DCIT Vs Delta Air Lines (ITAT Mumbai)
Third-Party Carriers Still Covered by Article 8 – Tribunal Protects DTAA Exemption- Code-Sharing Revenue Not Taxable in India – ITAT Mumbai Rules in Delta’s Favour
Assessee, a tax resident of USA, was engaged in international air traffic operations & had a branch office in India approved by RBI & DGCA. While income from operations through its own aircrafts was not in dispute, the controversy centered around revenues earned where passengers or cargo were carried either partly or wholly through third-party airlines under code-sharing agreements.
AO denied exemption u/s Article 8, treating code-share revenue of Rs. 14.71 crore as taxable in India, holding that since flights were operated by third-party carriers, such income could not qualify as “profits from operation of aircrafts in international traffic”. CIT(A) allowed the exemption by relying on ITAT’s decision in the Assessee’s own case for AY 2018-19, wherein it was held that code-sharing receipts are covered within Article 8 as operations by a “charterer”.
Before Tribunal, Revenue argued that reliance on AY 2018-19 was misplaced & referred to the contrary decision in AY 2010-11 where exemption was denied due to lack of linkage between Assessee’s flights & third-party flights. Assessee countered that agreements with airlines like Air France & ticketing under its own code established linkage, making the entire journey one integrated operation. It also relied on OECD Model Commentary & the Bombay HC decision in Balaji Shipping & APL Co. Pte Ltd, which held that slot-chartering/space-chartering is akin to chartering & forms part of shipping/airline operations.
