Ground Handling Income Taxable in India, Not Exempt Under India-UK DTAA: ITAT Delhi

British Airways Plc. Vs Assistant Director of Income Tax (ITAT Delhi)

ITAT rules British Airways’ ground handling income is taxable in India; pooling service receipts not protected under the India–UK DTAA

Summary: The ITAT Delhi dismissed the assessee’s appeals for AYs 2009-10 and 2010-11 and upheld the taxability in India of income earned from providing ground handling and engineering services to other airlines. The assessee, a UK airline, claimed exemption under Article 8 of the India-UK DTAA, contending that such services were ancillary to aircraft operations and constituted participation in International Airlines Technical Pool (IATP) arrangements. The Tribunal noted that the issue had been consistently decided against the assessee since AY 1996-97 and that the earlier Tribunal decision had held that receipts from such services were not covered by Article 8. It also observed that the Delhi High Court, while deciding cases involving Lufthansa German Airlines and KLM Royal Dutch Airlines, had distinguished the assessee’s case on the basis of differences between the India-UK DTAA and the India-Germany/Netherlands DTAAs. The Tribunal held that the OECD Commentary was not binding and that no material had been produced to show that the earlier Tribunal decision had been challenged or rectified. It found no merit in the assessee’s claim and dismissed both appeals.

Facts:

• The assessee company was incorporated in United Kingdom (UK) and is engaged in the business of operation of aircrafts in International Traffic and is also rendering Ground Handling and Engineering Service Charge to other airlines in India and earns revenue from said services. The income earned by assessee from operation of aircraft in international traffic and from participation in pools of any kind is exempt in India under Article 8 of India-UK DTAA. The revenue earned by assessee from ground handling and engineering services rendered to other airlines was held as taxable by the Assessing Officer (AO) for the first time in AY 1996-97. The benefit of Article 8 of India-UK Double Tax Avoidance Agreement (DTAA) claimed by the assessee on such receipts was denied by the AO. The matter travelled to the Tribunal, the Tribunal vide order dated 24.09.2021 common for AY 1996-97 to 1998-99 reported as 80 ITD 90 (Del.) decided the issue of taxability of the amount received by assessee on rendering ground/engineering services to other airlines against the assessee.
• The ld. Counsel submitted that the decision of Tribunal in AY 1996-97 proceeded on the assumption that the assessee was providing ground handling and engineering services to other airlines only and was not receiving similar services under the pool arrangement at other airports in India from other airlines. The ld. Counsel further submitted that the expression ‘operation of aircraft’ used in Article 8(1) of the India-UK DTAA was construed in a very narrow sense. The expression operation of aircraft has to be given wider meaning and should include ancillary services. The ld. Counsel submitted that the ground handling and engineering services are provided by the assessee to other airlines under the Standard Agreement as per International Airlines Technical Pool (IATP) Guidelines.
• The ld. Counsel drew our attention to Form 55 at page 774 of the paper book to show that at Bangalore Airport, the assessee is providing ground handling and technical services to Air France. He further referred to page 794 of the paper book to show that at Hyderabad Airport, KLM Royal Dutch Airlines is providing similar ground handling and technical services to the assessee. The ld. Counsel for the assessee referring to page 15 of the impugned order pointed that before the CIT(A) it was categorically stated that the assessee was providing ground handling and engineering services in India under ‘L’ Pool in Delhi, Mumbai, Chennai, Kolkata and Hyderabad and ‘G’ Pool services at Delhi and Mumbai. The assessee received ‘L’ Pool services at Hyderabad.
• The CIT(A) in para 7.6.2 of the impugned order accepts that the assessee has not only provided services to other airlines but also availed services from other airlines within India as well as outside India. The ld. Counsel further referred to the decision of the Delhi Bench of the Tribunal in Lufthansa German Airlines Vs. DCIT (supra), wherein it has been held that the services rendered by Lufthansa German Airlines are under IATP Manual and the services are also received under the said Manual and there is reciprocation of services by the members. The Tribunal held that IATP Pool is covered under Article 8(4) of Indo-German DTAA. Similar is the decision in KLM Royal Dutch Airlines. The Hon’ble High Court while deciding the appeals by Revenue upheld the decision of Tribunal in Lufthansa German Airlines and KLM Royal Dutch Airlines. However, the decision in British Airways Plc. was distinguished.

Issue:

• Whether the Assessee’s eligibility to claim benefit of Article 8 of India-UK DTAA on revenue generated.

Observations:

• The Tribunal first referred to Article 8 of the India–UK Double Taxation Avoidance Agreement (DTAA), which governs the taxation of profits derived from the operation of aircraft in international traffic. It noted that while Article 8(1) exempts profits derived from the operation of aircraft in international traffic, Article 8(2) extends such benefit to participation in pools of any kind. Article 8(3) defines the expression “operation of aircraft” to include transportation by air, sale of tickets on behalf of other enterprises, incidental lease of aircraft on a charter basis, and any other activity directly connected with such transportation.
• The Tribunal recorded the assessee’s contention that the ground handling and engineering services rendered to other airlines were ancillary to the business of operating aircraft in international traffic and constituted pooling activities falling within Article 8(2) of the DTAA. It observed that this was not a new issue, as the assessee had been denied the benefit of Article 8 on such receipts since Assessment Year 1996–97, and the issue had consistently arisen in the subsequent assessment years.
• The Tribunal further observed that the submissions advanced in the present appeals were substantially similar to those made by the assessee in its appeals for Assessment Years 1996–97 to 1998–99. In those proceedings, the assessee had relied upon its membership of the International Air Transport Association (IATA) and the International Airlines Technical Pool (IATP), contending that the IATP was established for reciprocal technical support through the sharing of spare parts, ground handling equipment, manpower and other technical facilities under the Standard Ground Handling Agreement. The assessee had also asserted that the engineering and ground handling services provided to other airlines did not constitute a separate business activity but were directly connected with the operation of aircraft in international traffic.
• After considering the earlier submissions and the findings recorded in the order for Assessment Years 1996–97 to 1998–99, the Tribunal noted that the Coordinate Bench had examined the meaning of the expression “pool” under Article 8(2) and concluded that the receipts earned by the assessee from rendering ground handling and engineering services to other airlines were not entitled to the benefit of Article 8. The Coordinate Bench had held that there was no material to establish the existence of a pool within the meaning of Article 8(2) or participation therein by the assessee. It had also agreed with the Commissioner (Appeals) that the IATP mechanism did not involve bringing together resources under joint command or sharing of profits, and therefore did not satisfy the essential attributes of a pool contemplated under Article 8(2).
• The Tribunal further noted that the earlier Coordinate Bench had interpreted Article 8(1), Article 8(2) and Article 8(3) of the India–UK DTAA and had held that the exemption under Article 8 was confined to the activities specified therein. It had concluded that engineering and ground handling services rendered by the assessee to other airlines did not fall within the expression “operation of aircraft” as defined under Article 8(3) and that the services rendered to other airlines constituted an organised commercial activity resulting in taxable income.
• The Tribunal then considered the assessee’s reliance on the decisions in Lufthansa German Airlines v. DCIT 90 ITD 310 and KLM Royal Dutch Airlines. It observed that the Coordinate Bench, while deciding the appeal in Lufthansa German Airlines, had distinguished the decision in the case of the assessee on the basis of facts. It further noted that the Delhi High Court had also distinguished the decision in British Airways PLC, observing that the provisions of Article 8 of the India–UK DTAA were materially different from those contained in the India–Germany and India–Netherlands DTAAs. The High Court held that the expanded definition of “operation of aircraft” under Article 8(3) of the India–UK DTAA restricted the scope of Article 8(2), whereas no such limitation existed under the other DTAAs. Accordingly, the Tribunal held that the decisions in KLM Royal Dutch Airlines and Lufthansa German Airlines did not support the assessee’s claim.
• The Tribunal also recorded that the assessee had relied upon the OECD Commentary on Article 8 but observed that the OECD Commentary was not binding and that the Government of India had expressed its reservation regarding the commentary in relation to income from ancillary activities.
• Finally, the Tribunal noted that no material had been placed on record to show that the earlier decision of the Tribunal for Assessment Years 1996–97 to 1998–99 had been challenged before any higher appellate authority or that any rectification had been sought in respect of the alleged factual assumptions. It further recorded that in Assessment Year 2005–06 the same issue had been decided against the assessee by following the earlier decision, and that in the subsequent assessment years the disputes had either been settled under the Vivad se Vishwas Scheme or under the Mutual Agreement Procedure (MAP). The Tribunal observed that the issue of taxability of income arising from rendering ground handling and engineering services to other airlines in India had consistently been held to be taxable in India. Consequently, the Tribunal found no merit in Ground No. 1 and the grounds raised in support thereof, and dismissed the same. In the result, appeal of the assessee is dismissed.

FULL TEXT OF THE ORDER OF ITAT DELHI

These two appeals by the assessee for AY 2009-10 and 2010-11 are directed against the orders of Commissioner of Income Tax (Appeals)-42, New Delhi, for the respective assessment years. Both the impugned orders are of even date i.e. 25.01.2017.

2. Since, facts germane to the issue in both the appeals are identical, the appeals are taken up together for adjudication. For the sake of convenience appeal of the assesses in ITA No.2200/Del/2017 for AY 2009-10 is taken up as a lead case, hence, facts are narrated from the said appeal.

ITA No.2200/De1/2017 (AY 2009-10)

3. The assessee in appeal has raised multiple grounds, however, ground no.1 of appeal assails the core issue. Ground no. 1 of appeal reads as under:-

“1. The learned Commissioner of Income Tax (Appeals) -42 (‘Ld. CIT (A)) has erred in not exempting the income derived from Ground Handling and Engineering Services (‘GHE Services) in terms of Article 8 of the India-UK DTAA (the treaty).

1.1. Ld. CIT (A) has erred in upholding the order of the Learned Assessing Officer Ld. AO) in rejecting the contention of the Appellant that surplus if any derived by it from rendering engineering and ground handling services to other airlines in India is not taxable in India in view of the provisions of Article 8 of the treaty.”

The remaining grounds i.e. ground 2 to 8 are argumentative and are in support of ground no. 1 of appeal.

4. Shri Tarandeep Singh, appearing on behalf of the assessee submits that the solitary issue for adjudication in appeal is taxability of Ground Handling and Engineering Service Charge received by the assessee in India. Narrating facts of the case, the ld. Counsel submits that the assessee company was incorporated in United Kingdom (UK) and is engaged in the business of operation of aircrafts in International Traffic and is also rendering Ground Handling and Engineering Service Charge to other airlines in India and earns revenue from said services. The income earned by assessee from operation of aircraft in international traffic and from participation in pools of any kind is exempt in India under Article 8 of India —UK DTAA. The revenue earned by assessee from ground handling and engineering services rendered to other airlines was held as taxable by the Assessing Officer (AO) for the first time in AY 1996-97. The benefit of Article 8 of India-UK Double Tax Avoidance Agreement (DTAA) claimed by the assessee on such receipts was denied by the AO. The matter travelled to the Tribunal, the Tribunal vide order dated 24.09.2021 common for AY 1996-97 to 1998-99 reported as 80 ITD 90 (Del.) decided the issue of taxability of the amount received by assessee on rendering ground/engineering services to other airlines against the assessee. The ld. Counsel submits that the said decision of the Tribunal was based on wrong assumption of facts that the assessee is providing ground engineering services to the other airlines only and is not receiving similar services under ‘pool’ at other airports in India from other airlines. He further contended that the Tribunal has construed the meaning of expression ‘operation of aircraft’ as used in Article 8(1) of India-UK DTAA in a very narrow sense. The expression ‘operation of aircraft’ has to be understood in a broad manner to include other ancillary services as well. The ground handling and engineering services are provided by the assessee to other airlines under Standard Agreement as per International Airlines Technical Pool (IATP) guidelines. The ld. Counsel drew our attention to Form 55 at page 774 of the paper book to show that at Bangalore Airport, the assessee is providing ground handling and technical services to Air France. He further referred to page 794 of the paper book to show that at Hyderabad Airport, KLM Royal Dutch Airlines is providing similar ground handling and technical services to the assessee. The ld. Counsel for the assessee referring to page 15 of the impugned order pointed that before the CIT(A) it was categorically stated that the assessee was providing ground handling and engineering services in India under ‘I,’ Pool in Delhi, Mumbai, Chennai, Kolkata and Hyderabad and ‘G’ Pool services at Delhi and Mumbai. The assessee received ‘I,’ Pool services at Hyderabad.

4.1. The CIT(A) in para 7.6.2 of the impugned order accepts that the assessee has not only provided services to other airlines but also availed services from other airlines within India as well as outside India. The ld. Counsel referred to the decision of Delhi Bench of the Tribunal in the case of Lufthansa German Airlines vs. DCIT 90 ITD 310 to contend that for rendering and receiving services requisition is to be made in IATP Form 53 as per IATP manual. The ld. Counsel referred to Form 55 as per IATP manual in support of his submissions at page 345 of the paper book. To further elaborate meaning of various pools, the ld. Counsel referred to page 523 of the paper book Vol-III. The ld. Counsel contended that in the case of KLM Royal Dutch Airlines and Lufthansa German Airlines, the Tribunal granted relief to the assessee holding that services rendered and availed were as per IATP manual and there were reciprocation of services between members of pool. IATP pool is covered under Article 8(4) of DTAA Netherlands DTAA & India-Germany DTAA), therefore, such profits could not be brought into tax in India. The Department carried the issue in appeal before the Hon’ble High Court, the Hon’ble High Court while adjudicating both the appeals of the Revenue i.e. in the case of KLM Royal Dutch Airlines and Lufthansa German Airlines reported as 392 ITR 218 accepting the services rendered under pool, upheld the decision of Tribunal. During the course of discussion before the Hon’ble High Court, the Revenue placed reliance on Tribunal decision in the case of British Airways PLC vs. Deputy CIT, 80 ITD 90 (Del.) (supra). The Hon’ble High Court distinguished, the decision of British Airways. The ld. Counsel submits that the Hon’ble High Court has distinguished case of assessee on wrong assumption of facts. Whereas, the services rendered by the assessee under IATP pool are similar to the one rendered by KLM Royal Dutch Airlines and Lufthansa German Airlines.

4.2. The ld. Counsel further referred to India-UK DTAA Article 8 to contend that profits derived from ‘operation of aircraft’ in international traffic included profits derived in respect of participation in pools of any kind by enterprises engaged in air transport. The services provided by assessee under pooling activities are not distinct or separate activities but inter-connected to the activity of ‘operation of aircraft’, hence eligible for benefit under Article 8 of India-UK DTAA. To further buttress his argument, the ld. Counsel placed reliance on OECD commentary on Article 8. The ld. Counsel contended that as per OECD commentary para 4.1 any activity carried on primarily in connection with the transportation, by the enterprises, of passengers or cargo by ships or aircraft that it operates in international traffic should be considered directly connected with such transportation. Further, referring to an example from the OECD commentary the ld. Counsel contended that where the enterprises is advertising for other enterprises in magazines offered onboard aircraft that it operates or at its business locations such activity is ancillary to its operations and profits generated by such advertising falls within Article 8. The ld. Counsel thus prayed for reversing findings of the CIT(A) in holding that ground handling and engineering services are not eligible for exemption under Article 8 of India-UK DTAA.

5. Per contra, Shri Vikram Singh Sharma, representing the department vehemently defending the impugned order prayed for dismissing appeal of the assessee. The ld. DR reiterating findings of the CIT(A) submits that there is significant difference in India-UK DTAA and India-Germany/India-Netherlands DTAA. In India-Germany and India-Netherlands DTAA ground handling services are included, whereas, in India-UK DTAA such services are not included. He further submitted that ground handling and engineering services cannot be considered directly connected activity to operation of aircraft merely because it is pool IATP activity. The ld. DR asserted that India has made its position clear on OECD commentary Article 8 that India reserves its position on application of Article 8 to income from ancillary activities. The ld. DR further stated that in any case OECD commentary cannot override tax treaty, hence, OECD commentary is not binding.

6. We have heard submissions made by rival sides at length. We have also considered the documents and decisions referred to during the course of submissions by ld. Counsel for the assessee. The issue for consideration in the instant case falls within narrow encompass i.e. assessee’s eligibility to claim benefit of Article 8 of India-UK DTAA on revenue generated from rendering of ground handling and engineering services to other airlines in India.

7. The assessee is engaged in the business of ‘operation of aircraft’ in international traffic. Before proceeding further, it would be relevant to refer to Article 8 of India-UK DTAA which refers to revenue from operation of aircraft. The same reads as under:-

ARTILCE 8

AIR TRANSPORT

“1. Profits derived from the operation of aircraft in international traffic by an enterprise of one of the Contracting States shall not be taxed in the other Contracting State.

2. The provisions of paragraph 1 of this Article shall likewise apply in respect of participation in pools of any kind by enterprises engaged in air transport.

3. For the purposes of this Article the term “operation of aircraft” shall include transportation by air of persons livestock, goods or mail, carried on by the owners or lessees or charterers of aircraft, including the sale of tickets for such transportation on behalf of other enterprises, the incidental lease of aircraft on a character basis and any other activity directly connected with such transportation.

4. Gains derived by an enterprise of a Contracting State from the alienation of aircraft owned and operated by the enterprise, the income from which is taxable only in that State, shall be taxed only in that State. “

8. As per contention of the assessee, the ground handling and engineering services rendered by the assessee to other airlines in India are ancillary to the main activity of operation of aircraft in India and such ancillary services rendered by the assessee falls under pooling activity. Hence, the revenue generated from rendering of such services deserves the benefit of India-UK DTAA under Article 8(2). We find that the issue raised by the assessee in present appeal is a legacy issue, the assessee was denied treaty benefit on the revenue generated from such pooling activity for the first time in AY 1996-97 and thereafter in subsequent assessment years, the revenue has consistently denied benefit of Article 8 of India-UK DTAA on receipts from rendering of ground handling and engineering services to other airlines in India.

9. We find that submissions made before us are similar to the submissions that were made on behalf of the assessee before the Coordinate Bench in appeals of the assessee for AY 1996­97 to 1998-99. For the sake of ready reference, the relevant excerpts from the submissions made on behalf of the assessee in AY 1996-97 to 1998-99 are reproduced herein under:-

“19. With specific reference to the facts of the dss^– essee’s case it was pointed out by its counsel that British Airways was one of the leading operators of aircrafts in international flights for carriage of passengers and cargo and it had been a member of the International Air Transport Association (hereinafter called IATA) and IATP Organization. It was explained that IATP was formed for the purpose of providing reciprocal technical support at line stations throughout the world and the support included spare parts, ground and ramp handling equipment and manpower. According to the assessee the primary aim of IATP was to generate economic savings and it was dedicated to the spirit of mutual cooperation and high degree of technical performance. ft was explained that under the Agreement the parties provided certain technical facilities and services as may be available with them at a particular airport for use by other parties on reciprocal basis. Such agreements, according to the assessee, were “pool agreements” entered into for providing technical services and facilities on the basis of “Standard Ground Handling Agreement” (hereinafter called SHA). ft was stated that British Airways had provided engineering and ground handling services at the International Airport of Delhi to 11 other airlines and at Chennai to 5 airlines and certain other airlines at Mumbai. According to the assessee similar services had been availed of by British Airways from Qantas Airlines and Cathay Pacific Airlines at international airports in Manila and Taipei

20. It was explained that the main purpose of the ATP agreements was to pool and share technical resources, infrastructure facilities and manpower with a view to achieve economic savings by reducing costs: ft was further submitted that the service and facilities provided by British Airways to the other airlines did not involve any separate and distinct business activity from its business of operating aircraft in international traffic. The plea was that there was unity of management, control and finances which were inter-connected, inter-laced and inter­dependent. In placing reliance on the decision of the Hon’ble Supreme Court in the case of CIT v. Prithvi Insurance Co. Lid. [1967) 63 ITR 632. It was contended that the services provided by British Airways to other airlines did not constitute a separate or distinct business activity. It was also the further submission that the term “operation of aircraft” included any other activity directly connected with such transportation and it was specifically pointed out that providing ground handling services to its own aircraft as also the aircraft of any other airline was an activity directly connected with the transportation by air of persons, live-stock, goods etc. It was the subsequent argument that the Revenues generated from these services were exempt from tax in India vide paragraphs 1 and 3 of Article 8. Attention was also invited to the meaning of the word “pool” in various dictionaries and it was argued that the expression “participation in pools of any kind” meant sharing in operational sphere as also the commercial sphere for mutual benefit. ft was further argued that paragraph 2 of Article 8 was of wide amplitude and it was not circumvented or restricted or subjected to any condition or qualification. “

10. The Coordinate Bench after examining the expression ‘pool’ vis-à-vis clause 2 of Article 8 and after considering various decisions on which reliance was placed by the assessee concluded that the amount received by assessee on rendering ground handling and engineering services to other airlines in India is not eligible for treaty benefit under Article 8, hence, dismissed this ground of appeal. For the sake of completeness, relevant findings of the Tribunal on this issue are as under:

“52. Dealing at this stage with the arguments of the learned counsel for the assessee about the formation of “pools” vis-a-vis clause (2) of Article 8, this in our opinion envisages co-operation between various Airlines to carry on identical activities by pooling their resources and dividing the resultant profits. This may involve provision of services to each other or to persons outside the pool. No facts of the aforesaid nature emerge from the record in the present case since the income earned by the assessee is from various other Airlines for providing Engineering services for their aircraft etc. There is nothing to show that similar type of services have been availed off by the assessee from any other Airline although it is submitted so. In other words we have to hold that a pool does not exist and the question of participation thereof within the meaning of Article 8(2) does not arise.

53. Before we conclude this part of the order, we find it necessary to understand the meaning of the term/expression “pool” as follows :-

“(1) As per the New Webster’s Dictionary of the English Language pool as noun is defined as “a combination of individuals or organizations formed for the purpose of speculation as for manipulating the prices of stocks….”, “a combination of interests or funds for common advantage”, “a service or facility shared by a number of people, as a car pool.” “Pool” as verb means “to put as interest or money, into a Pool or common stock or fund.”

(2) As per “Words and Phrases Legally Defined”, “Pool” is defined thus : “the definitions of the word “Pool” show that in order to constitute a “Pool” there must be an aggregation of interest or a throwing of revenue or property into one common fund or a sharing of interest in that fund by all on an equal or previously agreed basis” Canadian Fur Auction Sales Co. (Quebec) Ltd. v. Neely (1954) 11, W.W.R. (N.S.) 254.

(3) As per Stroud’s Judicial Dictionary, “a stock exchange “Pool” is an arrangement between two or more persons for selling or buying some particular class of stock, shares or securities and apportioning the result among themselves…. “

(4) As per Oxford Shorter English Dictionary, “Pool” as verb means to “put (resources etc.) in a common stock of fund: share in common, combine for the common benefit.”

54. We are afraid the assessee does not fit into any of the above expressions vis-a-vis the activity under consideration.

55. The learned counsel made another submission during the hearing and that was that the ground handling services formed part and parcel of the price of the ticket. This is not supported by evidence or material.

56. Learned counsel in fact contended before us that “Pooling” be understood as per the “Mission Statement” of IATP appended at pages 200 to 207 of the paper book He referred to the following at page 201 :

“Most airlines would like to have critical spares parts available at down route locations to avoid excessive disruption to schedules if aircraft defects arise. Spare parts are expensive and airlines must balance the risk of needing a spare against the cost. IATP airlines exchange information on their fleets, their route networks and availability of spare parts. In this way, an airline may share access to a spare part provided by another airline by paying a share of the cost. Thus IATP airlines enjoy a wider availability of spares at lower cost and the opportunity to receive regular payment for spares which they hold. This is the basic principle ofpooling. To become a member of IATP, an airline must be willing to provide spares as well as share. The principle of pooling is also applied to ground equipment. An airline that holds an item of equipment at a down route location can obtain payment by sharing the equipment with other airlines.”

57. This was also considered by the CIT(Appeals) who opined that irrespective of the nomenclature used in the IATP Mission Statement there was no bringing together of the assets or personnel under joint command and nor was there any apportionment of profits. According to the CIT(Appeals) a mechanism was formed through the IATP under which airlines which did not have ground facilities at some stations could utilize the existing facilities of other airlines, but the necessary pre-requisites for constituting a pool i.e. bringing together of resources under a joint command and sharing of profits were missing. The position according to the CIT(Appeals) would have been different if the IATP would have brought together the facilities under a common umbrella containing the two aforesaid features and this would have brought into existence a pool.

58. We agree with the view taken by the CIT(Appeals) and further hold that there are no smaller pools within the larger pools envisaged by the IATP document as canvassed by the learned counsel and which could meet the twin requirements of Article 8(2). In coming to the conclusion that we have arrived at, due note is taken of various models, conventions, commentaries etc. to which the parties had adverted during the course of the hearing. The relevant extracts placed on the paper books filed by the parties have been thoroughly perused.

59. Another argument advanced was that the assessee had its own staff for servicing its aircraft and it was only during the intervening period when such staff was free then their services were supplied to other airlines. We do not think that the ground handling services to other airlines are of such a casual nature since it is an accepted fact between the parties that there are agreements between the assessee and other airlines for rendering of such services, the assessee had qualified engineers and technicians at various metropolitan cities in the country to render such services which are briefly explained as certifying the airworthiness of aircraft of other airlines before take off, but the services rendered appear to encompass many more activities which are detailed at pages 6 to 8 of the present order.

60. No doubt the CIT(Appeals) has not held the aforesaid to be a separate business activity but it is quite clear that rendering services to other airlines is an organized and planned activity to earn income and the tax authorities have rightly opined that such services rendered to own aircraft do not involve any taxable event, but imparting the same to other airlines does result in taxable income from a planned commercial activity. It has in fact been observed that non rendering of such services would not have any impact on the working of the assessee’s own airline. We agree with the observations and the ultimate view expressed by the tax authorities.

61. We now come to Article 8 itself with its separate clauses and on which have centered the arguments of both the parties.

62. Coming to Article 8(1) there is no confusion or ambiguity since it exempts from the pale of taxation in a contracting State the profit earned by the enterprise of the other contracting State from the operation of aircraft in international traffic if the enterprise has effective manage-ment in the contracting State.

63. Article 8(2) in our opinion speaks of the same type of activity giving rise to profits earned by the enterprise participating in a pool for earning the profits derived from international traffic. In other words, what is done by an enterprise singly in Article 1 is done by the same enterprise jointly with others by participating in a pool. We have in the earlier part of this order discussed at length the concept of “Pools” and nothing more is to be said so we move on to Article 8(3).

64. Article 8(3) expands the meaning of the term “operation of aircraft” to include transportation by air of (1) persons; (2) livestock goods or mail carried on by the owners or lessees or charterers of aircraft; (3) sale of tickets for such transportation on behalf of other enterprises; (4) incidental lease of aircraft on a charter basis; (5) any other activity directly connected with such transportation.

65. Both the parties are agreed that this clause is both activity based as also enterprise based, but “transportation” by aircraft of human beings and specified goods and even the term “any other activity” has to be considered with reference to such “transportation” as aiding it supporting it and incidental thereto. The tax authorities have referred to three such activities, namely :—

“(i) the operation of a bus service connecting a town with its airport;

(ii) transportation of goods by truck connecting a depot with the airport; and

(iii)  maintenance and running of a hotel by the airlines strictly for the use of its passengers for night accommodation and if the cost thereof is included in the price of the ticket and the hotel does not cater to any other category of persons.”

66. The above examples in our opinion do aptly qualify for inclusion in the category of “any other activity directly connected with such transportation” and by no stretch of imagination would it include the engineering/ground handling services provided by the assessee to other airlines.

67. It is clear from the discussion of the various clauses that the activities, which are tax exempt in India are specified and determined and there is no scope for an interpretation which could bring something more into the fold.”

11. The ld. Counsel for the assessee has tried to draw parity between the case of assessee and KLM Royal Dutch Airlines and Lufthansa German Airlines. The Coordinate Bench, while deciding appeal in the case of Lufthansa German Airlines vs. DCIT (supra) considered the decision in the case of assessee and has distinguished the same on facts.

12. The Revenue carried the issue in appeal before the Hon’ble High Court. The Revenue again placed reliance on the decision of Tribunal in the case British Airways (supra). The Hon’ble High Court distinguished the decision of Tribunal rendered in the case of assessee and held as under:-

“31. The terms of the India-UK DTAA as contrasted with the DTAA between India and Germany are dissimilar in some significant ways. The British Airways (supra) decision was based on the following facts- as held by the ITAT:

(i) British Airways provided engineering and ground handling services at IGI Airport, New Delhi to 11 other airlines, at Chennai to 5 other airlines and certain other airlines at Mumbai. It has not availed any services/facilities from any airlines in India. Thus, there was no reciprocity in the agreement entered into between British Airways and other airlines;

(ii) British Airways had a separate establishment and separate office set up to monitor ground handling services and different establishment at International Airports New Delhi did not form part and parcel of the operation of British Airways pertaining to the operation of aircrafts in international traffic. There is no such finding in the present appeals.

(iii) British Airways’ services and facilities in India to the other airlines was a commercial activity. The excess/idle capacity was provided to various airlines at a price. The services provided in terms of the IATP manual are not based on any consideration paid or received; a system of credits has been created for IATP members.

(iv) British Airways has a branch office in India, which constituted a Permanent Establishment (`PE’) in India, and, therefore, the income derived from PE in India was taxable as the same was not covered under DTAA.

(v) Article 8(2) of DTAA between India and UK provided that paragraph 1 of Article 8 shall likewise apply in respect of participation in pools of any kind. The words —pools of any kind was interpreted by the ITAT by taking the dictionary meaning of the word —pool. These are missing in the two DTAAs in question.

(vi) Article 8(3) of DTAA between India and UK provided that the terms “operation of aircraft” shall include “…3. For the purposes of this article the term “operation of aircraft” shall include transportation by air of persons, live-stock, goods or mail, carried on by the owners or lessees or charterers of aircraft, including the sale of tickets for such transportation on behalf of other enterprise, the incidental lease of aircraft on a charter basis and any other activity directly connected with such transportation”. These terms are not present in the two DTAAs in the present set of appeals.

(vii) After meeting the requirement of its own flights, the services of employees were required for handling other airlines’ operation for generating income.

32. Having regard to these facts, this Court is of opinion that the amplification of the term —operation of aircraftll in Article 8 (1) through Article 8 (3), i.e., “…3. For the purposes of this article the term “operation of aircraft” shall include transportation by air of persons, live-stock, goods or mail, carried on by the owners or lessees or charterers of aircraft, including the sale of tickets for such transportation on behalf of other enterprise, the incidental lease of aircraft on a charter basis and any other activity directly connected with such transportation…” had the effect of limiting the nature of activities that could be comprehended in the pool envisioned in Article 8 (2): in other words, the expanded meaning of operation of aircraft included those activities in Article 8(3) through the extended definition and no more. On the other hand, there is no such limitation in the DTAAs in question, in these cases. This constituted the most significant difference between the two sets of cases on the one hand, and British Airways (supra) on the other. For these reasons, this Court rejects the Revenue’s contentions. “

13. The Hon’ble High Court inter alia held that the provisions of Article 8 of India-UK DTAA are not pan materia to the provisions of Article 8 of India-Germany/Netherlands DTAA. The provisions of Article 8 of UK DTAA are narrower and does not extend to pooling services as envisaged in Article 8(4) of India- Germany/Netherlands DTAA. Thus, the decision rendered in the case of KLM Royal Dutch Airlines and Lufthansa German Airlines by Hon’ble High Court, does not support the cause of assessee in any manner. The ld. Counsel has further made an effort to draw some benefit from OECD commentary on Article 8 of tax treaty. It is a well-accepted proposition that OECD commentary is not binding precedent. In any case, Govt. of India has expressed its reservation in accepting the commentary on Article 8 with respect to income from ancillary activities.

14. It would not be out of place to mention that no material was placed on record by the assessee to show that the decision of Tribunal in assessee’s appeals for AY 1996-97 to 1998­99 was ever agitated before the Higher Appellate Authority. Thus, findings of the Tribunal on the issue attained finality. The ld. Counsel for the assessee has urged that the Tribunal order for AY 1996-97 to 1998-99 is based on wrong assumption of facts. The ld. Counsel has not placed on record any material to substantiate that any attempt was made by the assessee/appellant for rectification of alleged wrong facts recorded in the said order of Tribunal. In subsequent assessment years the issues were either settled under Vivad se Vishwas Scheme or under Mutual Agreement Procedure (MAP). In appeal of the assessee for AY 2005-06 similar issue was decided by the Tribunal [reported as 2009 com 1013 (Delhi Trib.)] against the assessee following order of the Tribunal for AY 1996-97 to 1998-99 (supra). Thus, the issue of taxability of income arising from rendering ground handling and engineering services to other airlines in India, has been consistently held as taxable in India.

15. Thus, in light of facts of the case and decisions discuss above, we find no merit in ground no. 1 of the appeal, hence, ground no. 1 and other grounds raised in support of ground no. 1 are dismissed.

16. In the result, appeal of the assessee is dismissed.

ITA No. 2201/De1/2017 (AY 2010-11)

17. Both sides are unanimous stating that the grounds of appeal and facts in the appeal for AY 2010-11 are identical to facts and ground in AY 2009-10. Therefore, the submissions already made would equally apply to this appeal.

18. Since, the grounds of appeal and the facts are identical in both the appeals, the finding given by us while adjudicating appeal of the assessee in AY 2009-10 would mutatis mutandis apply to the present appeal. For parity of reasons, appeal of the assessee is dismissed.

19. To sum up appeals of the assessee for AY 2009-10 and 2010-11 are dismissed.

Order pronounced in the open court on Tuesday the 14^th of July, 2026.