Sunflower Aircraft Leasing Limited Vs ACIT (ITAT Mumbai)
The assessee appealed against the final assessment order passed under Section 143(3) read with Section 144C(13) of the Income-tax Act for AY 2022-23. The dispute concerned the taxability in India of lease rentals earned by an Irish tax resident company from leasing two Airbus A320 aircraft to InterGlobe Aviation Limited (IndiGo). The assessee contended that the income was either taxable only in Ireland under Article 7 of the India-Ireland DTAA due to the absence of a Permanent Establishment (PE) in India or, alternatively, exempt in India under Article 8(1) as profits from the rental of aircraft in international traffic. The Revenue sought to tax the lease rentals on the grounds that the aircraft constituted a fixed place PE in India and that the conditions of Article 8(1) were not satisfied.
The assessee, a member of the AerCap Group, had entered into dry operating lease agreements with IndiGo for two aircraft. The aircraft were purchased from Airbus in 2007, had previously been leased in other jurisdictions, and were delivered to IndiGo in Chile. The lease agreements were executed outside India, and there was no allegation that the leases were sham transactions or violated Indian law or aviation regulations. The assessee filed its return declaring nil income, claiming that the lease rentals were neither royalty under Article 12 nor taxable in India due to the absence of a PE and, alternatively, were covered by Article 8(1).
