2025 (4) TMI 144 - AT - Income Tax

Turkish airline's delivery order charges exempt from Indian taxation under India-Turkey DTAA Article 8

Turkish Airlines Inc. Versus ACIT, International Taxation, Gurgaon

The ITAT Delhi held that delivery order charges received by a Turkish airline company in India were not taxable in India under the India-Turkey DTAA. The ... Taxability of income in India - Addition receipts 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 - 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. HELD THAT:- 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. 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. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this judgment is whether the delivery order charges received by the assessee, Turkish Airlines Inc., in connection with its cargo transportation business are taxable in India under the Indian Income-tax Act, 1961, or whether they fall under the scope of Article 8 of the Double Taxation Avoidance Agreement (DTAA) between India and Turkey, thereby being taxable only in Turkey.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework centers on the interpretation of Article 8 of the DTAA between India and Turkey, which pertains to the taxation of profits derived from the operation of ships or aircraft in international traffic. According to this article, such profits are taxable only in the state of residence of the enterprise, which in this case is Turkey. The relevant portion of Article 8(2) specifies that profits include 'other activity directly connected with such transportation.'Court's Interpretation and ReasoningThe Tribunal interpreted Article 8 of the DTAA to include the delivery order charges as part of the profits derived from the operation of aircraft in international traffic. The reasoning was that these charges are directly connected with the transportation of goods, as the transportation is not deemed complete until the goods are handed over to the consignee, and the delivery charges are collected.Key Evidence and FindingsThe key evidence considered was the nature of the delivery order charges and their connection to the air cargo transportation activities of the assessee. The Tribunal noted that the charges were realized at the time of handing over the goods to the consignee in India, which is an integral part of the transportation process.Application of Law to FactsApplying Article 8 of the DTAA, the Tribunal concluded that since the delivery order charges are directly connected with the international air transportation activities, they fall under the scope of 'other activity directly connected with such transportation.' Therefore, these charges are not taxable in India but are instead taxable in Turkey, as per the DTAA.Treatment of Competing ArgumentsThe Revenue argued that the delivery charges should be taxable in India as they are collected upon the delivery of goods in India. However, the Tribunal rejected this argument, emphasizing that the charges are an integral part of the international transportation process and thus fall under the DTAA's provisions. The Tribunal's decision was based on the interpretation that the charges are directly connected to the transportation activity, aligning with Article 8(2)(b) of the DTAA.ConclusionsThe Tribunal concluded that the delivery order charges are not taxable in India under the Income-tax Act, 1961, due to their inclusion under Article 8 of the DTAA, which mandates taxation only in Turkey. The Tribunal reversed the decision of the lower authorities, allowing the appeal in favor of the assessee.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal ReasoningThe Tribunal stated: '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.''Core Principles EstablishedThe core principle established is that charges directly connected with the international transportation of goods, such as delivery order charges, fall within the scope of Article 8 of the DTAA between India and Turkey. Therefore, they are taxable only in the state of residence of the enterprise, which is Turkey in this case.Final Determinations on Each IssueThe Tribunal determined that the delivery order charges are an integral part of the international air transportation process and are not taxable in India under the provisions of the DTAA. The appeal was allowed, and the lower authorities' decision was reversed.