SKY HIGH XLIII LEASING COMPANY LIMITED,IRELAND vs. ASSISTANT COMMISSIONER OF INCOME TAX INT TAX CIRCLE 4 (2) (1) MUMBAI, MUMBAI

ITA 1122/MUM/2025Status: DisposedITAT Mumbai13 August 2025AY 2022-2023122 pages
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What did the Tribunal hold?

The Tribunal held that the lease rentals from aircraft operated in international traffic are taxable only in the state of residence, Ireland, as per Article 8(1) of the India-Ireland DTAA. The Tribunal reasoned that the definition of 'international traffic' in Article 3(1)(g) of the DTAA is a binary criterion: if an aircraft is not operated solely domestically, it falls within international traffic. Since the leased aircraft were part of a fleet used on both domestic and international sectors by IndiGo, an international carrier, the rental income squarely falls within Article 8(1). The Tribunal emphasized that airlines operate fleets on a network basis, making it artificial to freeze an aircraft's character by predominant usage. Furthermore, Article 8(1) is a specific provision that prevails over the general rule for business profits under Article 7. Even if a PE existed, Article 8(1) would still mandate taxation only in Ireland. Consequently, the Tribunal concluded that no PE exists in India. The issues relating to the existence of a PE and the applicability of Article 8 were decided in favour of the assessees. All other grounds, being consequential or rendered academic, required no separate adjudication. The appeals were allowed.

What were the facts?

The appeals before the Income Tax Appellate Tribunal (ITAT) Mumbai, involved seven different assessees, all Irish incorporated companies, for the Assessment Year 2022-23. These appeals arose from final assessment orders passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961, following directions from the Dispute Resolution Panel (DRP). The assessees are engaged in aircraft leasing. The core of the dispute revolves around the taxability of lease rentals and supplementary lease rentals in India. The assessees are represented by senior advocates, and the revenue by senior Departmental Representatives. The matters were heard together due to similar facts and legal issues.

What were the issues?

The Tribunal had to decide the following issues: 1. Whether the assessments are barred by limitation under section 144C read with section 153 of the Act. 2. Whether the directions issued by the learned DRP travel beyond its jurisdiction. 3. Whether Articles 6 and 7 of the Multilateral Instrument (MLI), embodying the Principal Purpose Test (PPT), apply to the facts and operate to deny treaty benefits. 4. The true characterisation and taxability of lease rentals and supplementary lease rentals. 5. Applicability of Article 8 of the India–Ireland Double Taxation Avoidance Agreement (DTAA). 6. Existence or otherwise of a Permanent Establishment (PE) in India. 7. Levy of interest under sections 234A and/or 234B. 8. Initiation and levy of penalty under section 270A read with section 274 of the Act. 9. Whether an incorrect rate of tax has been applied. 10. Whether the same income can be subjected to tax both as “royalty” and as “interest”. Assessee's Contentions: The assessees argued that the lease rentals fall within the protective ambit of Article 8(1) of the India-Ireland DTAA, as the aircraft were operated in international traffic. They contended that no PE exists in India. They also argued that consequential issues like interest and penalty are rendered academic if the primary issue regarding taxability is decided in their favour. The assessees relied on the plain language of the treaty and commercial realities of aircraft operations. Revenue's Contentions: The revenue's contentions are not explicitly detailed in the provided extract, but their stance is reflected in the orders passed by the Assessing Officers and the DRP, which sought to tax the lease rentals in India, implying a disagreement with the assessees' interpretation of the DTAA and the existence of a PE or other taxable nexus.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 144C(5),Section 153,Section 234A,Section 234B,Section 270A,Section 274,Section 9(1)(vi)

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Heard together (2 matters)

ITA No. 1122/Mum/2025
SA No.38/Mum/2025

Read from the judgment's own cause title. This page is filed under one of them.

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘I’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & MS PADMAVATHY S, ACCOUNTANT MEMBER SA No.38/Mum/2025 (Arising out of ITA No. 1106/Mum/2025

SA No.37/Mum/2025 ITA No.1106/Mum/20 25

AY 2022-23 2022-23 2022-23 2022-23 Assessee/ Appellant Sky High Appeal XLIII Leasing Company Limited 2, Grand Canal Square Grand Canal Harbour Dublin, D02 A342 Ireland C/o. DMD Advocates 30, Nizamuddin East, New Delhi-110 013 PAN: ABFCS0569K Sky High Appeal XLIII Leasing Company Limited 2, Grand Canal Square Grand Canal Harbour Dublin, D02 A342 Ireland C/o. DMD Advocates 30, Nizamuddin East, New Delhi-110 013 PAN: ABFCS0569K Ortus Aircraft Lease 6 (Doublin) Limited 32, Molesworth Street, Dublin 2, Ireland. C/o. DMD Advocates 30, Nizamuddin East, New Delhi-110 013 PAN: AADCO1624J Ortus Aircraft Lease 6 (Doublin) Limited 32, Molesworth Street, Dublin 2, Ireland. C/o. DMD Advocates 30, Nizamuddin East, New Delhi-110 013 Respondent The Assistant Commissioner of Income Tax (International Tax) Circle 4(2)(1), Mumbai The Assistant Commissioner of Income Tax (International Tax) Circle 4(2)(1), Mumbai Deputy Commissi

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