M/s. KLM Royal Dutch Airlines, New Delhi V. DCIT (International Taxation), New Delhi

ITA 644/DEL/2016

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 7784 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 08-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G K DHALL INT TAX
• Assessee Lawyers: MANSEE JAIN
• Keywords: Double taxation relief
• Section: 143(3); 142(1); 6

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E, NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE PRESIDENT AND SHRI K.N. CHARY, JUDICIAL MEMBER I.T.A. NO. 644/DEL/2016 A.Y. : 2012-13 M/S KLM ROYAL DUTCH AIRLINES LB-46, PRAKASH DEEP BUILDING, 7, TOLSTOY MARG, NEW DELHI 110 001 (PAN: AABCK3950H) VS. DCIT (INTERNATIONAL TAXATION), CIRCLE 2(1)(2), NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. SALIL AGGARWAL, ADV., SH. SANJEEV JAIN, FCA, SH. ANIL MAKHIJA, ADV, & MS. MANSEE JAIN, ADV. DEPARTMENT BY : SH. G.K. DHALL, CIT(DR) (INT. TAX.) DATE OF HEARING : 24.09.2018 DATE OF ORDER : 27-09-2018 ORDER PER K.N. CHARY, J.M. THIS IS AN APPEAL BY THE ASSESSEE CHALLENGING THE ORDER DATED 17.12.2015 PASSED BY THE LD. ASSESSING OFFICER U/S . 143(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) IN CONSONANCE WITH THE ORDERS PASSED BY THE LD. DRP/TP O QUA THE ASSESSMENT YEAR 2011-12 BY RAISING THE ISSUE THAT L D. DY. COMMISSIONER OF INCOME TAX/AO HAS FAILED TO APPRECIATE THAT THE INCOME EARNED FROM TECHNICAL HANDLING IS DULY COVERED BY ARTICLE 8 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND NETHERLAND AN D AS SUCH INCOME 2 ACCRUING TO ASSESSEE DURING THE YEAR UNDER CONSIDER ATION IS FULLY EXEMPT FROM TAXATION IN INDIA AND COULD NOT HAVE BEEN BROU GHT TO TAX IN INDIA. 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR AY 2012-13 ON 28.9.2012 CLAIMING A REFUND OF RS . 2,23,46,310/- DECLARING TOTAL INCOME OF RS. 540,69,70,840/- AND THEREAFTER CLAIMING TAX RELIEF ON THE ENTIRE AMOUNT, THEREBY REDUCING THE TOTAL INCOME TO NIL. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE U/S. 143(2) OF THE ACT WAS ISSUED TO THE ASSESSEE ON 13.8.2013 . UPON CHANGE OF JURISDICTION, AGAIN NOTICE U/S. 142(1) OF THE ACT D ATED 19.11.2014 WAS ISSUED TO THE ASSESSEE. IN RESPONSE TO THE NOTICES/ QUESTIONNAIRE, THE AR OF THE ASSESSEE ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FURNISHED THE DETAILS / SUBMISSION WHICH WERE EXAMINED BY THE AO. THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE LAWS OF NETHERL ANDS. THE ASSESSEE IS IN THE AIRLINES BUSINESS AND OPERATES IN ALL MAJOR COUNTRIES INCLUDING INDIA. IT IS ENGAGED IN THE BUSINESS OF OPERATIONS OF AIRC RAFT IN INTERNATIONAL TRAFFIC AND DERIVES INCOME FROM PROVIDING AIR SERV ICES FOR THE CARRIAGE OF PASSENGERS, FREIGHT AND MAIL IN INTERNATIONAL TRAFF IC. APART FROM ITS NORMAL BUSINESS OF AIR TRANSPORT OPERATION, THE ASSESSEE I S ALSO ENGAGED IN THE BUSINESS OF RENDERING TECHNICAL AND GROUND HANDLING SERVICES TO OTHER AIRLINES WITHIN INDIA. ACCORDINGLY, THE AO ASKED T HE ASSESSEE TO EXPLAIN THAT AS TO WHY THE TECHNICAL OR GROUND HANDLING CH ARGES SHOULD NOT BE TAXED AS PER PROVISIONS OF INCOME TAX ACT, 1961 NOT UNDER ARTICLE 8DTAA AS DONE IN ORDERS IN EARLIER YEARS. IN RESPONSE THE RETO, THE ASSESSEE HAS GIVEN ITS EXPLANATION VIDE SUBMISSION DATED 20.1.20 14 AND AFTER CONSIDERING THE SAME, THE AO OBSERVED THAT IATP IS A POOL, WHICH IS ENGAGED IN THE BUSINESS OF SUPPLYING SPARE PARTS A ND EQUIPMENT TO VARIOUS AIRLINES, WHICH ARE MEMBERS OF IATP. THE I ATP IS NOT INTO THE BUSINESS OF OPERATION OF AIRCRAFT ANYWHERE. THEREF ORE, THE PROFIT OF THE ASSESSEE FROM TECHNICAL HANDLING AND GROUND SERVICE S WOULD NOT QUALIFY TO BE EXEMPT FROM TAXATION IN INDIA OF ARTICLE 8 OF TH E DTAA BETWEEN INDIA AND NETHERLANDS AND ACCORDINGLY, HELD THAT THE AMOU NT RECEIVED BY THE 3 ASSESSEE ON ACCOUNT OF GROUND AND TECHNICAL HANDL ING SERVICES RENDERED TO IATP POOL AIRLINES IS TAXABLE IN INDIA AND ASSES SED THE INCOME AT RS. 28,78,35,647/- U/S. 144C(13) R.W.S. 143(3) OF THE A CT VIDE ORDER DATED 17.12.2015. AGGRIEVED WITH THE ASSESSMENT ORDER D ATED 17.12.2015, ASSESSEE PREFERRED AN APPEAL BEFORE US. 3. AT THE OUTSET, THE LD. A.R. FOR THE ASSESSEE SUB MITTED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY THE DECISION OF T HE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2004-05 & 2005-06, PASSED IN ITA NOS. 403-404/DEL/2010 DATED 19.11.2010 AND PLAC ED THE COPY OF THE AFORESAID DECISION OF THE TRIBUNAL. 4. ON THE OTHER HAND, THE LD. D.R., STRONGLY RELI ED UPON THE ORDER OF THE AO. FURTHER HE SUBMITTED THAT THE ASSESSEE DID NOT HAVE ANY ADDITIONAL MAN POWER TO HANDLE THE FACILITIES BUT T HE SAME WAS PROVIDED BY EXPLOITING THEIR IDLE MAN POWER. THEREFORE, THE ENTIRE RECEIPT OF THE ASSESSEE FROM PROVIDING THE SERVICES TO OTHER AIRL INES WAS RIGHTLY HELD TAXABLE IN INDIA AND THE CLAIM OF THE ASSESSEE FOR EXPENSES WAS NOT ENTERTAINED. LD. DR FURTHER SUBMITTED THAT IT IS VE RY IMPORTANT TO NOTE THAT THE ASSESSEE HAS FAILED TO FURNISH THE DOCUMEN TARY EVIDENCES SUPPORTING THE EXPENSES INCURRED IN INDIA IN EARNIN G THE TECHNICAL HANDLING CHARGES AND IN THE ABSENCE OF VITAL SUPPOR TING DOCUMENTS FOR ESTABLISHING THE GENUINENESS OF THE EXPENSES CLAIM ED BY THE ASSESSEE, SUCH EXPENSES, IN ANY CASE, WILL NOT BE ALLOWED. 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. THE SOLE ISSUE FOR OUR ADJUDICATI ON IS WHETHER THE INCOME EARNED FROM TECHNICAL HANDLING IS DULY COVERED BY A RTICLE 8 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND NETH ERLAND AND AS SUCH INCOME ACCRUING TO ASSESSEE DURING THE YEAR UNDER C ONSIDERATION IS FULLY EXEMPT FROM TAXATION IN INDIA AND COULD NOT HAVE BE EN BROUGHT TO TAX IN INDIA. AFTER HEARING BOTH THE SIDES WE FIND THAT TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2004-05 & 2005-06, PASSED IN ITA NOS. 403- 4 404/DEL/2010 DATED 19.11.2010 VIDE PARA NO. 9 TO 11 HAS DEALT AND DECIDED THE IDENTICAL ISSUE RELATING HANDLING SERVI CES AND TECHNICAL HANDLING SERVICES RENDERED BY THE ASSESSEE TO OTHER AIRLINES IN INDIA IN ASSESSEES OWN CASE IN THE FOLLOWING MANNER:- 9. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. THE SOLE ISSUE FOR OU R ADJUDICATION IS WHETHER GROUND HANDLING SERVICES AN D TECHNICAL HANDLING SERVICES RENDERED BY THE ASSESSE E TO OTHER AIRLINES IN INDIA ARE TO BE CONSIDERED PART OF BUSI NESS OF ASSESSEE FROM OPERATION OF AIRCRAFT IN INTERNATIONA L TRAFFIC OR THEY ARE SEPARATE DISTINCT ACTIVITIES. IN ORDER TO APPRECIATE THIS ISSUE, THE ARTICLE 8 AVAILABLE IN THE THREE T REATIES REFERRED ABOVE HAS A DIRECT BEARING, THEREFORE, IT IS SALUTA RY UPON US TO TAKE NOTE OF THIS ARTICLE IN ALL THE THREE TREATIE S IN A TABULAR FORM FOR COMPARATIVE STUDY WHICH READS AS UNDER:- INDO GERMANY DTAA INDO-NETHERLAND DTAA INDO UK DTAA ARTICLE-B SHIPPING AND AIR TRANSPORT ARTICLE 8 AIR TRANSPORT ARTICLE 8 AIR TRANSPORT 1. PROFIT FROM THE OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC SHALL BE TAXABLE ONLY IN THE CONTRACTING STATE IN WHICH THE PLACE OF EFFECTIVE MANAGEMEN T OF THE ENTERPRISE IS SITUATED. 1. PROFITS FROM THE OPERATION OF AIRCRAFT IN INTERNATIONAL TRAFFIC SHALL BE TAXABLE ONLY IN THE STATE IN WHICH THE PLACE OF EFFECTIVE MANAGEMENT OF THE ENTERPRISE IS SITUATED. 1. PROFITS DERIVED FROM THE OPERATION OF AIRCRAFT IN INTERNATIONAL TRAFFIC BY AN ENTERPRISE OF ONE OF THE CONTRACTING STATES SHALL NOT BE TAXED IN THE OTHER CONTRACTING STATE. 5 2. IF THE PLACE OF EFFECTIVE MANAGEMEN T OF A SHIPPING ENTERPRISE IS ABROAD A SHIP, THEN IT SHALL BE SITUATED IN THE CONTRACTING STATE IN WHICH THE HOME HARBOR OF THE SHIP IS SITUATED, OR, IF THERE IS NO SUCH HOME HARBOR, IN THE CONTRACTING STATE OF WHICH THE OPERATOR OF THE SHIP IS A RESIDENT. 3. FOR THE PURPOSES OF THIS ARTICLE, INTEREST ON FUNDS CONNECTED WITH THE OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC SHALL BE REGARDED AS PROFITS DERIVED FROM THE OPERATION OF SUCH SHIPS OR AIRCRAFT AND THE 2. FOR THE PURPOSE OF THIS ARTICLE : (A) PROFITS FROM THE OPERATION IN INTERNATIONAL TRAFFIC OF AIRCRAFT INCLUDE PROFITS DERIVED FROM THE RENTAL ON A BAREBOAT BASIS OF AIRCRAFT IF OPERATED IN INTERNATIONAL TRAFFIC IF SUCH RENTAL PROFITS ARE INCIDENTAL TO THE PROFITS DESCRIBED IN PARAGRAPH 1; (B) 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 11 SHALL NOT APPLY IN RELATION TO SUCH INTEREST. 3.THE PROVISIONS OF PARAGRAPH 1 SHALL ALSO 2. THE PROVISION OF PARAGRAPH 1 OF THIS ARTICLE SHALL LIKEWISE APPLY IN RESPECT OF PARTICIPATION IN POOLS OF ANY KIND BY ENTERPRISES ENGAGED IN AIR TRANSPORT. 3. FOR THE PURPOSE OF THIS ARTICLE THE TERM OPERATION OF AIRCRAFT SHALL INCLUDE TRANSPORTATIO N BY AIR OF PERSONS LIVESTOCK, GOODS OR MAIL, CARRIED ON BY THE OWNERS OR LESSEES OR CHARACTERS OF AIRCRAFT, INCLUDING THE SALE OF TICKETS FOR SUCH TRANSPORTATIO N ON BEHALF OF OTHER ENTERPRISE, THE INCIDENTAL LEASE OF AIRCRAFT ON A CHARACTER BASIS AND ANY OTHER ACTIVITY DIRECTLY CONNECTED WITH SUCH TRANSPORTATIO 6 PROVISIONS OF ARTICLE INCOME TAX OFFICER, SHALL NOT APPLY IN RELATION TO SUCH INTEREST. 4. THE PROVISIONS OF PARAGRAPH 1 SHALL ALSO APPLY TO PROFITS FROM THE PARTICIPATION IN A POOL, A JOINT BUSINESS OR AN INTERNATIONAL OPERATING AGENCY. APPLY TO PROFITS FROM THE PARTICIPATION IN A POOL, A JOINT BUSINESS OR AN INTERNATIONAL OPERATING AGENCY. N. 4. GAINS DERIVED BY AN ENTERPRISE OF A CONTRACTING STATE FROM THE ALIENATION OF AIR CRAFT OWNED AND OPERATED BY THE ENTERPRISE, THE INCOME FROM WHICH IS TAXABLE ONLY IN THAT STATE, SHALL BE TAXED ONLY IN THAT STATE. 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 DEFIN ED 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 I N THE INDO- UK DTAA, IT IS SLIGHTLY DIFFERENT. THIS QUESTION A ROSE BEFORE THE ITAT IN THE CASE OF LUFTHANSA GERMAN AIRLINES A LSO. THE ITAT WHILE EXPLAINING THE MEANING OF PROFIT FROM TH E OPERATION OF SHIPS AND AIRCRAFTS IN INTERNATIONAL TRAFFIC HAS TOOK INTO CONSIDERATION, THE BYE LAWS OF INTERNATIONAL AIRLI NES TECHNICAL POOL (IATP) BECAUSE THIS ORGANIZATION AUTHORIZED IT S MEMBERS TO SHARE AIR-CRAFTS POOLING, GROUND HANDLING EQUIP MENT AND 7 MANPOWER ALL OVER THE WORLD. THE ITAT HAS CONSIDERE D THE RELEVANT CLAUSES OF IATP MANUAL AND THEREAFTER CONC LUDED THAT ANY RECEIPT RECEIVED BY THE ASSESSEE DUE TO PARTICI PATION IN THE POOL AS PROVIDED IN IATP MANUAL AND ALSO EXPLA INED IN SUB ARTICLE 4 OF INDO GERMAN DTAA WILL NOT BE TAXAB LE IN INDIA UNDER SUB-ARTICLE 1 OF ARTICLE 8. IN THE PRESENT AP PEALS, THERE IS NO DISPARITY ON FACTS. LD. DR EXCEPT RAISING AN ARGUMENT THAT GROUND HANDLING AND TECHNICAL HANDLING SERVICE S ARE DIFFERENT ACTIVITIES THEN OPERATION OF ANY AIR-CRAF T IN INTERNATIONAL TRAFFIC FAILED TO BRING ANY RULES, RE GULATIONS, BYE- LAWS FOR SUBSTANTIATING HIS CONTENTIONS. THE CO-ORD INATE BENCH OF THE ITAT HAS EXAMINED THIS ISSUE IN DETAIL AND CONSIDERED THESE ASPECTS. UNLESS SOME STRONG CIRCUMSTANCES WHI CH HAS NOT BEEN BROUGHT TO THE NOTICE OF THE EARLIER BENCH , ARE AVAILABLE, WE CANNOT TAKE A DIFFERENT STAND EVEN IF IT IS POSSIBLE TO TAKE THE OTHER VIEW. THE REVENUE IS UNA BLE TO BRING ANY MATERIAL ON RECORD WHICH CAN PURSUED US T O TAKE A DIFFERENT VIEW THEN THE ONE EARLIER TAKEN BY THE CA SE ITAT IN THE CASE OF LUFTHANSA AIRLINES REPORTED IN 90 ITD PAGE 310. THE ITAT HAS DISTINGUISHED THE FACTS IN THE CASE OF LUFTHANSA THEN BRITISH AIRWAYS. THE INDO-NETHERLANDS TREATY I S SIMILAR TO THAT OF INDO GERMAN AND NOT IN PARITY WITH INDO UK TREATY. IN VIEW OF ABOVE DISCUSSIONS, WE DO NOT FIND ANY ME RIT IN THESE APPEALS. THEY ARE DISMISSED. 11. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. 5.1 AFTER PERUSING THE AFORESAID FINDING OF THE TRI BUNAL, WE NOTE THAT THE TRIBUNAL HAS DISMISSED THE APPEALS OF THE REVENUE O N SIMILAR AND IDENTICAL ISSUE IN ASSESSESSEES OWN CASE IN AY 200 4-05 & 2005-06, WHICH FINDING IS APPLICABLE ON THE FACTS OF THE PRESENT C ASE ALSO, THEREFORE, 8 FOLLOWING THE JUDICIAL PRECEDENCE, WE ALLOW THE IS SUE IN DISPUTE RAISED BY THE ASSESSEE. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/09/2018. SD/- SD/- [G.D. AGRAWAL] [K.N. CHARY] PRESIDENT JUDICIAL MEMBER DATE 27/09/2018 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES 9