TMI Blog2021 (9) TMI 1400X X X X Extracts X X X X X X X X Extracts X X X X ..... as a result of the transfer of the capital asset. Therefore, there should be a sale consideration flowing to the assessee from the lessors for transfer of a capital asset which in this case is the right to acquire an air-craft from Airbus. We find merit in the submissions of the learned senior counsel for the assessee that under the purchase agreement the assessee was under an obligation to only take delivery of aircrafts. There was no compulsion on the assessee to mandatorily purchase the aircraft. The learned special counsel for the Revenue, in our opinion, has erroneously presumed that amount paid by the lessors represents a consideration as the taking-over of a liability amounts to a consideration . We find in the year under consideration the lease agreements are in the nature of operating lease. Assessing Officer in the order has also mentioned that the lessors are the owners and are claiming depreciation. Therefore, consideration paid by lessors to Airbus is not on account of the assessee. The transaction of payment of purchase price by lessors to Airbus is a separate transaction, under which, no right to the aircraft is flowing to the assessee. There is, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not operating lease. We have already held above in the preceding paragraph that the nature of lease in the year under consideration is operating lease. Moreover, both the lower authorities have also accepted this fact. We are, therefore, not convinced by the arguments of the learned special counsel for the Revenue that the present leases are financial merely because lease rent is determinable using LIBOR rate or that delivery of aircraft is taken by the assessee from Airbus. We find that in the present case the aircrafts were leased for a period of six years. Therefore, the lease rent paid cannot be characterised as interest . We, therefore, find no merit in the above submissions raised by the Revenue. Thus for failure to non-deduction of tax on supplementary lease rent Rs. 61,81,04,551 is sent back to the Assessing Officer for considering the allowability in the light of the directions and Rs. 276,28,59,861 is deleted. - I. T. A. Nos. 2977 And 3224/Delhi/2017 - - - Dated:- 3-9-2021 - P. P. Bhatt J. (Retd.)(President), G. S. Pannu (Vice-President) And R. K. Panda (Accountant Member) For the Assessee : M. S. Syali, Senior Advocate, Tarandeep Singh, Chartered Accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on deferred incentives and tax treatment of the same. The contention of the assessee is reproduced in the assessment order in which the assessee briefly explained that a similar query was raised in the assessment years 2007-08 to 2010-11. It was submitted that the credit received was in nature of a capital receipt and not exigible to tax. It was submitted that the matter has been examined in the assessment year 2007-08 and accepted under section 143(3). However, a different view was taken for the assessment years 2008-09, 2009-10 and 2010-11 and the appeal was pending before the learned Commissioner of Income-tax (Appeals). It was claimed that it was a capital receipt. It was submitted that the genesis and the nature of the receipt, the treatment accorded in the books of account and the treatment in the computation of income, which existed in the assessment year 2007-08 remain unchanged in the year under consideration. It is based on the same agreement entered into in the past on October 19, 2005 which continued in the remaining years. It is, therefore, a capital receipt. Relying on various decisions, it was submitted that the principle of consistency should be followed : 1.3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irm aircraft . The fleet introductory assistance credit shall be provided upon delivery to, and acceptance by International Aero Engines of the corresponding firm air craft . The credit in principle and the right thereof got crystallized on the execution of the agreement, only its disbursement is made depending upon the delivery to and acceptance of the aircraft by International Aero Engines. It was submitted that the subject matter of the payment to the assessee was in the nature of subsidy and relied upon the judgments of the hon'ble Supreme Court in the cases of Sahney Steel and Press Works Ltd. v. CIT reported in [1997] 228 ITR 253 (SC) and CIT v. Ponni Sugars and Chemicals Ltd. reported in [2008] 306 ITR 392 (SC). It was accordingly submitted that the receipt of the subsidy was on capital account. 1.4. The Assessing Officer, however, noted that the assessee has not purchased the aircraft but has hired it on lease from several concerns. All the parties are lessors and are based in Ireland. The assessee-company has been paying lease rentals to these parties as per the agreement executed between the lessor and lessee. The depreciation on these aircrafts where engines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... called) then so much of the cost as is relatable to such subsidy or grant or imbursement shall not be included in the actual cost of the assets to the assessee : Provided that where such subsidy or grant or imbursement is of such nature that it cannot be directly relatable to the asset acquired so much of the amount which bears to the total subsidy or imbursement or grant, the same proportion as such assets bears to all the assets in respect of or with reference to which the subsidy or grant or imbursement is so received, shall be included In the actual of the assets to the assessee.' The above provision clearly specifies that even if the subsidy is treated as capital receipt, the further treatment of subsidy (by whatever name it is called) will be according to the above provision. Further, while preparing the profit and loss account for the relevant year, the assessee has duly deducted the amount of subsidy being received from the lease rentals to be paid to the lessors on account of hiring of aircraft. However, the said amount has further been reduced from the total income in the computation of income prepared for determining taxable income/loss for the Income-tax purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of operation of aircraft, to acquire an aircraft or an aircraft engine (other than a payment for providing spares, facilities or services in connection with the operation of leased aircraft) on lease from the Government of a foreign State or a foreign enterprise under an agreement, not being an agreement entered into between the 1st day of April, 1997 and 31st day of March, 1999 and approval by the Central Government in this behalf : Provided that nothing contained in this clause shall apply to any such agreement entered into on or after the 1st day of April, 2007.' It has been claimed by the assessee-company that this payment is in the nature of supplemental lease rent and same is also paid to the lessor of the aircraft, Therefore, the same is exempt as per approval of the Central Board of Direct Taxes under section 10(15A) of the Income-tax Act. I have examined the contention of the assessee with reference to the contents of the Note reproduced hereinabove as well as copy of lease agreement and it is observed that the approval of the Central Board of Direct Taxes under section 10(15A) has been given for payments other than those for spares, facilities or services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e familiar words of Lord Wens leydale, reaffirmed by Lord Halsbury and Lord Simonds, means : the subject is not to be taxed without clear words for that purpose ; and also that every Act of Parliament must be read according to the natural construction of its words. In a classic passage Lord Cairns stated the principle thus : If the person sought to be taxed comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the letter of the law the subject is free, however apparently within the spirit of law the case might otherwise appear to be. In other words, if there be admissible, in any statute, what is called an equitable construction, certainly, such a construction is not admissible in a taxing statute, where you can simply adhere to the words of the statute. Viscount Simon quoted with approval a passage from Rowlatt J. expressing the principle in the following words. In a taxing Act one has to look merely at what is early said. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed but on different ground from the ground on which addition have been made in assessment year. It was confirmed in two alternate sections, i. e., under section 37(1) and under the head capital gains . The learned Commissioner of Income-tax (Appeals) also noted that this decision is given, if the decision of the Income-tax Appellate Tribunal that credits are capital receipts applies (though the said decision has been distinguished). It was clarified that the addition would remain the same, even if receipts are not treated as capital receipts. The appeal was partly allowed with enhancement of addition from Rs. 268,91,45,394 to Rs. 759,39,25,444. 1.8. Aggrieved with such part relief granted by the learned Commissioner of Income-tax (Appeals), both the assessee and the Revenue filed appeals before the Tribunal by raising the following grounds/additional ground : I. T. A. No. 3224/Delhi/2017-Assessment year 2012-13 (assessee's grounds) 1. That on facts and in law the orders passed by the Commissioner of Income-tax (Appeals) (hereinafter referred to as, the CIT(A) ) and the Assessing Officer (hereinafter referred to as, the AO ) are bad in law and void ab initio. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Tribunal (in I. T. A. No. 2202/Delhi/2012 (InterGlobe Aviation Ltd. v. Dy. CIT) dated June 18, 2016 for the assessment year 2007-08) that credits received by appellant constituted commission was rejected by a hon'ble Income-tax Appellate Tribunal without any discussion. (d) from copies of agreements filed by the appellant before him and before appellate authorities in earlier years the nature of credits could not be verified. (e) as per delivery schedule 12 aircrafts were to be received by the appellant in years 2013 and 2015 and four aircrafts were to be received in year 2016. (f) modus of acquisition of aircraft by the appellant was purchase and sale followed by a lease back. 8.1 That the factual errors in order of the Commissioner of Income-tax (Appeals) vitiate the conclusions arrived at on facts and in law. 9. That on facts and in law the Commissioner of Income-tax (Appeals) has erred in : (i) observing that credits received by the appellant are in the nature of kick back or commission. (ii) misreading the submissions made before him to hold that there is no accrual of right to receive the credits on signing of agreement with International Ae ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as preferred the appeals before the hon'ble Delhi High Court which have been admitted on the issue of fleet intro ductory assistance (credits). But as regards the supplementary rent, no such question has been admitted by the hon'ble Delhi High Court. It was sub mitted that the transactions are separate and not composite and no capital gains arise out of the transactions. There is no connection between the payment of lease rent and receipt of credit. The learned Commissioner of Income-tax (Appeals) wrongly enhanced the assessment. It was submitted that the issues are covered in favour of the assessee by the order of the Income-tax Appellate Tribunal for the assessment year 2007-08. No question has been raised before the hon'ble High Court that order of the Income-tax Appellate Tribunal for the assessment year 2007-08 was per verse. It was submitted that sections 28(i) and 28(iv) are not applicable because the credit received in the instant case is money . Section 40(a)(i) is applicable only when conditions of section 37(1) are met. The issue of supplementary rent is covered by the order of the Income-tax Appellate Tribunal, Delhi Bench in the case of Sahara Airlines Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances be regarded as subsidy . The Tribunal, thus, proceeds on a primary fallacious assumption which are not borne out of the record or the agreements placed before it. The Revenue referred to definition of subsidy from legal dictionaries to demonstrate that the subsidy flows from Government or State for broader development purposes and this nature can never be ascribed to a commercial transaction between a buyer and seller. The Tribunal relied upon Accounting Standard 12 that receipts are capital in nature, completely ignoring that Accounting Standard 12 relates only to Government grants. No commercial consideration can flow for just selection simpliciter of a product. The complete facts were not available before the Income-tax Appellate Tribunal during the assessment year 2007-08. The amounts in the agreement filed which have been erased due to confidentiality of the information, and therefore, the said information was not supplied. Therefore, there were no verification of the facts as such. The learned Commissioner of Income-tax (Appeals) asked for the complete set of the agreements which were not supplied deliberately. The assessee is under statutory obligation to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessment year 2007-08 and others that subsidy cannot arise out of commercial transaction as it is not being given by the Government or statutory authority under any scheme formulated by the Government. Though the originals of the agreements were produced in the court, but, when the same were not produced before the authorities below or considered in earlier years, it would have an impact on taxability of income in the case of assessee and shall have to be gone into by Revenue Authorities. The learned Com missioner of Income-tax (Appeals), has asked for the complete documents because the assessee erased the amount of credit in the copies supplied to the Revenue Department but the assessee failed to supply the complete set before the authorities below. Therefore, there were no examination of documents by the authorities below to look into the exact amount of credit received by the assessee, On consideration of the issue, we have a doubt whether subsidy can be granted out of commercial transaction. We find some merit in the arguments of the learned counsel for the Revenue that the order of the Tribunal for the assessment year 2007-08 may not be a binding precedent because of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, the questions that have to be adjudicated by the Special Bench may be summarised as under : (1) Whether FIA (fleet introductory assistance) credit received by the assessee from IAE and other equipment manufacturers is a capital or revenue receipt arising out of the transaction ? (2) Whether credits so received are taxable under section 28(i) or 28(iv) of the Income-tax Act, 1961 or as a commission income or Income from capital gains ? (3) Whether the learned Commissioner of Income-tax (Appeals) is right in making disallowance of Rs. 268,91,48,934 out of lease rental payments under section 37(1) of the Income-tax Act, 1961? (4) Whether payment of supplementary lease rent of Rs. 328,09,64,412 is an allowable business expenditure and TDS is not deductible thereon ? 3. The learned senior counsel for the assessee while arguing that the receipts from International Aero Engines are capital in nature submitted that applying the purpose test propounded by the apex court in the case of Sahney Steel and Press Works Ltd. v. CIT reported in [1997] 228 ITR 253 (SC) and CIT v. Ponni Sugars and Chemicals Ltd. reported in [2008] 306 ITR 392 (SC) the Tribunal in the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. So far as the argument of the learned special counsel for the Revenue that the nature of credits is a discount is concerned, he sub mitted that this is contrary to the written pleadings made by the Tax Department before the hon'ble High Court. (pages 905-906, para (f) and SQL admitted at pages 942 and 943). 3.4. So far as the decision of the hon'ble apex court in case of Ambica Mills v. Textile Labour Association, AIR 1973 SC 1081 relied on by the learned special counsel for the Revenue for interpreting the word subsidy is concerned, he submitted that in that case the apex court was interpreting the word subsidy in context of the Payment of Bonus Act. He submitted that as per the Advanced Law Lexicon, Volume 4 (page 251 of paper book filed by Department), it is stated that a subsidy is also used to provide financial support to a commercial or quasi commercial activity that would otherwise not be viable in narrow profit or loss terms usually in order to sustain broader economic and social benefits . 3.5. So far as the submission of the learned special counsel for the Revenue that while interpreting commercial arrangements court should see the intent of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the cases of Logitronics P. Ltd. v. CIT reported in [2011] 333 ITR 386 (Delhi) and Rollatainers Ltd. v. CIT reported in [2011] 339 ITR 54 (Delhi). (refer paras 36 to 38) 4.2. As regards the applicability of section 28(i), he submitted that there is no such ground raised by the Tax Department before the Tribunal. Moreover, whether there exists business of earning credits or not is a mixed question of law and fact which does not arise out of the orders passed by the lower authorities. He submitted that for applying provisions of section 28(i) it is necessary that business is carried on . . . at any time during the previous year On the other hand, for applying section 28(iv) the requirement stated is that the value of any benefit or perquisite must arise from business . Both these provisions are different in scope. He sub mitted that it is well settled rule of interpretation that when, in relation to the same subject matter, different expressions are used, in the same statute, there exists a presumption that the Legislature intended such different use, and that the words are not to be used in the same sense. For the above proposition, he relied on the judgment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court vide orders dated July 7, 2017 (copy at page 942) for the assessment year 2007-08 and order dated October 31, 2017 copy at page 943) for the assessment years 2008-09 and 2009-10. 5.3. The learned senior counsel for the assessee submitted that the learned Commissioner of Income-tax (Appeals) accepts that the receipts are capital in nature. He submitted that the learned. Commissioner of Income-tax (Appeals) had made several incorrect allegations to show that all facts allegedly have not been noted by the Tribunal in the assessment year 2007-08. Realising that these allegations/observations do not create a dent in the ratio decidendi of the Tribunal decision, the learned Commissioner of Income-tax (Appeals), however, held as under : (i) Credits to the tune of Rs. 268.91 crores being capital are liable to tax as capital gains . . . . (pages 32-33, paragraphs 10.2 and 10.3). (ii) Alternatively, since credits are capital, the lease rentals bear the same character to the tune of Rs. 268.91 crores is disallowable under section 37(1) of the Income-tax Act, 1961 as it has been incurred for the purposes of earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India reported in [2012] 341 ITR 1 (SC) has also held that an arrangement is to be looked at not by economic substance but its legal form. An exception to this is when the transaction is shown by the Revenue leading acceptable evidence that it is sham or dubious. 5.7. The learned senior counsel for the assessee submitted that the law in respect of interpretation of agreements is well-settled. He drew our attention to provisions of section 91 of the Indian Evidence Act, 1872 which expressly lays down that when the terms of a contract, or of a grant, or of any other disposition of property, have been reduced to the form of a document, and in all cases in which any matter is required by law to be reduced to the form of a document, no evidence shall be given in proof of the terms of such contract, grant or other disposition of property, or of such matter, except the document itself, or secondary evidence of its contents in cases in which secondary evidence is admissible under the provisions here in before contained. 5.8. Referring to the decision of the hon'ble Delhi High Court in the case of D. S. Bist and Sons v. CIT [1984] 149 ITR 276 (Delhi), he submitted that the hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned special counsel for the Revenue has filed general terms of sale dated March 30, 2006, fleet hour agreement dated May 12, 2006 and sample assignment agreement dated March 16, 2012 in his paper book. He submitted that these agreements are either not relevant or do not state anything contrary to what has been held by the Income-tax Appellate Tribunal in earlier years. He submitted that these agreements were specifically called upon by the Commissioner of Income-tax (Appeals) and even thereafter in the impugned order no adverse inference is drawn by the learned Commissioner of Income-tax (Appeals). 7. So far as the issue of redaction of amounts stated in the agreements and enhancement by the learned Commissioner of Income-tax (Appeals) is concerned, the learned senior counsel for the assessee submitted that redaction only accords with the covenant to maintain confidentiality with the parties to the contract. It is a highly sensitive information having a lasting impact on all future deals. He submitted that the quantum is not in dispute and, therefore, the nature cannot be. It is for this reason that in the past as well in future the appellate authorities including the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is no consideration paid (by the lessor) to the assessee for making such an assignment. Credits on the other hand are received from International Aero Engines and others for selection of their engines/products. There is no assignment of either option to choose engines or right to receive credits from International Aero Engines, in favour of lessors. He submitted that the findings recorded by the Commissioner of Income-tax (Appeals) at pages 32 and 33, paras 10.2 and 10.2.1 are premised on conjectures and surmises. He submitted that as stated above International Aero Engines and Airbus are two independent concerns with whom the assessee has executed separate transactions. He submitted that the learned Commissioner of Income-tax (Appeals) wrongly views it as an amalgamation of two transactions which is legally impermissible. Referring to page 30 of the order of the learned Commissioner of Income-tax (Appeals), 7th line from bottom, he submitted that the learned Commissioner of Income-tax (Appeals) himself notes that the right to acquire aircraft has been assigned to the lessor at par value . He reiterated that International Aero Engines credits are not : (i) a consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-12, (i. e., vide order dated 29th December, 2017-copy at pages 753 to 797 of the paper book), assessment year 2015-16, (i. e., vide order dated December 28, 2017-copy at pages 721 to 752 of the paper book) and assessments for the assessment years 2016-17 to 2018-19 copies of which are placed at paper book-6, the Assessing Officer has merely held that credits received from International Aero Engines and others are revenue receipts liable for tax. There is again no allegation therein vis-a-vis : credits being taxable as capital gains, or lease rentals being partly attributable to the earning of credits, or nature of quantum of credits not being verifiable owing to redaction in agreements Therefore, the above issues have been conceded and are no more open to litigation. 11. So far as disallowance of supplementary lease rental is concerned, the learned senior counsel for the assessee submitted that there is no allegation by the Assessing Officer in the assessment order that the expenses are not allowable under section 37(1) of the Income-tax Act, 1961. He submitted that the provisions of section 40(a)(i) are applicable only when the conditions of section 37(1) ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [2017] 397 ITR 578 (Delhi). He submitted that there is no double benefit to the asses see since actual repair expense has been debited to profit and loss account net of reimbursement. 12. The learned senior counsel for the assessee submitted that disallowance of supplementary lease rentals in the past was made by merely alleging violation of section 40(a)(i). In the assessment years 2013-14 and 2014-15 again disallowance of supplementary lease rentals was made by the Assessing Officer merely alleging violation under section 40(a)(i). He submitted that the learned Commissioner of Income-tax (Appeals) in the assessment year 2013-14 (relevant at pages 158 to 159) and 2014-15 (relevant at page 202) holds supplementary lease rentals expense is allowable under section 37(1) of the Income-tax Act, 1961. In recently concluded assessments for the assessment year 2011-12, (i. e., vide order dated December 29, 2017-copy at pages 753 to 797) and the assessment year 2015-16, (i. e., vide order dated December 28, 2017-copy at pages 721 to 752) and the assessment years 2016-17 to 2018-19 the Assessing Officer again has made addition on account of supplementary lease rentals by merely alleg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of Rs. 673.42 crores has been allowed by the Assessing Officer. Referring to the decision of the hon'ble Supreme Court in the case of MCorp Global Pvt. Ltd. v. CIT reported in [2009] 309 ITR 434 (SC) he submitted that the Tribunal has no power of enhancement or to take away what has been granted by the Assessing Officer. He submitted that while addressing the hon'ble Bench as above, the learned Departmental representative is trying to interpret the lease agreement vis-a-vis the supplementary lease rentals issue contrary to the way it has been interpreted by both the learned Commissioner of Income-tax (Appeals) and the Assessing Officer. 15. The learned special counsel for the Revenue, on the other hand, while supporting the orders of the Assessing Officer and the learned Commissioner of Income-tax (Appeals) submitted that the receipts from International Aero Engines are not capital in nature. He submitted that it is the settled principle of Law that whether a certain receipt is capital or revenue in nature, has to be judged from the perspective of the recipient alone. He submitted that once it found that a certain receipts/consideration flows from a commercial agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the net of computation of taxable income. 15.3. He submitted that the assessee did not have the financial capability of buying 100 engines or aircrafts in one go and even if they had, the delivery was contemplated over a number of years. The true intent of the parties was, therefore, to offer and receive a discount on such bulk purchases. This venture of the assessee was highly profitable and they went for similar bulk purchases in 2011 and 2015 which all together amounted to 530 aircrafts (as disclosed in detail in the appellant's prospectus dated September 18, 2017). These business operations have undeniably resulted in huge profits to the appellant which have been duly recorded in the books of account. 15.4. He submitted that this arrangement in its entirety was conceived in advance, much ahead of the negotiations of the price of engines and earning of credits. This is evident as the lease arrangements form an integral part of the assessee's agreement with International Aero Engines, the purchase agreement with Airbus providing room for assignments of rights to purchase, terms of lease agreement providing for assignment of title rights and lease-back of the airc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther a receipt is capital in nature set out by the hon'ble Supreme Court in the case of Kettlewell Bullen and Co. Ltd. v. CIT [1964] 53 ITR 261 (SC) (pages 8 and 9) and CIT v. Maheshwari Devi Jute Mills Ltd. [1965] 57 ITR 36 (SC) (page 5). The counter submission of the assessee seeking to distinguish these cases on facts is untenable for the reason that reliance is on the basic principles set out in these judgments and not on the decision rendered in those cases as facts of each case would obviously be different. 15.8. The learned special counsel for the Revenue submitted that a perusal of the agreements entered into by the assessee with International Aero Engines shows that there is a stipulation to the effect that the resented consideration is for mere choice of engines. The agreement proceeds on the assumption that the assessee was willing to purchase the engines and the manufacturer offered certain terms for such purchase. The consideration has a direct link with the commercial transaction of a purchase of the equipment. The suggestion that the consideration was choice for engine simplicitor is a mere figment of imagination and not a commercial reality. The mere fact tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decision of Wallfort Securities by the assessee is wholly out of context as that was a case of on investment and dividend stripping whereas the present case is of a business receipt and the business operations have to be viewed in their entirety and not piecemeal. 15.12 Referring to the decision of the Tribunal in the assessee's own case which is relied on by the learned counsel for the assessee, he sub mitted that it was wrongly observed by the co-ordinate Bench that the accounting entries are only the utilisation of receipts. He submitted that the accounting treatment of a receipt does not indicate its utilization but shows the treatment given to it. He submitted that in the instant case for the world at large, it is a revenue receipt, but for the taxation purposes, it is a capital receipt. This suggestion defies all logic and rationale. 15.13. The learned special counsel for the Revenue submitted that the assessee also negotiated the purchase of airframe with Airbus and may have got the discount from them by way of reduction of purchase price. Such discounts are available on bulk purchases as per information in public domain. These discounts were adjusted in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue is concerned, the learned special counsel for the Revenue submitted that the Revenue's primary submission remains that the credits from International Aero Engines represent business profits liable to tax under section 28 of the Income-tax Act, 1961. However, as an additional claim, it is the stand of the Revenue that these receipts, in any event, certainly constitute a benefit to the appellant in the course of its business operations. He submitted that the business model of the assessee shows an integrated activity of going in for bulk purchases for aircraft to be delivered in future years and in the process earn heavy discounts on engines which were acquired under a lease back arrangement and thereby not incurring the capital cost yet appropriating the benefits of discounts. This benefit was preconceived and was embedded in the business model adopted by the assessee. According to him, the business does not mean only the profit generating activities, but, business means-all activities beginning from the commencement of the business and ending up with the earning of profits. It would also include the activity of purchase, sale, maintenance and operation of aircra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al market for these aircrafts which they did not need immediately, but required over a period of time. By haying an offer of firm commitment for purchase of such a huge number of aircrafts, they were in a position to negotiate the prices of airframes and engines and get a substantial discount. The proposal of the assessee was so tempting for the engine manufacturer that it offered to pay heavy discounts, even in cash. The assessee appropriated these discounts and acquired most of the aircrafts not by purchase on their own account but by leasing arrangements. In this way, the assessee made huge gains in the form discounts received in cash, though at the time of delivery of the aircraft. Therefore, this activity of the assessee had all the trappings of an adventure in the nature of trade, commerce or business and thus, it would very much fall within the definition of Business as appearing in section 2(13). The profits from such an adventure are liable to tax as business profits. 16.3. Without prejudice, and in the alternative, the credits from International Aero Engines are in the nature of commission is concerned, the learned special counsel for the Revenue submitted that the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on facts. In either case, the decision would not and cannot have a binding precedence. Referring to the decision of the hon'ble Supreme Court in the case of Distributors (Baroda) P. Ltd. v. Union of India reported in [1985] 155 ITR 120 (SC) he submitted that the hon'ble Supreme Court in the said decision has held that if a decision rendered by a co-ordinate Bench is patently wrong, it is no heroism to perpetuate the error year-after-year and the subsequent Bench ought to correct the mistake. He submitted that similar principles are set out in the case of H. A. Shah and Co [1956] 30 ITR 618 (Bom) including those relating to the second exception in point (ii) above. 17.1. He submitted that the rule of consistency does not extend to situations where a patently erroneous view has been taken or where the distinguishing facts brought on record lead to a different view. He sub mitted that the principles of res judicata or estoppel do not apply to these proceedings. The admission of an appeal in an earlier year by the High Court cannot be a bar for the Revenue to demonstrate before the present Bench the erroneous nature of the decision or to place new facts as go to render the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent that the receipts were capital in nature, completely ignoring that the Accounting Standard-12 relates only to Government grants and in the present case neither of the two parties were representing Governments of any State. 17.6. He submitted that the Tribunal again fell into a grave error in proceeding under the assumption that the receipts were a consideration for selecting the engines. No commercial consideration can flow for just selection simplicitor of a product. The product has to be bought before any con sideration by way of discount or other benefits can flow from the buyer. It is for this reason that credits became due only at the point of delivery. These were linked to the actual sale of engines and not with a mere choice of engines. Complete facts were not available before the Income-tax Appellate Tribunal during the assessment year 2007-08. 17.7. The learned special counsel for the Revenue submitted that the plea of the assessee that all such agreements being relied upon by the Revenue in these proceedings were also before the Tribunal in the assessment year 2007-08 is an incorrect assertion for the reason that only such documents or the parts thereof as are r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot go to establish that the discount/credits were given for mere choice of engines and not purchase thereof. Irrespective of the model of acquisition adopted, the fact and the essence of the transaction is that the assessee acquired the aircraft under the leaseback arrangement and appropriated the amount of credits or discount to its benefits. 17.11. He submitted that the co-ordinate Bench did not have the benefit of general terms of sale agreement dated March 30, 2006 which demonstrates that the credits were linked to the acquisition of the aircraft having such engines, thereby, demonstrating that the receipts were not only for selecting the engines and it was incorrect to suggest that the sub sequent events forming inseparable parts of the entire arrangement had no bearing on the nature of receipts. The co-ordinate Bench also had no bene fit of fleet hour agreement dated May 12, 2006 or the deed of assignment dated March 16, 2012. These were vital documents throwing light on the business model chosen by the assessee. He accordingly submitted that the order of the co-ordinate Bench being gravely and patently erroneous and the fact that it was heard and decided without having th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the amounts in agreement filed have been erased due to confidentiality of the information and the said information cannot be furnished. 18.1. He submitted that the learned Commissioner of Income-tax (Appeals) thereafter at paras 12 and 12.1 of his order observes that without figures of credits in agreements and break-up of total credits agreement wise and into different categories of credits, verification of quantum of credits and nature of credits cannot be made . . . . moreover, purchase price per aircraft in purchase agreement is essential to examine true nature of lease rent and supplementary lease rent . 18.2. He submitted that with the view to appreciate the true nature of receipts and the impact of erasing of amounts of credits given by International Aero Engines, purchase price of the airframes and of engines shown separately, lease rentals for each aircraft, purchase price of spare engines, amount paid by lessors to Airbus, it is necessary to take into con sideration different transactions entered into by the appellant and how these are composite and interlinked. 18.3. He submitted that the assessee, post the commencement of its business of running an airline, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent aircrafts (with International Aero Engines). This analysis would show whether the credits were in the form of discounts or by way of any incentive or grant or subsidy as the case was made out before the co-ordinate Bench of the Tribunal in the previous years and is being reiterated in these proceedings. Then, the purchase price of the aircraft as agreed to with Airbus and the amount of payment made by the lessors would throw light on the exact prices of airframes and engines which are being shown separately in the purchase agreement. It would be necessary to know the amount of purchase price as agreed to by the assessee and the amount paid for by the lessors as assignees or else it is not possible to find-out the true nature and character of the entire operations which turned into huge profits and got accounted for as income from other sources in their books of account. 18.7. The learned special counsel for the Revenue submitted that the nature of receipts and its tax treatment will depend upon complete availability of facts and its wholesome appreciation. The entire scheme of acquisition of aircraft in bulk over a period of several years under a pre-negotiated price an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntenable proposition. He submitted that if a taxpayer chooses to withhold a document or some parts of it, the consequences have to follow. It is not open for the taxpayer to dictate that the nature of the credit has to be accepted only with reference to what they claim it to be. It is submitted that the learned Commissioner of Income-tax (Appeals) was, therefore, fully justified in drawing an adverse inference on the conduct of the asses see as aforesaid. 18.10. The learned special counsel for the Revenue submitted that a document where vital information is erased cannot be admitted as a complete evidence. The assessee seeks to rely on the contents of the agreement without disclosing the actual amounts of transactions. The assessee cannot be allowed to use the documents to support their claim but deny the opportunity to the Revenue, by withholding the amounts of the transaction, to examine the true nature of its receipts. 18.11. He submitted that the report of an accountant obtained during the course of hearing and filed by the assessee is wholly irrelevant. This does not carry the case of the assessee any further as far as withholding of vital information is concerned. The R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our of the lessors, the consideration in the form of extinguishment of the obligation to pay the purchase price to Airbus flowed from the Lessors and therefore all the elements to chargeability to capital gains are present in the transaction and the findings of the learned Commissioner of Income-tax (Appeals) deserves to be upheld if at all the Bench comes to a conclusion that the receipts in the form of credits are capital in nature. 19.3. He submitted that the contention of the assessee that the learned Commissioner of Income-tax (Appeals) in the subsequent years has not recorded any finding to the effect that any amount of capital gains was chargeable to tax is not relevant. In the first place, each year is a separate unit of assessment. Secondly, the Revenue has filed additional grounds in subsequent years against the failure of the learned Commissioner of Income-tax (Appeals) to follow the finding of the predecessor in the event of regarding the credits as capital receipts. Therefore, the entire thrust of the assessee in this regard has absolutely no bearing. 20. So far as disallowance under section 37(1) of the Income-tax Act, 1961 is concerned, the learned special coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is created and then the amount is reimbursed out of the said reserve. He records a finding that supplementary lease rentals are reimbursable and the same cannot be allowed as an expenditure in the hands of the assessee. He further goes on to observe that decisions in the case of Sahara Airlines/Jet Lite (India) Ltd., relate to the chargeability of lease rentals in the hands of the lessors under section 10(15A) and article 12 of the Double Taxation Avoidance Agreement. These have no bearing on the disallowability of the expenditure under section 37(1) of the Income-tax Act, 1961. 21.1. The learned special counsel for the Revenue submitted that the provisions of section 10(15A) granting exemption to the lease rentals stands omitted in respect of agreements entered into after April 1, 2007. Hence the very basis on which, the order of the co-ordinate Bench for the assessment year 2007-08 rests falls through. It is not open to urge in the light of this amendment in the statute that the decision of the co-ordinate Bench would constitute a binding precedent. He submitted that in the light of the statutory amendment, it needs to be ascertained whether the supplementary lease rent relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue before the Tribunal is- whether any amount of tax was deductible under section 195 and whether any disallowance under section 40(a)(i) can be made or not ? 21.5. Therefore, the broad question is whether the income of the lessors from lease rentals is chargeable to tax in India and whether any tax was deductible which has not been so deducted. He submitted that whether income is chargeable under one article and not chargeable under the other cannot be objected to for the reason that the moot question leading to the disallowance of expense remains the applicability of section 40(a)(i) of the Income-tax Act, 1961. There is no attempt to make-out a new case for the Revenue. The argument of article 11 only seeks to support the case of the Assessing Officer under section 40(a)(i) of the Income-tax Act, 1961 and the basic issue does not change. Referring to the decision of the hon'ble Supreme Court in the case of CIT v. Mahalakshmi Textile Mills Ltd. reported in [1967] 66 ITR 710 (SC) and decision of the hon'ble Gujarat High Court in the case of CIT v. Steel Cast Corporation reported in [1977] 107 ITR 683 (Guj) he submitted that if an addition is not sustainable on one gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of International Aero Engines's contract with Airbus . . . 22.1. He accordingly submitted that the terms of arrangement between Airbus and International Aero Engines are not known to the assessee as it is not a party interested therein. He drew the attention of the Bench to the correct diagrammatic flow chart of transactions which was also submitted before the lower authorities in proceedings for earlier years. He submitted that at several places in the written pleadings of the Department, it is presumed that assessee had negotiated the price of engines/purchased engines from International Aero Engines. However, no material has been brought by the learned Departmental representative to substantiate such an understanding either by reference to the terms of the agreement or otherwise. He submitted that in essence thus, it remains an allegation without any legs to stand on. On the contrary, the Tribunal in the assessment year 2007-08 delates credits to choice of engines by citing agreements dated 19th October, 2005 as well as 29th March, 2007. 22.2. He submitted that the entire story or rather figment has been built-up on the assumption that quotes for aircraft mainfr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmission now being made by the learned Departmental representative at page 2, para 10 are not only contrary to the above conclusion of the Tribunal, but also contrary to findings recorded by the learned Com missioner of Income-tax in his order under section 263 of the Income-tax Act, 1961, for the assessment year 2007-08. 22.6. The learned senior counsel for the assessee submitted that no material has been brought on record by the learned Departmental representative to substantiate that the assessee has actually availed of financing of aircrafts from International Aero Engines. In agreement dated 19th October 2005 there was only an offer by International Aero Engines for financing (refer page 181, para-H of Revenue paper book). He further drew the attention of the Bench at page 2, para 15 and submitted that the learned Departmental representative is wrong in submitting that agreement dated March 30, 2006 demonstrates that credits are linked to acquisition of aircrafts having such engines. He submitted that under this agreement, International Aero Engines will supply spare engines, modules, spare parts, special tools, ground equipment and products support services. This agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, he submitted that the Tribunal wanted to know the type of accounting entries passed by the assessee in its books of account, as such the accounting entries was explained with the help of a notional transaction. Thereafter, no further information was called upon by the hon'ble Bench nor any objection was raised by the learned Departmental representative. Thus, there is no deliberate intention to withhold any evidence. 25. The learned senior counsel for the assessee submitted that the Revenue has not addressed on the fact that in later years, i. e., the assessment years 2011-12 and 2015-16 to 2018-19 the Assessing Officer has himself accepted that taxability as capital gains does not get attracted. So far as the argument of the learned special counsel for the Revenue that Revenue has filed additional grounds in subsequent years . He submitted that whether additional ground merits admission is yet to be decided by the Tribunal in appeals for the assessment years 2013-14 and 2014-15. Additional ground is being taken in the assessment years 2013-14 and 2014-15 only for sake of taking it. He submitted that it is well-settled that the Income-tax Appellate Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecause without the right emanating from the negotiations with the Airbus for purchase of the aircraft, there was no locus standi to exercise a meaningful option for purchase of one out of the pre-approved group of engines for the aircraft manufactured. In lieu of the option exercised in favour of the engine manufactured by the International Aero Engines, the latter agreed to provide incentives referred to as credits . The said incentives or credits are recorded in clear terminology, without any ambiguity, as arising from the choice exercised by the assessee in choosing the specific engines. He submitted that the agreement entered into with the engine manufacturer dated 19th October, 2005, clearly records that International Aero Engines is proposing the V2527-A5 engine for the Indigo Fleet firm aircraft and,- for these reasons International Aero Engines is pleased to provide Indigo a credit per V to 500-A5 ship set delivered to Indigo by Airbus, through the provision of fleet introductory assistance . . . . (Refer page 178 of paper book-1 of the learned Departmental representative). The learned senior counsel for the assessee submitted that this clause is conveniently ignored by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of air craft's ? Can the aircraft be purchased without the engine ? If the agreement was only to purchase an aircraft along with the engine embedded therein how can the Department treat the airframe and the engine as separate for the purposes of purchase ? If everything was to be supplied by Airbus-it being responsible for the warranty claims in respect of the air frame and also providing the suppliers warranty where the particular part was not manufactured by it, why would the engine manufacturer pay some credits separately for the particular aircraft ? 26.5. The learned senior counsel for the assessee submitted that the one and only the answer is that the payments made by the engine manufacturer had nothing to do with the purchase of the aircraft. It is equally fallacious on part of the Revenue to assume that when one purchases an aircraft, it may only be entitled to a discount with reference to its engines and nothing else. He submitted that no doubt the onus lies on an assessee when it contends that a particular amount received by it is not liable to tax. However, that onus stands discharged when it is established and previously accepted to be capital. Even in the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten synopsis of the learned Departmental representative where he states that letter of intent is not a purchase agreement, but, only an Expression of Intent . However, then at same submission he states that the preamble of agreement with International Aero Engines notes that the assessee has agreed to purchase 100 aircrafts from Airbus. He submitted that in letter of intent a firm commitment given by the asses see for purchase of 100 aircrafts. Without this firm commitment the asses see could not have approached the International Aero Engines for selection of engines. He drew the attention of the Bench to clause 8.1 of Letter of Intent which clarifies the position as under : 8.1. The terms and conditions set out herein merely set forth the mains terms on which InterGlobe Aviation will, in principle, be pre pared to proceed to detailed negotiations and finalization of formal purchase agreement between InterGlobe Aviation and airbus and is not intended to be exhaustive. 26.8. He accordingly submitted that the appeal filed by the assessee be allowed and the appeal filed by the Revenue be dismissed. 27. We have heard the rival arguments made by both the sides, perused the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the parties as follows : 1. Scope Airbus herby records its intention to manufacture, sell and deliver one hundred aircraft of the A320 family designated as A319-100 (hereinafter designated the 'A319 Aircraft') or A320-200 (hereinafter designated the 'A320 Aircraft') or the A321-200 (hereinafter designated the 'A321 Aircraft') as the case may be, in accordance with the choice of InterGlobe Aviation (all hereinafter collectively referred to as 'Aircraft') to InterGlobe Aviation and InterGlobe Aviation intends to acquire these aircraft in a phased manner in accordance with a schedule to be agreed between the parties, 2. Aircraft definition The A319 Aircraft, the A320 Aircraft, and the A321 Aircraft shall conform to the aircraft definition as stated in the Airbus general terms and conditions. For each aircraft type, InterGlobe Aviation shall select between CFM International Engines (CFM) and International Aero Engines (IAE) one of the following engine types : Aircraft Type CFM IAE Aircraft 6-5B5/P 2522-AS Ai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterGlobe Aviation Private Limited has agreed to purchase from. Airbus SAS ('Airbus') one hundred (100) new Airbus A320 aircraft powered by V2527-0-A5 engines (the 'firm Aircraft'), This agreement is intended to provide IndiGo with information to support the purchase of the firm aircraft, to be powered by IAC V2527-A5 engines ('V2527A5 Engines' or 'Engines'). . . . International Aero Engines is confident that the V2527-A5 engine will provide significant benefits to IndiGo, and welcomes the opportunity to discuss the economic benefits of the V2527A5 Engine to the operation of IndiGo. 28.6. From the recital above, it can be seen that International Aero Engines had acknowledged the fact that the assessee has already agreed to purchase 100 aircrafts from Airbus. Under this agreement, International Aero Engines has agreed to provide certain benefits to the assessee. Since, the assessee selected engines manufactured by the International Aero Engines as 'installed engines', International Aero Engines agreed to pay credits to the assessee. We find from the agreement dated October 19, 2005 between International Aero Engines and the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it clearly records that IAE is proposing the V2527-A5 Engine for the IndiGo Fleet Firm Aircraft and therefore for these reasons the credits are received by the assessee as consideration for selection of IAE engines. Therefore, the credits are clearly not subsidy. However, the purpose of providing credits is the selection of IAE engines in preference to others and it is only for the choice of the engine that the credit per engine set is given to the assessee by the engine manufacturer International Aero Engines. The benefit provided is termed as fleet introductory assistance (FIA). 29.1 It is one of the submissions of the learned special counsel for the Revenue that under this agreement with International Aero Engines, the assessee has negotiated the price for engines to be manufactured by International Aero Engines. It is the submission of the learned senior counsel for the assessee that there is no buy-sell arrangement between the assessee and International Aero Engines for engines to be installed by Airbus. The consideration clause for grant of credits has already been reproduced above, which shows that the credits are provided for selection of installed engines . Under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aircraft. Similarly, clause E deals with aircraft model changes/next generation aircraft and clause F deals with spare engine requirements which are not relevant for us for deciding the issue under consideration. The learned special counsel for the Revenue also could not point out as to how these clauses are relevant for deciding the issue of selection of engines as per clause A. Further, it is also to be noted that both the Assessing Officer and the learned Commissioner of Income-tax (Appeals) have not taken this view or support the view as canvassed by the learned special counsel for the Revenue. From perusal of the order of the Assessing Officer at page 2, we find the Assessing Officer in his order has specifically noted as under : as a consideration for selection of the IAE engines to be fitted in the aircraft to be purchased by the company, certain credits allowable to the assessee-company from the International Aero Engines on the delivery of such aircraft. 29.4 Similarly, we find the learned Commissioner of Income-tax (Appeals) confirms this when he observes that the appellant's agreement with International Aero Engines AG had no impact on that price and Air bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the actual delivery date of the specific aircraft through to each engines first restoration shop visit, as described in option 2a. In addition, and at each engine's first restoration shop visit, International Aero Engines will credit IndiGo a fixed amount of $ per engine for interest during the period of pay as you go payments to International Aero Engines under Option 2b. This credit may be used by IndiGo for V2500SelectTM payments, or for the purchase of V2527-A5 spare parts, tooling, and services from International Aero Engines. As further clarification, IndiGo may opt not to use the pay as you go option and instead will meet the alternative obligations in the lease facility. 29.6. Similarly, the exhibit-G copy of which is placed at page 206 of the paper book reads as under :- Lease facility for up to twelve (12) Airbus A320 Aircraft for Indigo Airlines International Aero Engines AG ('IAE') is willing to provide a lease facility (the 'Lease Facility') to enable IndiGo Airlines ('IndiGo') to acquire up to twelve (12) new Airbus A320 aircraft powered by V2500 engines on the outline terms and conditions set out below. The lease facility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alized its purchase agreement with Airbus as per purchase agreement dated November 18, 2005, copy of which is placed at pages 1 to 172 of the paper book. As per this agreement, the aircraft is designated as under : Aircraft means either an Airbus A319-100 or an Airbus A320-200 or an Airbus A321-200 aircraft including the airframe, the propulsion systems, and any party, component, furnishing or equipment installed on the aircraft on delivery under the terms and conditions of this agreement. 29.11. The basic price has been defined as under : Basic price means the sum of the airframe basic price and the pro pulsion systems basic price. 30. We find article 1 of this agreement records an understanding of purchase and sale wherein Airbus shall sell and deliver and the assessee shall buy and take delivery of 100 aircrafts on the delivery date at the delivery location. We find the propulsion systems has been defined in clause 2.2 which reads as under :- 2.2. Propulsion systems The A319 Airframe shall be equipped with a set of two (2) International Aero Engines, (the 'A319 Propulsion Systems') The A320 Airframe shall be equipped with a set of two (2) Intern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and obligations under this agreement to any person without the prior written consent of the seller, which shall not unreasonably be withheld. 21.1.1. Assignments for pre-delivery financing The buyer shall be entitled to assign its rights under this agreement at any time in order to provide security for the financing of any pre-delivery payments subject to such assignment being in form and sub stance acceptable to the seller. 21.1.2. Assignment for delivery financing The buyer shall be entitled to assign Its rights under this agreement at any time In connection with the financing of its obligation to pay the final price subject to such assignment being inform and sub stance acceptable to the seller. 21.2. Assignments by seller The seller may at any time sell, assign, novate or transfer its rights and obligations under this agreement to any person, provided such sale, assignment or transfer be notified to buyer and shall not have a material adverse effect on any of buyer's rights and obligations under this agreement 21.2.1. Transfer of rights and obligation upon restructuring In the event that the seller is subject to a corporate restructuring having as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the aircraft on the terms and conditions set out in an aircraft lease agreement between the assignee and the assignor dated the same date as this agreement (the lease agreement). . . . 2. Agreement to assign 2.1 Agreement 2.1.1 Upon and subject to the terms and conditions of this agreement and in consideration of the assignee agreeing to pay the lessor's cost in accordance with the terms of the purchase agreement assignment, the assignor agrees to assign to the assignee the assignor's right to take title to the aircraft by executing the purchase agreement assignment and the consent and agreement. 2.1.2. Upon and subject to the terms and conditions of this agreement, the assignee agrees to execute the purchase agreement assignment and the consent and agreement and to pay the lessor's cost in accordance with the terms of the purchase agreement assignment. 2.2 Assignee's conditions The obligations of the assignee to enter into the purchase agreement assignment and the consent and agreement and to pay the lessor's cost in accordance with the terms of the purchase agreement assignment are subject to the conditions that : 2.2.1. on or prior t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so not disputed this fact and have held that since, the delivery schedule of aircraft spread-over a very long period, the appellant normally replaces its old fleet with new fleet, after the expiry of the 'lease period' which is usually six year . 30.5. We find the learned special counsel for the Revenue has also drawn our attention towards agreement dated March 30, 2006 for general terms of sales executed between International Aero Engines and the asses see (paper book pages 257 to 386). A perusal of the agreement shows that International Aero Engines will supply to IndiGo V2500 engines, modules, spare parts, special tools, ground equipment and product support services for the support and operation of V2500 engines . Purpose of this agreement is therefore provision of spare engines, spare parts and support services. Similarly, as regards fleet hour agreement dated May 12, 2006 is concerned the crux of this agreement is that International Aero Engines shall provide maintenance services for engines fitted in 100 aircrafts manufactured by Airbus. Both these agreements in our opinion have no relevance to the issue of credits which are received for selection of 'install ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge its own obligations independent of what has been contracted with other party. A perusal of the agreement shows that International Aero Engines cannot sue Airbus under agreement dated November 18, 2005 and similarly, Airbus cannot sue International Aero Engines under agreement dated October 19, 2005. We find, neither, there is any allegation nor any material brought before us that the agreements or trans actions are either sham, dubious or colourable. 31.2. We find the hon'ble Delhi High Court in the case of Bhagat Construction Co. (P.) Ltd. v. CIT reported in [2001] 250 ITR 291 (Delhi), has held that a colourable transaction is one which is seemingly valid, but a feigned or counterfeit transaction entered into for some ulterior purpose. A conclusion about the nature of a transaction, i. e., whether it is colourable or otherwise, if supported by material or evidence is essentially one of fact. 31.3. In our opinion, there can never be a presumption that a trans action or agreement is colourable/sham. This is a factual aspect which must be demonstrated. It is trite Law that the onus of proving that the apparent was not real is on the party who claims it to be so. The hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the words in a disposition or contract or grant are free from ambiguity, it is always to be construed according to the strict, plain an common meaning of the words them selves. Evidence de hors the instrument for the purpose of explanation it according to the surmised or suppose intention of the parties to the instrument is inadmissible or impermissible to be brought on record. Extrinsic evidence is inadmissible for vary the meaning of the words used in a document. The intention of the parties to a document must be gathered from the terms thereof and the surrounding circumstances attending the execution of the document, but the subsequent conduct of the parties cannot be permitted to show that the intention was different 31.6. We find, the hon'ble Supreme Court in the case of Vodafone International Holdings B. V. v. Union of India reported in [2012] 341 ITR 1 (SC), has held that an agreement is to be looked at not by economic sub stance, but, its legal form. The only exception to this is when the trans action is shown to be sham or dubious. The relevant observations of the hon'ble Supreme Court from para 58 to 64 read as under (page 32) : 58. Before coming to I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 62. Furniss (Inspector of Taxes) v. Dawson [1984] 1 All ER 530 (HL) dealt with the case of interpositioning of a company to evade tax. On facts, it was held that the inserted step had no business purpose, except deferment of tax although it had a business effect. Daw son went beyond Ramsay. It reconstructed the transaction not on some fancied principle that anything done to defer the tax be ignored but on the premise that the inserted transaction did not constitute 'disposal' under the relevant Finance Act. Thus, Dawson is an extension of Ramsay principle. 63. After Dawson, which empowered the Revenue to restructure the transaction in certain circumstances, the Revenue started rejecting every case of strategic investment/tax planning undertaken years before the event saying that the insertion of the entity was effected with the sole intention of tax avoidance. In Craven (Inspector of Taxes) v. White (Stephen) [1990] 183 ITR 216 (HL) ; [1988] 3 All ER 495 it was held that the Revenue cannot start with the question as to whether the transaction was a tax deferment/saving device but that the Revenue should apply the look at test to ascertain its true legal nature. It o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights and obligations flowing out of it. The terms and conditions in a particular contract/agreement in our opinion cannot be ignored. We, therefore, are of the opinion that the present agreements and transactions thereunder are, not composite, but, have to be viewed and examined individually. C. Purpose and nature of credits received by the assessee and its taxability 32. The next issue to be decided by us is the purpose and nature of credits received by the assessee and their taxability. We have already analysed the relevant agreements above and have come to the conclusion that from clause-A of agreement dated October 19, 2005, it is clear that credits have been received by the assessee from International Aero Engines as a consideration for selection of its engines in preference to others. This fact is also accepted by the Assessing Officer at page 2 of his order when he observes that as a consideration for selection of the International Aero Engines engines to be fitted in the aircraft to be purchased by the company, certain credited allowable to the assessee-company from International Aero Engines on the delivery of such aircraft. The credits are also agreed to be flee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ropriate treatment The contract terms offered should be reviewed and the sub stance of the transaction considered to determine the appropriate accounting. Credits may be monetary, such as a discount or reduction to the purchase price or non-monetary, such as services or future maintenance and both forms should be considered and recognised. Non-monetary credits are typically harder to value and allocate to components. How to allocate credits is discussed further in the Identification of individual components section. 32.1.1. The Tax Department in our opinion cannot ignore commercial realities and that too premised only upon conjectures or surmises. It is not within their domain to do so. The commercial expediency should be best left to the wisdom of the businessmen. The agreement dated November 18, 2005 or lease agreements which are executed almost six years after agreement dated October 19, 2005 do not refer to the credits which were granted by the International Aero Engines. The credits received from International Aero Engines, therefore, has nothing to do with the subsequent event of purchase of aircraft or its mode of acquisition. The credits received by the assessee from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t nature of a receipt may vary according to the nature of the trade in connection with which it arises. It was held in that case that the price of the sale of a factory is ordinarily a capital receipt, but it may be an income receipt in the case of a person whose business it is to buy and sell factories. In the instant case, the assessee before us is engaged in the business of running a low cost airline. Its source of revenue is deriving income from passenger and cargo transportation. The assessee is not engaged in either business of trading of aircraft or business of receiving credits. 32.4. Once, this is made clear, the next question that requires for our examination is as to whether the credits were received towards fixed capital or circulating capital. We find the hon'ble Supreme Court in the case of CIT v. Vazir Sultan and Sons reported in [1959] 36 ITR 175 (SC) relied on by the learned senior counsel for the assessee has decided the case where the issue was as to whether the sum received as compensation for loss of agency was revenue or capital. We find the hon'ble apex court following the ratio laid down in the case of Van Den Berghs, Ltd. has observed as under (p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of operating a low cost airlines. Therefore, the aircrafts are capital assets and not circulating capital. It uses the aircraft to earn revenue. The credits received are not derived from its business activity which is to earn revenue from passenger and cargo transportation, which is a vital fact. Distinction is crucial as highlighted by the hon'ble Supreme Court in the case of Van Den Berghs, Ltd. wherein it has been observed as under : The agreements formed the fixed framework within which their circulating capital operated ; they were not incidental to the working of their profit-making machine but were essential parts of the mechanism itself. They provided the means of making profits, but they themselves did not yield profits. The profits of the appellants arose from manufacturing and dealing in margarine. 32.6. In view of the above, the nature of the business carried on by the assessee is relevant. The submission of the learned special counsel for the Revenue that since credits were related to the business of operation of air craft and therefore, they are revenue in nature does not carry much force. In our opinion, for becoming part of circulating capital, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 of the Indian Electricity Act, the asses see credited service connection receipts to the revenue account and debited the corresponding cost of laying service lines to the capital account. But the classification of the receipts in the form of accounts is not of any importance in considering whether the receipt is taxable as revenue. 32.7. The assessee in this case claimed that the amount received by it for service connection from its customers was capital receipt and the hon'ble Supreme Court accepted the contention of the assessee by observing as under : The assessee contended that the amount paid by the consumers for new connections is capital receipt and not liable to tax, because the amount is paid by the consumers towards expenditure to be incurred by the assessee in laying new service lines--an asset of a lasting character. This question falls to be determined in the light of the nature of the receipt irrespective of who remained owner of the materials of the service lines installed for granting electrical connection to new customers. . . The assessee is undoubtedly carrying on the business of distributing electrical energy to the consumers. Installation of ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in hand, could not be regarded as profit in the nature of a trading receipt. On that view of the case, in our judgment, the High Court was in error in holding that the excess of the receipts over the amount expended for installation of service lines by the assessee was a trading receipt. 32.8. In view of the ratio laid down by the hon'ble Supreme Court in the case cited (supra), it is clear that there is a clear distinction between the amounts received which are related to the business and amounts received which are incidental to the business . It is relevant to note that the amounts received as part of service connection in Hosiarpur Electric Supply Co. were arising out of a commercial transaction yet the hon'ble apex court applied the above distinction to examine the purpose. Only amounts which are incidental to the business were held taxable as business receipts. In the instant case, credits are received for selection of engines and are understood by the parties in the agreement that the credits were fleet introductory assistance (FIA). The purpose is to provide support for aircraft acquisition. Therefore, the credits received are not incidental to or derived fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the registered shareholders not only to purchase share scrips but the dividends which had been declared but not collected by them or paid over to shareholders. As the dividends had been declared long ago there was no uncertainty as to the exact amount receivable in respect of them. It is, therefore, clear that both the purchaser and the vendor knew exactly what sum of money would come to the vendor by way of such dividend. In other words, the purchase consideration included the amount of the arrear dividends and, as the dividends had been declared long ago, there was no uncertainty as to the exact amount receivable in respect of them. The existence of a contract binding the vendors to make over to purchaser the arrear dividends clearly implied that the price paid by the purchaser was not only for the value of the share scrips but also for the sum of Rs. 43,925 which was going to be realised in the form of arrear dividends by the purchaser. The High Court held, upon an examination of the evidence, that such an arrangement implied that the value of Rs. 9-8-0 and Rs. 9-4-0 per share as settled into the broker's bills was not the real value of the share scrips alone but also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the true nature and taxability of the receipt, we have to take into consideration the nature of business and agreements between the parties and then examine the purpose/object of receipt. It is only then that we examine whether a particular receipt is incidental to the main business or not. In effect, we have to see the purpose/ object for which the payment is received. In our opinion, purpose test is to be applied in the hands of the recipient when taxability of receipt is in dispute and when allowability of expenditure is in dispute, the test is to be applied in the hands of the payer. Once these settled legal principles are taken into consideration, then we have no doubt over the correctness of views expressed by the Division Bench of the Tribunal in the assessee's own case in the assessment year 2007-08. We therefore concur with the view taken by the Division Bench of the Tribunal in the order passed for the assessment year 2007-08, where the Tribunal has observed as under : 9. We have considered the arguments advanced by the parties and have gone through the material available on record as well as the decisions relied upon by both the parties. Since a conclusive findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the subsidy/assistance is given which determines the nature of the incentive subsidy. The form or the mechanism through which the subsidy is given are irrelevant.' 9.1 The learned senior counsel Shri Syali in his arguments has relied upon the decision of the hon'ble Delhi High Court in the case of CIT v. Bougainvillea Multiplex Entertainment Centre Pvt. Ltd. (supra). The importance of this judgment is that in this case after considering the hon'ble Supreme Court's decisions in the cases of Ponni Sugars (supra) and Sahney Steel (supra) and after applying the purpose test as laid down in these decisions, the hon'ble Delhi High Court has been pleased to hold as under (page 29 of 373 ITR) : '31. The Revenue, however, argues in the matters at hand that the assessee cannot be allowed to treat the entertainment tax subsidy as capital receipts because the U. P. Scheme leaves it at liberty to utilize the funds in the manner it likes. In this context, it craves reference to following further observations of the Supreme Court (appearing in paragraph 16) in the case of Ponni Sugars (supra) (page 401 of 306 ITR) : One more aspect needs to be mentioned. In Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer to decline the claim of the assessee about the subsidy being capital receipt. Such a subsidy by its very nature, was bound to come in the hands of the assessee after the cinema hall had become functional and definitely not before the commencement of production. Since the purpose was to offset the expenditure incurred in setting up of the project, such receipt (subject, of course, to the cap of amount and the period under the scheme) could not have been treated as assistance for the purposes of trade. 35. The facts that the subsidy granted through deemed deposit of entertainment tax collected does not require it to be linked to any particular fixed asset or that is accorded year after year do not make any difference. The scheme makes it clear that the grant would stand exhausted the moment entertainment tax has been collected (and retained) by the multiplex owner meeting the entire cost of construction (apparatus, interiors, etc., included), even if it were before completion of five years . 36. As held by the Supreme Court in the case of Sahney Steel (supra), the character of the subsidy is to be determined having regard to the purpose for which it is granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as given undue importance to the fact that ultimately the aircrafts were only taken on lease by the appellant and that the appellant itself credited these receipts by deducting the same from the expense of 'aircraft lease rental' in its profit and loss account decision of Bougainvillea Multiplex Entertainment (supra) clearly holds that subsidy need not be linked to a particular asset Similarly netting off of the proportionate credits with the amount of lease rentals in the profit and loss account of the appellant is a mere utilization of the receipt. Merely because a capital receipt is utilized for incurring revenue expenditure it will not change the nature of capital receipt into a revenue item. As an example proceeds received, from issuance of shares by a company may be utilized for daily working capital purposes, but the nature of receipts from issuance of shares will still be capital in nature. In the case under con sideration for a better accounting purposes the proportionate credits were netted off against the recurring lease rentals. Acceptably .as pointed out by the appellant the accounting policy followed was in spirit with the Accounting Standard-12 issued by Inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance on the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi) to hold that proper enquiries had not been made and, therefore order was erroneous inasmuch as prejudicial to the interests of the Revenue. However, this judgment is wholly inapplicable since, as is evident from facts of present case, wherein the learned Assessing Officer specifically directed the appellant to justify its claim for receipts being capital in nature considering the disclosure made by the appellant in clause 13(e) of the tax audit report. In reply vide submissions dated December 24, 2009 (copy enclosed at pages 46 to 55 of paper book) appellant relying upon the decisions of the hon'ble Supreme Court in the cases of Sahney Steel (supra) and Ponni Sugar (supra) submitted a detailed reply as under : 'Reverting to the facts of the present case, it is submitted that credit was allowed by International Aero Engines to Interglobe on account of Interglobe preferring the engines manufactured by International Aero Engines to be fitted in the aircrafts being acquired by Interglobe. The credit given by International Aero Engines was meant to reduce the cost of the engine to befitted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. DG Housing Projects Ltd. reported in [2012] 343 ITR 329 (Delhi) wherein the hon'ble High Court has been pleased to hold as under (page 335 of 343 ITR) : '13. The Delhi High Court in Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi), has observed as under (page 386) : The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word 'erroneous' in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is engaged in the business of operating of low cost airline and its source of revenue is to earn income from passenger/cargo transportation. We have already held in the preceding paragraphs that the credits received are not derived from the business activity which is to earn revenue from passenger/ cargo transportation. Therefore, the credits are fleet introductory assistance (FIA) and were received as a consideration for selecting engines of Inter national Aero Engines in preference to others. This is the purpose. 32.13 We find the hon'ble Supreme Court in the case of CIT v. Ponni Sugars and Chemicals Ltd. [2008] 306 ITR 392 (SC) after considering the decision in the case of Sahney Steel and Press Works Ltd. v. CIT reported in [1997] 228 ITR 253 (SC) has observed as under (page 399 of 306 ITR) : . . . .The importance of the judgment of this court in Sahney Steel case lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down by the higher courts. It is the settled proposition of law that under the provisions of the Act all receipts are not taxable. Whether a particular receipt is income or not depends on the nature/purpose of that receipt and the true scope and effect of the relevant taxing provisions. It is trite law that it is the quality of the receipt that is decisive of the character of the payment and not the method of the payment or its measure. It is to ascertain the quality and the character that purpose test has to be applied. Purpose test, therefore, remains a valid test for ascertaining the true nature of any receipt, be it unilateral, multilateral, grant of subsidy or otherwise. 32.16. So far as the arguments made by the learned special counsel for the Revenue that the aircraft have been acquired on lease and that the nature of the credit changes when acquisition mode is lease financing are concerned, we find the genesis of credits received is agreement dated October 19, 2005, However, the credits were payable only on delivery of aircraft. The assignment of rights to acquire the aircraft is post vesting of credits. When selection of International Aero Engines engines is done, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt does not make the payment a recurring income because periodicity may be the result of convenience and not necessarily the result of the establishment of a source expected to be productive over a certain period. 32.19. So far as the decision in the case of CIT v. T. V. Sundaram Iyengar and Sons Ltd. reported in [1996] 222 ITR 344 (SC) relied upon by the learned special counsel for the Revenue is concerned, we find the said decision is distinguishable on facts and not applicable to the case of the asses see. In that case, the amount was received by the assessee from its customers in the course of a trade transaction. Since, over the period of time these amounts were not claimed back by the customers, these amounts were transferred by the assessee to its profit and loss account. The Assessing Officer held that surplus had arisen as a result of trade trans actions. It was an amount having a character of income and had to be added as income. Therefore, the Assessing Officer held that the amount received was revenue in nature. We find the hon'ble Supreme Court first considered the legal principles arising from the case of Morley (Inspector of Taxes) v. Tattersall [1939] 7 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent quality was imprinted on the receipt. In the present case, the assessee is engaged in the business of providing aircraft passenger services. It has already been held by us in preceding paragraph that the aircrafts are part of its fixed capital. At the time of acquisition of aircraft there were options available to the assessee. It may purchase the aircraft out rightly or it may acquire it on a financial lease or on an operating lease. This was a commercial decision which the assessee takes on the delivery date depending upon its capital, market condition and other ground realities. The learned senior counsel for the assessee has filed before the Bench the details of 34 aircrafts which have been purchased by the assessee. The credits received for these air crafts have been reduced from the cost of acquisition in accordance with the provisions of section 43(1). This has been accepted by the Revenue. The nature of receipt for 34 aircrafts is accepted to be capital. The character as capital will thus continue to remain same even when the asset is not purchased but acquired on lease. Subsequent mode of acquisition will not therefore change the nature of taxability. We, therefore, ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 ITR 172 (SC). We, therefore, find merit in the argument of the learned senior counsel for the assessee that accounting policy followed by the assessee is as per industry norms and practices and we, therefore, do not find any merit in the argument made by the learned senior special counsel for the Revenue on this issue. It is, however, pertinent to mention here that in assessment year 2007-08, the Division Bench has not followed Accounting Standard-12 issued by the ICAI to hold that credits are taxable as capital receipts. It was held that Acceptably as pointed-out by the appellant, the accounting policy followed was in spirit with the Accounting Standard-12 issued by the ICAI. Even we have held above that Accounting Policy followed by the assessee is as per industry norms and practices. However, this is not relevant when we have to examine the nature and taxation of the amount received as per the provisions of the Income-tax Act, 1961. 34.2. We further find the learned special counsel for the Revenue in his written submissions has submitted that accounting entry passed in books presumes connection with aircraft acquisition whereas a contrary claim has been made by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produced before the Division Bench at the time of hearing of the matter of assessment year 2007-08. However, he requested that such confidential data be protected. We find, the assessee before the Division Bench had also filed a certificate from the chartered accountant confirming that the amounts recorded in the books of account have been traced to the bank statements and supporting documents and that audit was conducted as per settled auditing practices. 34.1. However, we would like to decide upon the issue of relevancy of the redacted amounts in the agreements and whether it will make any difference to the nature of receipts from the International Aero Engines. A perusal of the order of the learned Commissioner of Income-tax (Appeals) as well as the arguments advanced by the special counsel for the Revenue before us shows that they have not doubted the total credits received during the year by the assessee from International Aero Engines for selection of engines and that the figure of Rs. 759.39 crores as disclosed in the audited books of account is not correct. The learned special counsel for the Revenue has categorically submitted that the Revenue has not sought to reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tween the assessee and International Aero Engines for purchase of installed engines and that credits, are not in the nature of discount . We have also rejected the argument of the learned special counsel for the Revenue that the transactions between the assessee, International Aero Engines, Airbus and lessors are a composite arrangement. There is no redaction of any clause, sentence or any terms or conditions in the agreement. Therefore, we do not find any merit in the argument of the learned special counsel for the Revenue on this issue. The Revenue has not demonstrated the relevancy of redacted amounts especially when the case of the assessee was consistently examined by various Departmental Authorities and none of them have made an issue out of redaction. Further, the agreements dated October 19, 2005 and November 18, 2005 remained the same over the years. Assessments have been framed from assessment years 2007-08 to 2018-19 and the Assessing Officer has examined the nature of transaction without being handicapped by the fact that there is redaction of amounts stated in the agreements. We have also gone through the assessment orders for the assessment years 2015-16 to 2018-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been engaged in the business of operating of lowcost airline in India. The assessee is neither a trader of aircrafts nor its engines and is also not engaged in any business of selecting aircraft engines. For the applicability of provisions of section 28(i), it is necessary that business is carried on . . . . . at any time during the previous year . Since, there is no business of selection of engines was carried-on by the assessee-company, therefore, the provisions of section 28(i) are not applicable. 35.3 Further, for applying section 28(iv), the statutory requirement is that the value of any benefit or perquisite, whether convertible into money or not, must arise from the business or exercise of a profession. 35.4. We find, the hon'ble Bombay High Court in the case of Mahindra and Mahindra Ltd. v. CIT reported in [2003] 261 ITR 501 (Bom) has held that capital receipt do not come within the purview of section 28(iv) of the Act. The relevant observation of the hon'ble High Court reads as under (page 509 of 261 ITR) : At the outset, we wish to clarify that this judgment is confined to the facts of this case. This is because the value of any benefit or per quisite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt was that of plant and machinery. The consideration paid was for such import. In the circumstances, section 28(iv) is not attracted. Lastly, we may mention that, in this case, AMC agreed to forego the principal amount of loan as a part of takeover arrangement with KJC to which the assessee was not a party. The waiver of the principal amount was unexpected. In the circumstances, one fails to understand how such waiver would constitute business income. 35.5 We find, the hon'ble Delhi High Court in the case of CIT v. Jindal Equipments Leasing and Consultancy Services Ltd. reported in [2010] 325 ITR 87 (Delhi), following the above decision at paragraph 8 of the order has observed as under (page 91) : With this, we proceed to examine this aspect on its own merits, viz., whether the provisions of section 28(iv) of the Act are attracted in the given case. Thus, what is to be seen is as to whether the amount written off of Rs. 1,46,53,065 in its books of account by JSPL amounts to the value of any benefit or perquisite whether convertible into money or not and can be treated as 'Profits and gains from business'. The pre-requisites for attracting the said provisions ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue. Moreover, the nature of the receipt is to be examined in the hands of the assessee and not International Aero Engines. For the above proposition, we rely on the decision of the hon'ble Supreme Court in the case of Empire Jute Co. Ltd. v. CIT reported in [1980] 124 ITR 1 (SC) where it has been held that a receipt may be revenue in the hands of the payer, but, capital in the hands of the recipients . 35.9. The learned special counsel for the Revenue also made an argument for the first time before us that the term business as defined in section 2(13) includes any adventure or concern in the nature of trade, commerce or manufacture . It was his submission that even a single adventure in the nature of trade, commerce or business would amount to business and the profit gained as a consequence of the adventure would be chargeable to tax as business profits. It was accordingly submitted that the activity of the assessee of selecting engines has trappings of an adventure in the nature of trade, commerce or business and, therefore, would fall within the definition of business as appearing in section 2(13) of the Income-tax Act, 1961. The learned special counsel for the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aph 10.2.1 of his order which was heavily relied on by the learned special counsel for the Revenue. According to the learned special counsel, the consideration for assignment less cost of right to purchase, is assessable as capital gains. It is also his submission that by entering into purchase agreement with Airbus, the assessee has acquired a valuable right which would be a capital asset being a commercial right. By the deed of assignment, then assessee transferred such right in favour of lessor amounts paid by lessors represent a consideration as the taking over of the liability amounts to a consideration. It was also submitted in his written submissions as under : The cost of acquisition would comprise initial money paid to Air bus or engine manufacturer and the total purchase price of the aircraft minus the discounts appropriated by the appellant (and not passed on to the lessors). The balance amount being the difference between the amount paid by the lessors to Airbus (in discharge of the contractual obligation of the appellant) and the cost of acquisition of rights so transferred would represent the amount of capital gains chargeable to tax as rightly explained by the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee to mandatorily purchase the aircraft. The learned special counsel for the Revenue, in our opinion, has erroneously presumed that amount paid by the lessors represents a consideration as the taking-over of a liability amounts to a consideration . We find in the year under consideration the lease agreements are in the nature of operating lease. The Assessing Officer in the order has also mentioned that the lessors are the owners and are claiming depreciation. Therefore, consideration paid by lessors to Airbus is not on account of the assessee. The transaction of payment of purchase price by lessors to Airbus is a separate transaction, under which, no right to the aircraft is flowing to the assessee. There is, therefore, no sale consideration received by the assessee which could be held assessable to capital gains tax . We, therefore, hold that credits received by the assessee are not taxable as capital gains. H. Disallowance of proportionate lease rental under section 37(1) 38. The next issue that is to be decided is regarding disallowance of pro-portionate lease rentals under section 37(1) of the Act, 1961. We find in the impugned order, the learned Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally on lease finance basis, the authorities below held that the grant was given to recoup the revenue expenditure incurred by the assessee on acquiring the asset on lease finance basis. The Tribunal, however, held as under : Nothing has been shown with reference to documents and agreement on record to support the submission that the grant was by way of recoupment or revenue expenditure incurred by the assessee. The Department's case as we see is that since the assessee initially acquired the capital equipment on lease finance basis, the lease rentals were allowed as revenue expenditure to the assessee. The asses see, however, had to pay on account of lease finance Rs. 4.8 crores as against the capital cost of Rs. 3.2 crores. Had the assessee acquired equipment on outright purchase basis, the assessee would have been entitled to the write off of capital costs by way of depreciation as revenue expenditure. If the assessee had borrowed funds for meeting the capital cost of the equipment, the capital cost would have been written off by way of depreciation over a period of years and interest on borrowed funds by way of depreciation over a period of years and interest on borrowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on operating lease. We have perused the lease agreements enclosed in the paper books filed before us. The assessee in its paper book has enclosed a copy of lease agreement dated December 15, 2006 with M/s. McR Aviation Ltd. The Revenue in its paper book has submitted three lease agreements, i. e., agreement dated June 14, 2007 with Genesis Acquisition Ltd., dated July 4, 2007 with Lara Leasing Ltd., and dated August 10, 2010 with Crescent Leasing P. Ltd. Under all these agreements supplementary rent is a mandatory payment required to be made to the lessors for use of aircrafts. Amount payable for supplementary rent is calculated based upon flying hours attributable towards critical parts of the aircraft, i. e., aircraft body, auxiliary power unit, landing gear, etc. We find the Assessing Officer in the assessment order made disallowance under section 40(a)(i) of the Income-tax Act, 1961 alleging that owing to non-deduction of tax, the expenditure is disallowable. However, the learned Commissioner of Income-tax (Appeals) held that payment of supplementary rent is reimbursable and hence the expenditure is not allowable under section 37(1) of the Income-tax Act, 1961. 39.1. We fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the applicable approved maintenance work (except if otherwise agreed between lessor and lessee, it being agreed that such time periods may be extended as determined in the reasonable discretion of lessor, to the extent that lessee notifies lessor at or before the end of such sixty (60) day period that there are still outstanding invoices (which shall be specifically identified for approved maintenance work), an invoice and supporting documentation evidencing performance of and payment for each in reasonable reimbursement shall be made in respect of replacement, repair or overhaul caused by foreign object damage, domestic object damage, operational or other mishandling, family maintenance or any accidental cause or in respect of any cost which is reimbursable by insurance or which relates to convenience, premature or unscheduled shop visits or overhauls or lessee effected operational modifications, Engine QEC, engine accessories, removal/ installation of engines, removal/Installation of APUs removal/installation of landing gear, structural and non-structural components including but not limited to nacelle structures, the thrust reversers, cowlings and engine mounts, or shipping ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny remaining balances of the maintenance supplemental rent following the expiry date, after application of the foregoing provisions, shall be retained by lessor as its sole property, with the exceptions set forth in exhibit H. To the extent any maintenance expenses exceed the amount available in the applicable maintenance supplemental rent account, such expenses shall be for the account of the lessee and the shortfall, if any shall not be carried forward or made the subject of any further claim for reimbursement lessee acknowledges that lessor may commingle the maintenance supplemental rent with its general funds and no interest shall accrue in favour of lessee in respect of maintenance supplemental rent held by lessor. 8.1.1 During the sublease term and until the aircraft is returned to lessor in the condition required by this sublease, lessee alone has the obligation, at its expenses, to timely maintain, service, test, inspect, overhaul and repair the aircraft, engines and all of the parts (a) in accordance with the maintenance program, (b) in accordance with the rules and regulations of the Aviation Authority, (c) in accordance with manufacturer's type design, (d) so as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying directly to the repair agency without the lessor having any role or in the manner as provided in article 3.12 of the lease agreement. It was further submitted that for invoking the exclusionary clause as provided in section 10(15A) of the Act, it is mandatory for the authorities below to demonstrate that either the lessor had supplied certain spares or provided any facility or service in connection with the operation of the lease aircraft. Since no such fact has been brought on record by the learned Commissioner of Income-tax, it was submitted that the impugned action under section 263 be quashed. It was also submitted by the learned senior counsel that recently the hon'ble jurisdictional High Court has upheld the ratio propounded by this Bench of the Tribunal in the case of Sahara Airlines (supra) in orders reported in the name of Jet Lite (India) Ltd. reported in [2015] 379 ITR 185 (Delhi) ; [2016] 236 Taxman 453 (Delhi). It was also submitted by the learned senior counsel that once an assessment order has been passed in consonance with the judicial wisdom of the superior court then the same cannot be termed as erroneous or prejudicial to the interests of the Revenue. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es (supra) had considered identical issue and had held as under : '10. The perusal of the above covenants of the agreement reveals that lessee was responsible to bear all the expenses in the course of the term of the lease on account of operational cost, repair and replacement, losses and other expenditure which were required to keep the aircraft in air-worthy condition. So the lessor was under no obligation to meet any expenditure or bear any loss in respect of the leased aircraft. Complete maintenance of the aircraft was the absolute responsibility of the lessee. The lessor was interested only in receiving the basic lease rent which could be utilised by them in the manner it liked and therefore, was income of the lessor which was exempt under section 10(15A) of the Act. But the supplemental rent was to be reimbursed in accordance with the terms of article 13 of the agreement. The obligation to repair and keep the aircraft in the airworthy condition was that assessee and such obligation could be discharged either by paying directly to the repair agency without involving the lessor or by the manner as provided in article 13 of the agreement. Such agreement was made only to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of the Finance Bill, 1995, it appears that, after the insertion of section 10(15A) in the statute, it was experienced by the Government that the non-resident companies were receiving payments in consideration of facilities or services provided/ rendered by the lessors such as training to the pilots or other crew men, providing technicians, etc., in the guise of leased rent. It is this mischief which was suppressed by the substitution of section 10(15A) with effect from April 1, 1996. This is manifest from the memo explaining the proposed Finance Bill, 1995. The relevant portion is quoted below (212 ITR (St.). 351) : . . . . From the above, it is crystal clear that the intention of the Legislature was to tax the payment made for spares, facility or services provided by the recipient. Therefore, the change in the law has to be understood in that context. So if any payment has to be brought within the exclusionary portion of section 10(15A) of the Act, then it must be established (i) that lessor either had supplied the spares or provided any facility or service in connection with operation of the leased already and (ii) the payment has been made by the lessee in considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eficiencies (overhauls) of the airframe, (i. e., the complete V check or equivalent if the aircraft is on a block 'D' maintenance system under the lessee's maintenance programme or V check level structural inspections carried out during a 'C' check if the aircraft is on a phased 'V' check system under lessee's maintenance programme), with any other partial structural overhauls and work performed for all other causes excluded, including those causes set forth in article 13.4. Reimbursement will be made up to the amount in the airframe reserve. 48. The Income-tax Appellate Tribunal has examined the object behind amending section 10(15A) with effect from 1st April, 1996. If any payment had to be brought within the exclusionary portion of section 10(15A) of the Act, then it must be shown (i) that the lessor either had supplied the spares or provided any facility or service in connection with operation of the leased aircraft ; and (ii) the payment has been made by the lessee in consideration of such spares/facilities/ services. The Income-tax Appellate Tribunal has rightly pointed out that the supplement rental was within the ambit of the original pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 2008-09. Facts of the present case being similar to that of Sahara Airlines (supra), respectfully following the decision of the hon'ble jurisdictional High Court we hold that payment of supplementary lease rent was exempt under section 10(15A) of the Act and the appellant was not required to deduct TDS thereon . . . . 39.2. Thereafter, this issue again came up before the Tribunal in the assessment years 2008-09 and 2009-10 wherein decision for the assessment year 2007-08 was followed. Being aggrieved, the Revenue filed an appeal before the hon'ble Delhi High Court which has been dismissed vide orders dated July 7, 2017 and October 31, 2017. Aggrieved further, the special leave petition was filed by the Tax Department which has also been dismissed vide order dated July 30, 2018 and September 10, 2018. The issue is therefore no more res integra. 39.3 However, the learned Commissioner of Income-tax (Appeals) in the instant case has held that the expenditure per se is not allowable as per provision of section 37(1). We have perused the relevant agreements filed before us and are unable to uphold the disallowance made by the learned Commissioner of Income-tax ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50 for each airframe flight hour operated by the aircraft to cover scheduled heavy structural/SC/ 12Y checks of the airframe ( Airframe 8C maintenance supplemental rent ) ; (iii) in respect of each engine, an amount determined in accordance with exhibit G attached hereto for each engine flight hour, in each case operated by that engine to cover such engine's overhauls (as to each engine, engine refurbishment maintenance supplemental rent ) ; (iv) in respect of each engine, US$111 for each engine cycle, in each case relating to that engine to cover such engine's LLP replacements (as to each engine, engine LLP maintenance supplemental rent ) ; (v) in respect of the APU, US$20 for each airframe flight hour to cover APU overhauls ( APU maintenance supplemental rent ) ; and (vi) in respect of the landing gear, US$2,700 for each calendar month (prorated for partial months) during the sublease term to cover the landing gear overhaul ( landing gear maintenance supplemental rent ) The Airframe 40 maintenance supplemental rent, the airframe 80 maintenance supplemental rent, the engine refurbishment maintenance supplemental rent, the engine LLP maintenance supplementa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts ( lessors maintenance disbursements ) from the respective maintenance supplemental rent account. (i) Airframe 4C/6Y checks : with respect to a scheduled heavy structural 4C/6Y checks of the airframe if it comes due during the sublease term, the lesser of (i) the amount of such invoice and (ii) the net balance of Airframe 4C maintenance supplemental rent received by the lessor at the time of payment ; (ii) Airframe SC/12 Y checks : with respect to a scheduled heavy structural 8C/12Y checks of the airframe if it comes due during the sublease term, the lesser of (i) the amount of such invoice and (ii) the net balance of Airframe 8C maintenance supplemental rent received by the lessor at the time of payment ; (iii) Engine refurbishment : with respect to any overhaul for an engine, the lesser of (i) the amount of such invoice and (ii) the net balance of engine refurbishment maintenance rent received by the lessor in respect of such engine at the time of payment ; (iv) Engine LLP replacement : with respect to any LLP replacement for an engine that is replaced due to expiration of its life limit, the lesser of (i) the amount of such invoice (with any credits for installa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of actual expense or the supplemental rent fund maintained by the lessor. Expense incurred for supplemental rent in thus not contingent. It is determinative and due as per lease agreement. Contingency if at all is attached to the expenditure incurred on maintenance of aircraft and its reimbursement from the lessor. 39.6. The assessee has also demonstrated before us that when actual maintenance expenditure is incurred by it then only the net amount, (i. e., net of reimbursement received from the lessor) is debited by it to its profit and loss account and therefore there is no double deduction claimed. This was also demonstrated before the learned Commissioner of Income-tax (Appeals). 39.7. The learned Commissioner of Income-tax (Appeals), in our opinion, has not properly understood the facts of the case. The fact that supplemental rent is determinable as per the terms of the agreement and is mandatory payment demolishes the presumption of the learned Commissioner of Income-tax (Appeals) that it is reimbursable. Reimbursement of actual maintenance expenditure if at all is a future contingent event, but, supplemental rent is a determined expenditure which is not at all conting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the order. 41.1. Cross border leasing of aircraft enjoyed a special exemption under section 10(15A) of the I.T. Act. However, a sunset clause was introduced by Finance Act, 2005 to provide that this exemption shall not be available for agreements entered after 1st April, 2007. In the aftermath of withdrawal of exemption the tax liability of the lessor is to be governed by the provisions of bilateral tax treaties the learned senior counsel for the assessee submitted that as per provisions of section 90 of the Act, provisions of Double Taxation Avoidance Agreement shall apply to the extent they are beneficial. Under the Double Taxation Avoidance Agreement the foremost consideration is whether the non-resident lessor has a permanent establishment (PE) in India as per article 5 of the relevant. According to him, mere leasing of an aircraft which is located in India ought not to result in an existence of permanent establishment and there is also no such allegation made by the lower authorities in the present case. It is his submission that the definition of royalty under the Income-tax Act and Tax Treaty includes a consideration for use and right to use any commercial, scientific a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f which the royalties or fees for technical services are paid is effectively connected with such permanent establishment, or fixed base. In such case the provisions of article 1 or article 14, as the case may be, shall apply. 5. Royalties or fees for technical services shall be deemed to arise in a contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a contracting State or not, has in a contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for technical services, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant is that article 12 of India-Ireland Double Taxation Avoidance Agreement excludes aircraft from the definition of 'royalty' and therefore the lease rentals cannot be taxed in India in the hands of the lessors as royalty. Firstly, the sample agreement with the lessors clearly demonstrates that the lessors only took the title of the aircraft and the actual delivery of the aircraft was taken by the appellant, purportedly as an agent of the assignees. The lease agreement clearly provides the formula for working out the amount of lease rent. This takes into account the pre vailing LIBOR rates. That goes suggest that these are financing arrangements. The credits have also been shown in the accounts as other income. The payment, by whatever name called of finance charges would fall within the definition of 'interest' and would be chargeable to tax in India under article 11 of Indo-Irish Double Taxation Avoidance Agreement. Hence, the tax was liable to be deducted under section 195. The failure to deduct tax has rightly invited the consequence under section 40(a)(i) as held by the Assessing Officer. The objection of the appellant during the course of hearing tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income from Government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures, but does not include any income which is treated as a dividend under article 10. Penalty charges for late payment shall not be regarded as interest for the purpose of this article. 43.1 We are not convinced by the submissions made by the learned special counsel for the Revenue. It is an undisputed fact that the basic lease rent of Rs. 673.42 crores paid under the lease agreement is an allowable expenditure and its nature is that of Rent . In our opinion, the nature of supplementary lease rent cannot be treated otherwise as both these expenses are payments made under the same agreement for use of aircraft. The learned special counsel for the Revenue has filed copies of three lease agreements before us in his paper book. However, from none of these agreements he has been able to demonstrate that the nature of lease is financial lease and not operating lease. We have already held above in the preceding paragraph t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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