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of <h1>Tribunal rules income from international operations taxable only in Bhutan under DTAA</h1> <h3>DCIT, International Taxation, Circle-2 (1), Kolkata Versus M/s Tashi Air Pvt. Ltd. And M/s Tashi Air Pvt. Ltd. Versus DCIT, International Taxation, Circle-2 (1), Kolkata</h3> DCIT, International Taxation, Circle-2 (1), Kolkata Versus M/s Tashi Air Pvt. Ltd. And M/s Tashi Air Pvt. Ltd. Versus DCIT, International Taxation, ... Issues:1. Taxability of income from sale of tickets, insurance, and fuel charges in India for an airline with establishment in Bhutan.2. Interpretation of Permanent Establishment (PE) and Place Of Effective Management (POEM) for taxation under the India-Bhutan Double Taxation Avoidance Agreement (DTAA).3. Application of relevant provisions of section 9 and section 90 of the Income Tax Act.4. Analysis of Article 8 of the Indo-Bhutan DTAA regarding taxation of profits from the operation of ships or aircraft in international traffic.Issue 1: Taxability of Income in IndiaThe judgment involves cross-appeals by the Revenue and the assessee regarding the taxability of income from the sale of tickets, insurance, and fuel charges in India for an airline based in Bhutan. The Revenue contended that the income was taxable in India due to the presence of a Permanent Establishment (PE) in India, while the assessee argued that the Place Of Effective Management (POEM) being in Bhutan made the income taxable only in Bhutan under the India-Bhutan DTAA.Issue 2: Interpretation of PE and POEMThe Assessing Officer initially held that the assessee's income was taxable in India for AY 2017-18 and 2018-19 due to the existence of a PE in India. However, the Dispute Resolution Panel directed a determination of the POEM to decide the place of taxation under the DTAA. The tribunal found that the POEM being in Bhutan made the income taxable only in Bhutan, as per Article 8 of the DTAA.Issue 3: Application of Relevant ProvisionsThe judgment extensively referred to sections 9 and 90 of the Income Tax Act, highlighting the deemed accrual of income in India and the provisions for agreements with foreign countries to avoid double taxation. The tribunal emphasized that specific provisions in DTAA prevail over general provisions in the Income Tax Act if more beneficial to the assessee, as per section 90(2).Issue 4: Analysis of Article 8 of the Indo-Bhutan DTAAArticle 8 of the Indo-Bhutan DTAA governs the taxation of profits from the operation of ships or aircraft in international traffic. The tribunal analyzed the definition of 'Profits derived from the operation of ships or aircraft in international traffic,' concluding that the term includes transportation of air passengers. The judgment favored the assessee, ruling that the profits were liable to be taxed in Bhutan, where the POEM was situated.In conclusion, the tribunal allowed the appeal of the assessee and dismissed the appeal of the Revenue, determining that the income from the operation of ships or aircraft in international traffic for the airline based in Bhutan was taxable only in Bhutan, in accordance with the provisions of the India-Bhutan DTAA.
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