TaxTMI 
TaxTMI 
2001 (9) TMI 242
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....ectly connected with the transportation by air of persons, live-stock, goods or mail, and therefore, fall within the meaning of term 'operation of aircrafts', the profits from which are not taxable in India in terms of Article 8 of the DTAA; (iv) not accepting that the activity of rendering engineering and ground handling services are in pursuance of participation in pools of any kind, and therefore, the profits arising therefrom are exempt under paragraph 2 of Article 8 of the DTAA; (v) arbitrarily estimating the alleged income from engineering and ground handling services at 70% of the gross receipts without fully considering all the elements of expenditure incurred by the appellant on earning such income, as against the claim of the appellant that income is not taxable inIndia. 2. The view taken and the reasoning relied upon by the ld. CIT(A) in not accepting that the income from engineering and ground handling services is covered under Article 8 of the DTAA are vitiated and bad in law, and are based on the learned CIT(A) not correctly appreciating the principles of interpretation of statutes. 3. On the facts, evidence and material already on record and/or admitted, ....
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....imate for any kind of remuneration whatsoever, whether such service consists of a single flight or series of flights.' 3. We would also set out Article 8 of the Double Taxation Avoidance Agreement (hereinafter referred to as DTAA) betweenIndiaandUnited Kingdom, which is as follows: '1. Profits derived from the operation of aircraft in international traffic by an enterprise of one of the Contracting States shall not be taxed in the otherContractingState. 2. The provisions of paragraph I of the Article shall likewise apply in respect of participation in pools of any kind by enterprises engaged in air transport. 3. For the purposes of this article the term 'operation of aircraft" shall include transportation by air of persons, live-stock, goods or mail, carried on by the owners or lessees or charterers of aircraft, including the sale of tickets for such transportation on behalf of other enterprise, the incidental lease of aircraft on a charter basis and any other activity directly connected with such transportation. 4. Gains derived by an enterprise of a Contracting State from the alienation of aircraft owned and operated by the enterprise, the income from which is taxa....
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.... before aircraft departure. 9.1-5 Provide skilled personnel to assist the flight crew or ground staff in the performance of the inspection. R.9.2 Non-routine Services: R.9.2-1 Rectify defects entered in the aircraft log as reported by the crew or revealed during the inspection, to the extent requested by the Carrier. However, major repairs must be especially agreed upon between the Carrier and the Handling Company, R.9.2-2 Enter in the aircraft log and sign for the action taken. R.9.2-3 Report technical irregularities and actions taken to the Carrier's maintenance base in accordance with the Carrier's instructions. R.9.2-4 Maintain the Carrier's technical manuals, handbooks, catalogues, etc. R.9.2-5 Provide engineering facilities, tools and special equipment to the extent available.' "R.9.3 Material Handling: R.9.3-2 Provide periodic inspection of the Carrier's spare parts and/ or spare power plant. R.9.3-3 Provide suitable storage space for accommodation of the Carrier's spare parts and/or special equipment.' 5. According to the Assessing Officer the income derived by British Airways from these operations was taxable inIndiadue to the following rea....
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....osit of receipts arising directly from the operation of aircraft in international traffic was also included within the exemption. The plea, in other words, was that it was clear from the wording of the treaty that exemption extended to income beyond ticket and cargo receipts. (ii) As against the aforesaid the Assessing Officer took the view that the Article was very clear regarding what was exempt and what was not and it even went to the extent of giving example as to what was taxable and what was exempt. According to the Assessing Officer the activity under consideration had not been included in the definition of Article 8 and so was the position for the exchange of notes between the two Governments. The further observation of the Assessing Officer was that the activity was not of an insignificant nature that the same was over-looked. The Assessing Officer was also of the view that certification of airworthiness of the aircraft of British Airways by its own engineers was an activity directly connected to air transportation, but if the same activity was done for other airlines and money received on a fixed basis as per clearly defined terms and conditions under a contract the sa....
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....ce of management.' 8. The assessee in fact has relied on the same commentary and according to the Assessing Officer the commentary itself stated that separate business activities were not covered under Article 8. According to the Assessing Officer the commentary further stated that keeping a hotel will come under Article 8 only 'if the hotel provides no persons other than the enterprise' passengers with night accommodation directly connected with their passage and if the cost of such accommodation are included in the price of passage ticket. It was reiterated by the Assessing Officer that the aforesaid activities if rendered by the airline to its passengers would extend the scope of the treaty, but if the same are rendered to any other person including passengers of other airlines then the same was not covered under Article 8. 9. The assessee contended that ground handling and engineering services were activities related to air transportation and the facilities for ground handling and engineering services were not business units, but support finance for the British Airways International Airline business. The further plea was that the company was inIndiato carry out its intern....
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....eering/technical handling was taxable in India. As a consequence of the aforesaid meeting between the Assessing Officer and Mr. Mike Rawlings the assessee filed letter dated13th October, 1998stating 'British Airways is ready to pay taxes on 10 per cent deemed profit basis." The aforesaid offer was made on the following lines : "1. That British Airways does not carry out handling for other carriers as a separate business, nor does it account for it as such. 2. Cost related to those recoveries are intrinsically linked to the British Airways worldwide operation and it is not possible to identify profit. 3. Most agreements are based on mutual provision of services with other carriers elsewhere in countries where British Airways does not have the capability to carry out its engineering and traffic handling any uplift to include profit margin will result in similar uplift by payment of British Airways. 4. Inreaching agreements British Airways has to look to U.K. Credit for Indian tax paid so that treating article 27 mutual agreements procedures does become an issue. The offer is made with a view to reaching early conclusion of the dispute, following our oral offer have carrie....
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....cent of the gross receipts the representative did not come up with any other information or details. It may be mentioned that for the various assessment years the assessee furnished his own calculation and to make the matter clear, we refer to the assessment order for assessment year 1996-97 wherein at page 21 is the assessee's calculation of income and taxes payable as under: 'Income from business & profession"; Rs. Engineering Service receipts 54,239,447 Traffic Handling receipts 617,169 Gross receipts &nb....
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....itted to indulge in domestic traffic, the profits related to 'British Airways Operations in India' as per normal source rules under the Act, may be said to be arising in India and hence taxable in India. In view of the above said discussion, the income of the assessee is to be computed as business income which the assessee himself has agreed as per the provisions of Article 7 of the Indo-UK DTAA British Airways has branch offices in India which constitute a permanent establishment and therefore the income related to engineering and traffic handling is taxable in India as the same is not covered under Article 8 of DTAA. Further, for doing this operation the airline enter into a separate agreement and the charges are based on per flight basis. Most of the work done is visual inspection by the engineer and any replacement of defective component is replaced at IATP and therefore, there is no cost of consumables. Once the flight lands, the engineer makes a visual inspection and signs the log book, that the aircraft is fit to fly. If there is any defect, it can be repaired, it is repaired and consumables are replaced at IATP and even the time till it is replaced the other carrier p....
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....ximum. On this basis the total expenditure for five mechanics for one year, comes to Rs. 12 lacs, salary of one storekeeper on a cost to company basis cannot be more than Rs. 20,000.00 per month. The total of the above expenditure comes to Rs. 26,40,000.00. Similarly this may be spent inBombayandCalcuttaand Madras together. The total cost incurred by British Airways in all the four metros comes to Rs. 79,20,000.00. The assessee has claimed that, it has incurred Head Office Expenses, the same it to be allowed as per the provisions of section44C, which is 5% of the adjusted total income. 5% of Rs. 4,61,36,616.00 = Rs. 23,06,830.80 The abovesaid calculation is in-conformity with the number of flights of British Airways and the number of flights of other carriers handled by British Airways. In view of the above said facts income of the assessee in computed as follows : Engineering Services Receipts: Rs. 5,42,39,447 Traffic Handling receipts: Rs. 6,17,169....
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....e sanction of section 90 of the Income-tax Act, 1961 and which provided that where a specific provision has been made in DTAA then that provision was to prevail over the general provisions made in the IT Act. According to the assessee the provisions of the DTAA were more beneficial to it and it was, therefore, contended that such provisions be applied. 18. If referring to paragraphs I and 2 of Article 8 it was submitted on behalf of the assessee that these were similar to Article 8 of the OECD Model Taxation Convention on Income & Capital 1977 and Article 8-B of the UN Model Taxation Convention between the Developed and Developing countries1980. Inregard to the OECD Model double Taxation Convention on Income & Capital, 1977 the observations of Klaus Vogel were referred to wherein it was mentioned that 'the term 'pool', 'joint business' and 'international operating agency' are not defined in the Convention. The terms are taken from the International Air Service Transit Agreement of7-12-1994. In that Agreement, they typify various forms of international co-operation by air transport enterprises which may take place in technological as well as commercial fields. Such cooperation ra....
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....rvices had been availed of by British Airways from Qantas Airlines and Cathay Pacific Airlines at international airports inManilaandTaipei. 20. It was explained that the main purpose of the IATP agreements was to pool and share technical resources, infrastructure facilities and manpower with a view to achieve economic savings by reducing costs. It was further submitted that the service and facilities provided by British Airways to the other airlines did not involve any separate and distinct business activity from its business of operating aircraft in international traffic. The plea was that there was unity of management, control and finances which were inter-connected, inter-laced and inter-dependent. In placing reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Prithvi Insurance Co. Ltd. [1967] 63 ITR 632. It was contended that the services provided by British Air-ways to other airlines did not constitute a separate or distinct business activity. It was also the further submission that the term 'operation of aircraft' included any other activity directly connected with such transportation and it was specifically pointed out that providing ground handlin....
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.... 22. It is noticed from the order of the CIT (Appeals) that the Assessing Officer in support of the Revenue's case also referred to the representation of the Association of European Airlines (hereinafter called AEA) of the OECD to the effect that "it is desirable to extend further the exemption in Article 8 to activities carried on by the airlines through a spare capacity of assets or personnel in the relevant jurisdiction even though those activities are not directly connected with operation of the airlines' own aircrafts." It was also mentioned in the said representation that the AEA was concerned about the profits derived by an international airline from the use of its assets and from services performed by its personnel during the period in which the assets and/or the personnel are not required for the purposes of carrying on the enterprises' own ships or aircrafts in international traffic. Examples of such profits were given such as the provision to other airlines, shipping enterprises of goods or services by enterprises, engineers, cargo handlers, catering staff and customer services personnel whose presence in the other State was necessary for the enterprise to operate its ow....
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....It was submitted that the Assessing Officer had been in a hurry to complete the assessments in March, 1999 whereas the time limit expired on31st March, 2000. The complete sequence of events was narrated beginning with the filing of the returns, issue of statutory notices, the progress of the hearings, the adjournments asked for as also various other submissions made with reference to the computation of profits. It is noted from paragraph 5.1 of the order of the CIT (Appeals) that the assessee after filing the returns took the stand by a written communication that its income was not taxable in the source country and which was reiterated in another written communication, but thereafter a conditional offer was made to get 10 per cent of the gross receipts taxed in India and which was further revised to 15 per cent. Attention of the Assessing Officer was invited to section 44BBA which contained special provisions for computing profits and gains of business of operation of aircraft in the case of a non-resident and which contained a deeming provision regarding the income of a non-resident engaged in the aforesaid activities to be taken at 5 per cent of the aggregate of the amount paid o....
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....be treated as mill and void as they violated principles of natural justice.' 26. As against the aforesaid submissions the Assessing Officer in paragraph 5.2 of the order of the Commissioner of Income-tax (Appeals) explained the manner in which the assessments had been conducted and framed. It was the argument that provisions of section 44BBA and Rule 10 did not apply to the facts of the case and the instant case was covered under section44Cwhich dealt with the deduction of head office expresses in the case of non-residents. According to the Assessing Officer the assessee did not incur any substantial expenditure for providing ground handling services to other airlines as the requisite infrastructure and personnel were available with it for providing similar services to its own aircraft. It was stated before the CIT (Appeals) that substantial deduction on account of expenditure against the receipts from ground handling services had been allowed and there was a further deduction in respect of head office expenditure under section44C. The plea, in other words, was that no further expenditure was required to be allowed as was the case sought to be made out on behalf of the assessee.....
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.... Servicing of its own aircraft at the airport; (ii) Carrying its passengers from the airport to the city and vice versa; and (iii) Accommodating the passengers in the transit lounge or a hotel.' The view of the Commissioner of Income-tax (Appeals), in other words, was that providing ground handling services/engineering services to the aircraft of other airlines could not be said to be an activity directly connected with the transportation of the passengers and the cargo of the enterprise. It was further observed by the CIT (Appeals) that the Article had specifically taken note of the sale of tickets as an exempted activity, but no mention had been made of the provision of ground handling services to aircrafts of other airlines. According to him it was an accepted proposition of law that a fiction ended the moment its purpose was accomplished and it could not be carried further. The further observation was to the effect that if the sale of the tickets was included in the artificial meaning, then the ground handling services could have also been included, but which was not done. According to the CIT (Appeals) the fiction should not be read in a statute when it did not exist ....
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....mity of control, management, finance and operations. According to the CIT (Appeals) there was nothing in Article 8 which would lead Lo the conclusion that income derived from rendering services to other airlines was exempt from tax in the source country. In view of the aforesaid the CIT (Appeals) held that the income derived from rendering engineering services/ground handling services to aircraft of other airlines was not exempt vis-a-vis paragraphs 1 and 3 of Article 8 and the said revenues being a clear case of exploitation of excess activity through a permanent establishment the same were taxable in India. Dealing thereafter with the submissions of the assessee that its case was also covered under paragraph 2 of the Article i.e., participation in pools, the CIT (Appeals) referred to the commentary on OFCD model by Klaus Vogel. The conclusions thereafter were as under: "Thus, a pool has to be a kind of joint venture, whose revenues or profits are apportioned between or among members. These views are quite distinct and different from the views expressed by Sh. Ranganathan in his opinion. The IATP agreement does not envisage bringing together of the assets or personnel under joi....
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....ncome of the appellant from the said activities is not taxable inIndia. It is further held that the revenues so generated represent the income of the appellant from the PE inIndiaand, therefore, the same are taxable inIndia. 30. Coming now to the computation of income the Commissioner of Income-tax (Appeals) referred to certain factual aspects i.e., the non-substantiation by the assessee of its estimate of profit at 15 per cent of the gross receipts and the inspection made by the Assessing Officer whereby it was noticed that the service rendered involved merely the visual inspection of the aircraft. As against the aforesaid the arguments on behalf of the assessee before the CIT (Appeals) were to the effect that the profit had been computed at a very high percentage i.e. 82 per cent of the gross receipts whereas the total "world income' was 7 per cent of the gross receipts. The plea was to the effect that provisions of section 44BBA and Rule 10 had been ignored. The case of the Assessing Officer, on the other hand, was that provisions of section44Cwere attracted. 31. Inconsidering the aforesaid the CIT (Appeals), at the outset, observed that the assessee's counsel did not furn....
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....nd 11 drivers or cleaners. The appellant had not furnished the salaries paid to these categories of employees. He has also not furnished the bifurcation of the expenses incurred on these employees in terms of expenses on own aircraft and expenses of aircraft of other airlines. He has also not furnished the data regarding the number of own flights and the flights of other airlines handled by it. All these factors do lead to strong inference that the appellant does not even want to furnish the details which it could have furnished on general argument that separate accounts were not maintained. The assessee merely wants to rely upon the arguments rather than the facts, while the computation of income is basically a question of fact. Therefore, it is obvious that its income will have to be calculated on estimate basis. It also seems to be clear that the establishments are sources of high income as the receiving airlines do not have existing facilities to cater to their own aircraft, the expenses inIndia. will be the expenses on the aforesaid personnel, depreciation of the equipment and other incidental expenses, the spare parts used, if any, are to be replaced by the receiving airline.....
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....n the assessment order that the assessee used its own staff for rendering services to other airlines; (vii) The approach to Article 8 of the DTAA by the Department was improper and misconceived and principles of interpretation applied equally to DTAAs as they did to provisions of law. In other words, DTAAs acquired the same status as an enactment; (viii) The object of the DTAA could not be ignored; (ix) In sub-clause (3) of Article 8 the word "include" had been used and this meant that the definition could not be exhaustive and the further use of the word 'including' meant that the same interpretation was required to be given for all the three limbs. Further earlier limb of the definition was enterprise based whereas the second limb was activity based; (x) The last part of sub-clause (3) used the words 'any other activity" and this envisaged something done prior to transportation and further the sale of tickets on behalf of another enterprise was mentioned and this necessarily meant that this was not catering to ones own passengers; (xi) The effective management of the airline was inUKand all other incidental activity which necessarily may not be for its own passenge....
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....n to the question of computation of the taxable income and after reiterating the arguments already tendered before the tax authorities, he proceeded to highlight the following : "(i) Adequate material had been placed on record to support the returned figures for each of the assessment years under appeal; (ii) The amount offered to tax at 15 per cent of the receipts was adequate and this had been done only to buy peace with the Department rather than to enter into prolonged litigation; (iii) No adequate opportunity had been allowed by the Assessing Officer initially and thereafter by the CIT (Appeals) to enable the assessee to substantiate the figures; (iv) Consent between the parties could not lead to any amount being taxed since it was the law which was to determine whether a particular item was taxable or not; (v) On the assumption that the amount earned on ground handling services provided to other airlines was taxable in India, then the matter could be restored back to the file of the Assessing Officer for determining the correct taxable income; (vi) Section 44BBA spoke of taxation at 5 per cent and this was analogous to Article 8(1); and (vii) If part of t....
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.... activities, which were specifically meant and none others; (vii) That the term 'shall include' meant a restricted meaning and only specified items were to be taken into account and nothing else was to be included. If the term used was 'means' or 'includes' then something else could also be included; (viii) Raising an argument with reference to both Articles i.e., 8(1) and 8(3) was taking a contradictory stand and the assessee had to restrict itself/rely on either one or the other; (ix) The term 'likewise apply' was relevant for Article 8(2) and this referred to an arrangement for sharing profits by persons 'engaged in air transport'; (x) That there could be no reciprocity in pooling arrangements and the assessee in the present case had not placed on record copy of any agreement/arrangement between itself and other airlines for providing or obtaining ground/engineering services'; (xi) That till date the assessee had not specified the exact services, which were being rendered to other airlines; (xii) The Rules of interpretation of a statute should not be applied to DTAA as it was an agreement between the two parties and rights and liabilities had to be decided stri....
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....l and in continuation of these arguments, he opposed the relief given by the Commissioner of Income-tax (Appeals). The further submission was to the effect that section 44BBA was not applicable to the aircraft owned by the assessee as this provision was applicable only to a non-resident. Section44C, according to him, was also not relevant and the plea subsequently was that the CIT(Appeals) erred in allowing 5 per cent expenditure under this non-applicable provision. 41. Inreply to the submissions on behalf of the Revenue the learned counsel for the assessee submitted/reiterated the following "(1) The wording of Article 8 as also the intention supported/fortified the assessee's case; (2) DTAAs/treaties are a kind of mini legislation and all rules of interpretation would, therefore, apply; (3) OECD model indicated broad outlines and two countries could enter into an agreement within these parameters; (4) The terminology of Article 8 was most relevant for deciding the issue and the assessee was not pleading its case on grounds of magnanimity, equality or patriotism; (5) Article 8 (1) spoke of the profits derived from operation of aircraft and since this was a very na....
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....essee and another opportunity be allowed to substantiate the facts and figures before the Assessing Officer. The learned counsel also referred to the burry in which the assessments had been completed whereas substantial time was available. He also referred to the order for assessment year 1996-97 wherein the Assessing Officer had asked the assessee to pay up the demand within 7 days. It was also the submission of the learned counsel that the Assessing Officer went behind the back of the assessee to the airport to ascertain the facts and figures and nothing was confronted to the assessee thereafter. 43. We have considered the rival contentions and also perused the material on record to which our attention was invited by the parties. The decisions cited at the Bar have also been considered. At the outset, we refer to section 90 of the Income-tax Act, 1961 [hereinafter called the Act] as follows: '90 [(1) The Central Government may enter into an agreement with the Government of any country outsideIndia- (a) for the granting of relief in respect of income on which have been paid both income-tax under this Act and income-tax in that country, or (b) for the avoidance of doubl....
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....ubsequently into the Act. The agreement can In fact be described as a "special law" which would always supersede the general law i.e. the Act in this case. Further, tax agreements are entered into in good faith between the contracting countries and each of them is bound to fulfil faithfully and sincerely the terms of the agreement. 47. Keeping the above in mind one has to consider the argument of assessee's counsel that the agreement be accorded the same status as a legislation and the intent purpose and object be considered. As against this the learned senior counsel for the Revenue contended that the matter be decided with reference to the relevant clauses of the agreement and that there was no scope for any liberal or equitable construction. We agree with the learned senior counsel on behalf of Revenue to hold that the agreement being in the nature of a special law overrides the Act except where the provisions of the latter are beneficial and after such an option an assessee cannot ask for any favourable or liberal interpretation contending that income of such and such type from services rendered in India is not taxable under the agreement. 48. Inpreparing a DTAA and signi....
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.... the present case since the income earned by the assessee is from various other Airlines for providing Engineering services for their aircraft etc. There is nothing to show that similar type of services have been availed off by the assessee from any other Airline although it is submitted so. In other words we have to hold that a pool does not exist and the question of participation thereof within the meaning of Article 8(2) does not arise. 53. Before we conclude this part of the order, we find it necessary to understand the meaning of the term /expression 'pool' as follows : '(1) As per the New Webster's -Dictionary of the English Language pool as noun is defined as 'a combination of individuals or organizations formed for the purpose of speculation as for manipulating the prices of stocks....', 'a combination of interests or funds for common advantage', a service or facility shared by a number of people, as a car pool.' "Pool' as verb means to put as interest or money, into a Pool or common stock or fund.' (2) As per 'Words and Phrases Legally Defined', 'Pool' is defined thus: 'the definitions of the word *Pool' show that in order to constitute a 'Pool' there must b....
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.... there any apportionment of profits. According to the CIT (Appeals) a mechanism was formed through the IATP under which airlines which did not have ground facilities at some stations could utilize the existing facilities of other airlines, but the, necessary prerequisites for constituting a pool ie. bringing together of resources under a joint command and sharing of profits were missing. The position according to the CIT (Appeals) would have been different if the IATP would have brought together the facilities under a common umbrella containing the two aforesaid features and this would have brought into existence a pool. 58. We agree with the view taken by the CIT(Appeals) and further hold that there are no smaller pools within the larger pools envisaged by the IATP document as canvassed by the learned counsel and which could meet the twin requirements of Article 8(2). In coming to the conclusion that we have arrived at, due note is taken of various models, conventions, commentaries etc. to which the parties had adverted during the course of the hearing. The relevant extracts placed on the paper books filed by the parties have been thoroughly perused. 59. Another argument adv....
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.... 8(3). 64. Article 8(3) expands the meaning of the term 'operation of aircraft' to include transportation by air' of (1) persons; (2) livestock goods or mail carried on by the owners or lessees or charterers of aircraft; (3) sale of tickets for such transportation on behalf of other enterprises; (4) incidental lease of aircraft on a charter basis; (5) any other activity directly connected with such transportation. 65. Both the parties are agreed that this clause is both activity based as also enterprise based, but 'transportation" by aircraft of human beings and specified goods and even the term 'any other activity' has to be considered with reference to such 'transportation' as aiding it supporting it and incidental thereto. The tax authorities have referred to three such activities, namely : '(i) the operation of a bus service connecting a town with its airport; (ii) transportation of -goods by truck connecting a depot with the airport; and (iii) maintenance and running of a hotel by the airlines strictly for the use of its passengers for night accommodation and if the cost thereof is included in the price of the ticket and the hotel does not cater to any other cat....
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....he drawer of the cheque the period of 15 days had started running and on the expiry of that period the offence was completed unless the amount had been paid in the meantime. Further if no complaint was filed within one month therefrom the payee would stand forbidden from launching the prosecution thereafter due to the clear provision contained in section 142 of the Act. In the instant case written notice was sent by fax on11-6-1996and the appellant had admitted its receipt on the same date. Therefore, the last day when the respondent could have filed the complaint was26-7-1996, but the complaint was filed only on8-8-1996so the court had no jurisdiction to take cognizance on the said complaint. 70. We really do not understand as to how the aforesaid judgment of the Hon'ble Supreme Court advances the case of the assessee. Their Lordships on the facts of the case have interpreted the words 'giving notice in writing" to hold that the same was not required to be restricted to be the customary mode of notice through postal service or even by personal delivery as the Legislature must be presumed to have been aware of modern devices and equipment already in vogue and also in store for f....
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....d distinct item and, therefore, taxable under tariff item 68 notwithstanding that duties are already paid on Polyster spun yarn and Rayon Filament Yam. 74. Their Lordships held that excise duty was a duty on manufacture of goods and not on sale and manufacturing was complete as soon as by the application of one or more processes raw material underwent some change. It was the view of the court that on transformation into a new commodity as a separate and distinct commodity having its own character and use 'manufacture' took place. We do not understand the application of the aforesaid judgment of the Hon'ble Supreme Court to the facts of the present case. 75. Jaswant Singh Charan Singh 's case : This was a case pertaining to the S ales Tax Acts and their Lordships on the facts of the case and considering the relevant terms in the enactments held that in interpreting items in the Sales Tax Acts resort should be had not to the scientific or tech cal meaning of such terms, but to their popular meaning or meaning attached to them by those dealing in them i.e. to say to their commercial sense. In the view that we have already taken to interpret the DTAA in a strict manner, we do ....
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....ordships of the Hon'ble Delhi High Court took the view that the assessee had not come from Italy to make bank deposits in India, but had come to carry on business and the income earned by it by depositing spare funds in banks and earning interest income, therefrom would also be business income and for the purpose of set off it could not be treated as separate from business income. This decision is also, in our opinion, not relevant and does not advance the assessee's case. 81. Podar Cement (P.) Ltd. 's case : This judgment has been relied upon by the learned counsel with reference to his arguments on "up-dating construction". It was his argument that we should not go strictly by the provisions of the DTAA, but should also take into account subsequent changes in the social conditions, the advancement and technology etc., but we have already held in the earlier part of the order that these facts are not required to be considered. On Behalf of the revenue: 82. Sterling Food's case : The assessee in this case was engaged in processing prawns and other sea foods, which it exported and had some import entitlements granted by the Central Government under an Export Promotion Sc....
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....ts returned figures. It has been categorically stated before us by the learned counsel for the appellant that relevant facts and figures are available with the assessee and it would be in a position to support the returned figures in the years under appeal. The learned senior counsel for the Revenue although initially opposing the aforesaid request ultimately stated that there would be no objection on the part of the Revenue if further opportunity was allowed to the assessee to place before the Assessing Officer relevant facts and figures in support of its claim for expenditure to be allowed against the gross revenues earned. 87. Inview of the facts stated aforesaid, we set aside the orders passed by the Commissioner of Income-tax (Appeals) vis-a-vis the point at issue and the matter is restored back to the file of the Assessing Officer for all the three years under appeal asking him to allow reasonable opportunity to the assessee to prove its facts and figures with whatever evidence it can. 88. The only other common ground in the assessee's appeals pertains to the charging of interest under sections 234A, 234B and234C. This is treated as consequential and the matter is resto....
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....g stand taken by the assessee before the Assessing Officer as well as the CIT(A). 6. As far back as9-6-1998, the Assessing Officer required the assessee to give the following information 1. Details of receipt and expenses inIndia. 2. Copies of SPM for the month of March 1998. 3. Please specify the receipts, if any, received by you abroad for your activities inIndia. 7. Inreply to this, in the context of information sought for SI. No. 3, it was submitted by Shri A.K. Bhatnagar, Accounting Supdt. forNorth Indiaof British Airways -. 'There are no Receipts received by us abroad for our activities inIndia.' 8. Then again on27-7-1998, apart from various other information, the following was specifically sought for by the Assessing Officer : '(v) Whether BA receiver, any payment abroad (globally) for the services rendered by it inIndia.' 9. Thereafter, the case was adjourned at the request of the assessee a few times and on21-10-1998, the assessee made a further request for adjournment as per order sheet entry dated21-10-1998. Thereafter, on13-1-1999, the order sheet entry of the assessment record shows that a further request for adjournment was made by the asses....
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....or seeking adjournment cannot be said to be either being cooperative and nor can it be said to be a case of sufficient compliance. The proceedings before the Assessing Officer have been treated in a very casual manner where all efforts have been made to initially deny and thereafter to block information and force the Revenue authorities to make whatever estimate they can in the absence of facts and figures. 13. The rules of natural justice find place in legal jurisprudence on the principles of equity and equity demands that one who knocks on the doors of courts/tribunals should come with clean hands. In the present facts and circumstances of the case, there can be no doubt that the Revenue authorities have given more than reasonable opportunity in order to accommodate the assessee who has casually initially offered 1096 of his gross receipts in India and thereafter, increased to 1596 and thereafter refused to justify the basis of the offer contending that his 'consent' will not give rise to a taxable event. Fully agreeing with the submission that the taxable event will arise only under the law of the land and not by any 'consent' or 'agreement' entered into or understood to be e....
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..... At the cost of stating settled principles of natural justice which have been evolved by equity courts in order to overcome/mitigate the rigours of procedural law, the fact should not be lost sight of, that, the doors of equity in the form of action or interference on account of violation of natural justice are open to those who approach the Courts with clean hands. In order to invoking the principles of natural justice, the conduct of the party invoking them has a very crucial and deciding role to play and interference on this count is not undiscriminately warranted in each and every case. Anyone who complains that an action is in violation of principles of natural justice and prays for interference on that count is presumed to knock on the doors of Courts/Tribunal with clean hands and only then, if equity demands, can the well-known principles of natural justice can be pressed into action. 17. Thus, in the situation, it is necessary to state that in the facts of the case where the assessee has not placed on record any evidence, the Assessing Officer was fully justified in computing the taxable income of the assessee in the manner computed by him. Taking note of the consistent....
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....to be decided is regarding the actual computation of income. From the assessment order, it is seen that the Id. Assessing Officer had allowed salary of two engineers and one mechanic on estimated basis. The appellant has furnished the details of the personnel employed by it in various establishment on page 75 of the paper book. It is seen that in all the four establishments, the appellant had employed four SMMs (nomenclature and explained), ten engineers, one deputy SMM, 23 mechanics, two secretaries, eight storemen and 11 drivers or cleaners. The appellant had not furnished the salaries paid to these categories of employees. He has also not furnished the bifurcation of the expenses incurred on these employees in terms of expenses on own aircraft and expenses of aircraft of other airlines. He has also not furnished the data regarding the number of own flights and the flights of other airlines handled by it. AU these factors do lead to strong inference that the appellant does not even want to furnish the details which it could have furnished on general argument that separate accounts were not maintained. The assessee merely wants to rely upon the arguments rather than the facts, whi....
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.... alternative argument has contended that if the issue of taxability is decided against him, restoration of the same to the file of the Assessing Officer may be made as now he is in a position to give full facts and figures. 23. However, since the restoration is being ordered in view of the aforesaid submission of the learned AR thus, while mating the restoration, I would like to state that the same is being made on the condition that full facts and figures will be made available to the Assessing Officer by the assessee. It may be further clarified, that necessary details pertaining to the exact and particular arrangement with each and every airline entered into by the British Airways with them should be brought on record. This would necessarily bring on record the nature of the services provided to the particular airline as it may differ from airline to airline. The amount fixed f or the said payment by IATP and actually paid to the British Airways in US Dollars would also be placed on record and this may include either necessary evidence of payment through IATA clearing or any other mode of payment adopted by the concerned airlines. As such, the restoration is made at the cost ....
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....ity at one point of time and thereafter functioning as the adjudicating authority under the Income-tax Act in order to arrive at the correct taxable income of the assessee in a judicious way. The assessee, in the garb of pressing for violation of principles of natural justice at one hand and violation of Article 265 of the Constitution of India on the other hand, cannot be allowed to dictate to the Revenue authorities to accept unquestioningly what has suited the assessee to offer. 26. Thus, on account of these aforementioned reasons, the question of offering by the assessee a certain amount to be taxed in order to buy peace in the present circumstances would tantamount to allowing the assessee to dictate to the Revenue authorities the manner in which the assessment is to be made. 27. For the same reason, as I have already observed, the Ld. CIT(A) without any facts and figures was not justified in granting relief to the assessee. 28. Having thus elaborated on the misconceived stand of the assessee, I would like to state that the endeavour at the Tribunal is also to determine the taxable income of the assessee in a fair, judicious and proper manner. Consequently, keeping th....
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....en the provisions of those articles will prevail. The assessee has tried to take shelter from Articles 8.1, 8.2 and 8.3. The same are reproduced hereunder for ready reference: Article 8 : Air Transport. "1. Profits derived from the operation of aircraft in international traffic by an enterprise of one of the Contracting States shall not be taxed in the otherContractingState. 2. The provisions of paragraph 1 of this Article shall likewise apply in respect of participation in pools of any kind by enterprises engaged in air transport. 3. For the purposes of this article the term 'operative of aircraft' shall include transportation by air of persons, livestock, goods of mail, carried on by the owners or lessees or charterers of aircraft, including the sale of tickets for such transportation on behalf of other enterprise, the incidental lease of aircraft on a charter basis and any other activity directly connected with such transportation. 4. Gains derived by an' enterprise of a Contracting State from the alienation of aircraft owned and operated by the enterprise, the income from which is taxable only in that State, shall be taxed only in that State.' 32. Thus, on an ....
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....TP family of airlines has grown from 24 to 121 i.e. 96 members and 25 guests. Our specific attention was invited to the following: 'The international Airlines Technical Pool is an organization of airlines formed for the purpose of providing reciprocal technical support at line stations throughout the world. This technical support includes aircraft spare parts, ground and ramp handling equipment and manpower. The primary goal of IATP is to generate economic savings to participating airlines by minimizing investments otherwise required for purchase of equipment and spare parts for positioning at various stations in support of aircraft operations." 35. Aperusal of this IATP Manual shows that the purpose of coming together under the umbrella of IATP was to generate savings to participating airlines by minimising investment etc. is fully in concurrence with the crux of the finding of my Id. brother with which I am in full agreement though I would like to state it slightly in a different manner ie. that if an airline of the stature of British Airways is maintaining its engineering staff, personnel and spare parts etc., then other airlines ie. user airlines who cannot afford to main....
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....in accordance with or resulting from the rendering of services or the furnishing of goods pursuant to the Agreement, whether or not such damage was sustained or such claims were lodged due to the negligence of the Provider, its servants or agents, unless the same result from or more caused by acts of omissions amounting to wilful misconduct of the Management of the Provider. 2. The User shall indemnify and save free and harmless the Provider, its employees, servants and agents from any liability towards third parties (other than the Provider's employees, servants and agents), including cost and expenses incident thereto, arising in connection with or resulting from the rendering of services or the furnishing of goods pursuant to this Agreement, unless due to the wilful misconduct of the Management of the Provider. 3. If the User reimburses the Provider in kind, returns borrowed goods to the Provider or otherwise makes available services or goods under this Agreement, the liability and the obligation to indemnify and to hold harmless, of the respective companies shall be, mutatis mutandis, as provided above. 4. Nothing in this Agreement shall affect the mutual liability of ....
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....nex(es) B. The Carrier further agrees to pay the proper charges of the Handling Company and to discharge all additional expenditure incurred for providing the services referred to in Sub Articles 1.4, 1.6, 1.7 and 1.8. 6.2 The charges set out in Annex(es) B do not include: - any charges, fees or taxes imposed or levied by the Airport, Customs or other authorities against the Carrier or the Handling Company in connection with the provision of services herein by the Handling Company or in connection with the Carrier's flights. - expenses incurred in connection with stopover and transfer passengers and with the handling of passengers for interrupted, delayed or cancelled flights. Such charges, fees, taxes or other expenses as outlined above shall be borne ultimately by the Carrier. Article 7. Accounting and Settlement. 7.1 The Handling Company shall invoice the Carrier monthly with the charges arising from the provision of the handling services of Annex A as listed in Annex(es) B at the rates of charges set out in Annex(es) B. 7.2 Settlement shall be effected through the IATA Clearing House unless otherwise agreed in Annex(es) B.' 38. The learned AR has also....
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....sportation ie., (a) transportation of human beings; (b) livestock, goods or mail carried on by the owners; or (c) sale of tickets on behalf of other enterprises; or (d) incidental lease of aircraft on chartered basis; (e) any other activity directly connected with such transportation. 42. The term 'operation of aircraft' cannot be expanded beyond what is actually understood and enumerated in the Article to the point where the resultant expansion leads to an absurd and anamolous meaning. Thus, fully agreeing with the finding of my learned brother that the specific services provided by the British Airways pertaining to engineering/ ground handling result in a taxable event inIndia, I would like to state my reasons separately. First and foremost, I would like to state that in the present context, there is no ambiguity in the language of the Article. Thus, it is not necessary to resort to any interpretative process to unfold the intent of the contracting parties. Nevertheless, since both the sides have pressed various rules of interpretation in order to interpret the concerned Article. I would start from the premises that the issue pertaining to the interpretation of ....
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....erence of opinion amongst legal luminaries in judgments of International Court of Justice shows that differences existed regarding the meaning of protocols of negotiations and other materials. The most widely and general view has been that treaty obligations are to be interpreted restrictively because in case of doubts parties to the treaty in doubtful cases should only be presumed to have waived the sovereignty that is unequivocably apparent from the text of the treaty for which it is necessary to look into the ordinary meaning of the terms and the wording not of the individual subarticle but that of the entire article in the context in which it was incorporated. Appreciating the fact that the ordinary meaning of the term is not necessarily that of everyday usage and that legal usage can have different connotation for both the contracting states the recourse can be taken to the development, if any, to the international tax language but even in that situation in the present case, the ordinary meaning supports the case of the Revenue and no case is made out to read a special meaning as advocated by the learned AR. 45. For the purpose of interpretation of double taxation treating,....
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....parison of the authentic texts discloses a difference of meaning which the application of articles 31 and 32 does not remove, the meaning which best reconciles the texts, having regard to the object and purpose of the treaty, shall be adopted.' 46. Reliance has been placed upon Podar Cement (P.) Ltd's case and SIL Import's case in order to press the arguments that the doctrine of updating of construction should be applied and the examination and propositions laid down therein are not in dispute and are accepted principles of interpretation and jurisprudence development but after considering the said judgment and the principle laid therein, it is seen that the same has no relevance to the issue at hand because what the Hon'ble Supreme Court said in this judgment was that the modern means of communications ie. fax, e-mail etc. should be taken into account while interpreting how a notice is served upon a party. The said rule of updating construction by way laying down the principle that the legal jurisprudence should stay in step with technological development is an accepted principle but lends no support to the issue at hand as no amount of updating and developing rules of constru....
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.... in full concurrence. I would merely clarify further that by virtue of the fact that this section specifically considers the manner in which the profits of non-resident engaged in the business of operation of aircraft is to be taxed, thus, the providing of engineering/ground handling services to other airlines cannot be understood to be included in 'operation of aircraft'. At the cost of reiterating the non-rendering of this activity to other airlines will not affect even remotely the operation of aircraft of the assessee. The utilisation of spare/idle engineering and ground handling staff is definitely a separate and a distinct business activity by itself even if no special cost has been incurred on its account. Thus, in the ultimate analysis, applying the analogy discussed in detail while interpreting Article 8 of DTAA, I am fully in agreement with the finding of the authorities below that the present activity cannot be taxed under section 44BBA of the Income-tax Act, 1961. 52. Similarly, provisions of section44Cpertaining to deduction of head office expenditure was held to be not applicable by the Assessing Officer as despite repeated requests, the assessee did not put forth ....
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....sions of DTAA it is borne out that a particular income is not treaty protection, then the same is taxable in India. 55. Thus, in ITA 4653 filed by the assessee, due to the aforementioned reasons, ground No. 1(i) to (iv) in assessee's appeal are rejected and ground No. 1 (v) is restored. Ground Nos. 2, 3, 4 and 7 are rejected. Ground No. 5 is partly allowed by way of restoration. Ground No. 6 is consequential and Ground Nos. 8 and 9 being general in nature require no adjudication, 56. Similarly, in ITA 484 filed by the Revenue, agreeing in principle that CIT(A) in the facts and circumstances of the case had no basis for reducing the assessed income, the ground is restored back to the Assessing Officer with the direction to make assessment de novo subject to the directions given hereinabove. 57. Inthe result, all the three appeals of the assessee and the three counter appeals of the Revenue are partly allowed for statistical purposes. Per Mehta, VP.: 58. Two separate orders have been passed in these appeals by the Tribunal, the second order by the learned Judicial Member although both of us are agreed on every aspect of the matter. There are certain observations which ....
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.... at various places in her order has commented on the bona fides of the assessee, observing that 'the doors of equity ............. are open to those who approach the courts with clean hands'. On the other hand, my learned colleague has made the following observations in para 28 of her separate order: 'Having thus elaborated on the misconceived stand of the assessee, I would like to state that the endeavour at the Tribunal is also to determine the taxable income of the assessee in a fair, judicious and proper manner. Consequently, keeping this into consideration, the matter is being restored back to the file of the Assessing Officer in order to enable him to arrive at the correct taxable income which is fair both to the assessee as well as the Revenue. Thus, being guided by the principle that justice should not only be done but also seen to be done, there is no cogent reason to block the evidence simply relying on the past conduct of the assessee. Thus being of the view that if the assessee even at this belated stage is able to prove the bona fides and shows its willingness to cooperate with the department and enable it to determine the correct taxable income, then the evidence b....
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....ovided to the other airlines, the British Airways anyway was required to meet the personnel for servicing their fleet. I am of the view that the Assessing Officer has been more than reasonable in reducing the expenditure on salaries etc. of these personnel to half an estimate basis in the face of the stand of the assessee that all the engineering/ground handling personnel were anyway required for its own fleet.' 65. Inmy opinion the aforesaid observations do not leave any doubt in my mind that the action of the Assessing Officer in computing the taxable income of the assessee stands approved by my learned colleague. These observations are quite contrary to those made by my learned colleague in other parts of her order and especially when in conclusion she also takes the view that the matter is required to be set aside for re-computing the taxable income for whatever reason whether factual or legal. 66. Inpara 19 of the order my learned colleague has referred to the requirements of Company Law in Britain and there is also a reference to the British Accounting Standard Board, but I must categorically state that neither in the orders of the tax authorities and nor at the hearing....