Air France Vs DCIT (ITAT Delhi)
ITAT Delhi held that the income from technical handling services received from ‘International Airlines Technical Pool (IATP) members is not taxable in India as it is covered under Article 8(2) r.w. Article 8(1) of India-France DTAA.
Facts- The assessee has preferred the present appeal on grounds relating to taxability of income from technical handling services received from IATP members, interest income, initiation of penalty proceedings u/s. 271(1)(c)/271A & 271B of the Income Tax Act, 1961 and levy of interest u/s. 254 of the Act.
Conclusion- Held that the impugned income i.e. income from technical handling services received from IATP members is not taxable in India as it is covered under Article 8(2) r.w. Article 8(1) of India-France DTAA.
Held that the fixed deposits made by the assessee are out of funds connected with the operation of aircraft in international traffic covered under Article 8(1) of India-France DTAA as the assessee has no other business. Therefore, the interest income will be covered under Article 8(3) of the India-France DTAA and hence not taxable.
FULL TEXT OF THE ORDER OF ITAT DELHI
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 record and the order (supra) of the Tribunal. The Ld. Representative of the parties have also been heard.
5. On the issue relating to taxability of income from technical handling services received from IATP members (ground No. 1 to 17) the Tribunal in its decision (supra) held that the impugned income is not taxable in India as it is covered under Article 8(2) r.w. Article 8(1) of India-France DTAA. Accordingly, the addition(s) were deleted by recording the following findings in para 8 and 9 which is reproduced below:-
“8. We have considered rival submissions in the light of the decisions relied upon and perused the materials on record. It is evident, the assessee has derived income from providing technical handling services to other airlines in India. The technical handling services, as discussed earlier, involve verification of air worthiness of the aircrafts flying into Indian airports to take the next journey. Undisputedly, assessee has claimed exemption of the income derived from technical handling services taking recourse to Article 8(2) of the India – France DTAA. It is the case of the assessee that since as a member of IATP the assessee has provided such services to other pool members, it is covered under Article 8(2). Notably, identical nature of dispute arising in assessee’s own case in assessment years 2004-05, 2005-06 and 2006-07 came up for consideration before the Tribunal earlier. While deciding the issue in ITA No.5008/Del/2011 and others dated 22.05.2020, the Tribunal has held as under:
“8. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee company is claimed benefit under the DTAA under Article 8 of the Treaty, since the entire revenue receipts are from operation of aircraft in international traffic as per the assessee before the Assessing Officer. The assessee also submitted during the assessment proceedings that the Indian Branch office is merely a branch office of the foreign company, which is engaged in the operation of aircraft in international traffic. There are no specific services referred between the head office and the branch office as per the submissions of the assessee. The entire receipts collected by the branch office are remitted to the head office, after meeting the local expenditure and the said receipt of the branch office are from the 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-à-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-à-vis decisions of the ITAT in the case of British Airways and Lufthansa Airlines and also to show cause, why the receipts should not be taxed in India?
(iv) The extent of technical services provided to its own aircrafts and the aircrafts of the other airlines.
The assessee provided the copies of invoices, contracts for technical handling to the Assessing Officer. The Assessing Officer after going through the contracts and invoices observed that the services are not mentioned in Annexure – B of the agreement. The Assessee explained technical handling services as nothing, but verifying the technical parameters of the aircraft, after it has taken a journey to verify that the same is in an airworthy and safe conditions to fly again. Such examination airworthiness certificate is provided to the airlines by AF basis which flying is allowed. The assessee is member of “International Airlines Technical Pool” (IATP). As an IATP member the assessee extends technical facilities (line maintenance facilities) to other IATP Members only during the year under consideration. No such facility or service has been provided by assessee to any non IATP Member during the year under consideration. The services as per the Standard Ground Handling Agreement 1998 Main Agreement along with Annexure A and Annexure B is as under:
“IATP FORM-55 LINE MAINTENANCE POOLING
ANNEXURE B.12/OS-DEL
LOCATION, AGREED SERVICES AND CHARGES
To the Standard Ground Handling Agreement of April 1998
–
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 8.1.1., 8.1.2(b), 8.1.4, 8.1.5, 8.1.6, 8.1.9, 8.1.10, 8.1.11, 8.1.12, 8.2.1, 8.2.2, 8.2.3
Section 9 9.1.1, 9.1.2, 9.1.3, 9.1.4 (a), 9b), 9.2.1 (see 1.2),9.2.2, 9.2.3, 9.2.4, 9.2.5, 9.3.1(b), 9.3.2, 9.3.3 (to a limited extent).
Section 14 14.4.2(b5) (if required)
