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TMI Blog2023 (2) TMI 1165X X X X Extracts X X X X X X X X Extracts X X X X ..... ] held 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 - we direct the Assessing Officer to delete the addition. Taxability of Interest Income - AO noticed that the assessee, though, had earned interest on fixed deposits, however, they were not offered to tax - HELD THAT:- Undisputedly, it is a fact on record that the fixed deposits made by the assessee are out of funds connected with the operation of aircraft in international traffic, hence, covered under Article 8(1) as the assessee has no other business. Therefore, in our view, the interest earned on such fixed deposits will be covered under Article 8(3), hence, not taxable. Therefore, the Assessing Officer is directed to delete these additions in all the assessment years. These grounds are allowed. Income from Collection Charges - AO did not accept the claim of the assessee and brought it to tax by linking it to the PE in India. The addition made was upheld by the first appellate authority - HELD THAT:- The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kumar, Sr. DR. ORDER PER SAKTIJIT DEY, JM: Captioned are bunch of nine appeals relating to the same assessee. Eight of these appeals are by the assessee, whereas, Revenue has filed a single appeal. All these appeals arise either out of orders passed by learned Commissioner of Income Tax (Appeals) or the final assessment orders passed in pursuance to the directions of learned Dispute Resolution Panel (DRP). The appeals relate to assessment years 2007-08, 2008-09, 2009-10, 2011-12, 2012-13, 2013-14, 2014-15 and 2015-16. 2. Since, the issues raised in all these appeal are more or less common, appeals have been clubbed together and disposed of in a common order, for the sake of convenience. 3. Basically, the dispute in these appeals relate to taxability of following items of income: i. Technical handling income received from IATP Members. ii. Technical handling income received from non-IATP Members. iii. Interest income iv. Collection charges v. Commission income (i) Technical Handling Income Received from IATP Members. ITA No. 4812/Del/2010 AY: 2007-08 Ground nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamining the agreements with other airlines and invoices raised the Assessing Officer, however, was of the view that the income derived from technical handling services provided to other airlines is not exempt from taxation under Article 8 of the tax treaty. Having held so, the Assessing Officer held that the services rendered are in the nature of technical services, hence, the income derived from such services has to be treated as Fees for Technical Services (FTS). Proceeding further, he observed that the assessee provides technical handling services to Austrian Airlines on daily basis for which the assessee not only having a branch office but also has facilities at airports. Therefore, he held that the assessee is having a Permanent Establishment (PE) in India and the FTS is effectively connected to such PE. Accordingly, he brought to tax a part of the income derived from technical handling services applying the rate of 40% after allowing expenses on estimate basis. Against the aforesaid decision of the Assessing Officer in the assessment years under dispute, the assessee either approached learned DRP or learned Commissioner (Appeals). However, the authority concerned agreed with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rendering of technical handling services to other airlines is not directly connected with the business of transportation by air of passengers, mail, livestocks or goods by assessee, it will not be covered under Article 8(2), hence, would not be exempt. Further, he submitted that the nature of services provided by the assessee to other airlines are not mandated by the IATP. Therefore, the assessee cannot get benefit of Article 8(2) of the Treaty. In support of his submission, learned Departmental Representative relied upon a case of the Delhi High Court in case of British Airways. 8. We have considered rival submissions in the light of the decisions relied upon and perused the materials on record. It is evident, the assessee has derived income from providing technical handling services to other airlines in India. The technical handling services, as discussed earlier, involve verification of air worthiness of the aircrafts flying into Indian airports to take the next journey. Undisputedly, assessee has claimed exemption of the income derived from technical handling services taking recourse to Article 8(2) of the India France DTAA. It is the case of the assessee that since as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 airlines. The assessee provided the copies of invoices, contracts for technical handling to the Assessing Officer. The Assessing Officer after going through the contracts and invoices observed that the services are not mentioned in Annexure B of the agreement. The Assessee explained technical handling services as nothing, but verifying the technical parameters of the aircraft, after it has taken a journey to verify that the same is in an airworthy and safe conditions to fly again. Such examination airworthiness certificate is provided to the airlines by AF basis which flying is allowed. The assessee is member of International Airlines Technical Pool (IATP). As an IATP member the assessee extends technical facilities (line maintenance facilities) to other IATP Members only during the year under consideration. No such facility or service has been provided by assessee to any non IATP Member during the year under consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 9.1.1, 9.1.2, 9.1.3, 9.1.4 (a), 9b), 9.2.1 (see 1.2), 9.2.2, 9.2.3, 9.2.4, 9.2.5, 9.3.1(b), 9.3.2, 9.3.3 (to a limited extent). Section 14 14.4.2(b5) (if required) Aircraft Type / Engine Type Turnaround Inspection Line Transit (Grd. Time 5hrs.) A-330/PW 4168 Euros 340 A-340/CFM56 Euros 340 1.2 Service 9.2.1 is limited to a maximum of 2 man-hour Additional work beyond the provision included in the flat rate will be charged at Euros 84 per man-hour. Now we are quoting the relevant Article 8 of DTAA between India and France as follows: Article 8 AIR TRANSPORT 1. Profits derived by an enterprise of a Contracting State from the operation of aircraft in international traffic shall be taxable only in that Contracting State. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Dutch Airlines Lufthansa German Airlines (supra) extracted the Tribunal s decision as follows in para 31: : (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 to monitor ground handling services and different establishment at International Airports New Delhi did not form part and parcel of the operation of British Airways pertaining to the operation of aircrafts in international traffic. There is no such finding in the present appeals. (iii) British Airways services and facilities in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvisioned 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, in these cases. This constituted the most significant difference between the two sets of cases on the one hand, and British Airways (supra) on the other. For these reasons, this court rejects the Revenue s contentions. In the present case from the records, it can be seen that the Indian Branch office is merely a branch office of the foreign/assessee 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 which appears to be correct and no distinguishing facts were brought on record by the Revenue before us. 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. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 at Rs. 1,81,79,476/- covered u/s 115A read with Section 44D and taxed the same at 20% of the gross receipts. The 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 amounting to Rs. 3,70,098 would be taxed under Article 7, that is what challenged before us by the assessee. The 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. Thus, respectfully following the decision of the Coordinate Bench, we direct the Assessing Officer to delete the addition. (iii) Taxability of Interest Income ITA No.4812/Del/2010 AY: 2007-08 Ground no. 20 ITA No.5010/Del/2011 AY: 2008-09 Ground no. 16 ITA No.1150/Del/2015 AY: 2011-12 Ground nos. 17, 18, 20 21 ITA No.276/Del/2016 AY: 2012-13 Ground nos. 21 to 24 ITA No.4698/Del/2019 AY: 2015-16 Ground no.16 13. Briefly the facts common in all assessment years are, the Assessing Officer noticed that the assessee, though, had earned interest on fixed deposits, however, they were not offered to tax. Being of the view that the interest earned on fixed deposits is not connected with assessee s business of operation of aircrafts in international traffic, the Assessing Officer rejected assessee s claim and brought the income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Assessing Officer is directed to delete these additions in all the assessment years. These grounds are allowed. (iv) Income from Collection Charges TA No.1150/Del/2015 AY: 2011-12 Ground Nos. 22 to 24 18. Briefly the facts are, in course of assessment proceeding the Assessing Officer noticed that the assessee has received certain amount from various airports for collection of User Development Fee (UDF) and Passenger Service Fee (PSF) from the passengers. He observed that the assessee collects such UDF or PSF on behalf of the airports and for providing such services certain payments were made to the assessee by the airports in the form of collection charges, which are fixed at a certain percentage. The assessee claimed that the collection charges are in the nature of discount provided by the airport for timely payment of PSF or UDF. The assessee submitted that the collection charges are not earned on account of any service provided to the airports but specified amount of discount is allowed to be deducted by the assessee while making timely payment of PSF/UDF to the airports. It was submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts are, in some cases a passenger travelling in aircraft operated by the assessee, for instance, from Paris to New Delhi and then to Chennai completes his/her domestic leg of travel through some domestic airlines. For the domestic leg of travel the assessee receives some commission from the domestic carrier. It is the claim of the assessee that since the commission received from domestic carrier is part and parcel of the international travel, when a passenger begins his travel on assessee s aircraft, say, from Paris to New Delhi, the journey from New Delhi to Chennai is directly connected to the sale and travel of the passenger between Paris to New Delhi, hence, connected to operation of aircraft in international traffic. Thus, the assessee claimed that the income is exempt under Article 8. The Assessing Officer, however, did not accept the claim of the assessee. While in assessment year 2013-14, learned Commissioner (Appeals) allowed the claim, in assessment year 2012-13 he upheld the addition. 22. We have considered rival submissions and perused the material on record. The facts on record reveal that when a passenger travels in assessee s airlines, for instance, from Paris to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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