UNITED AIRLINES vs. DDIT NON- RESIDENT , CIRCLE,

Officer agreed that the income/profit earned by assessee from operation of aircraft in international traffic is covered under Article 8(1) of the Tax Treaty, hence, not taxable in India.

However, insofar as income/profit earned by the assessee from other airlines while providing baggage screening services and engineering and aircraft services, he held it as separate business activity, hence, cannot be considered to be either directly connected to operation of aircraft in international traffic for transportation of passengers and goods or incidental to the activity. Thus, he concluded that the amount received by the assessee from other airlines towards baggage screening services and engineering and aircraft handling services being not covered under Article 8 would be taxable in India under Article 7 of the DTAA as business profit, since, the assessee has Permanent Establishment (PE) in India. While coming to such conclusion, the Assessing Officer held that expenses claimed by the assessee will be allowed to the extent directly related to the PE in India, whereas, the head office expenses will be allowed subject to the limitation prescribed under section 44C of the Act. Accordingly, he completed the assessment.

Officer, assessee preferred appeals before learned Commissioner (Appeals.)

5.2 Though, the assessee made detailed submissions before learned first appellate authority reiterating its claim that the income earned from other airlines by rendering baggage screening services and aircraft handling services are covered under Article 8(1) and 8(2), however, learned Commissioner (Appeals) was not convinced. Accepting the reasoning of the Assessing Officer, he held that the income received from other airlines is not covered under Article 8 of the Tax Treaty. Thus, he confirmed the additions made by the Assessing Officer.

5.3 As regards the allowance of expenses attributable to the PE, learned Commissioner (Appeals) held that since the expenditure incurred is in relation to operation of aircraft in international traffic, there is no need to treat the services rendered to other airlines as a separate business activity and apportion part of the expenditure to that account. Thus, he held that assessee is not entitled for deduction of expenditure on apportionment basis.

“Finally, certain non-transport activities that are an integral part of the services performed by a transport company are understood to be covered paragraph 1, though they are not specified in paragraph 2. These include, for example, the performance of some maintenance or catering services by one airline for another airline, if these services are incidental to the provision of those services by the airline for itself.”

6.1 Learned counsel submitted, the baggage screening services and technical & engineering services provided by the assessee to other airlines are sine qua non for the operation of aircraft or transportation of passengers and goods by air. As various countries, including India, have made Rules keeping in view the safety and security of passengers, airports and aircraft which make it mandatory that every person boarding an aircraft and every baggage or cargo carried in an aircraft must undergo screening to ensure that they do not carry or contain any firearms, explosives etc. Further, without maintenance of the and before its departure to the next and without refueling and ensuring the presence of various oils and fluids, it is not possible for an aircraft to take off. Therefore, such activities are certainly directly connected to the operation of aircraft for transportation of passenger and goods. He submitted, without the services being rendered by the assessee to itself and to other airlines, it will not be possible for any aircraft to be air-borne with passengers or goods. He submitted, apart from utilizing these services for its own operation, it provides such services to other airlines to fully utilize its technical manpower as well as the equipment. In this context, he also referred to commentary of Klaus Vogel. He submitted, since the baggage screening and technical and engineering services provided to other airlines are preparatory and auxiliary services related to transportation of passengers and goods, the profit derived from such activities can only be taxed in the country of residence under Article 8(1) read with Article 8(2) of the Treaty. Thus, he submitted, the income earned by the assessee from baggage screening, technical and engineering services provided to other airlines would not be taxable in India.

6.2 Without prejudice, he submitted, even otherwise also such a pool in terms of Article 8(4) of India – USA DTAA. Drawing our attention to Article 8(4) of the Treaty, he submitted, profit derived by an enterprise from participation in a pool shall be taxable only in the country of residence. Proceeding further, he submitted, the only pool known to the international aviation industry is the International Airlines Technical Pool (IATP). In this context, he drew our attention to IATP Manual, a copy of which is placed in the paper book. He submitted, IATP is a non-profit, independent, non-political global organization of airlines formed for the purpose of providing reciprocal and technical support at line stations throughout the world. He submitted, technical support includes, aircraft spare parts, ground and ramp handling equipment and manpower. The primary goal of IATP is to provide general economic savings to participating airlines by minimizing investments otherwise required for purchase of equipment and spare parts for positioning at various stations in support of aircraft operations. He submitted, the IATP Manual clearly states that the organization is dedicated to a spirit of cooperation between members which extends the mutual assistance and support in a common effort to maintain a high degree of technical member of IATP for the services provided and received, there is no actual payment by the airlines rendering or receiving services and only notional credits and debits are made through pool accounting mechanism, i.e., IATA Clearing House. Explaining the functions of pool, he submitted, under the IATP there are various pools formation for various categories of services which are denoted by different alphabets. By way of illustration, he submitted, for example pool ‘D’ relates to ground handling equipment, pool ‘F’ relates to technical facilities and services, pool ‘L’ relates to line maintenance, etc. He submitted, the services rendered relating to baggage and cargo cleaning and aircraft maintenance fall within the ambit of ‘L’ Pool. He submitted, Form 53 of the IATP is a contract that is used for technical facilities and services and Form 55 of IATP is used for line maintenance. He submitted, assessee is a member of IATP since November, 1967 and being part of IATP pool provides parts, equipments and services and also receives various services from pool members. He submitted, the baggage screening services provided in India are to airlines which are members of IATP. He submitted, assessee has also received reciprocal services from other IATP member airlines. assessee did not employ any additional manpower to render the services and the manpower employed was to the extent required for baggage handling and aircraft maintenance of its own aircraft landing in and taking off from Delhi. This, according to learned counsel for the assessee, clearly demonstrates that the provision of services to other airlines was not carried out on commercial lines, hence, cannot be treated as separate business activity. He submitted, for providing such services, assessee has entered into specific agreement in Form No.55/53 of the IATP, which are standard agreements entered into between the members of IATP for receiving and rendering services. Referring to OECD Model Convention, he submitted, where an airlines enterprise agrees under an IATP agreement to provide spare parts or maintenance services to other airlines landing at a particular location, activities carried out pursuant to that agreement will be ancillary to the operation of aircraft in international traffic. He submitted, the only requirement is, there must be reciprocity of services. He submitted, the assessee participated in the IATP pool, wherein, there was reciprocity of services and earned certain revenues from such activities and also incurred expenditure. Thus, he submitted, the income received from providing baggage screening, technical and engineering services clearly fall within the ambit of Article 8(4) of Tax Treaty, hence, not taxable in India. In support of his submissions, learned Counsel relied upon the following decisions: i. DIT Vs. KLM Royal Dutch Airlines, 392 ITR 218 (Del. HC) ii. Air France Vs. ACIT, 82 ITR (T) 301 (Del. ITAT) iii. KLM Royal Dutch Airlines Vs. DDIT, [2013] 33 taxmann.com 373 (Delhi – Trib.) iv. DDIT Vs. KLM Royal Dutch Airlines [2012] 19 taxmann.com 302 (Delhi) v. Lufthansa German Airlines Vs. DCIT [2004] 90 ITD 310 (Delhi) vi. DCIT Vs. KLM Royal Dutch Airlines (ITA No.403 & 404/Del/2010, Dt.19.11.2010) (Delhi – Trib.) vii. KLM Royal Dutch Airlines Vs. DIT ( dt. 28.01.2011) (Delhi – Trib.) viii. Daimler Chrysler India Pvt. Ltd. Vs. DCIT, 120 TTJ 803 (Pune – Trib.) ix. DDIT Vs. Safmarine Container Lines N.V., 120 ITD 71 (Mumbai – Trib.)

Therefore, it is altogether a separate commercial activity undertaken by the assessee without having any connection, either direct or otherwise, with assessee’s activity of operating airlines in international traffic for transportation of passengers/goods. He submitted, the issue now stands well settled by virtue of the decision of the Tribunal in case of British Airways Vs. DCIT, (2002) 80 ITD 90 (Delhi). He submitted, even in case of Delta Airlines, whose business in India was taken over by the assessee subsequently, the Tribunal has held that the income received from providing ground handling services and other services to other airlines are not covered under Article 8 of India–USA DTAA.

Thus, he submitted, the profit derived from these activities, being neither directly connected to assessee’s business of operating aircraft in international traffic nor being ancillary or incidental to the said activity, would not come within the ambit of Article 8(1) and 8(2). He submitted, assessee’s case will not also be covered under Article 8(4) as there is no pooling arrangement in real sense of the term, as, there is neither pooling of funds nor resources between the members. Therefore, he submitted, the income derived by the assessee from provision of baggage screening services and technical and aircraft handling services to other airlines are not covered under Article 8 of the Tax Treaty. He submitted, since, the assessee has a permanent establishment in India, the receipts will be taxable under Article 7 of the Tax Treaty. In support of his contention, learned Departmental Representative relied upon the following decisions:

18 & 217/Del/2000; 1691 to 1695/Del/2008; 954 to 958/Del/2014 7. B.A. Balasubramaniam & Bros. Co Vs CIT [116 Taxman 842, 236 ITR 977, 157 CTR 556] 8. CIT Vs R.M.P. Plasto (P.) Ltd [184 Taxman 372 (SC)/[2009] 313 ITR 397 (SC)/[2009] 227 CTR 635] 9. K.P. Madhusudhanan Vs CIT [[2001] 118 Taxman 324 (SC)/[2001] 251 ITR 99 (SC)/[2001] 169 CTR 489 (SC) 10. Delta Airlines, Inc. Vs. ADIT, [2015] 57 taxmann.com 1 (Mumbai – Trib.) 11. ADIT Vs. Delta Airlines Inc. (ITA No. 2801/Mum/2002 & Ors., dt. 29.09.2008)

Also, there is no dispute that the assessee, being a tax resident of USA, is governed under India–USA DTAA. Before the departmental authorities, it is the claim of the assessee that as

per Article 8(1) of the India-USA Tax Treaty, profits derived by the assessee from operation of aircraft in international traffic is taxable in USA. Meaning thereby, such profit is not exigible to tax in India. The Assessing Officer, admittedly, has accepted the aforesaid claim of the assessee, insofar as, profit earned from transportation of passengers, goods etc. in aircraft operated by the assessee. The only point of dispute between the assessee and Revenue is with regard to the income earned by the assessee from providing baggage screening services and aircraft handling services to other airlines at IGI airport, Delhi. The departmental authorities have observed that the income derived by the assessee the ambit of Article 8(1) read with Article 8(2) of the Tax Treaty, as, these are not activities which are directly connected to transportation of passengers, goods etc. by air by engaging assessee’s aircraft.

9.1 Before we proceed to deal with the disputed issue, it is necessary to bear in mind that interpretation of Bilateral Treaties entered into by two sovereign nations cannot be made in the mode or manner adopted for interpreting statutory legislation.

This observation has been made by the Hon’ble Supreme Court in case of Union of India Vs. Azadi Bachao Andolan, [2003] 132 taxmann.com 373 (SC). While dealing with the issue of interpretation of a Tax Treaty, the Hon’ble Supreme Court has further observed that while interpreting the provisions of any international Treaty, including Treaty for avoidance of double taxation, it has to be borne in mind that Treaties are negotiated and entered into at a political level for several considerations as their basis. The main function of a double taxation avoidance treaty should be seen in the context of aiding commercial relations between treaty partners as being essentially a bargain between them falling to be taxed in both jurisdictions.

9.2 Therefore, the provisions of a Treaty relating to taxation of a particular item of income may differ from country to country as treaties are negotiated at political level between two countries based on various considerations, including commercial consideration. Keeping in perspective these salutary principles, we will proceed to deal with the issue.

9.3 As discussed earlier, the main thrust of assessee’s contention is, the income derived from baggage screening services and aircraft handling services provided to other airlines, being ancillary and incidental to its main activities of transportation of passengers, goods etc. by air will also fall within the four corners of Article 8(1) read with Article 8(2) of the Tax Treaty. For this purpose, it is necessary to look into Article 8 of India–USA DTAA which read as under:

ARTICLE 8 SHIPPING AND AIR TRANSPORT 1. Profits derived by an enterprise of a Contracting State from the operation by that enterprise of ships or aircraft in international traffic shall be taxable only in that State.

4. The provisions of paragraphs 1 and 3 shall also apply to profits from participation in a pool, a joint business, or an international operating agency.

5. For the purposes of this Article, interest on funds connected with the operation of ships or aircraft in international traffic shall be regarded as profits derived from the operation of such ships or aircraft, and the provisions of Article 11 (Interest) shall not apply in relation to such interest.

6. Gains derived by an enterprise of a Contracting State described in paragraph 1 from the alienation of ships, aircraft or containers owned and operated by the enterprise, the income from which is taxable only in that State, shall be taxed only in that State.”

9.4 On a careful reading of Article 8 of the Tax Treaty, as reproduced above, it is to be seen that as per paragraph 1 of Article 8, profits derived from the operation of ships or aircraft in international traffic shall be taxable only in the country of residence of the entity/enterprise engaged in the business of operation of ships or aircraft. Paragraph 2 of Article 8 explains the meaning of the expression “profits from operation of ships or aircraft in international traffic”. This expression means, profit derived from transportation by sea or air of passengers, mail, livestock or goods carried on by the owners or lessees or charterer of ships or aircrafts. However, in addition to transportation of are also considered to be coming within the expression “profits derived by an enterprise from operation of ships or aircraft in international traffic”:

(a) the sale of tickets for such transportation on behalf of other enterprises;

(b) other activities directly connected with such transportation; and (c) the rental of ships or aircraft incidental to any activity directly connected with such transportation.

9.5 If the provisions contained under Article 8 of India–US Tax Treaty are juxtaposed to similar provisions contained under UN Model Convention, OECD Model Convention and US Model Convention, it can be seen that the expression ‘other activity directly connected with such transportation’ as incorporated in clause (b) of Article 8(2) of India-USA Tax Treaty is absent in OECD Model Convention, UN Model Convention and US Model Convention. Thus, essentially, Article 8(2) of India-USA Tax Treaty narrows down the scope and ambit of expression ‘profits from the operation of ships or aircraft in international traffic’ by restricting it to specific activities. For this reason, if we may say or aircraft in international traffic’ as finds place in Article 8(2) makes it different from the other Model Conventions, referred to above. Hence, the commentaries/technical explanation explaining the provisions of OECD Model Convention or US Model convention may not be of much help in interpreting Article 8(1) read with Article 8(2) of the India-US Tax Treaty.

9.6 Admittedly, the income derived by the assessee from providing baggage screening services and aircraft handling services to other airlines do not fall either under clause (a) or (c) of paragraph 2 of Article 8 of the Tax Treaty. The only clause under which these activities can fit in is clause (b). Therefore, as per paragraph 2(b) of Article 8, the expression ‘other activity’ has to be read in conjunction with ‘directly connected with such transportation’. The words ‘such transportation’ certainly, in turn, refers to transportation by sea or air respectively of passenger, mail, livestock or goods carried on by the owners or lessees or charterers of ships or aircrafts. In other words, profits derived from other activity directly connected to transportation by sea or air of passengers, mail, livestock or goods by the assessee itself would come within the ambit of profit from operation of with Article 8(2).

9.7 Interestingly, the expression ‘other activity directly connected with such transportation’ as incorporated in Article 8(2)(b) is not found in similar provision contained in India- Germany, India-Japan and India-Netherlands DTAA, which were referred to before us by learned counsel for the assessee at the time of hearing. Thus, if we read Article 8(2) of India–USA Tax Treaty contextually in conjunction with paragraph 1 of Article 8 of the treaty, it is to be seen that in addition to transportation of passengers, mail, livestock or goods by sea or air, any other activity has to be considered with reference to such transportation as aiding it, supporting it and incidental thereto.

Two activities, viz., sale of tickets for such transportation on behalf of other enterprise and the rental of ships or aircrafts incidental to any activity directly connected with such transportation have been specifically included within the meaning of ‘profits from the operation of ships or aircrafts in the international traffic’. Therefore, any activity which can aid and assist the transportation of passengers, mail, livestock or goods etc. by the assessee by air or sea can come within the ambit of given by way of illustration by the Assessing Officer, such activity can be the operation of bus service connecting a town with its airport for transporting the passengers, transportation of goods by truck connecting a depot with a port or airport etc. These activities, undoubtedly, aid and assist the transportation of passenger, mail, goods, livestock etc. by the assessee itself, hence, would come within the ambit of Article 8(1) read with Article 8(2)

0f India-USA Tax Treaty.

9.8 Thus, according to our understanding, the use of expression ‘other activity directly connected with such transportation’ in Article 8(2)(b) of the India-USA Tax Treaty restricts the applicability of Article 8(1) only to a specific category of profit/income which is directly connected to the transportation of passengers, mail, livestock or goods etc. by the enterprise by air or sea. Article 31(1) of the Vienna Convention on the law of treaties, 1969 says that treaties shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. Thus, when the phraseology used in India–USA Tax Treaty is clear and unambiguous in its terms and can be therein, there is no need for interpreting the provisions with external aid of OECD Commentary or Technical Explanation to US Model Convention.

9.9 As regards various judicial precedents cited before us by learned counsel for the assessee, on careful examination, we find, mostly these decisions were rendered in the context of benefit of exemption under Article 8(1) read with Article 8(4) by participating in a pool. Hence, in our humble opinion, they are not applicable for deciding whether the profit derived from providing baggage screening services and aircraft handling services to other airlines would come within the ambit of Article 8(2). Insofar as, the decision of the Hon’ble Bombay High Court in case of DCIT Vs. Balaji Shipping UK Ltd. (supra). The facts of the case reveal that the assessee was operating vessels for carriage of cargo from India to international ports. However, since the vessels chartered by the assessee did not ply the Indian territorial waters, the assessee entered into slot hire agreement with another entity under which the other entity provided container slot spaces on the feeder vessels operated by it to transport the cargo of the assessee from Indian ports to the international ports or hubs assessee for onward journey to the final destination. Thus, as could be seen from the aforesaid facts, ultimately, by entering into the slot hire agreement the assessee transported its own cargo from India to the final destination. Therefore, the Hon’ble Court held that the income derived from transportation of cargo would not be taxable in India in terms of India–UK DTAA.

9.10 However, in the facts of the present appeals, the profit derived by the assessee from baggage screening services and aircraft handling services provided to other airlines is in no way connected to assessee’s activity of transportation of passengers, mail, livestock or goods etc. by air in its own aircrafts. In fact, if the assessee does not provide such services to other airlines, in no manner, assessee’s activity of transportation of passenger, mail, goods, livestock etc. would be affected. In fact, the assesse itself has stated that when not required by the assessee for its own transportation activity, for optimum use of the equipments and manpower deployed at IGI airport, the services are provided to other airlines. These facts make it clear that, either provision or non provision of certain services to other airlines will not at all have any impact on assessee’s activity of transportation of considered opinion, the profit derived by the assessee from baggage screening services and aircraft handling services provided to other airlines will not come within the ambit of ‘other activity directly connected to such transport’ as provided under Article 8(2)(b) of India-USA Tax Treaty. Hence, would not be covered under Article 8(1) of the Tax Treaty. Thus, assessee’s claim under Article 8(1) read with Article 8(2)(b) must fail.

9.11 Having held so, it is necessary to examine assessee’s claim that it will, otherwise, also be covered under Article 8(4) read with Article 8(1) of the Tax Treaty. Article 8(4) of India–USA DTAA extends benefit provided under Article 8(1) to profits from participation in pool, joint business or international operating agency. It is the contention of the assessee that in view of Article 8(4), the profits derived by an enterprise from participation in pool shall be taxable only in the country of which the enterprise is a resident. This argument was not taken by the assessee before the departmental authorities in the initial two assessment years, i.e., assessment years 1996-97 and 1997-98. However, from assessment year 1998-99 onwards, the assessee has also staked its claim of exemption under Article 8(4) read with Article 8(1) of known to the international aviation industry is IATP and the assessee, being a member of the pool, having provided services to other airlines on reciprocal basis, the profit from baggage screening services and aircraft handling services can only be taxed in USA, the country of residence, in terms of Article 8(1) of the Treaty. The learned Commissioner (Appeals) has negated assessee’s claim under Article 8(4) primarily for the following reasons:

(a) The assessee failed to furnish any evidence of existence of IATP and had not filed names of airlines who are members of the pool.

(b) Assessee could not prove that it had become a member of IATP by contributing assets for baggage screening and aircrafts handling services acquired by it from M/s. Delta Airlines in 1995.

(c) Assessee could not file any evidence to show that the equipment for baggage screening and aircraft handling services was under common control and management of IATP. identical services/facilities were received by the assessee from other airlines in IATP on reciprocal basis.

9.12 At this stage, we must observe, in addition to documentary evidences furnished before the departmental authorities, the assessee had furnished certain additional evidences before the Tribunal vide letter dated 2nd April, 2018. Vide order dated 17.05.2018, the Tribunal had admitted the additional evidences as part of record. The additional evidences filed by the assessee are as under:

(i) Documents showing services provided by the assessee to other airlines. (ii) Services provided by other airlines to the assessee. (iii) The relevant extract of International Airlines Technical Pool (IATP) manual.

(iv) Specimen of ground handling agreements entered into buy the assessee with other airlines.

9.13 On perusal of the IATP agreement, a copy of which is at page 29 of the paper-book, it is noticed that the assessee became a participant of the IATP pool in November, 1967. There are different time periods, to name a few, Air Portuguese, Romanian Air Transport, Thai Airways International Public Company Ltd., Royal Jordanian Airlines, Turkish Airlines Inc., US Airways Inc., Virgin Atlantic Airways Ltd. There is no dispute that the IATP was created based on IATP manual. The IATP manual further provides that provider and user of services should jointly establish a detail specification of users required services. The manual also specifies various categories of agreement in specific form, such as, standard ground handling agreement has to be as per Form 55 or Form 53.

9.14 It is also universally recognized that the largest pool of airlines know to aviation industry is the IATP and it is in existence since early sixties. Membership of the IATP has increased from 24 in 1962 to 121 in 1997. Basically, IATP is an organization of airlines formed for the purposes of providing reciprocal technical support at line stations throughout the world.

Technical support includes aircraft spare parts, ground and ramp handling equipments and manpower. The primary goal of IATP is to generate economic savings to participating airlines by minimizing investments otherwise required for purchase of support of aircraft operation. The advantage of being a member of pool is, suppose a particular service is required by a particular airline in a particular station, which on its own it cannot avail, such service is provided by another airline who may be having the facilities at that airport. Similarly, the other airline can avail the service on reciprocal basis at another airport where it may not be having the facilities on its own. As per the mechanism under IATP, actual payment is not made by the airlines for rendering or receiving the services, but only notional credits or debits are made through pool accounting mechanism, i.e., IATA Clearing House. It is observed, being a member of the pool, assessee has entered into ground handling agreements with various other airlines and provided and received services on reciprocal basis at different airports. To demonstrate the aforesaid fact, the assessee has furnished the documentary evidences indicating services provided to other airlines and availed from other airlines. Thus, aforesaid documentary evidences and materials on record contradict the finding of learned Commissioner (Appeals) that the assessee failed to furnish any evidence to demonstrate the existence of IATP or the fact that it has become a pool member or material on record clearly demonstrate that as a member of IATP, the assessee has not only provided services to various other airlines but has also availed services from other airlines, though, may not be in India but at various other airports.

9.15 On a reading of Article 8(4), we are unable to find any restrictive covenant indicating that the reciprocity in services must be in the same country. Therefore, once the assessee derives profit from participating in a pool on reciprocal basis, in terms of Article 8(4), such profit can only be taxed in the country of residence of the enterprise, in the present case USA. While dealing with identical issue relating to taxability of profit derived from participation in a pool, the Hon’ble Jurisdictional High Court in DIT Vs. KLM Royal Dutch Airlines (supra) interpreting pari materia provision contained under Article 8(3) of the India- Netherland Tax Treaty has held as under:

“30. The Assessees participated in the IATP pool and earned certain revenues from such activities and also incurred expenditure. There is, in the opinion of the Court, clear reciprocity as to the extension of services; IATP membership is premised upon each participating member being able to provide facilities for which it was formed (line services, OMR services, etc.) of a required mandated standard. As there was reciprocity in the rendering and availing of services, there was clearly participation in the pool; in terms of the two DTAAs (Indo-German and India- Netherlands) the profits from such participation were not taxable in India.

9.16 Identical view has been expressed by the Tribunal in case of DIT Vs. Lufthansa German Airlines (supra). The decision of the Coordinate Bench in case of Air France Vs. ACIT (supra) also expressed similar view. In fact, in case of Air France Vs. ACIT (supra), the Bench has gone a step further by holding that services provided and received from non-IATP members will also come within the ambit of Article 8. Thus, the materials on record not only demonstrate the existence of a pool in terms of Article 8(4), i.e., IATP pool but they also demonstrate that the assessee is a member of the pool and being a member has provided and received services from airlines on reciprocal basis. Thus, in our considered opinion, the profit derived from providing baggage as a participant of IATP pool would be covered under Article 8(1) read with Article 8(4) of India–USA Tax Treaty. The ratio laid down in the decisions relied upon by leaned counsel for the assessee, particularly, the decision of Hon’ble Jurisdictional High Court in case of DIT Vs. KLM Royal Dutch Airlines (supra) clearly support this view. Pertinently, while deciding the issue in case of DIT Vs. KLM Royal Dutch Airlines (supra) the Hon’ble Jurisdictional High Court took note of the fact that in India-UK DTAA the words used are ‘pools of any kind’, which are different from the expression used in Article 8(3) of India-Netherland DTAA. At the cost of repetition, we must observe, Article 8(4) of India-USA DTAA and Article 8(3) of the India-Netherland DTAA are, more or less, identically worded. For this very reason also, we are unable to subscribe to the view expressed in case of British Airways (supra) and Delta Airlines (supra), insofar as, they relate to claim of exemption of profit from participation in pool.

9.17 Thus, to conclude, we hold that the profit derived from providing baggage screening services and aircraft handling services to various other airlines in India will not be taxable in India under Article 8(1) read with Article 8(4) of the India–USA years under dispute are hereby deleted.

However, in principle, we accept assessee’s contention that no interest under section 234B can be levied as the liability is on the payer to deduct tax at source and not on the assessee to pay the advance tax. This is so, in view of the ratio laid down by the Hon’ble Supreme Court in case of DIT Mitsubishi Corporation [2021] 130 taxmann.com 276 (SC).

PENALTY APPEALS for AY: 1998-99 ITA No.955/Del/2014 for AY: 1999-00 ITA No.956/Del/2014 for AY: 2000-01 ITA No.957/Del/2014 for AY: 2001-02 ITA No.958/Del/2014 for AY: 2002-03 271(1)(c) of the Act based on addition of income received from baggage screening and aircraft handling services from other airlines. While deciding this particular issue in quantum appeals, we have held that the income is not taxable in India, in terms of Article 8(1) read with Article 8(4) of India–USA Tax Treaty. In view of our aforesaid decision in the quantum appeals, penalty imposed under section 271(1)(c) of the Act in all these assessment years cannot survive. Accordingly, for this very reason, we delete the penalty imposed in all the assessment years under dispute.

Even, otherwise also, the income from baggage screening services and aircraft handling services received from other airlines, whether, would be covered under Article 8 of India–USA DTAA is a highly debatable issue on which more than one view is possible.

Therefore, consequent to additions made on such a debatable issue, no penalty under section 271(1)(c) of the Act can be imposed, alleging furnishing of inaccurate particulars of income.

For this reason also, penalty imposed under Section 271(1)(c) of the Act needs to be deleted. Accordingly, we do so.

41 & 217/Del/2000; 1691 to 1695/Del/2008; 954 to 958/Del/2014 Sl. No. QUANTUM APPEALS Assessment Result Year 1. ITA No.216/Del/2000 1996-97 Partly Allowed 2. ITA No.217/Del/2000 1997-98 Partly Allowed 3. ITA No.1691/Del/2008 1998-99 Partly Allowed 4. ITA No.1692/Del/2008 1999-00 Partly Allowed 5. ITA No.1693/Del/2008 2000-01 Partly Allowed 6. ITA No.1694/Del/2008 2001-02 Partly Allowed 7. ITA No.1695/Del/2008 2002-03 Partly Allowed PENALTY APPEALS

Order pronounced in the open court on 12th April, 2022