Aircraft operation exemption denied for airport levy collection charges lacking direct nexus with international traffic operations.

Collection charges received from the airport authority for timely remittance of User Development Fee were treated as a separate service-related receipt, not as profit derived from the operation of aircraft in international traffic. The receipt lacked a direct nexus with the actual operation of aircraft and was not incidental to such operation, so Article 8 exemption did not apply. Following the prior coordinate bench decision on identical facts, the amount was held taxable in India.

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Issues: Whether collection charges received from the airport authority for timely remittance of User Development Fee were income derived from the operation of aircraft and therefore exempt under Article 8 of the treaty.

Analysis: The receipt was held to be a separate service-related consideration for collecting and remitting User Development Fee within the stipulated time. It was not treated as profit from the operation of aircraft in international traffic, nor as income incidental to such operation. The prior coordinate bench decision on identical facts was followed.

Conclusion: The collection charges were not covered by Article 8 and were taxable in India; the issue was decided against the assessee.

Ratio Decidendi: A receipt earned for collecting and remitting airport levies is not income derived from the operation of aircraft unless it has a direct nexus with the actual operation of aircraft in international traffic.

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