LUFTHANSA GERMAN AIRLINES, NEW DELHI V. DCIT, INTERNATIONAL TAXATION, CIRCLE, New Delhi

ITA 6791/DEL/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 2599 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 21-09-2022
• Assessment Year: 2015-2016
• Appeal Filed On: 15-08-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: RAJIV PAL PURI
• Keywords: Double taxation relief
• Section: 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘D’ : NEW DELHI) SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER and SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.6791/Del./2019 (ASSESSMENT YEAR : 2015-16) Lufthansa German Airlines, vs. DCIT, International Taxation, 2 nd Floor, Asset Area No.2, Circle, New Delhi. Hospitality District, Hotel Pullman Novotel, Commercial Airport, IGI Airport, New Delhi – 110 037. (PAN : AAACL5792P) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Rajiv Pal Puri, CA REVENUE BY : Shri Sanjay Kumar, Senior DR Date of Hearing : 22.09.2022 Date of Order : 04.10.2022 ORDER PER SHAMIM YAHYA, ACCOUNTANT MEMBER : This appeal by the assessee is directed against the order of the ld. CIT (Appeals)-43, New Delhi dated 16.05.2019 for the Assessment Year 2015-16. 2. The grounds of appeal raised by the assessee read as under :- “1. That the Ld. AO/ Hon'ble CIT (A) erred in facts and in law in not accepting the contentions of the Appellant that collection charges allowed to the Appellant by Airport Authority of India (AAI) on payments made by them to AAI ITA No.6791/Del./2019 2 within a stipulated given period is a discount in nature and not in the nature of commission income taxable in the hands of the Appellant in India. 2. That the Ld. AO/ Hon'ble CIT (A) erred in facts and in law in rejecting the contentions of the Appellant that the so called collection charges on User Development Fee (UDF) on behalf of Airport Authority of India (AAI) is an activity incidental! ancillary to the 'operation of aircrafts' and therefore, amount allowed by Airport Authority of India (AAI) to the Appellant on account of making payments within a stipulated given period is exempt under Article 8 of the DTAA between India and Germany. 3. That the Ld. AO/ Hon'ble CIT (A) erred in facts and in law in not appreciating that most of the passengers are returning passengers from whom User Development Fee (UDF) has not been collected by the Indian branch office of the Appellant but is still payable by the Appellant. 4. That the Hon'ble CIT (A) has erred in confirming the addition of Rs.1604623/- on account of income from collection charges as the taxable income. 5. That, on facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 271(1)(c) of the Act against the appellant as appellant has acted bonafide. 6. That the order of Ld. AO/ Hon'ble CIT (A) is contrary to the facts, law and the principles of natural justice and is, therefore, void and vitiated.” 3. Brief facts of the case are that the assessee is an International Air Transport Operator having its Head Office/Controlling Office at Germany at Van Goblenz-STr-2-6, 50679 Cologne and for its India operations it has an office at Gurgaon. The assessee is primarily deriving its income from the operation of aircrafts for the international traffic i.e. ITA No.6791/Del./2019 3 transportation of passengers and cargo. The assessee has claimed its entire income exempt from taxation in India under Article 8 of the Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with Germany read with section 90 of the Income Tax Act, 1961. As per the claim by the assessee the gross revenue from business in India comprises of passenger Revenue and cargo revenue and income from this had been claimed as not taxable under the above discussed provision of the Treaty. The details of these revenues have been examined with reference to their taxability as per Article 8 of the Treaty and found to be covered under that article. No other income has been reported or offered to tax in India. During the course of assessment proceedings it has been found that the assessee had received an amount of Rs.16,04,623/- as Collection Charges on User Development Fee (UDF). The assessing officer examined and held that the aforesaid income is only a commission and collection charge and not the income from operation of aircraft. The assessing officer further concluded that the income also cannot be based under Section 44BBA since getting commission collection charges cannot be understood to be included in the term "operation of aircraft". That the opening sentence of the Article clearly states that profits from the operation of Ships and Aircrafts in International traffic fall under the aforesaid article. It was held by the assessing officer that the receipt is more in the nature of a commercial activity independent from the ITA No.6791/Del./2019 4 business of operation of aircrafts in India and in any case the same are not incidental to the operation of aircraft. Hence, the impugned addition was made. 4. Before the ld. CIT (A), the assessee has argued that the aforesaid receipt is only a collection charge which is received from the Airport Authorities, if the payment of UDF is made to them in the stipulated time. The User Development Fee is payable by all passengers and is authorised to be collected by the Ministry of Civil Aviation. 5. Ld. CIT (A) confirmed the AO’s order and held as under :- “It is seen that the same matter was also examined by the DRP for an earlier assessment year. The finding of the DRP is as under: “4.2.1 Ground E: the Assessing Officer is not justified in holding that the collection charges allowed by Airport Authorities on payment of User Development Fee (UDF) to the assessee in India is not from "operation of aircraft" as referred in section 44BBA of the Income Tax Act and Article 8 of the DTAA between India and Malaysia." 5.5 It is clear that the' aforesaid receipt is basically paid to the appellant as a collection charge and also on account of timely payment which is chargeable from all passengers and the said amount is passed on to the Airport Authority. This part of the operation by the appellant is solely collection and deposit of a specific charge. The Article 8 is restrictive in its operation and applies to profits from operation of aircraft. The said collection receipt of UDF can, in no terms, be considered for operation on aircrafts, simply due to the reason that it is collected as a part of the ticketing process. The other arguments raised by the appellant are not relevant to the case as they talk about income from pooling arrangements. The reliance of the appellant in its own case of Lufthansa German Airlines is also misplaced since the said case was for the purpose of inclusion of ground ITA No.6791/Del./2019 5 handling services and the charges collected therein as a part of pooling arrangement with IATA. The present receipt is, in no manner, similar to such receipt. The issue of pooling of resources and their eligibility under Article 8(3) was taken up by the Honorable High Court in that case and decided in the appellants favor. The present issue of taxability of collection charges was neither examined nor decided.” 7. Against this order, the assessee is in appeal before us. We have heard both the parties and perused the record. 8. Ld. DR for the Revenue submitted that the issue is squarely covered against the assessee by the order of this Tribunal in assessee’s own case in ITA No.6012/Del/2017 for AY 2014-15 vide order dated 24.03.2022. Per contra ld. Counsel for the assessee did not dispute the proposition. 9. Upon careful consideration, we note that the ITAT in assessee’s own case in AY 2014-15 (supra) has held as under :- “8. We have heard rival submissions, perused the order of the Ld. DRP and the Assessment order. It is not in dispute that the assessee’s income derived from operation of aircraft is not taxable under Article 8 of DTAA between India and Germany. However, the assessee received collection charges from AAI as the assessee collected UDF from the passengers and the same was passed on to AAI. A duty was cast on the assessee to collect UDF from the passengers and pass it on to the AAI. Assessee was paid collection charges wherever the UDF is remitted to AAI within the stipulated time. The taxability of income in the hands of the is governed by Article 8 of the treaty and it reads as under: “ARTICLE 8 SHIPPLING AND AIR TRANSPORT ITA No.6791/Del./2019 6 1. Profits from the operation of ships or aircraft in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated. 2. If the place of effective management of a shipping enterprise is aboard a ship, then it shall be deemed to be situated in the Contracting State in which the home harbour of the ship is situated, or, if there no such home harbour, in the contracting State of which the operator of the ship is a resident. 3. For the purpose 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 provisions of Article 11 shall not apply in relation so 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.” 9. The question is whether the collection charges paid by AAI to the assessee is income derived from operation of aircraft not liable to tax in India as per Article 8 of DTAA between India and Germany. As the effective management of the assessee company is situated in Germany the profits from operation of aircraft in international traffic is taxable only in Germany. The UDF is levied at the Indian airports as a measure to increase revenues of the airport operator. The UDF is levied to brdge any revenue shortfall so that the airport operator is able to get a fair rate of return on investment. The quantum of UDF varies from airport to airport and the rate of UDF at airports is determined by the Airports Economic Regulatory Authority of India (AERA) for major airports and ministry of civil aviation for not major airports. Presently UDF collection charge at a flat rate of Rs.5/- per passenger (all inclusive) is allowed to airlines subject to payment of UDF collection to AAI within 15 days of receipt of bill. Airlines will make full payment of UDF to AAI and raise a separate invoice for the collection charges on UDF to AAI. The collection charges paid by AAI to the assessee in whatever name called i.e., either discount or commission is ITA No.6791/Del./2019 7 nothing but service charges paid, for assessee collecting UDF and passing it on to AAI. The collection charges paid by AAI to assessee cannot be said to be the income derived from operation of aircraft. Further in assessee’s case on identical facts for the assessment year 2013-14 the Ld. DRP approved the order of the assessing officer in holding that the collection charges received by the assessee from AAI on remitting the UDF within the stipulated time as income from business taxable in India and such income is not derived from operation of aircraft falling under Article 8 of DTAA between India and Germany. 10. In these circumstances and for the above reasons, we hold that the collection charges received by the assessee from AAI are not income derived from operation of aircraft falling under Article 8 of DTAA between India and Germany. Thus ground Nos. 1 to 4 raised by the assessee are dismissed.” 10. Respectfully following the decision of the coordinate Bench of the Tribunal, we confirm the orders of the Revenue authorities and accordingly assessee’s appeal is dismissed. Order pronounced in the open court on this 4 th day of October, 2022. Sd/- sd/- (KUL BHARAT) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated the 4 th day of October, 2022 TS Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT (A)-43, New Delhi. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.