TMI Blog2023 (7) TMI 1151X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri G.S. Pannu, Hon ble President And Ms. Astha Chandra, Judicial Member For the Assessee : Shri Salil Aggarwal, Advocate For the Department : Shri Sanjay Kumar, Sr. DR ORDER PER ASTHA CHANDRA, JM The appeal filed by the assessee is directed against the order dated 23.01.2020 of the Ld. Commissioner of Income Tax (Appeals) Delhi 42 ( CIT (A) ) pertaining to Assessment Year ( AY ) 2016-17. 2. The assessee has taken 20 grounds of appeal. Out of them ground No. 1 to 17 relate to taxability of income from technical handling services received from IATP members and ground No. 18 relates to interest income. Ground No. 19 is regarding initiation of penalty proceedings under section 271(1)(c)/271A 271B of the Income Tax Act, 1961 (the Act ) and ground No. 20 pertains to levy of interest under section 254 of the Act. 3. At the very outset, the Ld. AR submitted that it is a matter covered by the decision of the Tribunal in the assessee s own case for AY(s) 2007-08, 2008-09, 2009-10, 2011-12, 2012-13, 2013-14, 2014-15 and 2015-16. A copy of the Tribunal s decision rendered on 24.02.2023 was brought on record. The Ld. DR agreed. 4. We have perused the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e public at large and not from rendering of services to the head office as per the assessee. The Assessing Officer asked the assessee to submit sources of income including from ground handling, flight maintenance etc. and asked to explain the taxability of the same vis- -vis judgments of the authorities in the cases of British Airways and Luftansa Airlines of the Tribunal. The assessee submitted that during the year under consideration Air France has provided technical handling services to other IATP pool members aggregating to Rs. 1,81,79,476/-. The same is covered under Article 8 of the provisions of Double Taxation Avoidance Agreement between India and France (DTAA). The assessee further submitted that it is part and parcel of the Income covered under operation of aircraft of international traffic. The technical handling services are provided by Air France to only ITAP pool members. The Assessing Officer further asked the following queries: (i) The nature of technical handling services and the steps involved in the same? (ii) Basis of figure of Rs. 1,81,79,476/- (iii) Taxability of the same vis- -vis decisions of the ITAT in the case of British Airways and Lufthan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Is valid from: April 1* 2006 And replaces: Annex B11valid from April 01,2005 PREAMBLE: This Annex B is prepared in accordance with the simplified procedure whereby the Parties agree that the terms of the Main Agreement and Annex A of the SGHA of April 1998 as published by the International Air Transport Association shall apply as if such terms were repeated here in full. By signing this Annex B, the parties confirm that they are familiar with the aforementioned Main Agreement, Annex A and International Airline Technical Pool Rules. PARAGRAPH 1 SERVICES CONTRACTED 1.1 For a single ground handling consisting of the arrival and the subsequent departure at agreed timings of the same aircraft, the Handling Company shall provide the following services of Annex A at the following rates. 1.1.1 Section 2 2.2.1, 2.2.2. Section 6 6.3.1, 6.3.2.(a), (b), 6.6.1(c) Section 7 7.1.3 Section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e safely concluded that it is an independent commercial and business activity which is in no way ancillary or connected to the business in the operation of aircraft as defined by Article 8(4) of the DTAA between India France. Therefore, the Ld. DR submitted that the Assessing Officer was right in rejecting the claim of the Assessee under Article 8 of the DTAA between India and France. While going through the submissions of both the parties, it is pertinent to note the relevant points of the decision in case of the Hon ble High Court in case of DIT vs. KLM Royal Dutch Airlines Lufthansa German Airlines (2017) 392 ITR 218 (Del.) wherein while dismissing the appeals, the Hon ble High Court held that the assessee participated in the international Airlines Technical Pool and earned certain revenues from such activities and also incurred expenditure. There was clear reciprocity as to the extension of services; membership was premised upon each participating member being able to provide facilities for which it was formed. As there was reciprocity in the rendering and availing of services, there was clearly participation in the Pool; in terms of two Double Taxation Avoidance Agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il, carried on by the owners or lessees or charterers of aircraft, including the sale of tickets for such transportation on behalf of other activity directly connected with such transportation . These terms are not present in the two double taxation avoidance agreements in the present set of appeals. (vii) After meeting the requirement of its own flights, the services of employees were required for handling other airlines operation for generating income. Having regard to these facts, this court is of opinion that the amplification of the term operation of aircraft in article 8(1) through article 8(3), i.e., .. 3. For the purposes of this article the term operation of aircraft shall include transportation by air of persons, live-stock, goods or mail, carried on by the owners or lessees or charterers of aircraft, including the sale of tickets for such transportation on behalf of other enterprise, the incidental lease or aircraft on a charter basis and any other activity directly connected with such transportation had the effect of limiting the nature of activities that could be comprehended in the pool envisioned in article 8(2); in other words, the expanded meanin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mission of the Ld. DR is factually incorrect. Now coming to the DTAA between India and France, it can be seen that Article 8(2) specifically mentions that the DTAA will apply to the profits derived by an enterprise of a Contracting State from the operation of aircraft in international traffic from the participation in a pool, a joint business or an international operating agency and shall be taxable only in that Contracting States. In the present case, the contracting state is France and though under domestic law the assessee has to pay tax in India while deriving income from Indian territory, yet because of Article 8(2) of the DTAA agreement, Air France is exempted to pay any tax in India as its services/activities and profit thereof derives from pool participation. The Hon ble High Court in case of KLM Royal Dutch Airlines Lufthansa German Airlines (supra) clearly set out how the facts of the British Airways are distinguishable. In the present case, as well the ratio laid down in British Airways will not be applicable, as the assessee company is a member of IATP and the DTAA between India France clearly set out that those who are members of pool are exempt from tax in India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal are recorded in para 16 and 17 of its order which are reproduced below:- 16. We have considered rival submissions and perused the materials on record. It is evident, in course of proceedings before the departmental authorities, the assessee had emphasized that the interest income earned is on fixed deposits, either made out of surplus funds generated from its business of operating airlines in international traffic or from fixed deposits kept as security deposit with Airport Authority of India Ltd. The departmental authorities have not doubted or disputed this factual position. Assessee s claim has been rejected only on the ground that the interest income is not connected with the operation of aircraft in international traffic. Article 8(3) of Indian France DTAA reads as under For the purpose of this Article, interest on funds connected with the operation of aircraft in international traffic shall be regarded as profits derived from the operation of such aircraft, and the provisions of Article 12 shall not apply in relation to such interest. 17. Undisputedly, it is a fact on record that the fixed deposits made by the assessee are out of funds connected w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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