M/S. KLM ROYAL DUTCH AIRLINES,NEW DELHI vs. DCIT (INTERNATIONAL TAXATION), NEW DELHI

Briefly stated facts are that the assessee filed its return of income for AY 2012-13 on 28.9.2012 claiming a refund of Rs. 2,23,46,310/- declaring total income of Rs. 540,69,70,840/- and thereafter claiming tax relief on the entire amount, thereby reducing the total income to NIL. The case of the assessee was selected for scrutiny and notice u/s. 143(2) of the Act was issued to the assessee on 13.8.2013. Upon change of jurisdiction, again notice u/s. 142(1) of the Act dated 19.11.2014 was issued to the assessee. In response to the notices/ questionnaire, the AR of the assessee attended the proceedings from time to time and furnished the details / submission which were examined by the AO. The assessee is a company incorporated under the laws of Netherlands. The assessee is in the airlines business and operates in all major countries including India. It is engaged in the business of operations of aircraft in international traffic and derives income from providing air services for the carriage of passengers, freight and mail in international traffic. Apart from its normal business of air transport operation, the assessee is also engaged in the business of rendering technical and ground handling services to other airlines within India. Accordingly, the AO asked the assessee to explain that as to why the technical or ground handling charges should not be taxed as per provisions of Income Tax Act, 1961 not under Article 8DTAA as done in orders in earlier years. In response thereto, the Assessee has given its explanation vide submission dated 20.1.2014 and after considering the same, the AO observed 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 IATP is not into the business of operation of aircraft anywhere. Therefore, the profit of the assessee from technical handling and ground services would not qualify to be exempt from taxation in India of Article 8 of the DTAA between India and Netherlands and accordingly, held that the amount received by the assessee on account of ‘ground and technical handling services’ rendered to IATP pool airlines is taxable in India and assessed the income at Rs. 28,78,35,647/- u/s. 144C(13) r.w.s. 143(3) of the Act vide order dated 17.12.2015. Aggrieved with the assessment order dated 17.12.2015, assessee preferred an appeal before us.

On the other hand, the Ld. D.R., strongly relied upon the order of the AO. Further he submitted that the assessee did not have any additional man power to handle the facilities but the same was provided by exploiting their idle man power. Therefore, the entire receipt of the assessee from providing the services to other airlines was rightly held taxable in India and the claim of the assessee for expenses was not entertained. Ld. DR further submitted that it is very important to note that the assessee has failed to furnish the documentary evidences supporting the expenses incurred in India in earning the technical handling charges and in the absence of vital supporting documents for establishing the genuineness of the expenses claimed by the assessee, such expenses, in any case, will not be allowed.

We have duly considered the rival contentions and gone through the record carefully. The sole issue for our adjudication is whether the income earned from technical handling is duly covered by Article 8 of the Double Taxation Avoidance Agreement between India and Netherland and as such income accruing to assessee during the year under consideration is fully exempt from taxation in India and could not have been brought to tax in India. After hearing both the sides we find that Tribunal in assessee’s own case for assessment years 2004-05 & 2005-06, passed in 404/Del/2010 dated 19.11.2010 vide para no. 9 to 11 has dealt and decided the identical issue relating handling services and technical handling services rendered by the assessee to other airlines in India in assessee’s own case in the following manner:-

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In the result, the Appeal filed by the Assessee stands allowed.