Tax treaty protection for airline remuneration prevails where article 16 conditions are satisfied.

Remuneration paid to pilots and engineers under the India-Italy Double Taxation Avoidance Agreement was treated as outside Indian tax where the treaty conditions in article 16(2) were satisfied. The Tribunal found that the salaries were not borne by the permanent establishment in India and that all requirements for treaty protection were met, so the income could not be taxed under domestic law to the extent covered by article 16(2)(c). The analysis reinforces that, under section 90 of the Income-tax Act, the applicable tax treaty prevails where its conditions are fulfilled.

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Issues: Whether remuneration paid to pilots and engineers under the India-Italy Double Taxation Avoidance Agreement was exempt from Indian taxation under article 16(2)(c), having regard to section 90 of the Income-tax Act, 1961.

Analysis: The reference concerned assessment year 1987-88 and turned on whether the conditions of article 16(2) of the Double Taxation Avoidance Agreement were satisfied. The Tribunal found that the salaries were not borne by the permanent establishment in India and that all conditions of article 16(2) were fulfilled, so the remuneration could not be subjected to Indian taxation laws. No error in that finding was shown.

Conclusion: The remuneration was not exigible to tax in India under article 16(2)(c) of the Double Taxation Avoidance Agreement, and the question was answered in favour of the assessee.

Ratio Decidendi: Where the conditions of the applicable tax treaty provision are satisfied, the treaty prevails and the income covered by that provision is not taxable under the domestic law to the extent of the treaty protection.

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