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2009 (1) TMI 769 - AT - Income TaxEligible for the benefits of article 8 of the Indo-US DTAA - business of operation of aircraft - Whether the benefit of article 8 of the Indo-US treaty can be denied to the assessee merely on the ground that the nature of activity carried on by the assessee, in the opinion of AO, amounts to courier activity - HELD THAT:- Assessee has a fleet of 650 aircrafts engaged in the transportation of cargo in the international traffic globally. It is also recognised by the Director General of Civil Aviation in India since the approval was granted to operate air cargo service to and from India. The assessee also obtained approval from the Reserve Bank of India to establish branches at Mumbai, New Delhi, Kolkata and Chennai for undertaking the airline cargo operations. Further air carrier certificate has been issued to the assessee by the Federal Aviation Administration, the Government of U. S. certifying that the assessee has met all the requirements of the Federal Aviation Act, 1958. It is also noted that the assessee is registered member of International Air Transport Association (IATA). Further it is submitted by the assessee that five flights a week were operated to and from India in the international traffic for transportation of cargo even in the first year of business in India. All these factual aspects could not be controverted by the ld DR. Therefore, considering the same, we are of the considered view that CIT (A) was justified in holding that the assessee was engaged in the business of transportation of cargo by air in the international traffic. In our view, the inland transportation is an integral part of the main activity of transportation of cargo in the international traffic provided there is live link between inland transportation and the main transportation in the international traffic. This aspect was examined by the Bench in the light of various commentaries in the case of Deputy DIT v. Safmarine Container Lines N. V. [2008 (7) TMI 444 - ITAT BOMBAY-L]. It was held in that case that inland transportation from customer’s place at Ludhiana to Mumbai was an integral part of the main activity of the transportation of the same in the international traffic through ships owned/chartered/leased by the assessee. Accordingly, the benefit of article 8 of the Indo-US treaty was allowed. Therefore, following the said decision, it is held that the benefit of article 8 cannot be denied to the assessee merely on the ground that the assessee was collecting cargo from its customer’s place and transporting the same to the airport for the purpose of further transportation in the international traffic and vice-versa. The contention of the assessee is that the entire freight revenue received by the assessee should be exempted from tax - there is no dispute between the parties as far as the profits from transportation of cargo in the international traffic by the assessee through the aircrafts as an owner/ lessee/charterer are concerned. We have also gone through the provisions of article 8 of the Indo-US treaty. In view of these clear provisions it is held that profits attributable to the transportation of cargo, mail, etc. by the aircrafts owned, chartered or leased by the assessee cannot be taxed in India. Thus, the dispute between the parties is, therefore, restricted to the profits derived by the assessee from the transportation of cargo through aircrafts belonging to other enterprises as well as profits attributable to the inland transportation. It would be pertinent to mention that profits from airline business falling outside the scope of article 8 would have to be treated as business profits under article 7 of the Indo-US treaty and, therefore, the claim of the assessee would have to be examined under article 7 of the treaty. Therefore, it is summarised as under : (1) The scope of the expression “profits from the operation of ships or aircrafts in the international traffic” in article 8(1) would be limited to the scope of the definition given in article 8(2). (2) That the transportation of passengers, mails or cargo, etc., by the assessee in the international traffic by the aircrafts as owner/charterer/ lessee would fall within the scope of article 8 and therefore, profits attributed to the same cannot be taxed in India. Further, the profits from inland transportation directly connected with such transportation would also not be taxable in India. (3) That the transportation of cargo in the international traffic through the aircrafts owned/chartered/leased by other enterprises would be outside the scope of article 8(2) and consequently would not be exempt from taxation under article 8(1) unless such transportation falls under paragraph 4 of this article. Further, the inland transportation connected with such transportation would also not be exempt under article 8. However, such profits would be considered as business profits under article 7. Therefore, taxability or exemption in respect of such profits will have to be examined by the Assessing Officer in the light of article 7 of the treaty. (4) Where a space is booked with other airlines, the question whether transportation through such airlines can be said to be transportation by the aircraft chartered by the assessee needs to be examined by the Assessing Officer with reference to the first part of the definition given in article 8(2) in the light of material which may be placed before him. Since the meaning of the word ‘chartered’ is not clear from the definition itself, the Assessing Officer would be justified in ascertaining the scope of such word in the light of the commentaries or other materials which may be placed before him. In view of the above discussion, the orders of the Commissioner of Income-tax (Appeals) are, therefore, modified and the matter is restored to the file of the Assessing Officer to reframe the assessments as per the observations and guidelines given above. Interest u/s 234B - This issue is covered by the decision of the Special Bench in the case of Motorola Inc. v. Deputy CIT [2005 (6) TMI 226 - ITAT DELHI-A] held that interest u/s 234B is not chargeable where the tax is deductible at source. If any part of the income of the assessee is found to be chargeable to tax by AO then the same would be covered by the provisions of section 195 and, therefore, tax would be deductible at source and consequently interest u/s 234B would not be chargeable. Hence, this ground raised by the Revenue is to be dismissed. In the result, the appeals are partly allowed.
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