Income Tax Appellate Tribunal - Delhi
Lufthansa German Airlines, New Delhi vs Department Of Income Tax on 17 January, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: 'D' NEW DELHI
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND
SHRI K.D. RANJAN, ACCOUNTANT MEMBER
I.T.A No. 1394/Del/11
Asstt. Year - 2006-07
Deputy Director of Income Vs. KLM Royal Dutch Airlines,
Tax
Prakash Deep Building,
Circle-3(1), International
7, Tolstoy Marg,
Taxation, Room No. 202,
New Delhi
Drum Shaped Building
AABCK3950H
New Delhi.
(Appellant) (Respondent)
Appellant by: Smt. Reena S Puri, CIT(DR)
Respondent by: Shri Salil Aggrawal, Advocate
AND
I.T.A No. 1392/Del/11
Asstt. Year - 2006-07
Deputy Director of Income Vs. Lufthansa German Airlines,
Tax
12th Floor, DLF Building,
Circle-3(2), International
No. 10, Tower-B, DLF City,
Taxation, Room No. 411,
Phase-II, Gurgaon
Drum Shaped Building,
AAACL5792P
New Delhi.
(Appellant) (Respondent)
2 ITA Nos. 1394, 1392/Del/11
Asstt. years 2006-07
Appellant by: Smt. Reena S Puri, CIT(DR)
Respondent by: Shri Rajiv Pal Puri, FCA
ORDER
PER RAJPAL YADAV, JM:
The present two appeals are directed at the instance of revenue against the orders of Ld. CIT(A) dated 17.1.2011 & 14.12.2010 passed in asstt. years 2006-07 on the respective appeals of the respondents. The grounds of appeal taken by the revenue in both the appeals read as under :-
"ITA No. 1394/Del/2011
M/s. K L M Royal Dutch Airlines
1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that assessee's income from ground handling and technical handling services is not taxable in India as the same is held to be covered by Article 8 of DTAA India and Netherlands.
2. The appellant craves to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal.ITA No. 1392/Del/2011
M/s. Lufthansa German Airlines
1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that the income of the assessee from ground handling and technical handling for other Airlines in India, was not taxable in India.
2. The appellant craves to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal."
3 ITA Nos. 1394, 1392/Del/11
Asstt. years 2006-07
2. Shri Salil Aggarwal, Ld. Counsel for the assessee appearing on behalf of the respondent. M/s. KLM Royal Dutch Airlines submitted that the issue whether ground handling and technical services extended by the assessee is tobe considered as a separate activity then operations of aircraft in international traffic has been considered by the Tribunal in asstt. years 2004- 05, 2005-06, 2007-08 in ITA No. 403, 404/D/2010 and 4811/D/2010. The Tribunal has observed that such services are to be considered part of business of assessee from operation of aircraft in international traffic. He placed on record copies of the Tribunal's order in these ITA numbers. He submitted that in this year assessee has extended technical service only, thus this issue in dispute is squarely covered in favour of the assessee and the appeal of the revenue deserves to be dismissed. Similarly, Shri Rajiv Pal Puri, Chartered Accountant appearing on behalf of the Lufthansa German Airlines has relied upon the order of ITAT No. 4939/D/2009 passed in asstt. year 1996-97 as well as order of the Tribunal in asstt. Years 2002- 03, 2003-04 passed in ITA Nos. 1878, 1879/D/2006. He pointed out that in asstt. year 1996-97 Tribunal has examined this issue 4 ITA Nos. 1394, 1392/Del/11 Asstt. years 2006-07 in detail in its own case. The appeals against the Tribunal's order are pending before the Hon'ble Delhi High Court. Ld. DR on the other hand has submitted that in earlier years in the appeals of both the assessees, Tribunal had failed to consider certain aspects. She submitted that both the assessees are in the airline business. The Article 8 of the DTAA entered with Germany and Netherland by the India contemplates the assessment of income from aircraft operation. Article 8(1) propound that profit from the operation of aircraft in international traffic shall be taxable only in the contracting state in which the place of effective management of the enterprise is situated. She emphasized that this article deals with the expression "operation of aircraft in international traffic". Article 3(i) of the treaty with Germany and Article 3(h) of the treaty with Netherlands provides the definition of expression "international traffic". Accordingly "international traffic" means, transport by aircraft operated by an enterprises which has its place of effective management in a contracting state except when the aircraft is operated solely between places in the other contracting state. According to the Ld. DR, 5 ITA Nos. 1394, 1392/Del/11 Asstt. years 2006-07 the expression "operation of aircraft" has not been definition in the DTAA. She referred to article 3.2 which suggest that the applicability of the DTAA and point out that any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the law of that state concerning the taxes to which this agreement applies. On the strength of article 3.2, she pointed out that when a term is not defined in the treaty then reference is to be made to the domestic law and the meaning assigned in the domestic law is to be applied. In the domestic law the term operation of aircraft finds specific reference in section 44BBA that deals with special provision for computing profits and gains of the business of operation of air craft in the cases of non resident. This section read as under :-
"Special provision for computing profits and gains of the business of operation of aircraft in the case of non-
non-residents.
44BBA. (1) Notwithstanding anything to the contrary contained in sections 28 to 43A, in the case of an assessee, being a non-resident, engaged in the business of operation of aircraft, a sum equal to five per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and gains of business or profession". (2) The amounts referred to in sub-section (1) shall be the following, namely :-
(a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the 6 ITA Nos. 1394, 1392/Del/11 Asstt. years 2006-07 carriage of passengers, livestock, mail or goods from any place in India ; and
(b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriage of passengers, livestock, mail or goods from any place outside India. (emphasis supplied)."
3. On the strength of section 44BBA, she pointed out that expression "operation of aircraft" is to be construed that it relates to carriage of passengers, livestock, mail or goods. It does not take into its folds, the receipts received by providing ground handling and technical services rendered to other airlines at Indian airport and thus such receipts are taxable in India. The assessee will not be entitled to take the benefit of article 8 of the DTAA on the ground that handing and technical services are part of operation of aircraft in international traffic. She placed on record a note to the above effect.
4. We have duly considered rival contention and gone through the record carefully. In the case of M/s KLM Royal Dutch Airlines for asstt. year 2004-05and 2005-06, the ITAT has taken note of Article 8 of the DTAA relating to three countries namely Germany, Netherland and UK. On an analysis of this Article and construed the meaning of expression "profit from the operation of ship or aircraft in international traffic". The 7 ITA Nos. 1394, 1392/Del/11 Asstt. years 2006-07 Tribunal has also noticed the order of ITAT in the case of Lufthansa Airlines reported in 90 ITD page 310. The order of the Tribunal in those years is as under :-
"9. We have duly considered the rival contentions and gone through the record carefully. The sole issue for our adjudication is whether ground handling services and technical handling services rendered by the assessee to other airlines in India are to be considered part of business of assessee from operation of aircraft in international traffic or they are separate distinct activities. In order to appreciate this issue, the Article 8 available in the three treaties referred above has a direct bearing, therefore, it is salutary upon us to take note of this article in all the three treaties in a tabular form for comparative study which reads as under:
Indo Germany DTAA Indo-Netherland DTAA Indo-UK.DTAA ARTICLE-B Shipping ARTICLE 8 -Air ARTICLE 8-Air and air transport transport- transport -
1. Profit from the 1. Profits from the 1.Profits derived from operation of operation of the operation of ships or aircraft aircraft in aircraft in in international international international traffic by traffic shall be traffic shall be an enterprise of one taxable only in taxable only in of the Contracting the Contracting the State in States shall not be State in which which the place taxed in the other the place of of effective Contracting State.
effective management of
2. The provision of
management of the enterprise is
paragraph 1 of this
the enterprise is situated.
Article shall likewise
situated.
2. For the purpose apply in respect
respect of
2. If the place of of this Article: participation in pools
effective (a) profits from of any kind by
management of the operation in enterprises engaged in
a shipping international air transport.
transport
enterprise is traffic of aircraft 3.For the purposes of
abroad a ship, include profits this Article the term
then it shall be derived from "operation of aircraft"
deemed to be the rental on a shall include
8 ITA Nos. 1394, 1392/Del/11
Asstt. years 2006-07
situated in the bareboat basis transportation by air
Contracting of aircraft if of persons livestock,
State in which operated in goods or mail, carried
the home international on by the owners or
harbour of the traffic if such lessees or characters
ship is situated, rental profits of aircraft, including
or, if there is no are incidental to the sale of tickets for
such home the profits such transportation on
harbour, in the described in behalf of other
Contracting paragraph 1; (b) enterprises, the
State of which interest on incidental lease of
the operator of funds connected aircraft on a character
the ship is a with the basis and any other
resident. operation of activity directly
aircraft in connected with such
3. For the
international transportation.
purposes of this
traffic shall be 4. Gains derived by an Article, interest regarded as enterprise of a on funds profits derived Contracting State connected with from the from the alienation of the operation of operation of aircraft owned and ships or aircraft such aircraft operated by the in international and the enterprise, the income traffic shall be provisions of from which is taxable regarded as Article 11 shall only in that State, profits derived not apply in shall be taxed only in from the relation to such that State."
operation of
interest.
such ships or
3. The
aircraft, and the
provisions of
provisions of
paragraph 1
Article Income-
shall also apply
tax Officer, shall
to profits from
not apply in
the participation
relation to such
in a pool, a joint
interest. business or an
4. The provisions international
of Paragraph 1 operating
shall also apply agency.
agency
to profits from
the participation
9 ITA Nos. 1394, 1392/Del/11
Asstt. years 2006-07
in a pool, a joint
business or an
international
operating
agency.
agency
10. The expression "profit from the operation of ship or air-craft in international traffic" has not been defined in Indo-Netherlands DTAA. Similarly, it has not been defined in the Indo-German DTAA.
However, in sub-article-3 of Article 8 in the treaty between Indo & UK, it has been explained. Thus, there is a distinction between these three sets of DTAA. The position in Indo-German DTAA and Indo- Netherlands DTAA are similar on the one hand whereas the position in the Indo-UK DTAA, it is slightly different. This question arose before the ITAT in the case of Lufthansa German Airlines also. The ITAT while explaining the meaning of profit from the operation of ships or air-craft in international traffic has took into consideration the bye-laws of international airlines technical pool (IATP) because this organization authorized its members to share air-crafts, air- crafts pooling, ground handling equipment and manpower all over the world. The ITAT has considered the relevant clauses of IATP manual and thereafter concluded that any receipt received by the assessee due to participation in the pool as provided in IATP manual and also explained in sub-article 4 of Indo-German DTAA will not be taxable in India under sub Article 1 of Article 8. In the present appeals, there is no disparity on facts. Learned DR except raising an argument that ground handling and technical handling services are different activities then operation of any air-craft in international traffic failed to bring any rules, regulations, bye-laws for substantiating his contentions. The co-ordinate Bench of the ITAT has examined this issue in detail and considered these aspects. Unless some strong circumstances which has not been brought to the notice of the earlier Bench, are available, we cannot take a different stand even if it is possible to take the other view. The revenue is unable to bring any material on record which can pursued us to take a different view then the one earlier taken by the ITAT in the case of Lufthansa Airlines reported in 90 ITD page 310. The ITAT has distinguished the facts in the case of Lufthansa then British Airways. The Indo-Netherlands treaty is similar to that of Indo-German and not in parity with Indo UK Treaty. In view of the above discussion, we do not find any merit in these appeals. They are dismissed. "
5. In the case of Lufthansa Airlines, Tribunal has considered this aspect more elaborately. There is no disparity on facts. The 10 ITA Nos. 1394, 1392/Del/11 Asstt. years 2006-07 appeals against the orders of the Tribunal are stated to be pending before the Hon'ble Delhi High Court. In our opinion, in the case of Lufthansa Airlines though section 44BBA has not been taken into consideration, but Tribunal has explained the meaning of operation of aircraft in international traffic and arrived at a conclusion that ground handling services and technical services rendered to other airlines at Indian airport would be considered as part of operation of aircraft in international traffic. Such conclusion was drawn by construing position available in the DTAA. Therefore, we do not see any reason to deviate ourselves from the orders of the Tribunal in the cases of both the assessees in earlier years. Accordingly, we do not find any merit in these appeals they are dismissed.
Order pronounced in the open court on 20th January, 2012.
Sd/- sd/-
[K.D. RANJAN] [RAJPAL YADAV]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 20.1.2012
Veena
Copy forwarded to: -
1. Appellant
2. Respondent
11 ITA Nos. 1394, 1392/Del/11
Asstt. years 2006-07
3. CIT
4. CIT (A)
5. DR, ITAT TRUE COPY By Order,
Deputy Registrar,
ITAT