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Case Law Details

Case Name : InterGlobe Aviation Ltd Vs DCIT (ITAT Delhi)
Appeal Number : ITA No. 751/Del/2016
Date of Judgement/Order : 10/08/2022
Related Assessment Year : 2010-11
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InterGlobe Aviation Ltd Vs DCIT (ITAT Delhi)

In this case CIT instead of appreciating and giving importance to the purpose for which the credits were granted to the appellant, has given undue importance to the fact that ultimately the aircrafts were only taken on lease by the appellant and that the appellant itself credited these receipts by deducting the same from the expenses aircraft lease rental in its Profit and Loss Account. Decision of Bougainvillea Multiplex Entertainment (supra) clearly holds that subsidy need not be linked to a particular asset. Similarly netting off of the proportionate credits with the amount of lease rentals in the profit of the appellant is a mere utilization of the receipt. Merely because a capital receipt is utilized for incurring revenue expenditure it will not change the nature of capital receipt into a revenue item. As an example proceeds received from issuance of shares by a company may be utilized for daily working capital purposes, but the nature of receipts from issuance of shares will still be Capital in nature. In the case under consideration for a better accounting purposes the proportionate credits were netted off against the recurring lease rentals. Acceptably as pointed out by the appellant the accounting policy followed was in spirit with the AS-12 issued by ICAI. Ld CIT after having accepted that the credits were given to the appellant as a consideration for selection of IAE engines to be fitted in aircrafts manufactured by Airbus, which were also acquired by the appellant, should have held that the receipts are Capital in nature. Appellant’s right to receive the a credits got triggered when the appellant made a selection of IAE engines, giving preference to the engines manufactured by other competitors of IAE. This right got crystallized when agreement date 19th October 2005 was executed between interglobe and IAE. Once choice of engine was made thereafter purchase agreement dated 18th November 2005 was executed between interglobe and Airbus. We concur with submission of Shri Syali and that under no circumstance could have Interglobe escape with its liabilities to take delivery of Aircrafts from Airbus as per the agreed schedule. Assignment of right to purchase the aircraft by triggering Article 21 therein was only a modus operandi of acquiring the aircraft the aircraft with a finance option. Ld. CIT(DR) Dr. Prabhakant has merely reiterated the arguments taken by learned CIT in the impugned order. In his written note he has characterized the credits received from IAE as commission income. We do not concur with this submission of Ld CIT(DR). As per letter of intent an option was given to Interglobe: by Airbus for choosing the type of engine to be fitted in the aircraft, which Airbus will manufacture for Interglobe. Exercising this option interglobe selected IAE engines giving them importance over competitors of IAE. In absence of any services beep rendered by Interglobe to IAE we fail to appreciate, how can receipt of credits in the present case be termed as a commission income. We therefore reverse the finding recorded by CIT in the impugned order and hold that the credits received by the appellant from IAE are capital in nature.

FULL TEXT OF THE ORDER OF ITAT DELHI

1. The present appeal has been preferred by the Assessee against the order dated 20.01.2016 of Ld. CIT(A)-4, New Delhi (hereinafter referred as Ld. First Appellate Authority) arising out of an appeal before it against the assessment order dated 15.03.2013 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as the Act’) by the AO, ld. Dy. CIT, Circle-11(1)), New Delhi (hereinafter referred as the Ld. AO).

2. Facts in brief are that the Assessee Company is engaged in the business of operation of low cost airlines in India under the name and style of “IndiGo” and for this purpose the company has obtained NOC from Ministry of Civil Aviation to operate schedule air transport services. It filed it’s return of income on 27.09.2010 declaring total income at Rs. Nil. It was observed in the scrutiny assessment that the Assessee had entered into purchase agreement with Airbus SAS, France for supply of 100 aircraft. The company had selected V-2500 engines manufactured by IAF International Aero Engineers AG, Switzerland (also referred as IAE hereafter) as supplier of engines which are to be fitted in the aircraft. As a consideration for selection of the IAE engines to be fitted in the aircraft to be purchased by the company, certain credited allowable to the assessee company from IAE on the delivery of such aircraft. As per the assessee the aircraft had been acquired on operating lease basis consequent to assigning the purchase contract between the company and respective lessor in favour of leasing/ finance company. It was further observed that the assessee company has received credits from IAE in respect of supplier furnished equipment on the actual delivery of the aircraft during the year amounting to Rs.2,77,36,49,716/- which have been spread over the period of lease and the proportionate amount aggregating to Rs. 2,04,70,44,328/- relatable to this year has been reduced from the expense charge for aircraft lease rentals while the balance of Rs. 5,67,95,30,805/- has been depicted as deferred credit under current liabilities. As per assessee, since the credit given by IAE are linked to the acquisition of the aircraft by the company, the amount being capital receipt, is not liable to tax. The assessee was asked to explain as to why the same should not be treated as revenue receipt and brought to tax net during the year under consideration.

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