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2008 (9) TMI 403 - AT - Income TaxDouble Taxation Relief - business of international air transport - 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 - expression 'profits' derived? - Levy of interest u/s 234B. 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? - HELD THAT:- 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 connected with such transportation. 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 of Metchem Canada Inc. vs. Dy. CIT [2005 (9) TMI 227 - ITAT BOMBAY-F] 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 - We are unable to accept the stand of the Revenue that the commentaries on international taxation can never be looked into while interpreting the provisions of an article of treaty between the two countries. However, it is clarified that if the contracting parties have opted to define the scope of exemption then the claim of exemption can be made/allowed only in accordance with such definition and cannot be extended beyond that - However, we find that the provisions of art. 8 of Indo-US treaty are not in pari materia either with the provisions of OECD Model Convention or US Model Convention. 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 - 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. In our opinion, the combined reading of paras 1 and 2(b) reveals that only that activity which is directly related to the transportation of passengers by the assessee as owner/lessee/charterer of the aircraft would fall within the ambit of para 2(b) of art. 8 and consequently. the activity relatable to the transportation of passengers by other airlines would be outside the scope of such provisions - For the similar reason, the activity of third party charter handling and maintenance would also be outside the ambit of para 2(b) of art. 8. The view taken by us is also fortified by the decision of Co-ordinate Bench in the case of British Airways Plc [2001 (9) TMI 242 - ITAT DELHI-A] held that under art. 8 of Indo-UK treaty (which is similarly worded) was denied in respect of the various services provided to other airlines - the finding of the CIT(A) that the subsidiary activities carried on by the assessee fall within the scope of art. 8(2)(b) of Indo-US treaty cannot be upheld. The orders of the CIT(A) are, therefore, reversed on this issue and consequently, denial 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 are allowed. The appeal of the Revenue for the AY 1999-2000 is partly allowed.
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