Celestial Aviation Trading 36 Ltd Vs ACIT (ITAT Delhi)
Delhi Tribunal confirms operating lease classification applies Article 8
A group of Irish lessors – Celestial Aviation Trading Ltd., & Celestial Sverige Aircraft Leasing Worldwide AB – appealed the AO’s final assessment orders for A.Y.2022‑23. The core issue was whether leases of Airbus aircraft to Indian airline companies were operating leases or financial leases, & whether the resulting income was taxable in India.
Operating vs financial lease
Assessee maintained that the leases were operating leases: ownership always rested with the lessor, the aircraft had to be returned, deposits were refundable, & there was no purchase option. Examining the Aircraft Specific Lease Agreement & Common Terms Agreement, the Tribunal found clauses confirming the lessor’s continued ownership & lessees’ obligations not to sub-lease or hold themselves out as owners. It contrasted these terms with statutory definitions of financial lease, which require a transfer of ownership to the lessee at the end of the term. Since no such transfer existed, the Tribunal held the leases were operating in nature.
Treaty relief under Article 8
The lessors argued that the lease rentals should be taxed exclusively in Ireland under Article 8 of the India‑Ireland DTAA. Relying on previous Tribunal rulings (Sunflower Aircraft Leasing, Sky High Appeal XLIII, Kosi Aviation Leasing) & a Special Bench decision in Inter Globe Aviation Ltd., the Bench agreed. It noted that Indigo operated the aircraft on both domestic & international routes; Article 8 applies so long as the aircraft are not operated solely within India. Even if a permanent establishment existed, Article 8 would override the business profits provision, so the rentals were not taxable in India. The Tribunal therefore allowed treaty relief.
