Loading judgment…
Facts
The assessee, Turkish Airlines Inc., received Delivery Order (DO) charges in India for cargo transportation. The Assessing Officer (AO) and Dispute Resolution Panel (DRP) held these charges as taxable income in India.
Held
The Tribunal held that DO charges are an activity directly connected with air transportation and, as per Article 8 of the India-Turkey DTAA, such profits are taxable only in Turkey, not India.
Key Issues
Whether Delivery Order charges received by an airline for cargo transportation are taxable in India under the Income Tax Act or protected by the India-Turkey DTAA.
Sections Cited
143(3), 144C(13), 144C(5)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
O R D E R PER M. BALAGANESH, A. M.: 1. The Assessee Turkish Airlines Inc (hereinafter referred to as „assessee) by filing the present appeal sought to set aside the impugned order dated 21.12.2024 passed by the Assessing Officer (AO) under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (for short „the Act‟) inconsonance with the order passed by the Dispute Resolution Panel (DRP) dated 11.11.2024 u/s 144C(5).
2. The assessee has raised the following grounds of appeal:-
“1. On the facts of the case and in law, the learned Assessing Officer erred in making, and the learned DRP has erred in confirming, the impugned addition of Rs.10, 83, 36,512/-(net after deducting 20% expenses) received by the assessee on account of Delivery Order Charges as an integral part of the consideration for air transportation of cargo, to the income returned by the assessee.
2. On the facts of the case and in law, the learned Assessing Officer erred in misconstruing the nature of the net receipt of Rs.10,83,36,512/- on account of Delivery Order Charges received, and the learned DRP has erred in confirming the said misconstruction, and, consequently, in holding that the receipt in question is not includible in profits of the assessee airline from the operation of aircraft in international traffic, including, inter-alia, "any other activity directly connected with such transportation" which is not taxable in India as per Article 8 of the DTAA between India and Turkey.
3. On the facts of the case and in law, the learned Assessing Officer has erred in not appreciating that the impugned net receipts of Rs.10,83,36,512/- are part of the profits of the assessee airline from the operation of aircraft in international traffic and that such business profits of the assessee, being a resident of Republic of Turkey, can only be taxed in Turkey, in terms of the provisions of Article 8 of the India Turkey Double Taxation Avoidance Agreement, and for that the learned Dispute Resolution Panel erred in confirming the said action of the Assessing Officer.
4. On the facts of the case and in law, the Assessing Officer erred in misinterpreting the provisions of the India-Turkey Double Taxation Avoidance Agreement, including based on his notions about the "rationale behind residence-based taxation of operation of aircraft in international traffic" and other equally irrelevant extraneous factors such as "conduct of other airlines", and in thus unlawfully restricting the full and lawful scope of the provisions of Article 8 of the India Turkey Double Taxation Avoidance Agreement, and the learned Dispute Resolution Panel erred in confirming the said action of the Assessing Officer. 5. On the facts of the case and in law, the reasoning adopted by, and conclusions arrived at by, the learned Assessing Officer and by the Dispute Resolution Panel are contrary to the scheme of the taxation of profits from the operation of aircraft in international traffic- as envisaged in Article of the India Turkey DTAA and as envisaged in the UN and OECD Model Convention Commentaries on the materially similar provisions, contrary to the judicial precedents from the Hon'ble High Courts, and contrary to the actual facts of the case clearly discernable from the material on record. 6. On the fact of the case, the learned Assessing officer and the Dispute Resolution Panel has gone wrong by considering the Delivery Order (DO) charges as taxable in India on A/c of the following reason without appreciating the nature of transportation business: i. D.O. charges are collected after the transportation process as the activity of transportation end when the goods reach the destination. il. D.O. charges are invoiced separately for the transportation charges to enable importer to retrieve their cargo. iii. D.O. charges are not derived from operation of aircraft but are a distinct stream of income. 7. The Appellant craves leave to add, alter, amend and/or modify any of the grounds of appeal at or before the hearing of the appeal.”
We have heard the rival submissions and perused the materials available on record. Both the parties mutually agreed that the grounds raised by the assessee are squarely covered by the decision of this Tribunal in assessee‟s own case for the Assessment Year 2021-22 in dated 26-3-2025 except with variance in figures. The relevant operative portion of the said order of this Tribunal is reproduced below:-
“ 4. We next come to the sole substantive issue between the parties. This assessee, namely, Turkish Airlines Inc., is admittedly a foreign international airline with it's head office at Istanbul, Turkey. It is admittedly engaged in the operations of aircraft in international traffic. Coming to the sole substantive issue herein, the assessee had derived revenue of Rs.4,46,72,098/- representing it's delivery order charges in cargo transportation business. Both the learned lower authorities have admittedly held that these cargo delivery charges realized/received in India, at the time of handing over of the goods to the consignee concern(s), are taxable in India. The assessee, therefore, is aggrieved against the learned lower authorities' action to this effect.
5. The assessee's case all along has been that the corresponding transportation in air cargo activities does not get completed till the time it issues the consignment to the receiver after collection of delivery charges.
6. Learned CIT-DR vehemently argues in this factual backdrop that the given fact that the assessee has duly charged/collected its delivery fee upon handing over transported goods to the consignees concerned in India, the same are assessable under the provisions of the Income-tax Act, 1961.
We have given our thoughtful consideration to the assessee's and Revenue's foregoing vehement rival stands. There is hardly any dispute between the parties that India and the Republic of Turkey have entered into a Double Taxation Avoidance Agreement (DTAA) duly notified on 03.02.1997. We note that Article 8 thereof deals with taxation of income of profits derived from shipping and air transport as under:
"ARTICLE 8 Shipping and air transport 1. Profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State.
For the purposes of this Article, profits from the operation of ships or aircraft in international traffic shall mean profits derived by an enterprise described in paragraph 1 from the transportation by sea or air respectively of passengers, mail, livestock or goods carried on by the owners or lessees or charterers of ships or aircraft including: (a) the sale of tickets for such transportation on behalf of other enterprises; (b) other activity directly connected with such transportation; and (c) the rental of ships or aircraft incidental to any activity directly connected with such transportation.
3. Profits of an enterprise of a Contracting State described in paragraph 1 from the use, maintenance or rental of containers (including trailers, barges, and related equipment for the transport of containers) used in connection with the operation of ships or aircraft in international traffic shall be taxable only in that State.
The provisions of paragraphs 1 and 3 shall also apply to profits from participation in a pool, a joint business or an international operating agency.
5. For the purposes of this Article, interest on funds connected with the operation of ships or aircraft in international traffic shall be regarded as profits derived from the operation of such ships or aircraft, and the provisions of Article 11 (Interest) shall not apply in relation to such interest.
We note in this factual backdrop that once the assessee has derived its impugned delivery charges income in air cargo business activity, the same is duly covered under the above extracted Article 8 clause 2(b), since representing "other activity directly connected with such transportation only". It is accordingly concluded that once the assessee's impugned receipts are "directly connected" with its air cargo business activities, the same would indeed be not taxable in India, since assessable in the relevant contracting state i.e. the Republic of Turkey. We accordingly accept the assessee's instant sole substantive ground and reverse the learned lower authorities' action holding it's delivery charges as taxable in India in very terms. “ 4. Respectfully following the same, the grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 30/09/2025.