ASSISTANT COMMISSIONER OF INCOME TAX, DELHI vs. KLM ROYAL DUTCH AIRLINES, NETHERLAND

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ITITA 38/DEL/2025Status: DisposedITAT Delhi16 March 2026AY 2018-1912 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the issue is squarely covered by the decision of the Hon'ble Delhi High Court in the assessee's own case for AYs 2004-05 to 2017-18. The High Court had held that profits from providing technical services to other airlines are covered by Articles 8(1) and 8(3) of the DTAA between India and Netherlands. The Tribunal noted that the India-Netherlands DTAA does not have the same restrictive definition of 'operation of aircraft' as found in the India-UK DTAA, which was a key distinction in the British Airways case. The Tribunal found that the Hon'ble Court observed that activities carried out pursuant to an International Airlines Technical Pool agreement, such as providing spare parts or maintenance services to other airlines, will be ancillary to the operation of aircraft in international traffic. Therefore, the technical handling income is held to be exempt under Article 8 of the DTAA. The addition made by the AO is deleted, and the grounds of appeal are allowed. The Tribunal found no reason to interfere with the order of the Ld. CIT(A).

What were the facts?

The Revenue (ACIT) has filed four appeals against the orders of the CIT(A) for Assessment Years 2018-19, 2021-22, 2022-23, and 2023-24. The appeals challenge the deletion of additions made by the Assessing Officer (AO) on account of income from technical services/facilities provided to IATP pool airlines. The assessee, KLM Royal Dutch Airlines, a tax resident of the Netherlands, operates in India and is a member of the International Airlines Technical Pool (IATP). The AO had made an addition of Rs. 53,49,87,116/- for AY 2018-19. The CIT(A) deleted this addition, relying on the Delhi High Court's decision in the assessee's own case for earlier assessment years. The Revenue contends that the CIT(A) erred in deleting the addition.

What were the issues?

1. Whether the Ld. CIT(A) has erred in deleting the addition of Rs. 53,49,87,116/- to the income of the assessee on account of income from technical services/facilities to IATP pool airlines, considering Section 143(3) read with Section 144C(3) of the Income Tax Act, 1961? 2. Whether the profit of the assessee from providing technical services to other airlines is covered by Articles 8(1) and 8(3) of the Double Taxation Avoidance Agreement (DTAA) between India and Netherlands? Assessee's Contentions: The assessee argued that its income from air transport operations in international traffic was exempt under Article 8 of the DTAA. The CIT(A) allowed the appeal by following the decision of the Hon'ble Delhi High Court in the assessee's own case for AYs 2004-05 to 2008-09, which held that profits from providing technical services to other airlines are covered by Articles 8(1) and 8(3) of the India-Netherlands DTAA. Revenue's Contentions: The Revenue argued that the issue is covered by the decision of a co-ordinate bench in the case of British Airways PLC vs. Assistant Director of Income Tax, Circle-1(1), International Tax, New Delhi (2009 taxmann.com 1013 (Delhi-Trib.)) and also by another decision in British Airways Ple. v. Dy. CIT [2002] 80 ITD 90 (Delhi). The Revenue contended that the DTAA overrides the Act except where the Act is more beneficial, and that the activities of providing ground/engineering services to other airlines are not covered by the DTAA.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(3),Section 90(2)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH, D: NEW DELHI

Before: SHRI VIKAS AWASTHY, HON’BLE & SMT. RENU JAUHRI, HON’BLE

For Appellant: Adv. Sh. Anil Makhija, Adv
Hearing: 09.03.2026Pronounced: 09.03.2026

IT (IT) A- 38_39_40_41_DEL_ 2025 ACIT VS KLM ROYAL DUTCH AIRLINES IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, D: NEW DELHI BEFORE SHRI VIKAS AWASTHY, HON’BLE JUDICIAL MEMBER AND SMT. RENU JAUHRI, HON’BLE ACCOUNTANT MEMBER

IT (IT) A. No. 38/Del/2025 [Assessment Year: 2018-19] IT (IT) A. No. 39/Del/2025 [Assessment Year: 2021-22] IT (IT) A. No. 40/Del/2025 [Assessment Year: 2022-23] IT (IT) A. No. 41/Del/2025 [Assessment Year: 2023-24]

Assistant Commissioner Income KLM Royal Dutch Airlines Tax LB-46, Prakash Deep Building, 7 Delhi Vs Tolstoy Marg, Connaught Place, New Delhi- 01 PAN- AABCK3950H Appellant Respondent Assessee by Sh. Salil Aggarwal, Sr. Adv. Sh. Anil Makhija, Adv. Sh. Sunil Anand, CA Revenue by Sh. M.S. Nethrapal, CIT (DR)

Date of Hearing 09.03.2026 Date of Pronouncement 09.03.2026 ORDER PER RENU JAUHRI:

The above captioned four appeals are filed by the revenue against the orders dated 30.09.2025 of the Commissioner of Income Tax (Appeal), Delhi-43 [hereinafter referred to as, “Ld. CIT(A)”]. The assessments in the respective appeals

IT (IT) A- 38_39_40_41_DEL_ 2025 ACIT VS KLM ROYAL DUTCH AIRLINES were framed u/s 143(3) r.w.s. 144C(3) of the Income Tax Act, 1961 [hereinafter referred to as, “Act”].

2.

In all these four appeals, identical grounds have been taken and, therefore, these are being disposed off vide a common order. The appeal i.e., IT (IT) A. No. 38/Del/2025 [Assessment Year: 2018-19], is being taken as the lead case in which the following grounds have been raised: “1. Whether the Ld. CIT(A) has erred on facts and in law by deleting the addition of Rs. 53,49,87,116/- to the income of the assessee on account of income from technical services/facilities to IATP pool airlines ? 2. Whether profit of the assessee from providing technical services to other airlines is covered by Articles 8(1) and 8(3) of the DTAA between India and Netherlands ?. 3. The appellant craves to add, amend, modify OR alter any grounds of appeal at any time OR before the hearing of the appeal.”

3.

Brief facts of the case are that the assessee had filed original return for A.Y. 2018-19 on 29.10.2018, declaring NIL income. The case was selected for scrutiny. The assessee company is a tax resident of Netherlands and is in the airline business operating in all major countries including India. Apart from the normal business of air transport operations, the assessee is also providing technical and ground handling services to other airlines which are members of the International Air Transport Association [for short, IATA]. The assessee is a member of the Pool known as International Airlines Technical Pool [for short, IATP] wherein it undertakes technical handling for other Pool members. The IATP is a world-wide independent organisation established with the objective of providing mutual assistance and support to the members with regard to the aircraft operations and for sharing the 2

IT (IT) A- 38_39_40_41_DEL_ 2025 ACIT VS KLM ROYAL DUTCH AIRLINES aviation related resources such as technical handling equipment etc. The income of the assessee arising out of air transport operations in International traffic was claimed and allowed as exempt under Article 8 of the DTAA between India and Netherlands. However, the receipts from the business of rendering technical and ground handling services to other airline operators in India were held to be taxable which are as under: Sl. No Nature of receipt Amount 1. Income from sale of tickets to passengers in 465,09,39,908/- International Traffic 2. Cargo Freight in International Traffic 117,12,19,305/- 3. Technical handling income 56,31,44,333/- 4. Collection Charges on PSF/UDF 2,25,166/-

3.1 The taxability of above receipts has been recurring issue in case of the assessee and the Ld. AO made the addition of Rs. 53,49,87,116/- on the above ground vide order u/s 143(3) r.w.s 144C(3) dated 26.11.2021. Aggrievd, the assessee preferred the appeal before Ld. CIT(A).

3.2 After considering the facts and circumstances of the case, Ld. CIT(A) noted that the issue was squarely covered by the decision of the Hon’ble Delhi High Court in assessee’s own case for A.Ys. 2004-05 to 2008-09 rendered vide order dated 25.01.2017 and, therefore, allowed the appeal of the assessee following the orders of the Hon’ble Jurisdictional High Court.

3.4 Aggrieved, the revenue is in appeal before the us.

4.

Ld. DR has argued that this issue is covered by the decision of the co-ordinate Bench in the case of British Airways PLC vs. Assistant Director of Income Tax,

IT (IT) A- 38_39_40_41_DEL_ 2025 ACIT VS KLM ROYAL DUTCH AIRLINES Circle-1(1), International Tax, New Delhi 2009 taxmann.com 1013 (Delhi-Trib.) dated 30.10.2009. The written submissions filed by the Ld. CIT(DR) in this regard are reproduced below: “KLM Royal Dutch Airlines

1.

Ground No 1: Whether the Id CIT-A has erred on facts and in law by deleting the addition of Rs 53,49,87,116/- to the income of the assessee on account of income from technical service/facilities to IATP Pool airlines? Para No 2 of assessment order gives the factual matrix of the case. Para 5 on page 11 of 17 of the assessment order gives the rationale why the additions are proposed. This issue is squarely covered by the case of British Airways PLC vs. Assistant Director of Income- tax, Circle -1(1), International Tax, New Delhi 2009 taxmann.com 1013 (Delhi -

Trib.) [30-10-2009] and the operating part of the judgement is reproduced below.

3.

At the time of hearing it has come to the notice that the issue raised in ground Nos. 1 to 5 is covered against the assessee by the decision of Tribunal in assessee's own case reported in British Airways Ple. v. Dy. CIT [2002] 80 ITD 90 (Delhi). The same has been reproduced by the learned CIT(A) at page 12 of his order as under:- "Tax agreements are meant to facilitate economic relation between countries and these form a concrete and reliable basis for tax relations between the contracting countries. Section 90(2) in fact gives an option to an assessee to choose whichever provision is more beneficial to it whether the agreement or the Act and he can seek application at the same time of the provisions of both the agreement and the act considering the benefit thereof."

IT (IT) A- 38_39_40_41_DEL_ 2025 ACIT VS KLM ROYAL DUTCH AIRLINES In the present case the assessee had not relied on any provision of the Act, which supported its stand and the issue had 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 beneficial and after such an option an assessee cannot ask for any favourable or liberal interpretation contending that income of such and such type from services rendered in India is not taxable under the agreement.

A DTAA determines the rights of the State, ie. India, in this case of tax a particular receipt and that happened to be the income of British Airways from ground handling/engineering services rendered to other Airlines at various Airports in India. In the instant case, rendering services to other airlines was an organized and planned activity to earn income and the tax authorities had rightly opined that such services rendered to own aircraft did not involve 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 working of the assessee's own airline. Article 8(3) is both activity based as also enterprise based, but 'transportation' by aircraft of human beings and specified goods and even the term any other activity' has to be considered with reference to such 'transportation' as aiding it, supporting it and incidental thereto. By no stretch of imagination would it include the engineering/ground handling services provided by the assessee to other airlines. Thus, the activities which are tax exempt in India, are specified and determined and there is no scope for an interpretation which could bring something more into the fold. Hence, the main common issue pertaining to taxability of the amount received by rendering ground/engineering services to other airlines was to be decided against the assessee."

IT (IT) A- 38_39_40_41_DEL_ 2025 ACIT VS KLM ROYAL DUTCH AIRLINES We find that the Commissioner (Appeals) has followed the decision of Tribunal in assessee's own case. Therefore, following the decision of Tribunal in assessee's own case, ground Nos. 1 to 5 are to be treated as dismissed.

So, the above issue is a covered issue and hence the same may be sustained in the favor of the department.

2.

The reliance on OECD Commentary for the purpose may not be relevant since after Nestle SA supreme court judgement what needs to be seen is whether the same has been discussed inside the DTAA and the protocol itself. Reference to OECD or UN Model convention carries only persuasive value.

3.

DTAA provisions

ARTICLE 8

AIR TRANSPORT

1.

Profits from the operation of aircraft in international traffic shall be taxable only in the State in which the place of effective management of the enterprise is situated. 2. For the purposes of this Article:

(a) profits from the operation in international traffic of aircraft include profits derived from the rental on a bareboat basis of aircraft if operated in international traffic if such rental profits are incidental to the profits described in paragraph 1;

(b) interest on funds connected with the operation of aircraft in international traffic shall be regarded as profits derived from the operation of such aircraft and the provisions of Article 11 shall not apply in relation to such interest.

3.

The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.

IT (IT) A- 38_39_40_41_DEL_ 2025 ACIT VS KLM ROYAL DUTCH AIRLINES A plain reading of the above clearly shows that exemption is given only to activity carried out in international traffic and not for other activities where there is no exemption. Also it mentions only Air Transport and not "Air Transport and allied activities". Para 5, clause c to d, are relied upon.

Reliance is also placed on Delta Air Lines, Inc. vs. Assistant Director of Income-tax (International Taxation), Range -1(2), Mumbai [2015] 57 taxmann.com 1 (Mumbai)/[2015] 69 SOT 45 (Mumbai) [29-04- 2015), which is discussed in Para 51, clause e, in detail.

AO has mentioned in para 5, clause e, that IATP is a pool, which is engaged in the business of supplying spare parts and equipment to various airlines, which are members of IATP. The LATP is not in the business of operation of aircraft anywhere. Therefore, the AO has rightly held that the assessee is not entitled to DTAA benefits under Article 8 of the DTAA. In para 12, the AO has mentioned that the issue is in the appellate stage and the additions are made for keeping the issue alive.

The CIT-Appeals has discussed why this is not applicable in paragraphs 5.11 to 5.25 of the orders, relying upon the orders of the Delhi High Court.”

4.1 On the other hand, Ld. AR has vehemently argued that the assessee is squarely covered by the decision of the Hon’ble Jurisdictional Court in its own case dated 25.01.2017. He has taken us through the decision of the Hon’ble High Court and distinguished the case law relied upon by the Ld. DR. He has further submitted that the case of British Airways (supra) was duly noted by the Hon’ble Delhi High Court in the order dated 25.01.2017. It has, therefore, been submitted by Ld. AR that the Ld. CIT(A) has rightly allowed the assessee’s appeal after considering all the facts and the decision of the Hon’ble High Court. and, therefore, the order of Ld. CIT(A) deserves to be upheld.

IT (IT) A- 38_39_40_41_DEL_ 2025 ACIT VS KLM ROYAL DUTCH AIRLINES 5. We have heard the rival submissions and perused the material placed before us. Admittedly, the issue in question has been allowed in assessee’s favour by the Hon’ble Jurisdictional High Court for the earlier years viz., A.Ys 2004-05 to 2008- 09 vide order dated 25.01.2017. Ld. CIT(A) after duly considering this decision has allowed the assessee’s appeal and passed a speaking order. The relevant portion of Ld. CIT(A)’s order is reproduced below: “5.12 In its judgement dated 25.01.2017, in the case of KLM Royal Dutch Airlines for A.Y 2004-05 to 2008-09, the Hon. Delhi High Court has noted that the Department has relied on Delhi ITAT ruling in the case of British Airways (supra), which was rendered in context of India-UK DTAA. In the said case, under similar circumstances, Ld. ITAT, Delhi had held that receipts of the aforesaid nature were not covered under the term 'Air Transport Services'. Hon. Delhi High Court distinguished Department 's reliance on co-ordinate bench ruling in British Airways ruling and noted that Article 8 under India-UK DTAA was significantly different from the one under India- Netherlands DTAA. It was observed that whilst Article 8 (1) is similar in its language with the India- Netherlands DTAA, the phraseology used in the other provisions/ paragraphs of Article 8 is a departure.

5.13 The Hon. Court has noted that a plain reading of the provisions of Article 8 in the India- Netherlands DTAA reveals that income is exempt in respect of two activities, namely: (a) profits from operation of aircrafts in international traffic and, (b) profits from participation in a pool, joint business or an international operating agency.

5.14 The Hon. High Court has observed that that the India-UK DTAA is significantly different. Article 8 (1) is similar in its language in both the DTAAs. However, Article 8(2) of India-UK DTAA provides that Article 8 (1) shall likewise apply in respect of participation in pools of any kind. The words “pools of any kind” was interpreted by the ITAT in the British Airways case by taking the dictionary meaning of the word “pools”. Article 8(3) of India-UK DTAA provided ―...3. For the purposes of this article the term "operation of aircraft" shall include transportation by air of persons, live-stock, goods or mail, carried on by the owners or lessees or charterers of aircraft, including the sale of tickets for such transportation on behalf of other enterprise, the incidental lease of 8

IT (IT) A- 38_39_40_41_DEL_ 2025 ACIT VS KLM ROYAL DUTCH AIRLINES aircraft on a charter basis and any other activity directly connected with such transportation...

5.15 The Hon. Court has disagreed with the view that a similar methodology to interpret the expression “pools”, in cases where the India- Netherlands DTAA is applicable. The Hon. Court has noted that internationally, the only pool known to the aviation industry is IATP. The Court has observed that the AO does not talk of or refer to any other internationally recognized pool in this regard. His contention, rather is that a pool means not mere sharing of resources, but a structure or managing entity that administers the pool, which the participants are members of and that such centralized entity should facilitate the services.

5.16 The Hon. Court has deemed it fit to interpret the term “pools” in Article 8(3) of the India- Netherlands DTAA, in the context of prevalent industry practices in the aviation sector, OECD Commentary and Article 31 of the Vienna Convention on the Law of Treaties.

5.17 The Hon. Court has observed that the international airlines business is a mammoth one; its size is assessed through operations of international airlines in several ways: fleet; cargo handled; passengers handled; countries served; scheduled freight tonne- kilometers (millions) served; profits; market capitalization and employees serving. The optimization of resources therefore not only makes economic sense but, in fact is a compulsion for the airlines industry. In the absence of the pooling arrangement like what IATP provides, each airline - irrespective of its size of operation or capital deployed, would be compelled to maintain ground handling services including the repairs, maintenance etc. in different continents, in several countries. The Hon. Court has observed that it is for this reason that the provisions on pooling and income therefrom, contained in the Indo-Dutch DTAA, find place in almost every DTAA entered into by a multitude of nations.

5.18 The Hon. Court has relied on the OECD Commentary on Article 8 wherein it is noted that …The paragraph also covers profits from activities directly connected with such operations as well as profits from the activities, which are not directly connected with the operation of the Enterprises ships or aircraft in international traffic as long as they are ancillary to such operation. The OECD Commentary further notes that: For example, enterprises engaged in international transport may enter into pooling arrangements for the purposes of reducing the costs of 9

IT (IT) A- 38_39_40_41_DEL_ 2025 ACIT VS KLM ROYAL DUTCH AIRLINES maintaining facilities needed for the operation of their ships or aircraft in other countries. For instance, where an airline enterprise agrees, under an International Airlines Technical Pool agreement, to provide spare parts or maintenance services to other airlines landing at a particular location (which allows it to benefit from these services at other locations), activities carried on pursuant to that agreement will be ancillary to the operation of aircraft in international traffic. 5.19 Therefore, the Hon. Court has not found merit in the argument of the Department that the international pool or joint enterprise model conceived of in the pooling provision and in the relevant articles of the between India and Netherlands, envision a pool whereby there is a joint control in terms of deployment of capital resources as well as minimum management control by both airlines and a separate profit centre. This Court is of the opinion that the Revenue cannot ordain the manner by which industries set up or organize their business.

5.20 The Hon. Court has observed that it is not appropriate to resort to the dictionary meaning or seek recourse to other external aids such as DTAAs between one State and another in the interpretation of such convention with third-party states. In this endeavour the Court’s primary focus is the meaning that the contracting states intended to give to the expression in the provisions, which they agree to. That one of the contracting parties or states might have contracted with another state party, which may contain a similar provision but with slight modification would be entirely extraneous. In this respect one must be conscious of the fact that it is interpreting an international convention between sovereign nations. Article 31 of the Vienna Convention on the Law of Treaties under Article 31 guides the interpretation, which international agencies primarily have to follow.

5.21 As per Article 31 of the Vienna Convention, while interpreting tax treaties and conventions, the emphasis is upon the context- in the instrument itself, and any subsequent agreement between the parties as to the interpretation of the treaty or the application of its provisions. The expression ‘profit from the operation of ship or air-craft in international traffic’ has not been defined in the India- Netherlands DTAA. In Article 8(3) of the DTAA between India and UK, it is explained. This is a significant distinction between these DTAAs. The position in the Indo- German DTAA and Indo Dutch DTAA on the one hand is similar, whereas,in the case of the Indo-UK DTAA, there is a difference.

IT (IT) A- 38_39_40_41_DEL_ 2025 ACIT VS KLM ROYAL DUTCH AIRLINES 5.22 The Assessee participated in the IATP pool and earned certain revenues from such activities and also incurred expenditure. The Hon. Court, therefore noted that there is a 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 India- Netherlands DTAA, the profits from such participation were not taxable in India.

5.23 Distinguishing the case of British Airways (supra)the Hon. Court concluded that the amplification of the term “operation of aircraft” in Article 8 (1) through Article 8 (3) in the India-UK DTAA, i.e. “...3. For the purposes of this article the term "operation of aircraft" shall include transportation by air of persons, live-stock, goods or mail, carried on by the owners or lessees or charterers of aircraft, including the sale of tickets for such transportation on behalf of other enterprise, the incidental lease of aircraft on a charter basis and any other activity directly connected with such transportation...” had the effect of limiting the nature of activities that could be comprehended in the pool envisioned in Article 8 (2): in other words, the expanded meaning of operation of aircraft included those activities in Article 8(3) through the extended definition and no more. On the other hand, there is no such limitation in the India- Netherlands DTAA. This constituted the most significant difference between the two sets of cases on the one hand, and British Airways (supra) on the other.

5.24 In the light of the above, the Hon. Delhi High Court in the assessee’s own case for the AYs 2004-05 to 2017-18 has held that profits from providing technical services to other airlines is covered by Articles 8(1) and 8(3) of the Double Taxation Avoidance Agreement between India and Netherlands.

5.25 Therefore, respectfully following the decision of the Hon. Delhi High Court, technical handling income amounting to Rs. 56,31,44,333/- is held to be exempt under Article 8 of the DTAA between India and Netherlands. Accordingly, the addition made by the AO is deleted, and the relevant grounds of appeal are allowed.”

IT (IT) A- 38_39_40_41_DEL_ 2025 ACIT VS KLM ROYAL DUTCH AIRLINES 6. In view of the above, we find no reason to interfere with the order of Ld. CIT(A) which has been passed after duly considering the facts of the case in the light of the decision of the Hon’ble Jurisdictional High Court in assessee’s own case. Hence, the appeal of the Revenue is, hereby, dismissed. 7. Since, identical issues are involved in all the other three appeals i.e., IT (IT) A. No. 39/Del/2025 [Assessment Year: 2021-22], IT (IT) A. No. 40/Del/2025 [Assessment Year: 2022-23] & IT (IT) A. No. 41/Del/2025 [Assessment Year: 2022-23], the above order shall apply mutatis mutandis to these appeals also. 8. In the result, all the four appeals of the revenue are hereby dismissed.

Order pronounced in the open court on 9th March, 2026.

Sd/- Sd/- [VIKAS AWASTHY] [RENU JAUHRI] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated- 16.03.2026. Pooja Mittal, Sr. PS. Copy forwarded to: 1. Assessee 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi

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