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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 ..... e same was argued firstly by the both the parties. The Grounds of appeal are as under:- ITA No. 1786/Del/2012 (assessee's appeal) 1. "That the Learned CIT (A) has grossly erred in not appreciating the true and correct facts of the case before passing the impugned order. 2. That the Learned CIT (A) has grossly erred in not appreciating that the appellant does not render any ground handling services and only render technical handling services even though it has been held that both are covered under Article 8 of the DTAA if rendered to IATP Pool Members. 3. That the Learned CIT (A) has grossly erred in concluding that the services rendered to one non IATP pool member would be taxable in the hands of the appellant to the extent of the revenue earned from the said customer under Article 7 of the DTAA. 4. That the appellant seeks to alter, modify and add any of the around as the case may be." ITA No. 2212/Del/2012 (revenue's appeal) 1. "On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,78,09,378/- made by the AO, by holding the assessee's income from ground handling and technical handling services to third party ai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he entire income earned by the assessee in India is exempt from taxation under Section 90 of the Income Tax Act, 1961. Thereafter, the case of the assessee was fixed for scrutiny u/s 143(2). The assessee in India derives income from the following sources; i. Carriage of passage. ii. Carriage of cargo. iii. Interest income from funds directly connected with the operation of aircraft in International Traffic. iv. Income from technical handling to other IATP Pool Members. During the course of assessment, the assessee was directed to furnish details in respect of the Technical Handling undertaken by it for other carriers along with the details of income from cargo passage and interest etc. The assessee furnished the details. The assessee submitted that the case of the assessee was squarely covered by the judgment of the Tribunal in case of Lufthansa German Airlines (90 ITD 310) and since the assessee was rendering Technical Handling services only to IATP Pool Members, it is a pooling activity and not liable to be taxed in India. The Assessing Officer passed an assessment order thereby treating the Technical Income as "fee for technical services" at Rs. 1,81,79,476/- covered u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er airlines do not fall part of the IATP pool. The IATP does not prescribe the rates to be charged from other member Airlines. During the Assessment Year 2006-07, the assessee airlines had serviced only one airline i.e. Iberworld, who was not a member airline but was of the status of a guest airlines covered under the IATP pool. The Ld. AR further submitted that ad-hoc agreements with Etihad Airlines, Air Canada, Jet Airways, Air India, TNT Airways and Cambata Aviation etc. have been entered into, has mentioned by the Revenue. Thus airlines with which commencement of contract with third parties provided technical assistance during F.Y. 2006-07. The Ld. AR submitted that even ad-hoc basis agreements are agreements which are not continuous in nature and are for a limited time period and entered of and on by the member airlines depending on the requirements and was not without any agreements. The Ld. AR submitted that the IATP Manual provides raising direct invoices between member airlines as per manual and hence such invoices are in accordance with the IATP manual. The Ld. AR further submitted that deduction of TDS is merely a recovery procedure and not a levy of tax. There are only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of participation in pools of any kind enterprises engaged in air transport." Thus, the Ld. AR submitted that the CIT(A) was not right in sustaining taxability to the extent of Rs. 3,70,098/- under Article 7 of the DTAA and rejecting the claim of Article 8 of the DTAA. 7. The Ld. DR submitted that one of the activities from which assessee derived income during the years under appeal is Technical Handling. Although the assessee has been claiming that it has provided 'Technical Handling' services as per the agreements produced, the nature of services has been described as "Ground Handling". The assessee provides its services on a 'per-flight' basis for fixed duration. The services on offer also vary on quality and coverage. The Ld. DR further submitted that the assessee also provides a multitude of other facilities. The assessee does not follow a uniform pricing policy for the services provided by it and the rates charged for the same type of Aircraft i.e. A-330 vary from airlines to airlines. Similarly, there are different rates on the basis of duration of services as well as for additional services as reflected in the table produced during the hearing. The Ld. DR furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nization (ELMO). The Ld. DR relied upon the decision of British Airways PLC vs. DCIT (ITA No. 4653 to 4655/DEL/1999, 484 to 486/DEL/2000 order dated 24.09.2001) 2003-TII-23-ITAT-DEL-INTL. 8. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee company is claimed benefit under the DTAA under Article 8 of the Treaty, since the entire revenue receipts are from operation of aircraft in international traffic as per the assessee before the Assessing Officer. The assessee also submitted during the assessment proceedings that the Indian Branch office is merely a branch office of the foreign company, which is engaged in the operation of aircraft in international traffic. There are no specific services referred between the head office and the branch office as per the submissions of the assessee. The entire receipts collected by the branch office are remitted to the head office, after meeting the local expenditure and the said receipt of the branch office are from the public at large and not from rendering of services to the head office as per the assessee. The Assessing Officer asked the assessee to submit source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ICES AND CHARGES To the Standard Ground Handling Agreement of April 1998 Between AIR FRANCE AUSTRIAN AIRLINES having its principal office at And having its principal office at 45 Rue de PARIS Fortanastrasse : P.O. Boax 50 95747 ROISSY CDG CEDEX A-1107, Vienna FRANCE Austria And hereinafter referred to as and hereinafter referred to as "the Handling Company" "the Carrier" Holding EASA PART 145 approval Certificate Nbr : FR.145 010 Effective from: October 25,1998 This Annex B for the location: Delhi (DEL) Is valid from: April 1* 2006 And replaces: 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 F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices and facilities, it can be safely concluded that it is an independent commercial and business activity which is in no way ancillary or connected to the business in the operation of aircraft as defined by Article 8(4) of the DTAA between India & France. 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 Dou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 activity directly connected with such transportation". These terms are not present in 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the submission of the Ld. DR is factually incorrect. Now coming to the DTAA between India and France, it can be seen that Article 8(2) specifically mentions that the DTAA will apply to the profits derived by an enterprise of a 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax in as much there was no reason believe that there has been Income Escaping assessment within the meaning of section 147. 4. That the assessee objects to the passing of the order 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely ignored the fact that only revenue pool envisaged in the aviation industry which affects the appellant company is IATP pool. That too is duly recognized and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings u/s 271 (1) (c). 20. That the Learned Addl. Director of 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 cove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act submitted that admittedly no return 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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