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Before: Shri Bhavnesh Saini & Shri L.P. Sahu
ORDER Per L.P. Sahu, A.M.: This appeal is filed at the instance of assessee, challenging the directions of Dispute Resolution Penal-IV dated 21.11.2014 incorporated in assessment order passed u/s. 144C(13) of the IT Act. The assessee has raised as much as 21 grounds of appeal, which are argumentative in nature. However, the only issue to be adjudicated in this appeal is - whether the income earned by assessee from technical handling services to other airlines in India is the business income of assessee taxable in India or fully exempt from taxation in India as per Article 8 of the Double Taxation Avoidance Agreement (DTAA) between India and Netherland.
During the course of hearing both the parties agreed that the issue involved in this appeal is squarely covered by the following decisions of ITAT, New Delhi in the cases of assessee for various assessment years :
(i). & 404/Del/2010 (A.Y. 2004-05 & 2005-06) (ii). ITA No. 1394 (2006-07) & 1392/Del/2011(2006-07) in the case of assessee and Lufthansa German Airlines respectively. (iii) ITA No. 4811/Del/2010 (A.Y. 2007-08) ITAT Delhi Bench (iv) ITA No.4637/Del/2011 (A.Y. 2008-09) ITAT Delhi Bench (v) Order of Delhi High Court in ITA No. 627/2016, 862/2011, 1162/2011, 540/2016 & 1047/2011 in the case of assessee. (vi). ITA No. 3819 & 3820/Del/2015 (A.Y. 2009-10 & 2010-11.
For the sake of ready reference, we reproduce here the decision of ITAT in & 3820/Del/2015 in the case of assessee itself for A.Y. 2009-10 and 2010-11 has decided the issue in favour of the assessee after relying on the decision of Hon’ble Delhi High Court as under :
“5. We have heard the Ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
Undisputedly, the Ld. CIT(A) has granted the relief to assessee company by following the decisions rendered by the Tribunal in AYs 2004-05, 2005-06, 2006-07 & 2007-08 keeping in view the identical facts and arrived at the conclusion that the assessee company’s income from technical handling services is covered by Article 8 of DTAA between India and Netherland.
The Ld. AR for the assessee brought on record decisions rendered by Coordinate Bench of Tribunal in assessee’s own case from 2004-05 to 2008-09, available at pages 1-47 of the Paper Book. It is also brought to our notice by the Ld. AR for the assessee that the Revenue has challenged the decisions rendered by Tribunal in assessee’s own case in the earlier years before the Hon’ble High Court of Delhi, which was decided on 25.01.2017; copy of order is available at pages 48-78 of the Paper Book.
Before the Hon’ble High Court in assessee’s own case and in case of Lufthansa German Airlines in ITA 259/2007, a question of law to be determined by the Hon’ble Court was framed as under:- “Whether profits of the assessees from providing technical services to other airlines is covered by Articles 8(1) and 8(4) of the Double Taxation Avoidance Agreement between India and Germany, and by Articles 8(1) and 8(3) of the Double Taxation Avoidance Agreement between India and Netherlands?”.
It is not in dispute that the question to be decided by the Bench in the present appeals is identical as has been determined by the Hon’ble High Court, in the Judgment (supra). The Hon’ble High Court answered the question of law framed in case of assessee company against the Revenue and in favour of the assessee by returning following findings:- 29. Thus, 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 Indo-Dutch DTAA, or in the Indo-German DTAA. In Article 8(3) of the DTAA between India arid UK, it is explained. This is a significant distinction between these three sets of DTAA. 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. The ITAT while explaining the meaning of profit from the operation of ships or aircraft in international traffic- in both Lufthansa and the KLM cases took into consideration the bye- laws of IATP, because this organization authorized its members to share aircrafts, aircrafts pooling, ground handling equipment and manpower all over the world. The ITAT also considered the relevant clauses of the IATP manual and held that any receipt by the assessee due to participation in the IATP pool as provided in its manual and dealt with in Article 8(4) of Indo- German DTAA will not be taxable in India under Article 8(1); a similar findings was rendered in the case of KLM too. 30. The Assessees participated in the IATP pool and earned certain revenues from such activities and also incurred expenditure. There is, in the opinion of the Court, 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, OMT 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 two DTAAs (Indo- German and India-Netherlands) the profits from such participation were not taxable in India. 31. The terms of the India-UK DTAA as contrasted with the DTAA between India and Germany are dissimilar in some significant ways. The British Airways (supra) decision was based on the following facts- as held by the ITAT: (i) British Airways provided engineering and ground handling services at IGI Airport, New Delhi to 11 other airlines, at Chennai to 5 other airlines and certain other airlines at Mumbai. It has not availed any services/facilities from any airlines in India. Thus, there was no reciprocity in the agreement entered into between British Airways and other airlines; (ii) British Airways had a separate establishment and separate office set up to monitor ground handling services and different establishment at International Airports New Delhi did not form part and parcel of the operation of British Airways pertaining to the operation of aircrafts in international traffic. There is no such finding in the present appeals. (iii) British Airways’ services and facilities in India to the other airlines was a commercial activity. The excess/idle capacity was provided to various airlines at a price. The services provided in terms of the IATP manual are not based on any consideration paid or received; a system of credits has been created for IATP members. (iv) British Airways has a branch office in India, which constituted a Permanent Establishment (“PE”) in India, and, therefore, the income derived from PE in India was taxable as the same was not covered under DTAA. (v) Article 8(2) of DTAA between India and UK provided that paragraph 1 of Article 8 shall likewise apply in respect of participation in pools of any kind. The words “pools of any kind” was interpreted by the ITAT by taking the dictionary meaning of the word “pool’”. These are missing in the two DTAAs in question.
(vi) Article 8(3) of DTAA between India and UK provided that the terms “operation of aircraft” shall include “..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… ” These terms are not present in the two DTAAs in the present set of appeals. (vii) After meeting the requirement of its own flights, the services of employees were required for handling other airlines’ operation for generating income.
Having regard to these facts this Court is of opinion that the amplification of the term “operation of aircraft” in Article 8 (1) through Article 8 (3), 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 DTAAs in question, in these cases. This constituted the most significant difference between the two sets of cases on the one hand, and British Airways (supra) on the other. For these reasons, this Court rejects the Revenue’s contentions.