Delhi High Court - Orders
The Milestone Aviation Asset Holding ... vs Assistant Commissioner Of Income Tax ... on 29 March, 2022
Author: Rajiv Shakdher
Bench: Rajiv Shakdher
$~54
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 5220/2022
THE MILESTONE AVIATION ASSET HOLDING GROUP NO. 25
LTD. .....Petitioner
Through: Mr Sachit Jolly, Mr Rohit Garg, Ms
Disha Jham, Ms Mehak Sachdeva
and Mr Sohum Dua, Advocates
versus
ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 3(1)(1)
INTERNATIONAL TAXATION
NEW DELHI & ORS. ..... Respondents
Through: Mr Shlok Chandra, Jr. Standing
Counsel
CORAM:
HON'BLE MR. JUSTICE RAJIV SHAKDHER
HON'BLE MS. JUSTICE POONAM A. BAMBA
ORDER
% 29.03.2022 [Physical court hearing/ hybrid hearing (as per request)] CM APPL. 15570/2022
1. Allowed, subject to the applicant/petitioner filing typed/legible copies of dim documents, at least three days before the next date of hearing. W.P.(C) 5220/2022 & CM APPL. 15569/2022[Application filed on behalf of the petitioner for interim relief]
2. This writ petition is directed against the notice dated 31.03.2021, issued to the petitioner/assessee under Section 148 of the Income Tax Act, 1961 [in short 'the Act']. The impugned notice concerns the Assessment Year [AY] 2016-17.
3. Mr Sachit Jolly, who appears for the petitioner/assessee, says that the impugned notice is flawed for more than one reason. For this purpose, he W.P.(C) 5220/2022 page 1 of 5 Signature Not Verified Digitally Signed By:PREM MOHAN CHOUDHARY Signing Date:30.03.2022 18:15:32 has drawn our attention to the order setting out the reasons for issuance of the impugned notice. In particular, our attention has been drawn to paragraph 10 of the said order, which is appended on page 37 of the case file:
"10.Reasons for the belief that the income has escaped assessment An information has been received that the assessee M/s. The Milestone Aviation Asset Holding Group No. 25 Ltd., a non-resident, has received an amount of Rs. 6,35,91,111/- from M/s. Global Vectra Helicorp Ltd. during F.Y. 2015-16 for aircraft leasing. However, during verification proceedings, the payer has not been able to substantiate the recipient assessee's economic substance. Hence, the information indicates that the consideration so received by the assessee is in the nature of Royalty for use of aircraft in accordance with Section 9(1)(vi) of the Income-tax Act and provisions of the relevant DTAA, and in turn is chargeable to tax in India.
No tax has been deducted at source on the above- mentioned payment so received by the non-resident. The assessee has not filed any return of income for F.Y. 2015.16 relevant to A.Y. 2016-17. Hence, receipt of Rs. 6,35,91,111/- sourced in India and received by the assessee has not been offered to tax. Further, the case of the assessee is covered under Para l(A) of the CBDT instruction regarding selection of potential cases for issue of notice u/s. 148 of the Income Tax Act, 1961 issued vide F. No. 225/40/2021/IAT-II dated 15.02.2021.
In view of the above, I have reason to believe that an income of Rs. 6,35,91,111/- chargeable to income tax has W.P.(C) 5220/2022 page 2 of 5 Signature Not Verified Digitally Signed By:PREM MOHAN CHOUDHARY Signing Date:30.03.2022 18:15:32 escaped assessment for the A.Y. 2016-17 within the meaning of section 147 of the Income-tax Act 1961, which is exceeding Rs. 1 Lakh.
As the case pertains to a period under four years from the end of the relevant assessment year at the time of issue of notice, necessary sanction is sought from the joint Commissioner of Income Tax (IT)-Range 3(1), New Delhi for issue of notice u/s. 148 of Income Tax Act, 1961."
[Emphasis is ours.] 3.1. Furthermore, Mr Jolly says that the petitioner/assessee has in its possession the Tax Residency Certificate (TRC). The petitioner, according to Mr Jolly, is a resident of Ireland. For this purpose, our attention has been drawn to pages 42 and 43 of the case file.
3.2. Besides this, Mr Jolly has also referred to the Double Tax Avoidance Agreement [in short 'DTAA'] entered into between India and Ireland. In particular, our attention has been drawn to the Articles 8(1) and 12 (3) (a). For the sake of convenience, the same are extracted hereafter :
"Article 8 - Shipping and air transport
1. Profits derived by an enterprise of a Contracting State from the operation or rental of ships or aircraft in international traffic and the rental of containers and related equipment which is incidental to the operation of ships or aircraft in international traffic shall be taxable only in that Contracting State.
xxx xxx xxx Article 12 - Royalties and fees for included services
3. (a) The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic, or W.P.(C) 5220/2022 page 3 of 5 Signature Not Verified Digitally Signed By:PREM MOHAN CHOUDHARY Signing Date:30.03.2022 18:15:32 scientific work, including cinematograph films or film or tapes for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process or for the use of or the right to use industrial, commercial or scientific equipment, other than an aircraft, or for information concerning industrial, commercial or scientific experience." [Emphasis is ours.]
4. The record, as currently placed before us, shows us that the petitioner/assessee has leased out a Helicopter to an entity going by the name Global Vectra Helicorp Limited (GVHL). The Assessing Officer [AO] has, concededly, equated Helicopter to an aircraft. There appears to be no dispute on this score.
4.1. The Assessing Officer [AO] appears to have treated the lease rent received by the petitioner/assessee as royalty, and, hence, reached a conclusion that the same will be taxable in India as royalty for use of aircraft, in accordance with the provisions of Section 9(1)(vi) of the Act read with the relevant provisions of the DTAA, without noticing that under Article 12(3)(a) of the DTAA, the term "royalty" excludes the consideration received against use of aircraft. Furthermore, profits derived by an enterprise of a Contracting State appear to be taxable only in the Contracting State [in this case, Ireland].
5. Thus, as noticed above, royalty from aircraft is, prima facie, not taxable in India.
6. Accordingly, issue notice to the respondents/revenue, via all permissible modes, including e-mail.
W.P.(C) 5220/2022 page 4 of 5 Signature Not Verified Digitally Signed By:PREM MOHAN CHOUDHARY Signing Date:30.03.2022 18:15:32
7. Counter-affidavit will be filed, within four weeks of service being effected.
7.1 Rejoinder thereto, if any, will be filed before the next date of hearing.
8. In the interregnum, there shall be a stay on the operation of the impugned notice dated 31.03.2021.
9. List the matter on 03.08.2022.
RAJIV SHAKDHER, J
POONAM A. BAMBA, J
MARCH 29, 2022/g.joshi
W.P.(C) 5220/2022 page 5 of 5
Signature Not Verified
Digitally Signed By:PREM
MOHAN CHOUDHARY
Signing Date:30.03.2022
18:15:32