SUBRIA THREE LIMITED,NEW DELHI vs. ACIT, CIRCLE-3(1)(2) INT. TAXATION, DELHI

(A.Y.2022-23)& Other Group Appeals आदेश/ORDER PER BENCH: These bunch of 75 appeals by different assesses are taken up together for adjudication as the facts germane to the issues raised in these appeals are common and identical issues have been raised by the assesses in their respective appeals.

2. These appeals by the assesses/appellants are directed against the assessment orders passed in respective cases by the Assessing Officer (AO) u/s. 143(3) r.w.s 144C(13) of the Income Tax Act,1961(hereinafter referred to as ‘the Act’), for AY 2022-23.

challenging validity of assessment order on limitation in the appeals represented by him are dismissed as not pressed.

4. The common key issues that emerges in the appeals filed by different assesses are as under: (i) Lease entered into by the assesses/appellants as Lessors with the Lessees for leasing of aircrafts - Whether Operating lease or Financial lease?; (ii) Applicability of Multilateral Instruments (MLI) vis a vis India-Ireland Double Taxation Avoidance Agreement (DTAA); (A.Y.2022-23)& Other Group Appeals (iii) Whether the assesses/appellants are eligible for benefit of Article 8 of India-Ireland DTAA?; & (iv) Whether the aircraft leased by the assesses/appellants to an Indian lessee constitutes a PE?. Apart from above four primary issues there are certain other consequential and peripheral issues arising in certain appeals which will be dealt with at a later stage, if need arises.

(A.Y.2022-23)& Other Group Appeals 6. Per contra, the Assessing Officer treated the said lease as financial lease and held that the interest accruing on financing of Aircrafts and paid as part of lease rentals by the Indian lessee to the assessee (as lessor) are taxable in India under Article 11 of India-Ireland DTAA. Further, the Assessing Officer held that India -Ireland DTAA is a ‘Covered Tax Agreement’ under the Multilateral Convention to implement Tax Treaty measures to Prevent Base Erosion and Profit Shifting (BEPS) signed by Ireland and by India on 7/6/2017. In terms of Article 6 & 7 of MLI, the assessee must qualify Principal Purpose Test (PPT). The MLI has the effect of modifying India-Ireland DTAA, in light of the modified provisions of the India-Ireland DTAA, the amount received by the assessee/lessor of the aircraft is liable to tax in India. Hence, the present appeal by the assessee.

7. The key issues raised in the appeals have already been culled out and are mentioned above in paragraph 4 above. Our findings on each issue is as follows: (i) Operating Lease vs. Financial Lease: 8. Shri Sachit Jolly, Senior Advocate representing the assesses/appellants, submitted that the issue whether the lease agreement entered into between the lessees of the aircraft and the lessor(Indigo) is in the nature of Operating Lease or Financial Lease has already been considered by the Coordinate Bench of the Tribunal in the case of Celestial Aviation Trading 15 Ltd. vs. ACIT, [176 taxmann.com 902] (Delhi Trib.).The aircraft lease agreements entered between Irish lessor’s and the Indian lessee are uniform. This fact has not been disputed by the Department. The fact that the lessees are incorporated in Ireland and are holding valid TRC is also not in dispute. Referring to the aforesaid decision he submitted that the Coordinate Bench after examining the Terms and Conditions (A.Y.2022-23)& Other Group Appeals of Aircraft Specific Lease Agreement, Aircraft Lease Common Term Agreement, the RBI Circular No. 24 dated 01.02.2022 and the decision of Special Bench of the Tribunal in the case of InterGlobe Aviation Ltd. (IndiGo) vs. ACIT, 131 taxmann.com 98 held that the lease agreement is in the nature of operating lease and not financial lease.

9. The ld. Counsel submits that the key feature of Financial Lease is the transfer of ownership of leased asset to the lessee at the end of the lease period. In the present case, there is no such condition in the lease agreement. The aircraft at the end of lease period is returned to the lessor who is thereafter at liberty to re-lease the aircraft either to the same lessee or to any other entity. The ld. Counsel further asserted that the DRP has erred in coming to the conclusion that the aircraft is transferred back to the assessee only after exhausting economic life of the asset. The DRP in an arbitrary manner and without any basis has determined economic life of the Aircraft as 8 years. The said findings of the DRP are contrary to the facts and documents available on record. As per DGCA Circular of 1993, the economic life of aircraft is 20 years or 60,000 landing/pressurization cycle. Whereas, in the present case the lease period even after extension is only 120 months i.e. 10 years. The aircraft has still remaining operational life of 10 years. Therefore, it cannot be said that the aircraft was utilized by the lessee for substantial economic life of the asset.

(A.Y.2022-23)& Other Group Appeals 11. Both sides heard, orders of the authorities below examined. We find that the issue, whether the lease agreement between the Lessee (assessee) and the Lessor (Indigo) is financial lease or operating lease has been examined by the Coordinate Bench of the Tribunal in the case of Celestial Aviation Trading 15 Ltd. vs. ACIT (supra). After examining the lease agreements threadbare, the Coordinate Bench held as under: “12. We have heard the submissions made by both sides in extenso, perused the orders of authorities below and have considered the documents and decisions referred to during the course of submissions by the rival sides. The assessee in appeal has primarily assailed the addition of Rs.74,37,77,694/- on account of interest income taxable at the rate of 10% holding lease rentals received by the assessee out of Financial Lease. Undisputedly, the assessee is tax resident of Ireland and is engaged in the business of Leasing of Aircrafts. During the period relevant to assessment year under appeal, the assessee leased out three aircrafts bearing MSN 10689, 9382 and 9561 to Indigo. The case of the assessee is that the lease entered into between the assessee and Indigo is operating lease. Hence, the lease rentals received by the assessee from said lessee are not exigible to tax in India. The AO has re-characterized the nature of lease agreement and has held the lease to be finance lease and the lease rentals received by the assessee in the nature of interest taxable at the rate of 10% in accordance with Article 11 of India-Ireland DTAA.

(A.Y.2022-23)& Other Group Appeals A perusal of ASLA would show that the assessee is the Lessor and Indigo is the Lessee. The duration of agreement is for a period of 120 months extendable at the option of Lessee to be conveyed in writing to the Lessor before the expiry of 18 months prior to the original scheduled expiry date. Clause 3 of ASLA specifically states that the owner of the aircraft shall be the ‘Lessor’. In the entire ASLA there is no covenant which refers to the condition that after the end of duration of lease term, the ownership in aircraft shall be transferred to the lessee or the lessee at any point of time can exercise option to purchase the aircraft. Clause 10 of ASLA requires the Lessee to pay deposit in cash or in the form of Letter of Credit prior to delivery of aircraft. The Lessor shall return such deposit to the Lessee upon occurrence of the events specified in ASLA which includes, ‘on completion of the Return Occasion. “Return Occasion” is defined in Schedule-I of CTA as: “Return Occasion means the date on which the Aircraft is redelivered to Lessor in accordance with Clause 12”. Clause 12 of CTA reads as under: “12. RETURN OF AIRCRAFT 12.1 RETURN On the Expiry Date or redelivery of the Aircraft pursuant to Clause 13.2 or termination of the leasing of the Aircraft under the Lease, Lessee will, unless an Event of Loss has occurred, redeliver the Aircraft and the Aircraft Documents and Records at Lessee's expense to Lessor at the Redelivery Location, in accordance with the procedures and in compliance with the conditions set out in Schedule 6, free and clear of all Security Interests (other than Lessor Liens) and in a condition suitable for immediate operation under FAR Part 121 or as otherwise agreed by Lessor and Lessee and, in any case, qualifying for and having a valid and fully effective certificate of airworthiness issued by the Air Authority. If requested by Lessor, Lessee shall thereupon cause the Aircraft to be deregistered by the Air Authority Lessor shall reasonably cooperate (and shall procure that the Owner reasonably cooperates) with the Lessee in order to effect such deregistration.” The above clause makes it unambiguously clear that at the end of Lease period, Lessee is under obligation to return aircraft to the lessor. And on the return of aircraft the lessor shall refund the deposit.

(A.Y.2022-23)& Other Group Appeals 14. Some of the vital covenants of the CTA are examined to determine the nature of lease as under:- (i) Schedule-I to CTA contains definitions. “Owner” has been defined as under: “Owner means the Person identified in the Aircraft Specific Lease Agreement as Owner or, subject to clause 14.3, such other person as Lessor may notify Lessee from time to time.” The owner as per ASLA is the assessee. (ii) Clause 8.4 of CTA deals with sub-leasing. “8.4 Subleasing (a) At no time prior to the Return Occasion will Lessee sub-lease, wet- lease or otherwise give possession of the Aircraft to any Person except: (i) when the prior written consent of Lessor has been obtained (not to be unreasonably withheld or delayed); or (ii) where the Aircraft is delivered to a manufacturer or maintenance facility for work to be done on it as required or permitted under the Lease; or (iv) to a Permitted Sub-Lessee as set forth in Clause 8.4(b); or (v) on a wet lease complying with the provisions of the following of this clause 8.4(a).” Clause 8.4 of the CTA restricts the lessee to sub-lease, wet lease or otherwise give possession of aircraft to any person except under certain conditions with prior consent of lessor. (iii) Clause 8.6 of CTA explains Ownership; Property Interest; Related matters. The relevant extract of the same is reproduced as under: “8.6 Ownership; Property Interests; Related Matters (a) Lessee will:

(A.Y.2022-23)& Other Group Appeals (i) fix and maintain Nameplates in a prominent position in the cockpit or cabin of the Aircraft and on each Engine stating "This Aircraft/Engine is owned by (insert name of Owner and is leased to [insert name of Lessee] and may not be or remain in the possession of or be operated by, any other person without the prior written consent of linsert name of Lessor]"; and (ii) take all reasonable steps to make sure that other relevant Persons know about the interests of Owner and Lessor as owner and lessor respectively in the Aircraft, including (without limitation) ensuring that wherever necessary as a matter of applicable Law in the State of Registry or in the jurisdiction of incorporation of any Permitted Sub-Lessee or the State of Incorporation, the interests of Lessor and Owner are duly registered in the International Registry. (b) Lessee will not: (i) represent that it is the owner of the Aircraft or that it has an economic interest (equivalent to ownership) in the Aircraft for Tax treatment or other purposes; (ii) take any action or fail to take any action if it might reasonably be expected to put Owner's and / or Lessor's rights at risk; (iii) represent to others that Owner or Lessor is associated with or responsible for the business activities and / or flight operations of Lessee; or (iv) allow the Aircraft or Owner's or Lessor's interest in it to become or remain subject to any Security Interest (other than a Permitted Lien); nor (v) consent to any interests conflicting with (whether or not taking priority over) the interests of Lessor or Owner to be registered at the International Registry without the prior written consent of Lessor or Owner (as the case may be).” The aforesaid covenant ensures that the name of the owner at all times is displayed on the aircraft. The reason for having this clause is obviously to display (A.Y.2022-23)& Other Group Appeals the name of owner and lessee during the period of Lease Agreement which is substantially less than the Economic Life of the Aircraft. (iv) In Clause 8.13 Aircraft Lease Common Terms Agreement deals with title on equipment change, the same reads as under:- “8.13 Title on an Equipment Change Title to any equipment that becomes a Part or an Engine after the Delivery Date (whether by way of replacement, as the result of an Equipment Change or otherwise) shall, save as otherwise provided in a bill of sale or similar instrument delivered by Lessee in favour of Owner) vest in Owner solely by virtue of its attachment to the Airframe or an Engine and it shall then be subject to the Lease as if it were attached to the Aircraft at Delivery. If so requested by Lessor, Lessee will provide a properly executed bill of sale or similar instrument to evidence the vesting of title to any such equipment, free and clear of all Security Interests, in Owner.” A perusal of aforesaid Clause shows that in case of change in any equipment which is part of engine. The ownership in that equipment shall solely vest with the owner by virtue of its attachment of the airframe to the engine. (v) The Clause 9 of the CTA lays down the condition and responsibility on lessee to get the aircraft insured. A perusal of Clause 9.1 reveals that it is the responsibility of lessee to maintain the insurance in full force during the term of lease only. After the expiry of lease, the lessee is not responsible for the insurance of the aircraft. (vi) Clause 10 of CTA binds the lessee to indemnify the lessor. The relevant extract from the said clause is reproduced herein under:- 10. INDEMNITY 10.1 General (a) Lessee agrees to assume liability for and indemnifies each of the Indemnitees against and agrees to pay on demand Losses which an Indemnitee may suffer at any time whether directly or indirectly as a result of any act or omission in relation to:

(A.Y.2022-23)& Other Group Appeals (i)the ownership (but only to the extent arising out of the use, possession, leasing, operation or maintenance of the Aircraft by Lessee or any Permitted Sub-Lesse), maintenance, repair, possession, transfer of ownership or possession, import, export, registration, storage, modification, leasing, insurance, inspection, testing, design, sub-leasing, use, condition or other matters relating to the Aircraft; or (ii) any breach by Lessee of its obligations under the Lease. ‘Indemnity’ has been defined in Schedule-I as under:- Indemnitee means each of Lessor, Owner, GECC, GECAS, the Financing Parties and each of their respective successors and assigns, shareholders, subsidiaries, affiliates, partners, contractors, directors, officers, representative, servants, agents and employees. 13.4 Sale or Re-lease of Aircraft If an Event of Default occurs and is continuing, Lessor may sell or re-lease or otherwise deals with the Aircraft at such time and in such manner and on such terms as Lessor considers appropriate in its absolute discretion, free and clear of any interest of Lessee, as if the Lease had never been entered into. Thus, in the event of default the Lessee has to return aircraft to the Lessor and thereafter, the Lessor can sale or re-lease the aircraft.

15. Now to understand the difference between financial lease and operating lease, we need to refer to the definition of ‘Financial Lease’ under other Acts as the expression financial lease and operating lease are not defined under the (A.Y.2022-23)& Other Group Appeals Income Tax Act. Section 2(ma) of the SARFAESI Act, 2002 defines ‘financial lease’ as under:- “financial lease” means a lease under any lease agreement of tangible asset, other than negotiable instrument or negotiable document, for transfer of lessor's right therein to the lessee for a certain time in consideration of payment of agreed amount periodically and where the lessee becomes the owner of the such assets at the expiry of the term of lease or on payment of the agreed residual amount, as the case may be” The Recovery of Debts & Bankruptcy Act, 1993 defines financial lease as under:- ““financial lease" means a lease under a lease agreement of tangible asset, other than negotiable instrument or negotiable document, for transfer of lessor's right therein to the lessee for a certain time in consideration of payment of agreed amount periodically and where lessee becomes the owner of the such assets at the expiry of the term of lease or on payment of the agreed residual amount, as the case may be” From the aforesaid definitions a subtle trait of financial lease can be identified i.e. "At the end of the lease period, lessee becomes the owner of the leased asset."

16. In the instant case although the AO and the DRP have characterized the nature of lease as financial lease but both the authorities have ignored the fact that at no point of time, ownership in the asset i.e. aircraft is transferred to the lessee, which is the hallmark of financial lease.

3. It is clarified that financial lease transaction i.e. the lease transaction containing option to purchase the asset at the end of the lease period will continue to require prior approval from the Reserve Bank of India.”

The contention of the assessee is that the lessee is paying lease rentals in accordance with aforesaid RBI Circular and for the financial lease transaction where the ownership in the asset is transferred to the lessee, the lessee was required to take prior approval from the RBI, no such approval has been taken by the lessor in the present case. This fact remains un-rebutted. No material is available on record to suggest that the above RBI Circular has been violated by the lessor or the lessee.

18. Further, the ld. Counsel for the assessee has drawn our attention to the observations of the DRP in para 17.3 (ii) of the Directions, where the DRP has determined economic life of the Aircraft as 8 years. Referring to DGCA Circular issued in 1993 the DRP concluded that since lease of the aircraft covers substantial commercial life, therefore, the lease should be termed as financial lease. We find above observations of the DRP contrary to the facts on record and the DGCA Circular. The DGCA vide its communiqué dated 29.07.1996 (at pages 231 to 233 of the paper book) has prescribed economic life of an aircraft as 20 years or 60,000 landings/pressurization cycles. In the instant case the lease (A.Y.2022-23)& Other Group Appeals agreement has been entered between the parties for a period of 120 months i.e. for 10 years, in other cases the lease period is for lesser period i.e. 72 months as is in the case of MSN 9382 (at page no. 210 to 275 of the paper book) and for MSN 9561 (at pages 276 to 341 of the paper book). Substantial economic life of the aircraft is still left after the end of lease period. Therefore, observations of the DRP on Economic Life of the aircraft being utilized under lease agreement is without any basis, hence, the conclusion to re-characterize nature of lease agreement is erroneous.

19. The ld. DR has vehemently argued that the lessee (Indigo) had originally entered into an agreement for purchase of aircraft with Airbus and it was subsequently that the present assessee stepped in at the time of delivery of aircraft and financed Indigo for acquiring the aircraft from Airbus. The ld. Counsel for the assessee to counter argument of the Revenue has brought to our notice the decision of Special Bench in the case Inter Globe Aviation Ltd. (Indigo) vs. ACIT (supra). Similar arguments were raised by the Revenue in said case. The questions for consideration before the Special Bench was: “(1) Whether FIA (Fleet Introductory Assistance) credit received by the Assessee from IAE and other equipment manufacturers is a Capital or revenue receipt arising out of the transaction? (2) Whether credits so received are taxable under section 28(i) or 28(iv) of the I.T. Act, 1961 or as a "Commission" income or "Income from capital gains"? (3) Whether the Ld. CIT(A) is right in making disallowance of Rs.268,91,48,934/- out of lease rental payments under section 37(1) of the I.T. Act, 1961? (4) Whether payment of Supplementary Lease Rent of Rs.328,09,64,412 l-is an allowable business expenditure and TDS is not deductible thereon?”

(A.Y.2022-23)& Other Group Appeals 13. The Revenue has not been able to distinguish either facts or findings of the Coordinate Bench in the case of Celestial Aviation Trading 15 Ltd. vs ACIT (supra). Following the aforesaid decision, for parity of reasons we hold that the agreement to lease aircrafts is in the nature of operating lease and not financial lease. The issue is thus decided in favour of the assessee and against the department. (ii) Applicability of MLI to India-Ireland DTAA: 14. The next issue for our consideration is applicability of Article 6 & 7 of MLI. The contention of Revenue is that India and Ireland have ratified MLI and India has notified MLI on 9/8/2019. Since, India-Ireland DTAA is a Covered Tax Agreement, provisions of Article 6 & 7 would apply automatically. The ld. Counsel for the assessee at the outset placing reliance on the decision rendered in the case of Sky High Appeal XLIII Leasing Company Ltd. vs ACIT, 177 taxmann.com 579 (Mum Trib.) submitted that the Coordinate Bench of the Tribunal has examined the issue in detail. The Tribunal in the said case has held that in the absence of specific notification u/s. 90(1) of the Act, MLI does not become a binding force under Domestic law and is not legally enforceable. The general omnibus notification issued on 09/8/2019, is not sufficient to implement the modifications to the India-Ireland DTAA as a result of MLI. A separate notification u/s. 90(1) of the Act is mandatorily required for each country to validate the amendments in the DTAA. The ld. Counsel further submitted that merely for the reason that India- Ireland DTAA is ‘Covered Tax Agreement’ (CTA) the modifications as a result of MLI would not be validated automatically. A separate notification incorporating consequential amendments to the tax treaty is necessary. Article 6 and 7 of MLI cannot be applied unless they are backed by domestic Legislation in the form of (A.Y.2022-23)& Other Group Appeals notification u/s.90(1) of the Act. The ld. Counsel submitted that the order of Mumbai Bench of the Tribunal in the case of Sky High Appeal XLIII Leasing Company Ltd. vs ACIT (supra) is quite comprehensive and covers all possible facets on the issue arising on applicability of MLI.

(A.Y.2022-23)& Other Group Appeals 15.2. The ld. Special Counsel for the Department/Respondent further submitted that the past practice is that the Central government by way of a single omnibus notification under section 90(1)of the Act have notified MLI. For example: - Agreement among the Governments of SAARC Member States was brought into effect in India by single notification dated 10.01.2011 u/s 90(1). No separate notification qua each country was made. The SAARC agreement had similar features to MLI including entry into force, depository, effective at a future date, expansion of scope for certain countries etc. - Another Multilateral Convention on Mutual Administrative Assistance in Tax Matter (MAAC) was signed by India at OECD Headquarters on 26/1/2012. The said MLI was ratified and deposited in OECD and thereafter was notified u/s 90(1) on 28/8/2012. No separate notification was issued for each country. - Another Multilateral Competent Authority Agreement(CBCR)was signed by India on 12/5/2016 and notified u/s 286(9) on 28.07.2017, which further refers to agreement u/s 90(1), that had significant impact on rights of taxpayers and casted severe reporting obligations followed by severe penalties in case of default. 15.3. Sh. Indruj Singh further submitted that the global practice amongst most dualist and monist countries is to assimilate MLI into their domestic law by way of single omnibus notification. In fact, countries like Ireland, South Africa etc. also notified MLI under delegated legislative provisions, akin to section 90(1) of the Act. Ireland’s MLI position was ratified on 29.01.2019 and notified on 26.10.2018 to have entry into force from 01.05.2019 i.e. before India ratified and notified its (A.Y.2022-23)& Other Group Appeals own MLI position. Therefore, at the time of India's notification, the MLI provisions that matched and modified the Indo-Irish DTAA were already known. 15.4 The ld. Counsel for the Department to buttress his argument, referred to the Note by the OECD Directorate of Legal Affairs at page 628 to 636 of the paper book – Vol-Iand submitted that OECD also clarifies that MLI is a multilateral treaty, to be applied alongside existing bilateral tax treaties modifying their applications. The bilateral treaties can be modified in a synchronized and consistent way in order to swiftly implement the tax treaties related BEPS measures. He specifically referred to para 11 to 17 of the aforesaid note by the OECD. The ld. Counsel to explain how the MLI works refer to the flow charts at pages 637 and 638 of the paper book wherein step by step procedure is explained and also refer to flow chart covering Article 7 relating to PPT at page 647 of the paper book Volume I furnished by the Department. 15.5 Shri Indruj Singh Rai, Special Counsel for the Department referring to the judgment rendered by Hon’ble Apex Court in the case of Assessing Officer (International Taxation) vs. Nestle SA, 458 ITR 756 submitted that the Hon’ble Court in the said case has given emphasis on the “treaty practice” being followed for issue of separate notifications for allowing benefit pursuant to Most Favored Nation (MFN) clause provided in protocol. Whereas, in the present case as mentioned earlier there is no practice of issuing separate notification for each country after signing of MLI. Thus, the decision rendered in the case of Nestle SA (supra) will have no impact on the MLI as the “treaty practice” in the case of MLI is to issue signal omnibus notification and no separate notifications are issued for enforcement of MLI for each country. Thus, the observation of the Hon’ble Supreme Court of India on requirement of a subsequent notification was only in (A.Y.2022-23)& Other Group Appeals the specific facts and pattern with respect to implementation of MFN clause and not for all amendments which are already notified once u/s. 90(1) of the Act. The ld. Special Counsel submitted that the ratio laid down in Nestle SA (supra) rather supports the case of the respondent/Revenue as there is a specific notification u/s. 90(1) of the Act dated 09.08.2019 giving effect to the MLI and also supports the historic behavior and precedent of single omnibus notification for MLI. For example: SAARC agreement, MAAC and CBCR. He pointed that in the case of Sky High Appeal XLIII Leasing Company Ltd. vs. ACIT (supra), the Bench was not assisted with the submissions and was not made aware of the practice of issuing omnibus notification for MLI. 15.6 The ld. Counsel for the Department further referred to the Finance Act, 2020, whereby provisions of section 90 of the Act were amended. He pointed that even Finance Act, 2020, recognizes that MLI is in force w.e.f. Financial Year 2020- 21 onwards. 15.7 The ld. Counsel for the Department finally submitted that the coordinate Bench of the Tribunal in the case of SC Lowy P.I. (LUX) SARL vs. ACIT 170 taxmann.com 475 (Delhi Trib.) adjudicated the issue where reference was made to MLI and PPT by the Department. The Bench did not question validity of MLI.

(A.Y.2022-23)& Other Group Appeals 17. Shri Percy Pardiwalla, Senior Advocate supplementing the submissions made by Shri Sachit Jolly Sr. Advocate, filed written submissions. The relevant excerpts from the same are asunder:- “Rebuttal on single omnibus notification as past practice: All the above notifications were issued prior to Nestle SA (supra) decision and have not been tested in light of the legal principles laid down by the Hon'ble Supreme Court in the said case. They cannot, therefore, be relied on to circumvent the mandatory requirement of specific notification of consequences of MLl on tax treaties as required under the provisions of section 90(1) of the Act. Without prejudice, the Appellant submits that the notifications mentioned by the Ld. DR cannot be compared to the MLI which by its very nature drastically amends the scope and ambit of the provisions of the tax treaty and the requirement of a notification under section 90(1) of the Act is mandatory: a. The SAARC agreement is not comparable with the MLl and its operation. The SAARC agreement was signed by all the Member States, fully agreeing to the terms of the Agreement stated therein. Therefore, there is no uncertainty / ambiguity in the application of the provisions of the SAARC agreement, unlike MLI which works on a matching principle. b. The Multilateral Convention on Mutual Administrative Assistance in Tax Matter is primarily an administrative tool for tax authorities to co-operate and share information. It does not amend or override existing bilateral tax treaties and does not change substantive rights and obligations of taxpayers under the tax treaties. c. The MCAA does not amend or override existing tax treaties. It is an administrative arrangement for information exchange, enabled by the Convention, and operates in parallel to bilateral treaties. There is no direct modification of taxpayer rights or obligations under existing tax treaties. In fact, the said notification was issued under section 286 of the Act and is not a notification under section 90(1) of the Act. Furthermore, the contention of the Ld. DR that principles laid down in Nestle SA (Supra) give primacy to'past practice' is also untenable. While the said case was decided in the backdrop of past FN practice, such practice was always carried out (A.Y.2022-23)& Other Group Appeals strictly in line with section 90(1) of the Act. There was no conflict between past practice and statutory mandate in the MFN context. Unlike this, in instant case the Revenue seeks to apply the MLI without any notification of its consequence on the Tax Treaty as required by section 90(1) of the Act, which is contrary to the provisions of the Act as well as the principle enunciated by the Hon'ble Supreme Court. Rebuttal on global practice: Practices in foreign jurisdictions cannot determine India's legal position on treaty implementation. The Hon'ble Supreme Court in Nestle SA (supra) (Para 46) made it abundantly clear that enforceability in India depends solely on compliance with section 90(1) of the Act. Further, Para 31 of the OECD's Legal Note, relied upon by the Ld. DR (Pg 635 of the Ld. DR's compilation (Vol 1)) itself records that treaty partners need not to have identical domestic procedures for the MLI to operate and the implementation depends on each country's legal framework. The fact that some countries use omnibus notification to implement the consequences of MLI on tax treaties does not dilute India's requirement of separate notifications of consequences of MLI for the respective treaties under section 90(1) of the Act. Rebuttal on Note by the OECD As held by the Hon'ble Supreme Court in Nestle SA (supra) and also considered by the Hon'ble Tribunal in the case of Sky High (supra), a notification under section 90(1) of the Act incorporating the changes to the Tax Treaty by the MLI is mandatory as it has the effect of amending the bilateral tax treaties to the extent of the consensus of both the contracting states The practice suggested by the OCD cannot override the express provisions of the Act. Rebuttal on Memorandum to the Finance Act, 2020: The reliance on Memorandum to Finance Act, 2020 is misplaced. The Memorandum merely notes MLI ratification and aligns section 90(1) with BEPS objectives. It nowhere dispenses with the statutory requirement of treaty-specific notifications as confirmed by the Hon'ble Supreme Court in Nestle SA (Supra).

(A.Y.2022-23)& Other Group Appeals 5. Without prejudice to the above submission, the Appellants also humbly submits that Notification No. S.O.2887(E) dated 09.08.2019 ('MLI Notification'), issued by the Central Government under section 90(1) of the Act, purporting to give effect to the provisions of the MLI is not enforceable, as it is invalidly issued 6. Subsequent to the issuance of the MLI Notification in 2019, the provisions of section 90(1)(b) of the Act were amended vide the Finance Act, 2020, with effect from 1 April 2021 which introduces a substantive limitation by inserting the following words into Section 90(1)(b) of the Act: "...for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be, [without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty- shopping arrangements aimed at obtaining reliefs provided in the said agreement for the indirect benefit to residents of any other country or territory)] The above amendment fundamentally alters the statutory basis for the Central Government's power to enter into and notify agreements for the avoidance of double taxation.

8. The intent of the subsequent amendment to section 90 of the Act, as explained in the Memorandum, makes it clear that the MLI Notification issued in August 2019, is invalid and does not have the legal sanction to restrict the tax treaty benefits under the existing and notified agreements as the right to enter into an agreement to curb non-taxation or reduced taxation through tax evasion or (A.Y.2022-23)& Other Group Appeals avoidance, was only given once the amendment in section 90 of the Act was made.

9. In light of the foregoing, it is submitted that MLI Notification is invalid and, further, in any event, it is not enforceable in absence of a separate notification for consequences of MLI as agreed upon between the contracting states as can be discerned from the respective instruments of ratification and incorporation into the synthesized text on the Tax Treaty under section 90(1) of the Act. This position has been conclusively affirmed by the Hon'ble Supreme Court in Nestle SA (Supra) and also followed by the Hon'ble Mumbai Bench in Sky High Appeal XVIII Leasing Company Limited (supra).”

(A.Y.2022-23)& Other Group Appeals 20. The issue of applicability of MLI and its impact on India-Ireland DTAA has already been considered in detail by Mumbai Bench of the Tribunal in the case of Sky High Appeal XVIII Leasing Company Limited (supra). The Special Counsel for the Revenue fairly admitted that the Mumbai Bench of the Tribunal has decided the issue but he raised his reservations that certain vital aspects were not brought to notice of the Bench when the matter was argued. The crucial aspects not brought to the notice of Bench could have changed the course of decision. He made thus made his submissions on the points which accorded to him were not considered/brought to notice of the Bench in the case of Sky High Appeal XVIII Leasing Company Limited (supra).

39. The Court further rejected the contention that benefits granted to a foreign State at a subsequent point of time, whether on account of its accession to the OECD or pursuant to later negotiations and protocols, are automatically grafted (A.Y.2022-23)& Other Group Appeals onto an earlier DTAA with another State. Unlike domestic legislation, which emanates from parliamentary will, treaties are the product of diplomatic engagement and negotiated consensus, reflecting the constitutional and economic realities of the contracting States. Each DTAA is therefore a self- contained instrument, the interpretation of which must remain tethered to its own text, structure and definitional scope; it cannot be expanded by implication merely because similar expressions appear in another DTAA or because a party has subsequently joined a multilateral organisation. Accordingly, the Court held that any extension of treaty benefits to a new OECD member State can take effect only if India consciously accepts such extension, communicates this position to the treaty partner, and issues a fresh notification under Section 90(1). In the absence of such a deliberate and notified amendment, no parity of treatment or "trigger- event-driven" integration can be presumed. In crystallising these principles, the Supreme Court has reaffirmed that: • Parliament retains the exclusive authority to legislate upon treaty provisions where they affect the rights of citizens; • notification under Section 90(1) is a mandatory precondition for the enforceability of any DTAA or protocol that alters existing provisions of law; and • domestic courts cannot apply a rigid black-letter interpretive approach, but must account for the constitutional, diplomatic and practical realities attending upon different treaties. In essence, Nestle lays down that treaty benefits do not cascade automatically by reason of external developments such as OECD membership or subsequent bilateral arrangements, and that only a deliberate, notified act of incorporation can elevate such benefits into enforceable domestic law.

41. The ratio of the Supreme Court in Nestle SA (supra) leaves no room for ambiguity on this issue. Summarising its conclusions in paragraph 88 of the judgment, the Court emphatically held that a notification under Section 90(1) of the Income-tax Act is an indispensable and mandatory condition for any court, authority or tribunal to give effect to a Double Taxation Avoidance Agreement, or to any protocol or instrument that purports to alter the terms or conditions of such agreement. Put differently, any subsequent treaty-based modification of an existing DTAA can be enforced under municipal law only where a specific Section 90(1) notification has been issued incorporating that modification into Indian law.

42. The Revenue has argued that, since the MLI has been duly notified and the India-Ireland DTAA is a "Covered Tax Agreement", Articles 6 and 7 (i.e., the PPT suite) automatically apply. With respect, this contention cannot be reconciled with the constitutional and statutory mandate articulated by the Hon'ble Supreme Court in Nestle SA. Indeed, the Revenue's own explanatory note acknowledges that the MLI "operates to modify tax treaties", while at the same time conceding that it is "not an amending protocol", and that the widely circulated "synthesised text" is not in itself a legally binding document.

43. In truth, the so-called synthesised text which incorporates the MLI provisions into the covered tax agreement is nothing more than an expository compilation intended to facilitate understanding. It has neither been notified in the Official Gazette under Section 90(1) nor admitted by the Revenue to be a binding legal instrument. The reason for this is self-evident, unless and until the MLI-based modifications themselves are separately notified, a step which, in light of the principles laid down in Nestle SA, is a mandatory pre-condition the synthesised text, however convenient for reference, cannot be treated as a source of enforceable law. Consequently, the Department cannot rely on the synthesised text to apply the PPT provisions, for that text has no greater legal sanctity than the unincorporated MLI provisions themselves.

(A.Y.2022-23)& Other Group Appeals 44. The structural design of the MLI itself reinforces this conclusion. Under its operational framework, each contracting State is required to deposit with the OECD a list of bilateral treaties that it wishes to designate as "covered agreements" along with its specific positions and reservations. The effectiveness of those positions, however, remains contingent upon the principle of reciprocity and, most importantly, upon the manner in which each State gives effect to such positions under its own domestic law. It is, therefore, not enough that India has merely notified the MLI or identified the India-Ireland DTAA as a covered tax agreement. Unless the changes contemplated in the MLI are expressly incorporated into Indian law through the statutory mechanism, namely, a specific notification under Section 90(1) those changes cannot operate to alter the manner in which the domestic authorities apply the DTAA. That position now constitutes the law of the land by virtue of the judgment of the Hon'ble Supreme Court in Nestle SA, which makes it clear that neither the MLI nor any synthesised text can have domestic legal efficacy unless duly notified under Section 90(1) of the Act.

45. Against this settled backdrop, the approach adopted by the Assessing Officer and the learned DRP in treating the Principal Purpose Test under the MLI as self- executing in relation to the India-Ireland DTAA is wholly unsustainable. Not only does it run counter to the Revenue's own description of the MLI, namely, that it "modifies existing treaties" but it is also directly inconsistent with the binding precedent of the Supreme Court. The contradiction is plain: the Revenue recognises that the MLI modifies tax treaties, yet it sidesteps the very legal requirement that Nestle SA describes as an indispensable precondition, namely, a separate Section 90(1) notification incorporating those treaty modifications into Indian law.

46. When the ratio of Nestle SA (supra) is applied to the facts of the present case, the inevitable conclusion is that the MLI cannot be invoked to curtail or otherwise restrict the benefits available to the assessee under the India-Ireland DTAA unless the specific consequence of the MLI has been notified under Section 90(1). In the absence of such notification, neither the bare provisions of the MLI nor any synthesised text reflecting its intended application can form the basis for altering the application of an already notified DTAA.

(A.Y.2022-23)& Other Group Appeals 47. We are therefore constrained to hold, as a threshold matter, that Articles 6 and 7 of the MLI cannot be invoked against the assessee in the present assessment year, inasmuch as there is no Section 90(1) notification incorporating those provisions into the India-Ireland DTAA. Consequently, the Revenue's attempt to deny treaty benefits by invoking the MLI's Principal Purpose Test must, on this ground alone, fail. The assessment must proceed on the footing that the MLI has no application in the absence of a statutorily issued notification under Section 90(1).

50. We also note that the OECD's own commentary on the MLI recognises the role of each jurisdiction's domestic law in determining how the MLI takes effect. It expressly acknowledges that a "synthesised text" is a non-binding explanatory aid; it does not, and cannot, supplant the requirement for a legally valid act of incorporation in each jurisdiction. Thus, even on the OECD's own terms, the Revenue's reliance on a non-notified synthesised text is misplaced.

(A.Y.2022-23)& Other Group Appeals 22. The Coordinate Bench following the ratio laid down in Nestle SA(supra) held that MLI has the effect of modifying/altering India-Ireland DTAA. For giving effect to the altered/modified DTAA notification u/s 90 (1) of the Act is mandatory. Omnibus single notification issued on 9/8/2019 u/s 90(1) does not assimilate DTAA modified/altered by MLI into Municipal laws. A separate notification qua each DTAA is necessary to give the amended DTAA a legislative status. In the absence of specific notification u/s. 90(1) of the Act amendment/modification MLI cannot be invoked to deny benefit of India-Ireland DTAA.

(A.Y.2022-23)& Other Group Appeals iii. The working of MLI framework including the flow chart that reflect that all consequences were completed by the MLI with certainty of available options and there was no requirement for further dialogue or negotiation for implementation of MLI. iv. Memorandum of Finance Act, 2020 while providing for amendment to section 90(1) of the Act with respect to new DTTA’s to be entered into by India reflect that MLI was in effect from FY 2020-21 onwards, whereby, putting the issue of legislative assimilation to rest. v. The order of the Tribunal in the case of SC Lowy P.I. (LUX) S.A.R.L.vs.ACIT (International Taxation) 170 taxmann.com 475, where provisions of MLI i.e. PPT were interpreted in the context of modification of existing DTAA between India-Luxembourg. The ld. Special Counsel focused his submissions on the above aspects.

(A.Y.2022-23)& Other Group Appeals 28. On behalf of the Revenue inter alia on the issue of applicability of amendments to the DTAA following submissions were made: “7. The revenue argues, through the Additional Solicitor General, Shri N. Venkatraman (hereafter "ASG") that the impugned judgments are unsustainable. The revenue points out that under the Indian Constitution, especially by operation of Articles 253 (read with Entries 13, 14 and 15 of List I of the Seventh Schedule) of the Constitution of India, Parliament has exclusive power to legislate in respect of any treaty or convention, entered into by India, with any other nation; such treaty can only be entered into in exercise of executive power of the Union. It was urged that without Parliamentary legislation, such treaties are unenforceable, having regard to the express terms of Article 2531-2 which clothe Parliament alone with the power to make laws "notwithstanding" other provisions in that chapter- which delineates and distributes legislative power between the Union and States. Counsel submitted that India follows the "dualist" practise, which means that international treaties and conventions are not, upon their ratification, automatically assimilated into municipal law (i.e. the national legal system) but would require enabling legislation. This is in contrast to those countries which are "monist", wherein the treaty provisions are enforceable like municipal law, and are to be given equal weight by courts.

29. The Hon’ble Apex Court after considering submissions of the Revenue, examining provisions of section 90 of the Act, Article 253 of the Constitution and various decisions summed up as under:- “44. The holding in the decisions discussed above may thus be summarized: (i) The terms of a treaty ratified by the Union do not ipso facto acquire enforceability; (ii) The Union has exclusive executive power to enter into international treaties and conventions under Article 73 [read with corresponding Entries - Nos. 10, 13 and 14 of List I of the VIIth Schedule to the Constitution of India] and Parliament, holds the exclusive power to legislate upon such conventions or treaties. (iii) Parliament can refuse to perform or give effect to such treaties. In such event, though such treaties bind the Union, vis a vis the other contracting state(s), leaving the Union in default. (iv) The application of such treaties is binding upon the Union. Yet, they "are not by their own force binding upon Indian nationals". (v) Law making by Parliament in respect of such treaties is required if the treaty or agreement restricts or affects the rights of citizens or others or modifies the law of India.

(A.Y.2022-23)& Other Group Appeals (vi) If citizens' rights or others' rights are not unaffected, or the laws of India are not modified, no legislative measure is necessary to give effect to treaties. (vii) In the event of any ambiguity in the provision or law, which brings into force the treaty or obligation, the court is entitled to look into the international instrument, to clear the ambiguity or seek clarity.” The Hon’ble Apex Court, after accepting contentions of the Revenue that issuance of notification u/s 90(1) of the Act is necessary to give effect to any amendment in the existing DTAA and to make it legally enforceable held: “46. The legal position discernible from the previous discussion, therefore is that upon India entering into a treaty or protocol does not result in its automatic enforceability in courts and tribunals; the provisions of such treaties and protocols do not therefore, confer rights upon parties, till such time, as appropriate notifications are issued, in terms of Section 90(1).” The Hon’ble Court in an explicit manner held that notification u/s. 90(1) of the Act is mandatory to give effect to a DTAA that has been altered/modified by way of any protocol or treaty or convention.

(A.Y.2022-23)& Other Group Appeals 31. Before proceeding further, it would be relevant to understand the stage of effectuating MLI. India has signed MLI and has included over 90 DTAA’s in the list as Covered Tax Agreements and has conveyed it to the OECD which is the depository under Article 39 of MLI. The depository maintains database of Covered Tax Agreements conveyed by the parties to the depository. The MLI operates matching principles. However, it does not specify the date and text. Thus, the date of acceptance and the text can be amended by the other country. The MLI would come into force with the other country only when both countries notify MLI in their respective countries. The acceptance of MLI in full or in part by the other country at a future datehas the effect of modifying tax treaty between the parties. The fact that MLI operates to modify tax treaty between two or more parties have been accepted by the Revenue in the written submissions filed before Mumbai Bench of the Tribunal in the case of Sky High Appeal XLIII Leasing Company Ltd. (supra). Sequitur to modification to covenants of DTAA by the MLI, to give a legal binding force is issuance of notification u/s. 90(1) of the Act.

32. The contention of the Revenue is that while rendering the judgment in the case of Nestle SA (supra) emphasis has been given on the ‘past practices’ of issuance of notification for each country to give effect to MFN clause that was introduced by way of protocol. Whereas, in the case of MLI the past practices is only to issue one omnibus notification u/s. 90(1) of the Act and not separate notifications for each country. In support, the Department has referred to MLI with SAARC nations. In so far as MLI in respect of SAARC countries is concerned (available at page no. 1 to 16 of the paper book Vol- II filed by the Department). We find that the said agreement has been signed by all the member countries on the same date accepting all the Terms and Conditions in the said agreement.

(A.Y.2022-23)& Other Group Appeals Thus, there is no concept of a matching principle therein. Further reliance is also placed on MAAC MLI. It is an administrative pact to cooperate and share information and does not amend or override existing bilateral tax treaties. Hence, it does not modify /alter substantive rights and obligations under Treaty. Reference has also been made to CBCR. We find that it does not override existing tax treaties. It is administrative arrangement for information exchange. The said MLI was in fact notified u/s 286 of the Act. The provisions of said section provides for notifications of MLI, hence, cannot be equated with the provisions of notification under section 90(1) of the Act. Be that as it may, one relevant fact that needs to be noted here is that omnibus notification in respect of aforementioned MLIsnever faced judicial scrutiny. The question of validity of MLI having effect of modifying/altering existing treaty first faced legal test in the cases where MFN protocols were signed and had the effect of amending relevant DTAAs with the other countries. The Hon’ble Apex Court in Nestle SA (supra) made it clear that any amendment to DTAA would come into force only after notification u/s.90(1) of the Act. The same analogy has to be applied in the case of MLI which have the effect of amending existing DTAAs.

33. The next argument advanced by the Revenue is that, as per global practice, single omnibus notifications are issued for the assimilation of MLI into domestic law. The global practice of single omnibus notification does not determine India legal position on treaty implementation. Section 90(1) of the Act mandates for notification of any treaty. The Hon’ble Apex Court in the case of Nestle SA (supra) in para 46 (reproduced above) made it explicit that the amendment to DTAA is enforceable only on notification u/s. 90(1) of the Act. The Note by the OECD on (A.Y.2022-23)& Other Group Appeals MLI (at page 628 to 636 of the paper book Vol- I of the department) also explains the situation in domestic implementation of MLI. While dealing with the situation in domestic law OECD explained:- “28. In terms of domestic law, jurisdictions will have different methods for ensuring the implementation at the domestic level of the modifications made by the MLI to bilateral tax treaties. The method will depend on the legal framework which governs the implementation of international rights and obligations in each jurisdiction, e.g. whether the ratification of an international treaty automatically results in the integration of the rights and obligations set out in that treaty into domestic law (a "monist" system) or whether domestic legislation is required in order to transpose the rights and obligations in the treaty into domestic law (a "dualist" system). In the first case, changes to the rights and obligations of taxpayers may flow directly from the ratification of the MLI while, in the second case, such changes to the rights and obligations of taxpayers will generally flow from domestic legislation.

35. The ld. Special Counsel has placed reliance on the Memorandum to the Finance Act, 2020, where the reasons to amend the provisions of section 90 of the Act have been explained. The provisions of section 90(1) of the Act have been amended to align DTAA with MLI. That means prior to said amendment there was no substantive provision for assimilating MLI into legislation. As a corollary the notification u/s 90 of the Act is valid only after the section makes provision for the same. Further, it is discernable from the said amendment that MLI has the effect of amending DTAA to implement BEPS measures. Such amendments are not enforceable in absence of separate notification for effectuating amended provisions of the DTAA.

36. The last argument of the ld. Special Counsel for the department is that in the case of SC Lowy P.I. (LUX) S.A.R.L.(supra) provision of MLI i.e. PPT were interpreted in the context of modification of existing DTAA between India and Luxemburg. We find that Revenues reliance on the said case is misplaced. The issue of applicability of MLI was never raised before the Tribunal in the said case. The issue before the Coordinate Bench in the said case was denial of DTAA benefits on wrong assumption of facts. The appellant in the said case never challenged applicability of MLI in the absence of specific notification U/s 90(1) of the Act, which has the effect of modifying India-Luxembourg DTAA. A specific query was made to ld. Special Counsel for the Department, i.e. as to whether issue of notification u/s 90(1) of the Act was before the Tribunal in the said case. He fairly answered in negative. Hence, there was no occasion for the Coordinate Bench to give findings on this issue.

(A.Y.2022-23)& Other Group Appeals 37. We have considered all the alleged substantive issues purportedly not raised before the Coordinate Bench in the case of Sky High Appeal XLIII Leasing Company Ltd. (supra). We have answered the same in detail above and find no substance therein. In the case of Sky High Appeal XLIII Leasing Company Ltd. (supra) all the issues have already been dealt with. Thus, in light of our above findings and the decisions referred above we hold that single omnibus notification u/s 90(1) of the Act already issued would not legislate the amendments/modifications in existing DTAA. A specific notification for each country is required u/s. 90(1) of the Act where the MLI has the effect of amending /altering bilateral treaties. Hence, this issue is decided in favour of the appellants and against the Revenue. (iii) Application of Article 8 of India-Ireland DTAA:- 38. Shri Sachit Jolly submitted that the Tribunal in the case of Sky High Appeal XLIII Leasing Company Ltd. (supra) has already considered the issue of applicability of Article 8 and has decided the issue in favour of assessee. He submitted that Article 8, apart from profits from operation of ships and aircrafts refers to rental of ships or aircrafts in international traffic. Profits from ‘rentals’ is peculiar to India-Ireland treaty. This issue has been elaborately discussed in the case of Sunflower Aircraft Leasing Limited vs. ACIT in which has been followed in Sky High Appeal XLIII Leasing Company Ltd. (supra). The ld. Counsel refers to the findings in the case of Sky High Appeal XLIII Leasing Company Ltd. (supra) para 38 to 44 where decision in the case of Sunflower Aircraft Leasing Limited (supra) has been quoted and followed.

(A.Y.2022-23)& Other Group Appeals 39. Shri Indruj Singh Rai, Special Counsel agreed that the issue has been considered by Mumbai Bench of the Tribunal, however, he sought liberty to make three folds submissions with respect to applicability of Article 8 on dry lease receipts for use of aircraft. He asserted that Article 8(1) of India-Ireland DTAA is not applicable to dry leases. In fact, the provisions are not workable in respect of dry leases. Article 8(1) allocates taxing rights with respect to profits derived from the operation or rental of ships or aircraft in international traffic. ‘International Traffic’ is defined in Article 3(1)(f) of the Tax Treaty. The definition of “international traffic,” seeks to allocate taxing rights between the resident state and the source state, with the source state having exclusive rights to tax where operations/transport are carried out solely within the source state. Such exclusion provided in the definition of “international traffic” makes the definition an integral and inseparable part of Article 8(1). The definition of “international traffic” is workable only in the case of wet leases, i.e., where Irish entity is operating the aircraft itself. In such cases, the income of the Irish entity will be exempt under Article 8(1), unless the income arises solely from operations carried out within India.If the definition is applied to the facts of the given case, it leads to an absurdity, as the exception for domestic operations would apply only to operations carried out solely within Ireland. Referring to OECD commentary on Article 8, he contended that OECD never envisaged dry lease. He further submitted that, since the definition of “international traffic” is not workable for a dry lease, the corresponding exemption Article 8(1) cannot be allowed without adequate definition. He further submitted that the treaty is to be interpreted strictly on the basis of its text, and words cannot be read into the definition to make it workable.

(A.Y.2022-23)& Other Group Appeals The second limb of his argument, without prejudice to his primary submission above, is that Article 8(1) seeks to exempt profit from operations that are to be computed with reference to each flight and not in relation to each aircraft. Thus, what is to be examined for the purpose of determining ‘international traffic’ is each journey, and not the aircraft. Accordingly, profits from operations of flights solely within India would not fall within the meaning of “international traffic” and hence, would not be exempt under Article 8(1) 40. The ld. Special Counsel further submitted that without prejudice to his previous arguments on Article 8, even, if the profits are to be treated qua aircraft, what is to be seen is whether each aircraft has ever flown outside India. He submitted that the AO/DRP had sought information/data from the assesses with respect to profits derived from international usage of aircrafts, but the same was never provided by the assessee during assessment proceedings. The onus is on the assessee to show usage of aircraft outside India i.e. in international traffic, the assesses failed to discharge said onus. He furnished list of 73 assesses from whom such information/data was asked. He submitted that even if Article 8(1) is to be interpreted in accordance with the findings of the Tribunal in the case of Sky High Appeal XLIII Leasing Company Ltd. (supra) i.e. the use of aircraft in international traffic in a financial year, the assessee has to demonstrate with documentary evidence the usage of each aircraft in international traffic.

41. Controverting the arguments made on behalf of the department in respect of applicability of Article 8, Shri Sachit Jolly reiterated that the issue has already been decided by the Mumbai Bench. He pointed that the ld. Special Counsel for the Department has referred to the definition of “international traffic” as per OECD. The definition of international traffic as per OECD and India-Ireland DTAA (A.Y.2022-23)& Other Group Appeals are at variance. Therefore, to say the definition of “international traffic” is not workable in the facts of instant case is an incorrect statement. Dehors, the fact of operation of the aircraft by the lessee in international traffic, such usage has nothing to do with the rentals. The rentals have been received by the assessee for leasing the aircrafts. 41.1. The ld. Counsel for the assessee further submitted that in the case of Sunflower Aircraft Leasing Ltd. (supra) in para 38 and 39 of the order has examined the distinction in the language of Article 8 in India-Ireland DTAA vis-a- vis the OECD Convention and the definition of “international traffic" in India- Ireland DTAA. Further, in para 42 of the order, the Coordinate Bench has held that the definition of "international traffic", if read in the context of Article 8, does not lead to any absurd result but leads to a clear understanding that if aircraft is not used solely within India/Ireland, it constitutes “international traffic”. The fact that lessee InterGlobe Aviation Ltd. ("IndiGo") is free to use the aircraft for international operations is enough for the assessee to claim exemption under Article 8 of the India-Ireland DTAA. With respect to the second limb of argument he submitted that the definition of Article 8 under the India-Ireland DTAA differs materially from the OECD Convention. Therefore, reliance placed by the Revenue on the OECD commentary dealing with taxation on the basis of voyages undertaken, is wholly erroneous. In fact, this interpretation makes the use of word 'rental' otiose since in a case of rental, the aircraft will never be operated by the lessor and the exemption under Article 8 of the India-Ireland DAA for rental of aircraft would be left meaningless. 41.2. In respect of third argument of Special Counsel, Sh. Jolly submitted that when the aircraft was given on lease in the year 2017, the Lessee i.e. IndiGo was (A.Y.2022-23)& Other Group Appeals an international operator. There was no restriction in the lease agreement that the aircraft cannot be used for international operation. There is not even a whisper or allegation in the Final Assessment Order that there was a prohibition on IndiGo to use the aircraft for international operations or the aircraft was not used for international traffic. In the absence of any substantive evidence to the effect that the aircraft were never used for "international traffic", this argument is only an argument of prejudice and in vacuum, which deserves to be rejected.

42. To supplement the submissions made by Shri Sachit Jolly Senior Advocate, Shri Percy Pardiwalla furnished following detailed submission to controvert the arguments advanced by Special Counsel for the department: “At the outset, it is submitted that Article 8 of the India-Ireland Tax Treaty is worded differently as compared to the Article 8 of the OCED model convention. Article 8 of the Treaty disjunctively pairs the word "operation" and "rental" as independent activities. Comparatively, Article 8 of the OCED model convention is narrower in scope as it restricts taxing rights only to profits earned from operation of aircraft. It does not include "rental" as a separate head. Where the Government of India and Ireland deliberately adopt language broader than the OECD Model, that text must be given effect in its ordinary meaning. To import into the provision, a requirement that the lessor must also be an "operator" in international traffic (as in cases of wet leases) is equivalent to inserting conditions in the Treaty, which don't actually exist. This is contrary to the principle contained in the Vienna Convention on the Law of Treaties, 1969, that interpretation must be based on the ordinary meaning of the text in its context and object. This issue is squarely covered by favorable decision of the Hon'ble ITAT Mumbai in the case of Sky High Appeal XVIlI Leasing Company Limited (supra) (Para 42, Pg 151-152 of CLC) wherein it was held that "To superimpose a requirement that the lessor must itself be an operator in international traffic, or that the rental must be subordinate to such operation, is to read into the provision words which are not there."

(A.Y.2022-23)& Other Group Appeals As regards the definition of international traffic, it is submitted that when ead literally, in the context of dry operating leases, no absurdity arises, and it is evident that even dry leasing of aircraft is covered within ambit of Article 8(1) read with Article 3. The language of Article 8(1) and Article 3 of the Treaty consciously depart from the corresponding Articles in the OECD Model Convention. Hence, the Ld. DR's reliance on the OCED Model Convention commentary is misplaced. Additionally, this issue is squarely covered in favour of the Appellant by the decision of Hon'ble ITAT Mumbai in the case of Sky High Appeal XVIII Leasing Company Limited (supra) (Para 42, Pg 151-152 of CLC). Article 8(1) allocates the taxing rights to the home country in respect of profits from three streams of business (i) Operation of aircraft in international traffic (i) Rental of aircraft in international traffic; and (iii) Rental of related equipment. Undisputably, the income earned by the Appellant falls within stream (ii) and solely earns rental income from the lease of aircraft (and not income from the operation thereof). The Appellant would continue to earn rentals, even if, for any reasons, the aircraft is not put in operation by Lessee. Once the aircraft is leased to the Lessee without any restriction on its operations in international traffic, rentals from such aircraft should qualify for exclusion from the scope in terms of Article 8(1) of the Treaty so long as they form part of a fleet that operates in international traffic. Reliance is placed on the decisions of Hon'ble ITAT Mumbai in Sky High Appeal XVIII Leasing Company Limited (supra). Even otherwise, as mentioned above, the Appellant has already filed a certificate of deployment of aircraft, issued by the Lessee, which confirms the fact that leased aircraft has not been deployed anywhere in Ireland during the relevant period, is accordingly operated in international traffic as defined in Article 3, and accordingly, exempt from tax in India as per Article 8 of the Treaty.”

(A.Y.2022-23)& Other Group Appeals 40. The assessee‘s case is that it is an Irish enterprise engaged in the business of dry leasing aircraft to IndiGo, that the leased aircraft formed part of IndiGo‘s integrated fleet and were deployed interchangeably on domestic and international routes, and that such integration necessarily brought them within the scope of “international traffic” as defined in Article 3(1)(g) of the treaty. That definition excludes only those cases where the ship or aircraft is “operated” solely between places in the other Contracting State‖; the moment the operation is not exclusively domestic, it satisfies the definition. The assessee points out that IndiGo is an international carrier with scheduled flights to multiple foreign destinations, and that the aircraft type and configurations leased were suitable and certified for such operations. It was emphasised that the treaty text does not stipulate any predominance or threshold of international usage; a single non-incidental use on an international sector suffices to displace the “solely” domestic exclusion. Counsel relied on decisions such as ABN Amro Bank NV and GE Capital Aviation Services, where similar leasing clauses were given their plain, broad meaning.

43. We also take note of the commercial reality that airlines today operate fleets on a network basis, with aircraft rotated between domestic and international sectors depending on operational exigencies, maintenance schedules, and route economics. It is artificial, and contrary to industry practice, to freeze an aircraft‘s character by reference to its predominant usage in a given period. The treaty drafters, in our view, intended to avoid such disputes by linking the test simply to whether the aircraft was “operated solely” domestically. In the present case, the factual matrix including IndiGo‘s undisputed status as an international carrier and the unchallenged deployment of the leased aircraft on at least some international sectors brings the income squarely within the Article 8(1) scope.

44. The allocation rule in Article 8(1) is a specific provision which prevails over the general rule for business profits as provided in Article 7. Even if we had found that the assessee had a PE in India, Article 8(1) would nonetheless require the profits from such rental to be taxed only in the State of residence, Ireland. In light of our earlier conclusion that no PE exists, the operation of Article 8(1) fortifies the non-taxability of the lease rentals in India. The LD.DRP‘s contrary view is founded on an impermissible narrowing of treaty language, and cannot be sustained.” In the case of Sky High Appeal XLIII Leasing Company Ltd.(supra) the Coordinate Bench of the Tribunal adopted the above findings rendered in the case of Sunflower Aircraft Leasing Limited (surpa) and concluded that the assessee is entitled to avail benefit of Article 8 of the Treaty.

49. Shri Indruj Singh Rai Special Counsel for the Department fairly stated that he has nothing more to add on this issue and supported findings of the AO and the DRP.

(A.Y.2022-23)& Other Group Appeals The nature of consideration under the SOSA being directly linked to gross operating profits and revenues evinces a deep-rooted commercial nexus with the core operations of the hotel. Such performance-based remuneration goes well beyond passive consultancy or auxiliary functions. V. Intermittent Presence of Employees is Sufficient to Establish Continuity: The Court clarified that continuous and coordinated business engagement, even through multiple short-term visits by employees, suffices to establish a PE. The absence of a single individual exceeding the nine-month threshold under Article 5(2)(i) is not determinative, so long as business presence is substantively maintained. VI. Exclusion for Auxiliary Activities Inapplicable: Rejecting the assessee's reliance on the judgment of UAE Exchange Centre, the Court held that the strategic oversight, managerial control, and supervisory authority exercised by the appellant were central to the hotel's core operations and could not be characterized as mere preparatory or auxiliary activities. VII. Profit Attribution Unaffected by Global Losses: The Court unequivocally held that taxability of profits attributable to a PE in India stands independent of the foreign enterprise's global profit or loss. Article 7 of the DTAA entitles the source State to tax income attributable to the PE, based on local economic presence and business activity, irrespective of consolidated group profitability.

34. Here in this case there is nothing on record to show that there were any stationed personnel of the assessee and otherwise also ld. DRP observation on PE was not predicated on Article 5(2) of service PE at all.

35. In so far as finding that leasing business is carried on through the aircraft, the said finding is patently incorrect. The leasing business of the assessee was carried on from outside India and not through the aircraft in India. It is nobody's case that the assessee or IndiGo executed the lease agreement sitting in the aircraft in India. Therefore, apart from the non-satisfaction of the disposal test in the instant case, no part of the business of the assessee can be said to be carried on in India. If the logic of the DRP is accepted then in every lease of equipment, the foreign enterprise will be held to have a PE in India. The Madras High Court in Van Oord ACZ (supra) and benches of the Tribunal have held this in several decisions.

36. Insofar as the decision of the Madras High Court in Poomphuar (supra) is concerned, the Madras High Court in the case of Van Oord ACZ (supra) dealt with the case of leasing dredging equipment by a Dutch company to an Indian Company. The Revenue contended the presence of the ship/barge constituted PE of the Netherlands Company in India. In response, the Assessee therein contended that the leasing of equipment on bareboat basis/ dry lease would not constitute a PE in India. The Madras High Court after analyzing another earlier decision of the Madras High Court in Poompuhar Shipping Corporation Ltd. (supra) held that leasing of equipment on bareboat basis/ dry lease would not constitute PE of the Netherlands entity in India since the entire control of the equipment was with the Indian Company. The Hon'ble Madras High Court also pointed out that the earlier decision in Poompuhar Shipping (supra) dealt with the case of wet leasing, i.e. leasing equipment (A.Y.2022-23)& Other Group Appeals with Master and Crew and therefore not applicable. This aspect is of crucial importance since the Ld. DRP's findings in the present case are based entirely on the earlier decision of the Madras High Court in Poompuhar Shipping(supra). The relevant findings of the Hon'ble Madras High Court in the case of Van Oord (supra) are extracted hereunder for ready reference: "34.In Poompuhar Shipping's case, referred supra, it was a case of hiring of ship on time-charter basis, whereas in the present case, dredging equipment is leased out on bareboat basis, namely, without master and crew. Therefore, on facts, the decision in Poompuhar Shipping case, referred supra, is distinguishable.

51. Thus, following the decision of Coordinate Bench on identical set of facts, we hold that assessee/appellant has no PE in India in terms of Article 5 of India- (A.Y.2022-23)& Other Group Appeals Ireland DTAA. The issue is decided in favour of the assessee/Appellant and against the Department. (V) Other Issues: 52. Apart from above four primary issues, other grounds have also been raised in appeals. Some of the grounds are on jurisdictional issues. Since, the assesses/appellants got relief on the primary issues, these issues have become academic at this stage. The gist of such issues is as under: i. Applicability of Article 6 & 7 of MLI- Principal Purpose Test (PPT); ii. Taxability of receipts as royalty u/s.9(1)(vii) of the Act and also interest as per India-Ireland DTAA; iii. Interest income taxable @5% u/s. 194LC of the Act; iv. Directions issued by the DRP are beyond jurisdiction; v. Final Assessment Order passed in contravention of the draft assessment order, as the total income determined therein is higher than that computed in the draft assessment order; vi. Draft assessment order issued in the name of a non-existing entity; vii. Erred in Passing two final assessment orders, both assessment orders are non-est as there cannot be two Final Assessment Orders for the same assessee for the same AY; viii. Incorrect demand raised vide notice of demand issued u/s 156 of the Act; ix. The assessee in & 2022/Del/2025 has assailed the additionon the concept of Real Income Theory, i.e. during AY Taxing income was not received by the assessee.

(A.Y.2022-23)& Other Group Appeals 53. A bare reading of above grounds would show that some of the grounds go to the root of validity of assessment order but no submissions have been made on these grounds, at this stage. The ld. Counsel has prayed that the assesses be given liberty to make submissions on the above grounds, if the need so arises at later stage. Since, no submissions have been made on the above grounds, there are left open to be dealt with at the appropriate stage.

is dismissed.

55. The appellants have assailed initiation of penalty proceedings u/s. 270A of the Act. Challenge to penalty proceedings at this stage is premature; hence, the aforesaid ground raised in the respective appeals is dismissed.

56. In the result, appeals of the assesses are allowed, pro tanto. SA Nos. 501 to 507/Del/2025

57. The following applicants/assessees have filed Stay Application seeking extension of stay on recovery of outstanding demand:

1. DAE Leasing (Ireland) 18 Ltd; 2. DAE Leasing (Ireland) 19 Ltd; 3. AWAS 36698 Ireland Ltd; 4. AWAS 39427 Ireland Ltd; 5. DAE Leasing (Ireland) 4 Limited; 6. DAE Leasing (Ireland) 17 Limited; &

7. DAE Leasing (Ireland) 20 Limited (A.Y.2022-23)& Other Group Appeals Since appeals of the assesses/applicants have been decided, the Stay Applications have become infructuous, hence, the same are dismissed as such. Order pronounced in the open court on Tuesday the 30th day of September, 2025.