STAR RISING AVIATION 13 LIMITED,IRELAND vs. ASSISTANT COMMISSIONER OF INCOME-TAX (INTERNATIONAL TAXATION), CIRCLE 4(2)(2), MUMBAI, MUMBAI

ITA 1733/MUM/2026Status: DisposedITAT Mumbai29 September 2026AY 2023-2428 pages
AI SummaryAllowed

What were the facts?

The assessee, Star Rising Aviation 13 Limited, an Irish tax resident, leased four aircraft to Go Airlines (India) Limited during AY 2023-24, generating lease rental income of approximately Rs. 147.20 crore. The assessee declared nil taxable income, claiming exemption under the India-Ireland Double Taxation Avoidance Agreement (DTAA). The Assessing Officer (AO), following directions from the Dispute Resolution Panel (DRP), treated the lease rentals as taxable income in India. The AO questioned the economic substance of the assessee's operations in Ireland and considered the applicability of the Principal Purpose Test (PPT) under the Multilateral Instrument (MLI). The assessment order, dated 08.01.2026, was passed under section 143(3) r.w.s 144C(13) of the Income Tax Act, 1961.

What did the Tribunal hold?

The Tribunal held that the aircraft leases under consideration are dry operating leases and cannot be characterized as finance leases. Consequently, the lease rentals cannot be treated as interest income under Article 11 of the India-Ireland DTAA. The Tribunal relied on its previous decision in Sky High XLIII (supra) and the Delhi Tribunal's decision in Celestial Aviation Trading 15 Ltd. v. Asstt. CIT, which examined similar lease agreements and concluded they were operating leases. The revenue failed to provide any distinguishing contractual features to warrant a departure from these precedents. Therefore, the AO's approach of treating the entire lease receipts as interest income under section 115A was not sustained. The contention regarding bifurcating principal and interest components also did not survive. Grounds No. 11 to 16 were allowed. Ground No. 19 (interest under section 234B) was consequential and restored to the AO. Grounds No. 1 to 4, raising general and legal contentions, were rendered academic and left open without expressing an opinion on their merits. The appeal was allowed.

What were the issues?

1. Whether the receipts from leasing of aircraft amounting to Rs. 147,19,52,868 are taxable in India, considering the India-Ireland DTAA, as argued by the assessee, or not, as contended by the revenue. 2. Whether the directions issued by the DRP are bad-in-law, arbitrary, and beyond the scope of Section 144C, as argued by the assessee, or valid, as supported by the revenue. 3. Whether the notice under section 143(2) is invalid and the assessment void-ab-initio, as argued by the assessee, or valid, as supported by the revenue. 4. Whether the final assessment order is barred by limitation under section 153, as argued by the assessee, or not, as supported by the revenue. 5. Whether the benefit of the India-Ireland DTAA was wrongly denied by applying Articles 6 and 7 of the MLI, as argued by the assessee, or correctly denied, as supported by the revenue. 6. Whether the MLI provisions are applicable without a separate notification under Section 90(1) of the Act, as argued by the assessee, or applicable, as supported by the revenue. 7. Whether Articles 6 and 7 of the MLI are not applicable as lease agreements were entered prior to 1 April 2020, as argued by the assessee, or applicable, as supported by the revenue. 8. Whether Article 8 of the India-Ireland DTAA is applicable to the lease transaction, as argued by the assessee, or not applicable, as held by the AO/DRP. 9. Whether the receipts from leasing of aircraft are in the nature of interest and taxable under section 115A, as held by the AO/DRP, or not, as argued by the assessee. 10. Whether the lease agreement is a finance lease/arrangement, as held by the AO/DRP, or not, as argued by the assessee. 11. Whether there is a distinction between operating lease and finance lease under the Act or the DTAA, as argued by the assessee, or not, as held by the AO/DRP. 12. Whether the receipts are taxable as interest income under Article 11 of the India-Ireland DTAA without appreciating Article 8(3), as argued by the assessee, or taxable, as held by the AO/DRP. 13. Whether the assessee is the beneficial owner of the income, as argued by the assessee, or not, as held by the AO/DRP. 14. Whether the entire receipt should be taxed as interest without bifurcation into principal and interest components, as argued by the assessee, or should be taxed as interest, as held by the AO/DRP. 15. Whether the aircraft leased gives rise to a permanent establishment (PE) in India, as held by the AO/DRP, or not, as argued by the assessee. 16. Whether the profits attributable to India were arbitrarily worked out, as argued by the assessee, or correctly worked out, as supported by the revenue. 17. Whether interest under section 234B was wrongly levied, as argued by the assessee, or correctly levied, as supported by the revenue.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 142(1),Section 153,Section 90(1),Section 115A,Section 234B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “I” BENCH, MUMBAI

Before: SHRI AMIT SHUKLA, JM & SHRI ARUN KHODPIA, AM

For Respondent: Ms. Shilpa Goel, Special Counsel for Revenue (Virtually Present)
Hearing: 06.07.2026Pronounced: 29.09.2026

Per Arun Khodpia, AM: This appeal is preferred by the assessee, directed against the assessment order under section 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 [in short, “the Act”] dated 08.01.2026, for the Assessment Year (AY) 2023-24, passed by Assistant Commissioner of Income Tax Int. Tax Circle 4(2)(2), Mumbai [in Star Rising Aviation 13 Limited short, “the Ld. AO”], passed i

The order continues below.

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