DAE (SABS) 10296 IRELAND DESIGNATED ACTIVITY COMPANY,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX (INT TAXATION), CIRLCE 2(1)(2), MUMBAI

ITA 1155/MUM/2025Status: DisposedITAT Mumbai13 August 2025AY 2022-23122 pages
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What did the Tribunal hold?

The Tribunal held that the assessments were not barred by limitation and that the DRP's directions did not exceed its jurisdiction. Crucially, the Tribunal ruled in favour of the assessees on the core issue of taxability of lease rentals and the existence of a PE. It held that Article 8(1) of the India-Ireland DTAA, which deals with income from the operation of aircraft in international traffic, applied to the lease rentals. The Tribunal rejected the revenue's restrictive interpretation, stating that the ordinary meaning of the treaty text should be given effect. It found that the leased aircraft were part of a fleet used on both domestic and international sectors, thus falling within the scope of Article 8(1). The Tribunal emphasized that Article 8(1) is a specific provision that prevails over the general rule for business profits under Article 7. Consequently, the lease rentals were taxable only in Ireland. The Tribunal also held that no PE existed in India. As a result, the issues relating to interest under sections 234A and 234B, and penalty under Section 270A, were rendered academic and infructuous. The appeals were allowed.

What were the facts?

The appeals were filed by seven Irish leasing companies against assessment orders for AY 2022-23, passed under Section 143(3) read with Section 144C(13) of the Income-tax Act, 1961, pursuant to directions from the Dispute Resolution Panel (DRP). The assessees are tax residents of Ireland, part of aircraft leasing conglomerates, and leased aircraft to Indian operators. The core issue involved the taxability of lease rentals and the existence of a Permanent Establishment (PE) in India. The assessees argued that the lease rentals were business profits taxable only in Ireland under Article 8 of the India-Ireland Double Taxation Avoidance Agreement (DTAA), and that no PE existed. The revenue contended that the rentals constituted royalty or interest, and that a PE existed, making the income taxable in India. The Tribunal consolidated these appeals due to similar facts and legal controversies.

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 DRP travel beyond its jurisdiction. 3. Whether Articles 6 and 7 of the Multilateral Instrument (MLI), embodying the Principal Purpose Test (PPT), apply to deny treaty benefits. 4. The true characterization 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 were business profits taxable in Ireland under Article 8 of the India-Ireland DTAA, and that no PE existed in India. They relied on the ordinary meaning of treaty terms and the commercial reality of aircraft leasing. They also contended that the DRP's directions exceeded its jurisdiction and that the assessments were not barred by limitation. Revenue's contentions: The revenue contended that the lease rentals were royalty or interest income taxable in India. They argued that the MLI's PPT applied and that a PE existed in India. The revenue also adopted a restrictive interpretation of Article 8 of the DTAA, suggesting it only applied to lessors who were also operators in international traffic.

Which sections of the Income-tax Act were involved?

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

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Cases cited in this judgment(9)Show list

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Heard together (5 matters)

ITA No. 1122/Mum/2025
SA No.38/Mum/2025
ITA No. 1106/Mum/2025
SA No.37/Mum/2025
ITA No.1106/Mum/20

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IN THE INCOME TAX APPELLATE TRIBUNAL, ‘I’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & MS PADMAVATHY S, ACCOUNTANT MEMBER AY 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 Respondent The Assistant Commissioner of Income Tax (International Tax) Circle 4(2)(1), Mumbai SA No.38/Mum/2025 (Arising out of 2022-23 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 The Assistant Commissioner of Income Tax (International Tax) Circle 4(2)(1), Mumbai 2022-23 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 Deputy Commissioner of Income Tax, International Tax, Circle 3(2)(2), Mumbai SA No.37/Mum/2025 ITA No.1106/Mum/20 25 2022-23 Ortus Aircraft Lease 6 (Doublin) Limited 32, Molesworth Street, Dublin 2, Ireland.

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