ADIT, New Delhi v. Lufthansa German Airlines, Gurgaon

ITA 3067/DEL/2009 | 2005-2006
Pronouncement Date: 22-01-2010 | Result: Dismissed

Appeal Details

RSA Number 306720114 RSA 2009
Bench Delhi
Appeal Number ITA 3067/DEL/2009
Duration Of Justice 6 month(s) 20 day(s)
Appellant ADIT, New Delhi
Respondent Lufthansa German Airlines, Gurgaon
Appeal Type Income Tax Appeal
Pronouncement Date 22-01-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 22-01-2010
Date Of Final Hearing 17-12-2009
Next Hearing Date 17-12-2009
Assessment Year 2005-2006
Appeal Filed On 02-07-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI RAJPAL YADAV JM AND SHRI R.C.SHARMA A M ITA NO.3067/DEL/2009 ASSESSMENT YEAR : 2005-06 ASSTT.DIRECTOR OF INCOME TAX CIRCLE-3(1) & 3(2) INTERNATIONAL TAXATION NEW DELHI. VS. M/S LUFTHANSA GERMAN AIRLINES 12 TH FLOOR DLF BUILDING NO.10 TOWER-B DLF CITY PHASE-II GURGAON HARYANA. PAN NO.AAACL5792P. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHWANI KUMAR CIT-DR. RESPONDENT BY : SHRI RAJIV PAL PURI FCA. ORDER PER R.C.SHARMA AM : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 16.3.2009 FOR AY 2005-06. THE REVENUE IS AGGRIEVED BY THE ACTION OF CIT(A) FOR HOLDING THAT ASSESSEE IS NOT LIABLE TO TAX IN INDIA ON THE RECEIPTS FROM TECHNICAL HANDLING SERVICES IN VIEW OF PROVISIONS OF ARTICLE 8(4) OF DTAA BETWEEN INDIA AND GERMANY. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS AN INTERNATIONAL AIR TRANSPORT OPERATOR INCORPORATED IN GERMANY HAVING ITS HEAD/CONTROLLING OFFICE AT VON-GABLENZ- STR-2-6 50679 COLOGNE AND A BRANCH IN INDIA AT 56 JANPATH NEW DELHI. THE A SSESSEE HAS FILED ITS INCOME TAX RETURN ON 30.10.2005 DECLARING NIL INCOME. APART F ROM ITS NORMAL BUSINESS OF AIR TRANSPORT OPERATION THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RENDERING ENGINEERING AND TECHNICAL HANDLING SERVICES TO OTHE R AIRLINES AT 3 AIRPORTS IN INDIA NAMELY DELHI CHENNAI AND MUMBAI. THE PAYMENTS FOR THESE SERVICES ARE SETTLED ABROAD THROUGH IATA CLEARANCE. THE INCOME OF THE A SSESSEE ARISING OUT OF AIR ITA-3067/DEL/2009 2 TRANSPORT OPERATIONS IN INTERNATIONAL TRAFFIC IS SP ECIFICALLY EXEMPT UNDER ARTICLE 8 OF DTAA BETWEEN INDIA AND GERMANY. HOWEVER THE AO BROUGHT TO TAX INCOME FROM GROUND AND TECHNICAL HANDLING SERVICES RENDERE D TO OTHER AIRLINES BY THE ASSESSEE IN INDIA. THE CIT(A) BY FOLLOWING THE DEC ISION OF THE TRIBUNAL IN ASSESSEES OWN CASE ON THE VERY SAME ISSUE ALLOWED THE APPEAL IN FAVOUR OF THE ASSESSEE BY HOLDING THAT INCOME FROM GROUND RENT AN D TECHNICAL HANDLING SERVICES RENDERED TO OTHER AIRLINES BY THE ASSESSEE IN INDIA IS NOT TAXABLE IN INDIA. AGGRIEVED BY THE SAME THE REVENUE IS IN APPEAL BEF ORE US. 3. AT THE OUTSET LEARNED AR PLACED ON RECORD THE O RDER OF ITAT IN ASSESSEES OWN CASE FOR AY 1996-97 97-98 98-99 92-93 TO 95- 96 1999-2000 2000-01 2002-03 & 2003-04 WHEREIN THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. 4. IT WAS ARGUED BY LEARNED CIT-DR SHRI ASHWANI KUM AR THAT ITAT DELHI BENCH HAS TAKEN A CONTRARY VIEW IN ITS DECISION REN DERED IN THE CASE OF BRITISH AIRLINES PLC. WHICH IS REPORTED AT 80 ITD 90 AND CO NTENDED THAT GROUND ENGINEERING AND HANDLING CHARGES ARE HELD TO BE NOT COVERED BY ARTICLE 8(1) OF DTAA BETWEEN INDIA AND UK AND HENCE TAXABLE IN INDI A. LEARNED CIT-DR FURTHER CONTENDED THAT DECISION OF BRITISH AIRLINES PLC. HAS BEEN DISTINGUISHED BY ITAT IN ITS DECISION RENDERED IN THE CASE OF LUFTHA NSA GERMAN AIRLINES IN PARA 26 OF ITS ORDER. AS PER LEARNED CIT-DR THERE APPEARS NO MATERIAL DIFFERENCE BETWEEN FACTS OF BRITISH AIRLINES PLC. AND LUFTHANSA GERMAN AIRLINES. THE MAIN DIFFERENCE AS NOTICED IN PARA 26 IS REGARDING NATURE/DEFINITIO N OF THE POOL IN CASE OF TWO ASSESSEES INVOLVED. EVEN IF IT IS ACCEPTED THAT NA TURE OF POOL IS DIFFERENT IN TWO CASES THAT HAS NO BEARING ON NATURE OF INCOME COVE RED UNDER ARTICLE 8(1) OF DTAA WHICH IS SIMILAR IN RESPECT OF BOTH INDIA-UK A ND INDIA-GERMANY TAX TREATIES. ARTICLE 8(1) IS MACHINERY PROVISION WHIC H PROVIDES DISTRIBUTIVE RULE FOR TAXATION OF INCOME EARNED FROM OPERATION OF AIRLINE S ETC. IN INTERNATIONAL TRAFFIC. ARTICLE 8(4) TALKS OF A SITUATION WHERE THE INCOME IS DERIVED FROM PARTICIPATION IN A POOL ETC. SINCE ARTICLE 8(4) IS SUBSIDIARY TO ARTIC LE 8(1) THEREFORE INCOME REFERRED ITA-3067/DEL/2009 3 TO IN ARTICLE 8(4) SHOULD BE OF THE SAME NATURE AS PRESCRIBED IN ARTICLE 8(1). THAT MEANS THAT INCOME DERIVED FROM OPERATION OF AIRCRAF T IN INTERNATIONAL TRAFFIC IS COVERED BY ARTICLE 8(1) EVEN IF SUCH INCOME IS DERI VED FROM PARTICIPATION IN A POOL ETC. IT IS AN ACCEPTED PRINCIPLE THAT FOR INTERPRE TATION OF DTAA OECD MODEL COMMENTARY IS A USEFUL TOOL. PARA 4 TO 10.1 OF COM MENTARY TALK ABOUT VARIOUS INCOMES WHICH MAY BE CONSIDERED TO BE COVERED BY AR TICLE 8(1) THOUGH THESE ARE EARNED FROM VARIOUS ANCILLARY ACTIVITIES AND NOT DI RECTLY FROM OPERATION OF AIRCRAFTS IN INTERNATIONAL TRAFFIC. RECEIPTS FROM GROUND ENG INEERING AND HANDLING ACTIVITIES IS ONE OF SUCH ANCILLARY ACTIVITY AS MENTIONED IN P ARA 10.1 OF THE COMMENTARY. INDIA IS NOT A MEMBER STATE OF OECD AND IT HAS STAT US OF AN OBSERVER ONLY AND THEREFORE POSITION/VIEWS OF INDIA IN RESPECT OF VAR IOUS ARTICLES OF MODEL TAX CONVENTION AND PARAGRAPHS OF COMMENTARY ARE REFLECT ED SEPARATELY IN OECD MODEL CONVENTION. PARAGRAPH 10 OF SUCH POSITION SAYS THAT INDIA BRAZIL AND MALAYSIA DO NOT AGREE WITH INTERPRETATION GIVEN IN PARA 4 TO 10.1 OF COMMENTARY. COPIES OF RELEVANT DOCUMENTS HAVE BEEN FURNISHED DU RING THE COURSE OF HEARING. FROM ABOVE IT BECOMES CLEAR THAT GROUND ENGINEERIN G AND HANDLING CHARGES ARE NOT COVERED UNDER ARTICLE 8(1) AND HENCE THESE ARE TAXABLE IN INDIA AS BUSINESS PROFITS UNDER ARTICLE 7 OF DTAA. WITHOUT PREJUDICE TO THIS CONTENTION THE MATTER MAY BE REFERRED TO SPECIAL BENCH OF ITAT IN VIEW OF CONFLICTING DECISIONS OF ITAT KEEPING IN VIEW THE IMPORTANCE OF ISSUE INVOLV ED. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND CAR EFULLY GONE THROUGH THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE AS ST ATED HEREINABOVE. WE HAVE ALSO GONE THROUGH THE ORDER OF THE TRIBUNAL IN THE CASE OF BRITISH AIRLINES PLC. (SUPRA). WHILE DECIDING THE APPEAL IN THE CASE OF THE ASSESS EE THE TRIBUNAL HAS ALREADY CONSIDERED THE PROPOSITION LAID DOWN IN THE CASE OF BRITISH AIRLINES PLC. (SUPRA) AND AFTER CONSIDERING THE SAME CAME TO THE CONCLUSI ON THAT ASSESSEE IS NOT LIABLE TO TAX IN INDIA FROM THE RECEIPTS FROM TECHNICAL HANDL ING SERVICES. FOLLOWING ARE THE OBSERVATIONS OF THE TRIBUNAL :- ITA-3067/DEL/2009 4 TAX AGREEMENTS ARE MEANT TO FACILITATE ECONOMIC RE LATION BETWEEN COUNTRIES AND THESE FORM A CONCRETE AND RELIABLE BA SIS FOR TAX RELATIONS BETWEEN THE CONTRACTING COUNTRIES. SECTI ON 90(2) IN FACT GIVES AN OPTION TO AN ASSESSEE TO CHOOSE WHICHEVER PROVISION IS MORE BENEFICIAL TO IT WHETHER THE AGREEMENT OR THE AC T AND HE CAN SEEK APPLICATION AT THE SAME TIME OF THE PROVISIONS OF B OTH THE AGREEMENT AND THE ACT CONSIDERING THE BENEFITS THEREOF IN THE PRESENT CASE THE ASSESSEE HAD NOT RELIED ON ANY PROVISION OF THE ACT WHICH SUPPORTED ITS STAND AND THE ISSUE HA D TO BE DECIDED ON THE BASIS OF THE DTAA. THE AGREEMENT BEING IN THE NATURE OF A SPECIAL LAW OVERRIDES THE ACT EXCEPT WHERE THE PROVISIONS OF THE LATTER ARE BENEF ICIAL AND AFTER SUCH AN OPTION AN ASSESSEE CANNOT ASK FOR ANY FAVOURABLE OR LIBERAL INTERPRETATION CONTENDING THAT INCOME OF SUCH AND S UCH TYPE FROM SERVICES RENDERED IN INDIA IS NOT TAXABLE UNDER THE AGREEMENT. A DTAA DETERMINES THE RIGHTS OF THE STATE I.E. IN DIA IN THIS CASE OF TAX A PARTICULAR RECEIPT AND THAT HAPPENED TO BE TH E INCOME OF BRITISH AIRWAYS FROM GROUND HANDLING/ENGINEERING SERVICES R ENDERED TO OTHER AIRLINES AT VARIOUS AIRPORTS IN INDIA. IN TH E INSTANT CASE RENDERING SERVICES TO OTHER AIRLINES WAS AN ORGANIZ ED AND PLANNED ACTIVITY TO EARN INCOME AND THE TAX AUTHORITIES HAD RIGHTLY OPINED THAT SUCH SERVICES RENDERED TO OWN AIRCRAFT DID NOT INVO LVE ANY TAXABLE EVENT BUT IMPARTING THE SAME TO OTHER AIRLINES DID RESULT IN TAXABLE INCOME FROM A PLANNED COMMERCIAL ACTIVITY. IN FACT NON-RENDERING OF SUCH SERVICES WOULD NOT HAVE ANY IMPACT ON THE W ORKING OF THE ASSESSEES OWN AIRLINE. ARTICLE 8(3) IS BOTH ACTIV ITY BASED AS ALSO ENTERPRISE BASED BUT TRANSPORTATION BY AIRCRAFT OF HUMAN BEINGS AND SPECIFIED GOODS AND EVEN THE TERM ANY OTHER AC TIVITY HAS TO BE CONSIDERED WITH REFERENCE TO SUCH TRANSPORTATION AS AIDING IT SUPPORTING IT AND INCIDENTAL THERETO. BY NO STRETC H OF IMAGINATION WOULD IT INCLUDE THE ENGINEERING/GROUND HANDLING SE RVICES PROVIDED BY THE ASSESSEE TO OTHER AIRLINES. THUS THE ACTIV ITIES WHICH ARE TAX EXEMPT IN INDIA ARE SPECIFIED AND DETERMINED AND T HERE IS NO SCOPE FOR AN INTERPRETATION WHICH COULD BEING SOMETHING M ORE INTO THE FOLD. HENCE THE MAIN COMMON ISSUE PERTAINING TO T AXABILITY OF THE AMOUNT RECEIVED BY RENDERING GROUND ENGINEERING SER VICES TO OTHER AIRLINES WAS TO BE DECIDED AGAINST THE ASSESSEE. AS REGARDS THE COMPENSATION OF THE TAXABLE INCOME THE ASSESSEE COULD BE ALLOWED ANOTHER OPPORTUNITY TO SUBSTANTIAT E ITS RETURNED FIGURES WHEN IT HAD BEEN CATEGORICALLY STATED THAT RELEVANT FACTS AND ITA-3067/DEL/2009 5 FIGURES WERE AVAILABLE WITH THE ASSESSEE AND IT WOU LD BE IN A POSITION TO SUPPORT THE RETURNED FIGURES. THE COMMISSIONER (APPEALS)S ORDER VIS--VIS THE PO INT AT ISSUE WERE ACCORDINGLY SET ASIDE AND THE MATTER RESTORED BACK TO THE ASSESSING OFFICER. 6. WE ALSO FOUND THAT IN ITS ORDER DATED 2.2.2004 F OR AY 1996-97 IN APPEAL NO.4939/DEL/1999 THE ITAT DISTINGUISHED THE FACTS OF THE ASSESSEES CASE FROM THE CASE OF BRITISH AIRLINES PLC. (SUPRA). THE REL EVANT PARAS OF THE ORDER OF THE ITAT ARE AS UNDER:- WE ALSO FIND THAT ARTICLE 8(3) OF DTAA BETWEEN IND IA AND UK PROVIDED THAT THE TERM OPERATION OF AIRCRAFTS SHAL L INCLUDE ----------- CHARTER OF AIRCRAFTS INCLUDING THE SALE OF TICKETS FOR SUCH TRANSPORTATION -------------. SUCH ACTIVITY IS NO T PROVIDED IN THE IATP MANUAL. THE IATP MANUAL HAS PROVIDED THE PREC ISE SERVICES WHICH COULD BE RENDERED/AVAILED BY ITS MEMBERS WHIC H HAS BEEN ENUMERATED EARLIER. THEREFORE IT WAS CLEAR THAT I N THE CASE OF BRITISH AIRWAYS THE FACILITIES PROVIDED TO OTHER AIRLINES WERE BEYOND THE SCOPE OF IATP OBJECTS AND THEREFORE THE PROFIT FR OM RENDERING SUCH SERVICES CANNOT BE TERMED AS PROFITS FROM PARTICIPA TION IN A POOL. BUT IN THE CASE OF THE APPELLANT THE SERVICES TO B E RENDERED TO THE MEMBERS AIRLINES WERE AS PER IATP MANUAL AND THE HA NDLING CHARGES WERE ALSO AS PER IATP MANUAL. WE HAVE ALSO NOTED THAT AS PER ARTICLE 8(4) OF DTAA BETWEEN INDIA AND GERMANY THE PROFIT FROM THE PARTICIPATION IN A POOL WILL NOT BE TAXABLE IN INDIA. BUT ARTICLE 8(2) OF DTAA BETW EEN INDIA AND UK TALKS OF PARTICIPATION IN POOL OF ANY KIND BY E NTERPRISES ENGAGED IN AIR TRANSPORT. THE USE OF THE WORD POOLS ENV ISAGES THAT THERE COULD BE SEVERAL POOLS OR UNDERSTANDING I.E. MORE T HAN ONE. HERE THE WORD POOL DOES NOT INDICATE A POOL WHICH IS INTER NATIONALLY RECOGNIZED. THE USE OF THE WORD POOL ANY KIND CL EARLY INDICATES THAT IT WAS IN THE NATURE OF COMMERCIALLY UNDERSTOO D MEANING. BUT IN THE INTERNATIONAL AVIATION INDUSTRY THERE IS ON LY ONE POOL I.E. IATP. CERTAINLY IN THE CASE OF BRITISH AIRWAYS I T WAS NOT A CASE OF PARTICIPATION IN A POOL. IN THE APPELLANTS CASE IT IS PARTICIPATION IN IATP ONLY. THIS WAS THE REASON THAT THE ITAT AS TO FIND OUT THE MEANING OF THE WORD POOL IN THE CASE OF BRITISH A IRWAYS. MOREOVER IN THE CASE OF BRITISH AIRWAYS IT WAS P OOLS OF ANY KIND ITA-3067/DEL/2009 6 BUT IN THE CASE OF THE APPELLANT IT WAS NOT A POOL OF ANY KIND BUT ONLY IATP. THUS THE FACTS OF THE CASE OF BRITISH AIRWA YS WERE ALTOGETHER DIFFERENT THAT THE FACTS OF THE APPELLANTS CASE AN D THE VIEW TAKEN BY THE ITAT IN THE CASE OF BRITISH AIRWAYS IS NOT APPL ICABLE IN THE CASE OF APPELLANT AS THE FACTS ARE ENTIRELY DIFFERENT. WE HAVE ALSO NOTED THAT BRITISH AIRWAYS HAS RENDERED SERVICES TO ATLAS AIR CORPORATION WHICH IS NOT A MEMBER OF IATP. THE SERVICES RENDER ED TO THAT AIRLINE COULD NOT BE FOUND BY IATP MANUAL. LOOKING TO THE ABOVE DISTINGUISHING FEATURES WE HO LD THAT THE APPELLANTS PROFIT DUE TO PARTICIPATION IN A POOL W AS COVERED UNDER ARTICLE 8(4) OF THE DTAA BETWEEN INDIA AND GERMANY AND SUCH PROFIT CANNOT BE BROUGHT TO TAX IN INDIA. WE THER EFORE ALLOW THE GROUND OF APPEAL AND DELETE THE ADDITION SUSTAINED BY THE CIT(A). 7. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR A RE CONSIDERATION ARE IN PARI- MATERIA RESPECTFULLY FOLLOWING THE ORDER OF THE TR IBUNAL IN ASSESSEES OWN CASE THE ORDER OF THE CIT(A) IS UPHELD. 8. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 22 ND JANUARY 2010. SD/- SD/- (RAJPAL YADAV) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :22.01.2010. VK. COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT DEPUTY REGISTRAR ITA-3067/DEL/2009 7