Vertical Aviation No. 1 Ltd. Vs ACIT (ITAT Delhi)
ITAT Delhi: Helicopter Lease Treated as Operating Lease—Income Exempt Under India–Ireland DTAA- Leasing Not Financing – Tribunal Extends Article 8 Relief to Irish Lessors
Both assessees, Irish tax residents engaged in leasing helicopters to Indian operators, challenged assessment orders taxing lease rentals as interest/royalty under domestic law & the India–Ireland DTAA. The AO & DRP treated the leases as financial leases, denying benefit of Article 8 of the treaty.
Before ITAT, it was argued that the arrangements were operating leases where ownership remained with the lessor & helicopters were returned post-lease; therefore, the receipts were exempt as “rental of aircraft in international traffic” under Article 8 of the India–Ireland DTAA.
Tribunal noted factual mistakes in AO’s order (treating helicopters as aircraft leased to Indigo) & found that the lease terms were identical to those examined in Celestial Aviation Trading 15 Ltd. & Kosi Aviation Leasing Ltd., where such leases were held to be operating in nature.
Following those precedents, ITAT held that:
- The leases were operating leases, not financing arrangements.
- The rentals qualify for exemption under Article 8, since the clause specifically covers “rental of aircraft,” & Revenue failed to show helicopters were used solely within India.
Additions were deleted; interest u/s 234B was held consequential & penalty proceedings u/s 270A premature.
