SKY HIGH LXXX LEASING COMPANY LIMITED ,MUMBAI V. THE ASSISTANT COMMISSIONER OF INCOME TAX (INTERNATIONAL TAX) CIRCLE 4(2)(1), MUMBAI

ITA 1549/MUM/2025

AI Insights

The case involves multiple appeals by different subsidiaries of the ICBC Leasing group against the final order of assessment passed by the Assistant Commissioner of Income Tax, which treated the income from aircraft leasing to Indian airlines as taxable in India. The main legal contention was whether the lease rentals and associated income were taxable under Indian law despite the provisions of the India-Ireland Double Taxation Avoidance Agreement (DTAA). The Assessing Officer had rejected the assessee's claim of non-taxability based on the Principal Purpose Test (PPT) under the Multilateral Convention (MLI) and classified the income as royalty under section 9(1)(vi) of the Income Tax Act, 1961. The Dispute Resolution Panel upheld this decision. However, the Tribunal, referencing a similar case, ruled in favor of the assessee, stating that the income was not taxable in India as per the DTAA.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 780346 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-10-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2022-2023
• Appeal Filed On: 04-03-2025
• Other Referred Cases: Tiger Global International III Holdings v. AAR [2024] 468 ITR 405 (Delhi), UOI v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC), Vodafone International Holdings BV v. UOI [2012] 341 ITR 1 (SC), NestlA SA vs AO (IT) [2024] 165 taxmann.com 334 (SC), Sunflower Aircraft Leasing Ltd. vs. ACIT in ITA No. No.1107/Mum/2025, Hyatt International Southwest Asia Ltd. v. Addl. Director of Income Tax in Civil Appeal No. 9766 of 2015 (SC), Poompuhar Shipping Corporation Ltd, Van Oord ACZ by Hon'ble Madras High Court, CIT v. Shri Rajasthan Syntex Ltd. (2009) 313 ITR 231 (Raj.)
• Laws Referred To: Income Tax Act, 1961, DTAA between India and Ireland, Multilateral Convention to implement tax treaty related measures to prevent base erosion and profit shifting
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANNAVARAM K.
• Assessee Lawyers: P.J. PARDIWALA
• Keywords: Business income; Depreciation; Double taxation relief; Permanent establishment
• Section: 143(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JM & MS PADMAVATHY S, AM I.T.A. No. 1546/Mum/2025 (Assessment Year: 2022-23) Sky High Lxxix Leasing Co. Ltd., 2, Grand Canal Square, Grand Canal Harbour, Dublin D02 A342, Ireland, State outside India-D02 A342. PAN: ABFCS0570G Vs. The ACIT (IT), Circle-4(2)(1), Room No. 627, 6th Floor, Kautalya Bhavan, G. Block, Bandra Kurla Complex, Bandra (East), Mumbai-400051. Appellant) : Respondent) I.T.A. No. 1547/Mum/2025 (Assessment Year: 2022-23) Sky High XC Leasing Co. Ltd., 2, Grand Canal Square, Grand Canal Harbour, Dublin D02 A342, Ireland, State outside India-D02 A342. PAN: ABFCS0570G Vs. The ACIT (IT), Circle-4(2)(1), Room No. 627, 6th Floor, Kautalya Bhavan, G. Block, Bandra Kurla Complex, Bandra (East), Mumbai-400051. Appellant) : Respondent) I.T.A. No. 1548/Mum/2025 (Assessment Year: 2022-23) Sky High LXXVIII Leasing Co. Ltd., 2, Grand Canal Square, Grand Canal Harbour, Dublin D02 A342, Ireland, State outside India-D02 A342. PAN: ABFCS0570G Vs. The ACIT (IT), Circle-4(2)(1), Room No. 627, 6th Floor, Kautalya Bhavan, G. Block, Bandra Kurla Complex, Bandra (East), Mumbai-400051. Appellant) : Respondent) Printed from counselvise.com 2 ITA Nos. 1546 to 1550/Mum/2025 Sky High Lxxix Leasing Co. Ltd. & Ors. I.T.A. No. 1549/Mum/2025 (Assessment Year: 2022-23) Sky High LXXX Leasing Co. Ltd., 2, Grand Canal Square, Grand Canal Harbour, Dublin D02 A342, Ireland, State outside India-D02 A342. PAN: ABFCS0570G Vs. The ACIT (IT), Circle-4(2)(1), Room No. 627, 6th Floor, Kautalya Bhavan, G. Block, Bandra Kurla Complex, Bandra (East), Mumbai-400051. Appellant) : Respondent) I.T.A. No. 1550/Mum/2025 (Assessment Year: 2022-23) Sky High II Leasing Co. Ltd., 2, Grand Canal Square, Grand Canal Harbour, Dublin D02 A342, Ireland, State outside India-D02 A342. PAN: ABFCS0570G Vs. The ACIT (IT), Circle-4(2)(1), Room No. 627, 6th Floor, Kautalya Bhavan, G. Block, Bandra Kurla Complex, Bandra (East), Mumbai-400051. Appellant) : Respondent) Appellant /Assessee by : Shri P.J. Pardiwala – Sr. Adv. Madhur Agarwal/Harsh Shah/Shreyas Sardesai/Pratik Poddar, AR Revenue / Respondent by : Shri Annavaram K. Sr. DR Date of Hearing : 29.08.2025 Date of Pronouncement : 06.10.2025 O R D E R Per Padmavathy S., AM These appeals by different assessees are against the final order of assessment passed by the Assistant Commissioner of Income Tax, International Circle-4(2)(1), Mumbai passed under section 143(3) r.w.s. 144C(13) of the Income Printed from counselvise.com 3 ITA Nos. 1546 to 1550/Mum/2025 Sky High Lxxix Leasing Co. Ltd. & Ors. Tax Act, 1961 (the Act) for Assessment Year (AY) 2022-23. The common issue contended by all these assessees are addition made towards income derived from Aircraft leasing as taxable in India. Since the issues contended are common these appeals are heard together with the consensus of both the parties and are disposed of with this common order. The issues contended through various grounds by all the assessee's are tabulated below – 2. For the purpose of adjudication we will consider ITA No. 1546/Mum/2025 as a lead case. The assessee is a company is part of the ICBC Leasing group and is the Special Purpose Vehicle (SPV) / Subsidiary of ICBCIL Aviation Company Limited. The assessee is engaged in Aircraft leasing activity based out of Ireland and is a tax resident of Ireland. During the year under consideration, the assessee has leased Aircraft to Indian Airlines on dry-lease basis and has earned rental Printed from counselvise.com 4 ITA Nos. 1546 to 1550/Mum/2025 Sky High Lxxix Leasing Co. Ltd. & Ors. income from the same. The assessee filed the return of income for AY 2022-23 on 07.11.2022 declaring Nil income on the ground that as per Article-8 of DTAA between India and Ireland, the lease rental received by the assessee are not taxable in India. The Assessing Officer (AO) however did not accept the submissions of the assessee and held that the lease rentals are taxable in India for the reason that the assessee failed to prove the Principal Purpose Test (PPT) as per Article-6 & 7 of Multilateral Convention to implement tax treaty related measures to prevent base erosion and profit shifting (MLI). Accordingly the AO treated the impugned income as Royalty to be taxable under section 9(1)(vi) of the Act and made addition accordingly. Aggrieved the assessee raised objections before the Dispute Resolution Panel (DRP). The DRP upheld the finding of the AO with regard to the PPT on the ground that (i) The onus on revenue to show that PPT is not satisfied is based only on reasonableness and not strictly evidence based. (ii) India-Ireland DTAA does not give a LOB (Limitation of Benefits clause), hence the precedents like Tiger Global International III Holdings v. AAR [2024] 468 ITR 405 (Delhi) that have examined treaty eligibility for SPV based structures are not applicable to the present case. (iii) Ratios of precedents like UOI v. Azadi Bachao Andolan [2003] 263 ITR 706 (SC), Tiger Global International III Holdings v. AAR [2024] 468 ITR 405 (Delhi) and Vodafone International Holdings BV v. UOI [2012] 341 ITR 1 (SC) were no longer applicable on account of inclusion of PPT in various tax treaties. (iv) Benefit of Articles 8, 12 and 7 of India-Ireland DTAA can be allowed only after PPT is satisfied. 3. The DRP further held that the nature of the leasing of Aircraft is finance lease and not operating lease as claimed by the assessee and therefore classified the entire lease payment as interest. The summary of findings by the DRP in this regard as under: Printed from counselvise.com 5 ITA Nos. 1546 to 1550/Mum/2025 Sky High Lxxix Leasing Co. Ltd. & Ors.  Lessee have a dominant role in the transaction since (i) Lessee-airlines take delivery of aircrafts and carry out inspection at the time of purchase, (ii) lease is not cancellable by either parties during the term, (ii) obligation to pay lease rental continues every month, (iv) Lessors assign the manufacturer warranty/guarantee to the lessees, (v) Lessors seek waiver of implied warrantees from the lessees, (vi) Lessees indemnify the lessors against all claims including total loss of aircraft.  Lessors rights concerning termination, repossession, maintenance and inspection are standard safeguards and terms, which cannot help the lessors to establish that the lease if finance lease.  Effective life of an aircraft is 60,000 flying hours and in a period of 6 to 10 years, an aircraft generally files for 50,000 hours. Hence, effectively the lease term is for the period of economic life of the aircraft.  Treatment of the lease in the lessors books of account as operating lease is not conclusive for examining the nature for tax purposes.  Absence of residual risk is indicator of a finance lease 4. The DRP also held the lease payment to be taxable in India for the reason that the Aircraft leased by the assessee that is operated in India is a Permanent Establishment (PE) of the assessee. The DRP in this regard held that the lessors i.e. the assessee satisfied all the relevant tests such as ownership test, location test, permanence test, situs test, disposal test, control test and test of quite enjoyment which indicate presence of PE in India. In summary the DRP rejected the objections raised by the assessee for the reason that (i) the assessee has failed the PPT test (ii) the leasing of aircraft is a finance lease and (iii) the aircraft that is leased is the PE of the assessee in India. The assessee is in appeal before the Tribunal against the final order of assessment passed by the AO pursuant to the directions of the DRP. 5. At the outset the ld. AR submitted that the identical issue has been considered by the Co-ordinate Bench in the case of Sky High Appeal XLIII Printed from counselvise.com 6 ITA Nos. 1546 to 1550/Mum/2025 Sky High Lxxix Leasing Co. Ltd. & Ors. Leasing Company Limited & ors vs ACIT, (ITA No. 1122/Mum/2025 dated 13.08.2025) where the Co-ordinate Bench has considered all the above reasoning for holding the impugned income taxable in India and has held that the assessee is entitled for the benefit of Article-8 of DTAA between India and Ireland. The ld AR also made a detailed written submission containing various arguments which has been taken on record. 6. The ld. DR on the other hand relied on the orders of the lower authorities. 7. We heard the parties and perused the material on regard. From the perusal of the order of the Co-ordinate Bench in the case of Sky High Appeal XLIII Leasing Company Limited (supra) we notice that the each of the contentions of the revenue have been elaborately discussed by the Tribunal to come to the conclusion that the income of the assessee earned from leasing of air crafts is not taxable in India. We have summarised the findings of the coordinate bench herein below for the sake of brevity - On the applicability of Articles 6 and 7 of the MLI with regard to PPT disentitling the assessee the benefits of the India–Ireland DTAA The Tribunal considered the above contentions based on two key aspects -  Whether the Multilateral Instrument (MLI) could be read into the India–Ireland DTAA without a separate notification.  If yes, whether the Principal Purpose Test (PPT) under Articles 6 and 7 of the MLI was satisfied on the facts. With respect to the first question above, the Tribunal held that  The India–Ireland DTAA had been duly notified in 2002, while the MLI was notified in 2019. Although the DTAA was designated as a “Covered Tax Agreement” under the MLI, no separate notification had been issued incorporating the MLI provisions into the DTAA. Printed from counselvise.com 7 ITA Nos. 1546 to 1550/Mum/2025 Sky High Lxxix Leasing Co. Ltd. & Ors.  The Hon'ble Supreme Court in Nestlé SA vs AO (IT) ([2024] 165 taxmann.com 334 (SC)) had categorically held that treaty provisions, or any protocol altering them, become enforceable in India only when specifically notified under Section 90(1) of the Act.  The MLI, though designed to efficiently modify several bilateral treaties at once, could not bypass the constitutional requirement of express domestic incorporation.  The “synthesised text” circulated by India and Ireland was merely explanatory in nature, intended to aid understanding, and did not constitute a legal instrument with binding force.  When the ratio laid down by Hon'ble Supreme Court is applied to the present issue then Articles 6 and 7 of the MLI could not be enforced against the assessee in absence of a separate Section 90(1) notification.  The approach of the AO and DRP in treating the PPT as self-executing was unsustainable, since the law required conscious adoption through notification.  The process of notification is not a mere procedural formality but a substantive safeguard to ensure that taxpayers were not subjected to unincorporated treaty obligations, especially where different countries had taken varying positions and reservations under the MLI.  The efficiency at the international level could not override the domestic legal requirement of notification and therefore the revenue’s reliance on the MLI to deny treaty benefits is not sustainable. With respect to applicability of PPT on merits of the case the Tribunal held that –  The assessee had a valid Tax Residency Certificate (TRC) issued by Irish authorities. The Hon'ble Supreme Court rulings in Union of India v. Azadi Bachao Andolan&Anr. (2004) 10 SCC 1 and Vodafone International Holdings BV v. Union of India (2012) 6 SCC 613 has held that such certificates were conclusive of residency unless fraud or treaty shopping was proved.  It could not be presumed that Irish authorities issued TRCs without proper application of mind, particularly when the PPT was a globally recognized standard.  The assessee operated through a legitimate corporate structure in Ireland and its directors, bankers, company secretary, and management services were all based in Ireland, showing real operational presence.  As held in Vodafone International Holdings BV (supra) the holding structures and special purpose vehicles (SPVs) were recognized in law, and Revenue bore the burden of proving that a structure was a sham or purely tax-motivated. Printed from counselvise.com 8 ITA Nos. 1546 to 1550/Mum/2025 Sky High Lxxix Leasing Co. Ltd. & Ors.  The genuine business reasons, such as Ireland’s established leasing hub, aviation expertise, and infrastructure, explained why the assessee was incorporated there.  The Revenue had not established any sham, round-tripping, or fraudulent purpose and without such proof, invoking PPT was unjustified.  The India–Ireland DTAA itself reflected a conscious policy choice i.e. Articles 8 and 12 expressly removed aircraft-leasing income from source-based taxation. Relief from source taxation of aircraft-leasing income was a substantive object of the treaty.  The treaty benefits claimed by the assessee aligned perfectly with the object and purpose of the DTAA, which was to promote investment and ease of business in aircraft leasing.  The states are entitled to restrict their taxing rights for economic reasons, and taxpayers could not be penalised for availing such intended treaty benefits.  The PPT is a general anti-abuse rule to be invoked only as a last resort and only when the dominant purpose of the arrangement was tax avoidance.  The PPT required a holistic analysis of the structure, not a piecemeal approach and simply because a transaction was tax-efficient did not mean it was abusive.  Accordingly even if PPT are assumed applicable, the assessee’s structure and claims are consistent with the DTAA’s purpose and therefore the Revenue’s case for denial of benefits under the PPT failed both on legal and factual grounds. On treatment of the assessee's lease transaction as a Finance Lease  The various clauses in the agreement between the assessee and IndiGo clearly state IndiGo is not the owner and that the arrangement is a dry operating lease.  The lessor retains ownership, has repossession rights, and the lessee must return the aircraft at lease end.  IndiGo and the assessee deal at arm’s length, and in absence of proof of a sham, the contractual terms cannot be held as non-genuine.  The leases meet all features of operating leases under statutory definitions, judicial precedents, and regulatory framework .  The coordinate bench of Delhi Tribunal (ITA Nos.749 & 750/Del/2016 dated 18.11.2016) and the Hon'ble Delhi High Court (ITA Nos. 914 and 916 of 2017 dated 31.10.2017) in the case of IndiGo i.e. Lessee has held such aircraft arrangements as operating leases and the judicial discipline warrants the applicability of the said ratio to assessee's case who is the other party in the Printed from counselvise.com 9 ITA Nos. 1546 to 1550/Mum/2025 Sky High Lxxix Leasing Co. Ltd. & Ors. identical transaction more so when the SLP against the order of Hon'ble High Court is rejected by the Hon'ble Supreme Court vide order dated 10.09.2018.  In the case of Celestial Aviation Trading 15 Ltd. vs ACIT(IT) [ITA No. 1478/DEL/2025] after a detailed examination of the lease agreements between the lessor entities and Indigo, the coordinate bench of the Delhi Tribunal concluded that the leases were in the nature of operating lease and not finance lease. Accordingly, could not be characterised as “interest” within the meaning of Article 11 of the India-Ireland DTAA but constitute business income from operating leases.  The findings of the DRP are not factually correct since in finance lease the lessee has the option to purchase the leased asset for a token consideration whereas in operating lease the asset is returned to the lessor at the end of the lease period and that as per RBI regulations purchase of aircraft requires specific approval. The ratio laid down by Hon'ble Rajasthan High Court in the case of CIT v. Shri Rajasthan Syntex Ltd. (2009) 313 ITR 231 (Raj.), are relevant in this regard.  In operating leases, ownership remains with the lessor, depreciation belongs to the lessor, and lease charges are deductible revenue expenses for the lessee which in the present case is factually established.  Accordingly, the DRP erred in classifying the leases as finance leases and hence the lease income cannot be treated as interest income. On treating the Aircraft as the Permanent Establishment of the Assessee in India  The reliance is placed on the decision of the coordinate bench in the case of Sunflower Aircraft Leasing Ltd. vs. ACIT in ITA No. No.1107/Mum/2025  Fixed place PE under Article 5(1) requires three cumulative elements: (i) the existence of a “place of business”, (ii) that such place must be “fixed”, and (iii) that the enterprise must carry on its business wholly or partly through that place.  A PE requires both a fixed place of business and that such place must be at the disposal of the enterprise i.e. Disposal Test is pivotal as has been laid down by the Hon'ble Supreme Court’s in the case of Formula One World Championship Ltd. v/s CIT [(2017) 394 ITR 80 (SC)].  The basis for DRP to hold that the aircraft leased to IndiGo constitute a fixed place PE, is by relying on ownership, location, permanence, and Printed from counselvise.com 10 ITA Nos. 1546 to 1550/Mum/2025 Sky High Lxxix Leasing Co. Ltd. & Ors. disposal tests which is factually not correct since the Aircraft Lease Agreement (ALA), gives IndiGo quiet possession, maintenance obligations, licensing responsibilities, and exclusive operational control.  The assessee retains only limited inspection and repossession rights, which do not amount to operational control.  As per the DGCA Rules and Manuals, a dry lease vests operational control in the lessee, not the lessor.  Though the DRP accepts IndiGo has operational control, the inferance that the aircraft are still under the assessee’s control is not correct.  The aircrafts are already under IndiGo’s disposal when they enter India, since delivery occur outside India.  In the recent decision of the Hon'ble Supreme Court in the case of Hyatt International Southwest Asia Ltd. v. Addl. Director of Income Tax in Civil Appeal No. 9766 of 2015 (SC) laid down the principles that  Disposal Test for PE - a fixed place of business in India that is at its disposal, and through which its business is wholly or partly carried on  Tripartite Attributes of a PE – Stability, Productivity, and Dependence  Economic Substance Prevails Over Legal Form - it is the economic reality and not merely the corporate form that governs PE determination  Remuneration Structure as Evidence of Commercial Nexus - performance-based remuneration goes well beyond passive consultancy or auxiliary functions  Intermittent Presence of Employees is Sufficient to Establish Continuity - The absence of a single individual exceeding the nine- month threshold under Article 5(2)(i) is not determinative, so long as business presence is substantively maintained.  Exclusion for Auxiliary Activities Inapplicable - strategic oversight, managerial control, and supervisory authority exercised which are central to the core operations could not be characterized as mere preparatory or auxiliary activities Printed from counselvise.com 11 ITA Nos. 1546 to 1550/Mum/2025 Sky High Lxxix Leasing Co. Ltd. & Ors.  Profit Attribution Unaffected by Global Losses - taxability of profits attributable to a PE in India stands independent of the foreign enterprise's global profit or loss.  The assessee’s leasing business is carried out entirely from Ireland, not through the aircraft in India and mere ownership rights and protective covenants cannot be equated with conducting business through the aircraft.  The decision of Hon'ble Madras High Court in the case of Poompuhar Shipping Corporation Ltd is distinguishable since it is a wet lease with crew since in the present case the assessee has given dry leases which do not create a PE as has been held in the case of Van Oord ACZ by Hon'ble Madras High Court.  Accordingly no PE exists for the assessee in India under Article 5 of the India–Ireland DTAA. 8. Keeping the above findings in mind, we will now look at the facts in assessee's case for the purpose of examining the contention that the present case is covered by the above decision of the coordinate bench. (i) The assessee is one of the SPV / subsidiary belonging to the same ICBC leasing group similar to the above case (ii) The impugned lease transactions are entered into by the Board of Directors of the assessee who are based in Ireland and possess the requisite skills and competence in this line of business (iii) The lease management and business support services are rendered by ICBCIL similar to rendering services to the assessees' in the above case (iv) The aircraft is owned by the assessee on which depreciation is claimed (page 186 of paper book) and the assessee bears the economic risk and rewards associated with the aircraft (v) The economic life of the aircraft is 25 years which is identical to aircraft owned by the assessees' in the above case (vi) As per DGCA records the assessee is the owner of the aircraft and Air India to whom the aircraft is leased is the operator (vii) The clauses in the Lease Agreement states the assessee as the owner and the does not provide an option to the leassee to purchase the asset at the end of the lease period Printed from counselvise.com 12 ITA Nos. 1546 to 1550/Mum/2025 Sky High Lxxix Leasing Co. Ltd. & Ors. (viii) The various clauses as listed below demonstrates the lease agreement is an operating lease and not finance lease –  Lessor continues to be the owner of the aircraft (FPB Pg. No. 133-144)  Clause 14.1 14.2: Registration and nameplate of the lessor on the aircraft (FPB Pg. No. 234-235)  Clause 15.1: Ownership of Lessor during lease period (FPB Pg. No. 236)  Clause 16.2: repossession (FPB Pg. No. 237)  Clause 12.1: Restricted Covenants for use of aircraft (FPB Pg. No. 227)  Clause 12.2: permission required for sublease etc. (FPB Pg. No. 229)  Clause 19.1: Lessee prohibited from transferring any rights (FPB Pg. No. 244)  Lease term is 8 years, plus an option to extend by 4 years (FPB Pg. No. 266, 210) less than economic life of the aircraft i.e., 25 years (ix) The assessee has given the aircrafts on Dry Lease and has no involvement in the day-to-day operations, maintenance or control over the usage of the leased aircraft. Such activities are independently undertaken by the lessee without assessee's invlovment. 9. From the perusal of the above facts, we are convinced that the facts in assessee's case are identical to the facts in the above case and therefore respectfully following the above decision of the Co-ordinate Bench we direct the AO to delete the addition made towards Aircraft leasing income derived by the assessee. 10. Ground No.1 is general and Ground No.21 is consequential and hence these grounds warrant no separate adjudication. Ground No.2 to 4 with respect to the legal contentions are left open for the reason that the issue is allowed in favour of the assessee based on merits. Ground No. 5 to 18 (except 10) are in connection with the issue of taxability of lease rental received by the assessee in India, which we have adjudicated in favour of the assessee in the above paragraphs of this order. Printed from counselvise.com 13 ITA Nos. 1546 to 1550/Mum/2025 Sky High Lxxix Leasing Co. Ltd. & Ors. 11. Ground No.10 and 20 is with regard to the taxability of interest on deferred lease payments. The relevant submissions of the ld AR in this regard are extracted below – “58. Article 11 of India-Ireland DTAA governs the taxability of interest received by a resident of Ireland from India. In this regard, it is required refer to definition of interest as provided in Article 11(4): \"4. The term \"interest\" as used in this Article means income from debt-claims of every kind, whether or not 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. 59. As can be observed from the above, Article 11(4) of India-Ireland DTAA expressly excludes penalty charges for late payment from the definition of interest. In the instant case, the default interest is in the nature of penalty to penalize Air India for delay/ as compensation for the loss suffered by the assessee due to delay by the Lessee in meeting its obligation of making the payment of lease rentals on time. The same is calculated on pro-rata basis the number of days delay in meeting the obligation. Accordingly, the same does not qualify as interest under Article 11 (4) of India-Ireland DTAA and is not taxable under that Article. 60. Without prejudice, even if such interest is treated as lease rentals, such amount should not be taxable as the same is exempt from tax in India as per beneficial provision of Article 12 read with Article 7 of India-Ireland tax treaty for detailed reasons as stated above. 61. Though the Appellant had offered the said amount to tax while filing the return of income (refer FPB No. 106), it was contended before the DRP that the same is not taxable for the reasons stated above. The DRP has not considered the said argument of the Appellant. 62. The Appellant submits that restriction of entertaining a claim otherwise than by way of valid return shall not apply to appellate authorities. Reliance in this regard is Printed from counselvise.com 14 ITA Nos. 1546 to 1550/Mum/2025 Sky High Lxxix Leasing Co. Ltd. & Ors. placed on the Apex Court decision in the case of Goetze (India) Ltd. V. CIT [2006] 284 ITR 323 (SC). 63. It is submitted that there is no estoppel against law, the purpose of an appeal in an income tax matter is to ascertain the correct tax liability of the assessee. Hence, even if the assessee has over assessed itself in the return of income, the Tribunal can give relief to the assessee to the assessee is over assessed. Reliance in this regard is placed on the following decisions: Sr. No. Case Law Citation 1 Gujarat Gas Ltd. v. JCIT (2000) 245 ITR 84 (Guj HC) 2 Milton Laminates Ltd. v. CIT [2013] 37 taxmann.com 249 (Guj HC) 3 CIT v. Bakelite Hylam Ltd. [1999] 237 ITR 392 (AP HC) 4 Orix Auto Infrastructure Services Limited v. DCIT ITA no. 5408/Mum/2019 (Mum- Trib.) 64. Without prejudice to the above, the Appellant submits that the said amount has been inadvertently taxed twice by the department and it has made addition of the entire receipts including the said interest on deferred lease. 65. In view of the above, the Appellant respectfully submits that the Ground of Appeal #10 and #20 be allowed in its favour.” 12. We heard the parties and perused the material on record. The assessee has received certain amount as penal interest for delay in payment of lease rentals by lessee i.e. Air India. In the return of Income the assessee has offered the same to tax (page 106 of paper book). The assessee raised objections before the DRP stating that the income is not taxable in India. The DRP however has not considered the said submissions of the assessee. The assessee now raised the plea before us stating that the penalty charges for delayed payment are not taxable in India and is praying for a relief in this regard. Considering the nature of receipt the Printed from counselvise.com 15 ITA Nos. 1546 to 1550/Mum/2025 Sky High Lxxix Leasing Co. Ltd. & Ors. same if taxable needs to be brought to tax either under Article 7 – Business Income or Article 8 – Shipping and Air Transport, or Article – 11 Interest or Article 12. The question of taxing as business income would arise only in cases where the assessee is having a PE in India and we have already held in the earlier paragraphs that the assessee is not having a PE in India. Accordingly we are of the view that the impugned receipts cannot be taxed under Article 7. Now coming to taxability under Article 11, sub-clause (4) of Article 11 specifically excludes penalty charges for late payment from the ambit of interest. Therefore even if the late payment fee is considered as interest under Article 11 the same in our view cannot be taxed under the said Article due to the provisions contained in sub-clause (4). It is nobody's case that the impugned income is chargeable under Article 12. Now coming to Article 8, on perusal sub-clause (3) of the said article we notice that it talks about interest income as under – 3. For the purposes of this Article, interest on funds connected directly 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 to such interest, provided that such funds are incidental to that operation. 13. According to OECD (2019), Model Tax Convention on Income and on Capital 2017 the above sub-clause would apply to interest income generated where the investment that generates the income is made as an integral part of the carrying on of the business of operating the ships or aircraft in international traffic so that the investment may be considered to be directly connected with such operation. In other words, if the investment is directly connected to the operations of aircraft, the interest income generated there from is to be considered as part of profits derived from the operation or renting of aircrafts. Though sub-clause (3) is specific to interest income earned from investments, when we look at the spirit of the said sub-clause, it would Printed from counselvise.com 16 ITA Nos. 1546 to 1550/Mum/2025 Sky High Lxxix Leasing Co. Ltd. & Ors. not be wide of the mark to say that if an interest income is attributable / arising as an integral part of the carrying on of the business of operating / renting of aircrafts then the same should be considered under Article 8 for the purpose of taxability. When we apply the said analogy to the impugned interest income earned by the assessee it is an undisputed fact that the same is charged for delayed payment of lease rental by the lessee and therefore in our considered view is an integral part of the lease income that is considered under Article 8. We have already held that the lease rental derived by the assessee from leasing of aircrafts is not taxable in India as per Article 8 of the India-Ireland DTAA. Accordingly we are of the considered view that the interest on delayed payment of lease rental which is an integral part of the least rental charged by the assessee is also not taxable in India in terms of Article 8 of India-Ireland DTAA. It is a settled legal position that the assessee is liable to pay tax on the right income in right assessment year and in our view, the assessee having offered the impugned income to tax, should not be considered as a hindrance to allow claim if the said income is not taxable under the provisions of law. Therefore we direct the AO to allow the claim of the assessee that the impugned income is not chargeable to tax while giving effect to the directions as per this order. The AO is further directed to verify the contention that the impugned income has been considered as part of the addition made towards profits derived from leasing of aircrafts and allow the claim as directed herein above. It is ordered accordingly. 14. The issues contended by all the assessee through various grounds are tabulated in the earlier part of this order. On perusal of the same we notice that issues contended are identical to the issues in the above appeal. Accordingly in our considered our decision with respect to ITA No.1546/Mum/2025 is mutatis mutandis applicable to the assessees in ITA No. ITA No.1547 to 1550/Mum/2025 also. Accordingly, we direct the AO to delete the additions made in the case of these assessees also. Printed from counselvise.com 17 ITA Nos. 1546 to 1550/Mum/2025 Sky High Lxxix Leasing Co. Ltd. & Ors. 15. In result, the appeals in ITA No. 1546 to 1550/Mum/2025 are allowed. Order pronounced in the open court on 06-10-2025. Sd/- Sd/- (AMIT SHUKLA) (PADMAVATHY S) Judicial Member Accountant Member *SK, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com 18 ITA Nos. 1546 to 1550/Mum/2025 Sky High Lxxix Leasing Co. Ltd. & Ors. Sr. No. Details Date Initial Designation 1 Draft dictated on PC 05.09.2025 Sr.PS/PS 2 Draft Placed before author 09.09.2025 Sr.PS/PS 3 Draft proposed & placed before the Second Member Sr.PS/PS 4 Draft discussed/approved by Second Member JM/AM 5 Approved Draft comes to the Sr.PS/PS JM/AM 6 Order pronouncement on Sr.PS/PS 7 File sent to the Bench Clerk Sr.PS/PS 8 Date on which the file goes to the Head clerk Sr.PS/PS 9 Date on which file goes to the AR 10 Date of Dispatch of order Printed from counselvise.com "