance facilities and these are predominantly with the view to assist the airlines as a means of collaborating the air transport enterprise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both to airlines who are members of IATA/IATP as well as members who are not members of IATP. The assessee also provides its services under bilateral service agreements as well as on an ad-hoc basis without any agreements. The assessee raised direct invoices specifying the amount payable on the basis of actual usage of services as well as the period i.e. 30 days within which such amount is payable. The assessee also receives service charges directly from the service recipients. The agreements for the provision of services with certain Airlines have inbuilt provision for TDS and Austrian Airlines have deducted TDS too. Similarly, amount received from Austrian Airlines and others are subjected to Service Tax. The agreement with Singapore Airlines has inbuilt Termination Clause as well as provision for Annual Pricing Review . The agreement with Singapore Airlines Austrian Airlines also provides for the sub-contract of the services to KLM. However, while the assessee charges US Dollar 625 Euro 340 from Singapore Austrian Airlines respectively for its services. The assessee also promoted a JV named Air France Ground Handling Pvt. Ltd. with Interglobe to assist it in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flight maintenance etc. and asked to explain the taxability of the same vis- -vis judgments of the authorities in the cases of British Airways and Luftansa Airlines of the Tribunal. The assessee submitted that during the year under consideration Air France has provided technical handling services to other IATP pool members aggregating to ₹ 1,81,79,476/-. The same is covered under Article 8 of the provisions of Double Taxation Avoidance Agreement between India and France (DTAA). The assessee further submitted that it is part and parcel of the Income covered under operation of aircraft of international traffic. The technical handling services are provided by Air France to only ITAP pool members. The Assessing Officer further asked the following queries: (i) The nature of technical handling services and the steps involved in the same? (ii) Basis of figure of ₹ 1,81,79,476/- (iii) Taxability of the same vis- -vis decisions of the ITAT in the case of British Airways and Lufthansa Airlines and also to show cause, why the receipts should not be taxed in India? (iv) The extent of technical services provided to its own aircrafts and the aircrafts of the other airlin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annex B 1 1 valid from April 01,2005 PREAMBLE This Annex B is prepared in accordance with the simplified procedure whereby the Parties agree that the terms of the Main Agreement and Annex A of the SGHA of April 1998 as published by the International Air Transport Association shall apply as if such terms were repeated here in full. By signing this Annex B, the parties confirm that they are familiar with the aforementioned Main Agreement, Annex A and International Airline Technical Pool Rules. PARAGRAPH 1 SERVICES CONTRACTED 1.1 For a single ground handling consisting of the arrival and the subsequent departure at agreed timings of the same aircraft, the Handling Company shall provide the following services of Annex A at the following rates. 1.1.1 Section 2 2.2.1, 2.2.2. Section 6 6.3.1, 6.3.2.(a), (b), 6.6.1(c) Section 7 7.1.3 Section 8 8.1.1., 8.1.2(b), 8.1.4, 8.1.5, 8.1.6, 8.1.9, 8.1.10, 8.1.11, 8.1.12, 8.2.1, 8.2.2, 8.2.3 Section 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, the Ld. DR submitted that the Assessing Officer was right in rejecting the claim of the Assessee under Article 8 of the DTAA between India and France. While going through the submissions of both the parties, it is pertinent to note the relevant points of the decision in case of the Hon ble High Court in case of DIT vs. KLM Royal Dutch Airlines Lufthansa German Airlines (2017) 392 ITR 218 (Del.) wherein while dismissing the appeals, the Hon ble High Court held that the assessee participated in the international Airlines Technical Pool and earned certain revenues from such activities and also incurred expenditure. There was clear reciprocity as to the extension of services; membership was premised upon each participating member being able to provide facilities for which it was formed. As there was reciprocity in the rendering and availing of services, there was clearly participation in the Pool; in terms of two Double Taxation Avoidance Agreements (between India and Germany and between India and the Netherlands) the profits from such participation were not taxable in India. While distinguishing the British Airways (supra) the Hon ble High Court in case of KLM Royal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the two double taxation avoidance agreements in the present set of appeals. (vii) After meeting the requirement of its own flights, the services of employees were required for handling other airlines operation for generating income. Having regard to these facts, this court is of opinion that the amplification of the term operation of aircraft in article 8(1) through article 8(3), i.e., .. 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 or aircraft on a charter basis and any other activity directly connected with such transportation had the effect of limiting the nature of activities that could be comprehended in the pool envisioned in article 8(2); in other words, the expanded meaning of operation of aircraft included those activities in article 8(3) through the extended definition and no more. On the other hand, there is no such limitation in the double taxation avoidance agreements in question, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Contracting State from the operation of aircraft in international traffic from the participation in a pool, a joint business or an international operating agency and shall be taxable only in that Contracting States. In the present case, the contracting state is France and though under domestic law the assessee has to pay tax in India while deriving income from Indian territory, yet because of Article 8(2) of the DTAA agreement, Air France is exempted to pay any tax in India as its services/activities and profit thereof derives from pool participation. The Hon ble High Court in case of KLM Royal Dutch Airlines Lufthansa German Airlines (supra) clearly set out how the facts of the British Airways are distinguishable. In the present case, as well the ratio laid down in British Airways will not be applicable, as the assessee company is a member of IATP and the DTAA between India France clearly set out that those who are members of pool are exempt from tax in India. Thus, the Assessing Officer was not right in rejecting the claim of the assessee that profit from technical handling services is covered by Article 8 and in treating the Technical Income as fee for technical services a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r u/s 148 read with section 143(3) of the Act as there was no fresh material on record by virtue of which it could be said that there has been Income Escaping assessment within the meaning of section 147. 5. That the Learned Addl. Director of Income Tax, in the assessment order as per directions issued by the Dispute Resolution panel have failed to appreciate the true and correct facts and circumstances of the case of the appellant and has framed an assessment by making additions on a issue which is already covered in favour of the appellant company by the judgment of this Hon ble ITAT in case of Luftansa German Airlines reported in 90 ITD page 310 as also the case of KLM Royal Dutch Airlines. 6. That the Learned Addl. Director of Income Tax in assessment order has grossly erred in holding that the income by way of adjustment of book entries is liable to be taxed in India. 7. That the Learned Addl. Director of Income Tax in assessment order has failed to appreciate the fact that the income earned from technical handling was covered by the Double Taxation Avoidance Agreement between India and France and as such was exempt income and could not have been brought to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered under Article 8 of DTAA and income arising there from is exempt from taxation in India. 16. That the Learned Addl. Director and the dispute resolution panel has grossly erred in proposing to tax revenue earned by the appellant under the Provisions of Article 7 of the DTAA between India France. Although the same is covered under Article 8 of the DTAA. 17. That the Learned Addl. Director in the assessment order notwithstanding and without prejudice has grossly erred in estimating expenses incurred at 40% of the earnings and which in any case is without any basis and is completely arbitrary. 18. That the Learned Addl. Director has grossly erred in treating the income, from technical handling accruing to the appellant during the year under consideration, as being covered under Article 7 while as in the A.Y 2007-08 year the same had been taxed by the very same Assessing Officer under Article 13 of the DTAA as fees for technical service. 19. That the Learned Addl. Director of Income Tax in assessment order has grossly erred in initiating penalty proceedings u/s 271 (1) (c). 20. That the Learned Addl. Commissioner has in assessment order grossly er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d could not have been brought to tax in India. 8. That the Learned Addl. Director of Income Tax in the assessment order has grossly erred in not appreciating the fact that the case of the appellant is pari-matria to the case of Lufthansa German Airways and totally distinguishable from the facts and circumstances of the case of British Airways Pic. and has totally ignored and brushed aside the replies and details filed by the appellant in this regard. 9. That the Learned Addl. Director of Income Tax in assessment order has grossly erred in relying upon the Judgment of the Hon ble Tribunal in the case of British Airways Pic which Judgment in any case is totally distinguishable from the facts and circumstances of the appellant company and completely inapplicable to the facts and circumstances of the appellant. 10. That the Learned Addl. Director of Income Tax has grossly erred in not appreciating the commentary of OECD relied upon by the appellant and has further erred in observing that OECD commentary is not binding on India as India is not a member of OECD. In the process has ignored various judgments and pronouncements passed by various courts upholding the contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income Tax in assessment order has grossly erred in initiating penalty proceedings u/s 271A and 271B. 21. That the Learned Addl. Commissioner has in assessment order grossly erred in charging interest u/s 234 of the Income Tax Act. 21. That the Appellant may add, alter, and amend any of if so required. 11. The facts for both the Assessment Years 2004-05 and 2005-06 are identical, therefore, we are firstly taking up ITA No. 5008/DEL/2011. The assessee renders Technical and Engineering Handling Services to other air lines over and above its regular air transportation business. Engineering and Technical Handling Services are rendered by the assessee through its engineers to other airlines. The Assessing Officer held that these services are not covered under the head air transport business and, therefore, the income of the assessee is not covered under Article 8 of Indo-French DTAA. The Assessing Officer also held that the activity is not a cool activity. The Assessing Officer further held that the term bill and joint business are only related to preservation of passenger and goods transport and by no means coverer separate business activities. The assessee filed obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturn was filed by the assessee and thus, prima facie, the Assessing Officer has reason to believe that income has escaped. Thus, it makes no difference whether the income is later assessed as fees for technical services or under Article 7 as business profits. As on merits, the Ld. DR contended that the submissions which were placed before Assessment Year 2006-07 may be taken under these years as well. 15. We have heard both the parties and perused the material available on record. After going through the reasons it can be seen that the Assessing Officer has prima facie reason to believe that there is escapement of income as no return was filed by the assessee which is admitted fact. Thus, initiating proceedings u/s 148 of the Act are just and proper. Thus, Ground No. 3 and 4 in both the appeals are dismissed. On merits, we have already decided the issue of applicability of Article 8 of DTAA in Assessment Year 2006-07. Thus, Ground Nos. 5 to 21 in both the appeals are allowed. Hence, ITA No. 5008 5009/Del/2011 for A.Y. 2004-05 2005-06 is partly allowed. 16. In result, ITA No. 5008 5009/Del/2011 for A.Y. 2004-05 2005-06 filed by the assessee are partly allowed and ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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