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TMI Blog2008 (9) TMI 403X X X X Extracts X X X X X X X X Extracts X X X X ..... ransportation. It is the settled legal position that if an expression is defined in an enactment or an agreement, then such expression should be understood as per the definition and consequently, literal meaning of the expression cannot be applied in deciding the issue. The acceptance of stand of the Revenue would amount to declaring the provisions of para 2 of art. 2 as redundant which is not permissible in law. Accordingly, the stand of the Revenue that profits derived by an enterprise of a Contracting State from the operation of aircraft in international traffic is restricted to transportation of passengers in the international traffic only cannot be accepted. The finding of the CIT(A) in this regard is, therefore, upheld. Whether the AO was justified in holding that an OECD Commentary or any other commentary cannot be looked into while interpreting the provisions of tax treaty? - HELD THAT:- A holistic view has to be taken to adjudge what is perhaps regarded in a contemporary thinking as the necessary evil in developing company. Considering the judgment of the Supreme Court in the case of Azadi Bachao Andolan [ 2003 (10) TMI 5 - SUPREME COURT] , the Tribunal in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nial of exemption by the AO is upheld. Levy of interest u/s 234B - HELD THAT:- Both the parties are agreed that this issue is covered in favour of the assessee by the decision in the case of Motorola Inc. vs. Dy. CIT [ 2005 (6) TMI 226 - ITAT DELHI-A] held that interest u/s 234B cannot be levied if the tax is deductible at source. Since in the present case the tax was deductible u/s.195, the question of levy of interest u/s 234B does not arise. Therefore, the order of the CIT(A) is upheld on this issue. Whether the interest income earned on FDs can be exempted from tax in view of art. 8 of the Indo-US treaty - HELD THAT:- In our view, the deposit of the amount in the FDR cannot be said to be connected with the operation of aircrafts. This money had no connection in any manner to meet the business requirement of the assessee. The income by way of interest per se is not exempt under the treaty. It must be connected with the operation of the aircraft. The money was deposited at the sweet will of the assessee. Accordingly, art. 8 did not apply. The order of the CIT(A) is, therefore, upheld. In the result, the appeal of the assessee is dismissed. The appeals of the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision of some of the services, Delta hires equipment from Air India. For this purpose, Delta has entered into an agreement with Air India and for the use of the equipment makes a payment to Air India. The assessee had filed its IT returns for the years under consideration disclosing 'nil' income since income from such activities was claimed to be exempt under art. 8 of the Indo-US treaty. In the course of assessment proceedings, the assessee made the following submissions in support of his claim. "Article 8 of the treaty governs the taxation of the profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. Article 8(1) of the treaty provides that profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic would be taxable only in that Contracting State. Accordingly, the profits derived by Delta, being an enterprise of the USA from the operation of aircraft in international traffic would be taxable only in the USA. Article 8(2) of the treaty provides that the profits described in para 1 of art. 8 shall mean profits derived from transportation by sea or air ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrangement made by Delta to the other airlines. In other words, Delta has not appointed additional personnel or employed additional assets for the purpose of providing the various services to other airline operators. These arrangements have already been set up for Delta's own operations and the same facilities are only made available for the use by the other airlines due to excess capacity thereby indicating a clear integration of the airline's own activity and that provided to the other airlines. Further, such services are an extension of the primary activity carried on by Delta. Delta owns certain security screening machines, i.e., x-ray screening machines, which are necessary for the purpose of examining the luggage of its passengers and various goods that are transported by Delta. The installation and use of these machines are absolutely necessary for the purpose of the operations of Delta, i.e., ensuring the security and safe passage of the passengers and goods in international traffic. More importantly, the Indian Director General of Civil Aviation and the airport authorities have mandated that the airlines provide their own baggage security screening services. Many airlines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the said treaty. According to him, the word 'derived from' is to be interpreted in a narrower sense as held by the Hon'ble Karnataka High Court in the case of Sterling Foods vs. CIT (1985) 47 CTR (Kar) 157 : (1984) 150 ITR 292 (Kar) and the decision of the Hon'ble Supreme Court in the case of National Organic Chemicals Ltd. vs. CCE (1997) 106 STC 467 (SC) and the decision of the Hon'ble Kerala High Court in the case of CIT vs. Cochin Refineries Ltd. (1982) 27 CTR (Ker) 147 : (1982) 135 ITR 278 (Ker). Hence, the ancillary activities viz., security screening services, third party charter handling services and maintenance services could not be brought within the scope of art. 8(1) of the said treaty since such services could not be considered as part of the main activity of the operation of aircraft. Reliance was also placed on the decision of Canadian Supreme Court in the case of Furniss Withy Co. vs. MNR (1968) CTC 35. It was also held by him that OECD Commentary was not binding in interpreting the activity. Consequently, he denied the exemption claimed by the assessee under art. 8(1) of the Indo-US treaty. 5, On appeal, the CIT(A) was of the view that the assessee was entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in dispute arises from the activity of screening baggage of the passengers relating to other airlines and handling and maintenance of aircraft of other airlines would not fall within the scope of para 2(b) of art. 8. It is also submitted that the provisions of art. 8 of OECD Model Convention/US Model Convention are not in pari materia with the provisions of art. 8 of the Indo-US treaty and therefore, the Commentary of OECD Model cannot be looked into while adjudicating the issue. He also referred to various agreements placed in the paper book to submit that some of the agreements are blank agreements or standard agreements, which cannot be taken into consideration in the absence of actual agreements. It is further submitted that the nature of activities carried on by the assessee is also not clear from these agreements. Lastly, it was submitted by him that other activities carried on by the assessee were in the nature of commercially organized activity and, therefore, the same amounted to a separate and independent activity. Hence, the same cannot be considered as the activity directly connected with such transportation i.e., transportation of passengers by air by the assessee. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is whether the assessee is entitled to exemption from taxation in respect of the income derived from the subsidiary activities carried on by the assessee under the provisions of art. 8 of the Indo-US treaty. The first aspect of the issue is whether the expression 'profits' derived. by an enterprise from operation of ships or aircraft in the international traffic should be interpreted in a narrower sense as held by the AO or it should be construed in a wider sense so as to include other activities carried on by the assessee. The AO has held that exemption is available only with reference to the activity of operation of aircraft in the international traffic because of the use of the word 'derived' in para 1 of art. 8 of the treaty. We are unable to accept this stand of the Revenue for the reason that profits from the operation of ships or aircraft in the international traffic described in para 1 of art. 8 has been defined in para 2. According to this definition, the profits from the operation of aircraft not only includes transportation of passengers in the international traffic by air but also includes various other activities which, inter alia, include an activity directly con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsiderations as their bases. Therefore, a holistic view has to be taken to adjudge what is perhaps regarded in a contemporary thinking as the necessary evil in developing company. Considering the judgment of the Supreme Court in the case of Azadi Bachao Andolan the Mumbai Bench of the Tribunal in the case of Metchem Canada Inc. vs. Dy. CIT (2006) 99 TTJ (Mumbai) 702 : (2006) 100 ITD 251 (Mumbai) held that where the provisions of an article of a treaty are in pari materia with the provisions of the articles provided in the model conventions then the Court can look into the various commentaries in this regard. The combined reading of these judgments reveals that the Courts should first consider the language of the treaty and if the language is plain and simple then the case should be decided on the basis of the language of the treaty itself. However in the case of doubt, the Court can always look into the various commentaries to find out the contemporary thinking prevailing at the time when the treaty was negotiated. In view of the above discussion, we are unable to accept the stand of the Revenue that the commentaries on international taxation can never be looked into while interpre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perated by the enterprise, the income from which is taxable only in that State, shall be taxed only in that State." US Model Convention "Article 8-Shipping and air transport 1. Profits of an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State. 2. For the purpose of this article, profits from the operation of ships or aircraft include profits derived from the rental of ships or aircraft on a full (time or voyage) basis. They also include profits from the rental of ships or aircraft on a bareboat basis if such ships or aircraft are operated in international traffic by the lessee, or if the rental income is incidental to profits from the operation of ships or aircraft in international traffic. Profits derived by an enterprise from the inland transport of property or passengers within either Contracting State, shall be treated as profits from the operation of ships or aircraft in international traffic if such transport is undertaken as part of international traffic. 3. Profits of an enterprise of a Contracting State from the use, maintenance, or rental of containers (including trailers, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee falls under the provisions of paras 3 to 6 of art. 8. Hence, in our opinion, neither the OECD Commentary nor the US Technical Explanation can be looked into while considering the scope of para 2 of art. 8 of the Indo-US treaty. Therefore, the submission of the assessee's counsel based on commentaries/US Technical Explanation are hereby rejected. 13. The next issue for our consideration is whether the activities of screening of luggage belonging to passengers of other airlines and third party charter handling and maintenance services would fall within the ambit of the words 'any other activity directly connected with such transportation' used in para 2(b) of art. 8 since entire claim of assessee is solely based on such provisions. A perusal of art. 8(2)(b) makes it clear that the activity carried on by the assessee must be directly connected with such transportation. The words "such transportation" refers to the transportation prescribed in the main body of para 2, i.e., transportation by sea or air of passengers, mail, livestock or goods carried by the owner or lessee or the charter of the ships. In our opinion, the combined reading of paras 1 and 2(b) reveals that onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. In view of the same, the sum of Rs. 6 crores was deposited by the assessee in FDs and earned interest of Rs. 56,95,899 in the asst. yr. 1999-2000 and claimed exemption from tax under para 5 of art. 8 of Indo-US treaty. The claim of the assessee has been rejected by the AO as well as the CIT(A) on the ground that such interest cannot be said to be connected with the business of operation of aircrafts. Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal. 17. The learned counsel for the assessee has reiterated the stand of the assessee taken before the lower authorities. He drew our attention to pp. 55 and 56 of the paper book in support of the stand that the sum of Rs. 6 crores were deposited under the direction of the AO to meet the possible income-tax liability on completion of assessment proceedings. Accordingly, it was pleaded that the interest on FDR was connected with the operation of the aircraft as the entire amount was collected in the course of its business of operation of aircraft. On the other hand, the learned Departmental Representative has supported the orders of the lower authorities. 18. After hearing both the parties, we do not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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