KLM Royal Dutch Airlines, New Delhi V. Director of Income Tax, New Delhi

ITA 4811/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0507 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 03-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHWANI MAHAJAN
• Keywords: Double taxation relief

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D DELHI BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL ITA NO. 4811(DEL)/2010 ASSESSMENT YEAR: 2007-08 KLM ROYAL DUTCH AIRLINES, DIR ECTOR OF INCOME-TAX, PRAKASH DEEP BUILDING, VS. I NTL. TAXATION, CIRCLE 3(1), 7, TOLSTOY MARG, NEW DELHI. N EW DELHI. PAN-AABCK3950H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SALIL AGGARWAL, ADVOCA TE RESPONDENT BY : S HRI ASHWANI MAHAJAN, CIT, DR ORDER PER K.G. BANSAL: AM THE FACTS OF THE CASE ARE THAT THE ASSESSEE F ILED ITS RETURN ON 13.11.2001 DECLARING NIL INCOME. THIS RETURN WAS PROCESSED U/S 143(1) ON 22.11.2008. SUBSEQUENTLY, THE CASE WAS SELECT ED FOR SCRUTINY AND NOTICE U/S 143(2) WAS ISSUED AND SERVED ON THE ASSESSEE. 1.1 THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE LAWS OF NETHERLANDS. IT IS CARRYING ON BUSINESS OF A N AIRLINE AND OPERATES IN ALL MAJOR COUNTRIES OF THE WORLD INCLUDING INDIA . THE ASSESSEE ALSO RENDERS TECHNICAL HANDLING SERVICES TO OTHER AIR LINES IN INDIA. THE PAYMENT FOR THESE SERVICES ARE SETTLED ABROAD TH ROUGH IATA CLEARANCE ITA NO. 4811(DEL)/2010 2 SYSTEM. THE AO CAME TO THE CONCLUSION THAT WHILE INCOME EARNED BY THE ASSESSEE FROM OPERATION OF AIRCRAFT IN THE IN TERNATIONAL TRAFFIC FOR CARRIAGE OF GOODS, PASSENGER OR MAIL IS NOT LIAB LE TO BE TAXED IN INDIA UNDER ARTICLE 8 OF THE DOUBLE TAX AVOIDANCE AGREE MENT BETWEEN NETHERLANDS AND INDIA, THE RECEIPTS FROM PROVI DING TECHNICAL SERVICES TO OTHER AIRLINES IN INDIA IS TAXABLE. SUCH RE CEIPTS WERE QUANTIFIED AT EURO 2369060. AFTER ALLOWING HEAD OFFICE EXPEN DITURE U/S 44C, THE TOTAL INCOME WAS COMPUTED AT EURO 2250607. THIS FORE IGN CURRENCY WAS CONVERTED IN TO INDIAN RS. 13,08,50,290/-. THU S, THE TOTAL INCOME WAS COMPUTED AT ABOVE STATED AMOUNT. THE DRAFT ORDER WAS PREPARED ACCORDINGLY, TO WHICH THE ASSESSEE FILED OBJECTION S AND THE MATTER WAS REFERRED TO THE DISPUTE RESOLUTION PANEL (THE DR P FOR SHORT). THE LD. DRP, AFTER CONSIDERING THE OBJECTIONS OF THE ASS ESSEE AND HEARING IT, REJECTED VARIOUS SUBMISSIONS IN REGARD TO THE COMPUTATION OF INCOME. THE AO WAS DIRECTED TO PASS THE FINAL ORDER AFTER ELABORATING CERTAIN POINTS, IN RESPECT OF WHICH DIRECTIONS WERE FURN ISHED. THUS, THE ASSESSEE WAS FINALLY ASSESSED AT THE TOTAL INCOME OF RS. 13,08,50,290/-. 2. AGGRIEVED BY THIS ORDER, THE ASSESSEE HAS FILED APPEAL BEFORE THE TRIBUNAL. 18 GROUNDS HAVE BEEN TAKEN IN THE APPE AL. HOWEVER, ONLY GROUND NO. 3 WAS PRESSED BEFORE US WHICH IS TO T HE EFFECT THAT THE AO ITA NO. 4811(DEL)/2010 3 FAILED TO APPRECIATE THE TRUE FACTS AND CIRCUMS TANCES OF THE CASE AND FRAMED AN ASSESSMENT BY MAKING ADDITION ON A POINT WHICH IS ALREADY COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDG MENT OF HONBLE TRIBUNAL IN THE CASE OF LUFTHANSA GERMAN AIRLINES AND I TS OWN CASE. 3. THE ONLY SUBMISSION OF THE LD. COUNSEL BEFORE US IS THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE BY THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEARS 2004-05 AND 2005-06 IN ITA NOS. 403 AND 404(DEL)/2010 DATED 19.11.2010, A COPY OF WH ICH HAS BEEN PLACED BEFORE US. 3.1 IN REPLY, THE LD. DR SUBMITTED THAT THE PO SITION IN THIS REGARD MENTIONED IN OECD COMMENTARY THAT SUCH RECEIP TS ARE NOT LIABLE TO BE TAXED IN THE OTHER CONTRACTING STATE IS NOT ACC EPTED BY INDIA. IN THE EARLIER ORDER OF THE TRIBUNAL THE POSITION OF I NDO-GERMAN, INDO- NETHERLANDS AND INDO-U.K. TREATIES WERE CONSIDER ED. THE PROVISIONS OF INDO-UK TREATY ARE WIDER IN NATURE FROM INDO-N ETHERLANDS TREATY. 3.2 IN THE REJOINDER, THE LD. COUNSEL POINTED OUT THAT THIS ISSUE HAS BEEN CONSIDERED ON PAGE NO.5 OF THE ORDER OF THE TRIBUNA L. ITA NO. 4811(DEL)/2010 4 4. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE ISSUE STANDS COVERED IN PARAGRA PH 10 OF THE AFORESAID ORDER OF THE TRIBUNAL, IN WHICH IT HAS BEEN HELD THAT SUCH RECEIPTS ARE NOT LIABLE TO BE TAXED IN INDIA. THE ORDER OF THE COO RDINATE BENCH IS IN THE NATURE OF A BINDING PRECEDENT. THEREFORE, FOL LOWING THIS ORDER, THE APPEAL OF THE ASSESEE REQUIRES TO BE ALLOWED. FOR THE SAKE OF CONVENIENCE, PARAGRAPH 10 OF THE ORDER IS REPRODUCED BELOW:- 10. THE EXPRESSION PROFIT FROM THE OPERATION OF S HIP OR AIR- CRAFT IN INTERNATIONAL TRAFFIC HAS NOT BEEN DEFINE D IN INDO- NETHERLANDS DTAA. SIMILARLY, IT HAS NOT BEEN DEFINE D IN THE INDO-GERMAN DTAA. HOWEVER, IN SUB-ARTICLE-3 OF ARTI CLE 8 IN THE TREATY BETWEEN INDO & UK, IT HAS BEEN EXPLAINED . THUS, THERE IS A DISTINCTION BETWEEN THESE THREE SETS OF DTAA. THE POSITION IN INDO-GERMAN DTAA AND INDO-NETHERLANDS D TAA ARE SIMILAR ON THE ONE HAND WHEREAS THE POSITION IN THE INDO-UK DTAA, IT IS SLIGHTLY DIFFERENT. THIS QUESTION AROSE BEFORE THE ITAT IN THE CASE OF LUFTHANSA GERMAN AIRLINES ALSO. THE ITAT WHILE EXPLAINING THE MEANING OF PROFIT FROM THE OPE RATION OF SHIPS OR AIR-CRAFT IN INTERNATIONAL TRAFFIC HAS TOO K INTO CONSIDERATION THE BYE-LAWS OF INTERNATIONAL AIRLINE S TECHNICAL POOL (IATP) BECAUSE THIS ORGANIZATION AUTHORIZED IT S MEMBERS TO SHARE AIR-CRAFTS, AIR-CRAFTS POOLING, GROUND HAN DLING EQUIPMENT AND MANPOWER ALL OVER THE WORLD. THE ITAT HAS CONSIDERED THE RELEVANT CLAUSES OF IATP MANUAL AND THEREAFTER CONCLUDED THAT ANY RECEIPT RECEIVED BY THE ASSESSEE DUE TO PARTICIPATION IN THE POOL AS PROVIDED IN IATP MANUA L AND ALSO EXPLAINED IN SUB-ARTICLE 4 OF INDO-GERMAN DTAA WILL NOT BE TAXABLE IN INDIA UNDER SUB ARTICLE 1 OF ARTICLE 8. IN THE PRESENT APPEALS, THERE IS NO DISPARITY ON FACTS. LEARNED DR EXCEPT ITA NO. 4811(DEL)/2010 5 RAISING AN ARGUMENT THAT GROUND HANDLING AND TECHNI CAL HANDLING SERVICES ARE DIFFERENT ACTIVITIES THEN OPE RATION OF ANY AIR-CRAFT IN INTERNATIONAL TRAFFIC FAILED TO BRING ANY RULES, REGULATIONS, BYE-LAWS FOR SUBSTANTIATING HIS CONTEN TIONS. THE CO- ORDINATE BENCH OF THE ITAT HAS EXAMINED THIS ISSUE IN DETAIL AND CONSIDERED THESE ASPECTS. UNLESS SOME STRONG CIRCUMSTANCES WHICH HAS NOT BEEN BROUGHT TO THE NOT ICE OF THE EARLIER BENCH, ARE AVAILABLE, WE CANNOT TAKE A DIFF ERENT STAND EVEN IF IT IS POSSIBLE TO TAKE THE OTHER VIEW. THE REVENUE IS UNABLE TO BRING ANY MATERIAL ON RECORD WHICH CAN PU RSUED US TO TAKE A DIFFERENT VIEW THEN THE ONE EARLIER TAKEN BY THE ITAT IN THE CASE OF LUFTHANSA AIRLINES REPORTED IN 90 ITD P AGE 310. THE ITAT HAS DISTINGUISHED THE FACTS IN THE CASE OF LUF THANSA THEN BRITISH AIRWAYS. THE INDO-NETHERLANDS TREATY IS SIM ILAR TO THAT OF INDO-GERMAN AND NOT IN PARITY WITH INDO UK TREAT Y. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT I N THESE APPEALS. THEY ARE DISMISSED. 5. IN THE RESULT, THE APPEAL IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 28 JANUARY, 2011. SD/- SD/- (C.L. SETHI) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 28 JANUARY, 2011. SP SATIA COPY OF THE ORDER FORWARDED TO: KLM ROYAL DUTCH AIRLINES, NEW DELHI. DIT, INTERNATIONAL TAXATION, CIR. 3(1), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.