TaxTMI 
TaxTMI 
2013 (4) TMI 575
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....006-07 vide ITA No.1394/Del/2011 and in AY 2007-08 vide ITA No.4811/Del/2010. He stated that since the facts of the year under consideration are identical to the facts in the earlier years, the above decisions of the ITAT would be squarely applicable to the assessee's case for AY 2008-09. To substantiate his contention that the facts of the year under consideration are identical to AY 2007-08, he referred to the assessment order of assessment year 2007-08 which is placed in assessee's paper book pages 16 to 19 and pointed out that paragraph 5 of the assessment order for AY 2007-08 where the Assessing Officer had decided this issue considering the assessee's written submission is identical to paragraph 5 of the assessment order of AY 2008-09. He stated that both the orders are in verbatim. When admittedly the facts of the year under consideration are identical, the decision of ITAT in earlier years would be squarely applicable. He also stated that the department is in appeal in the earlier years which is pending before the Hon'ble Jurisdictional High Court for adjudication. 4. Learned CIT-DR, on the other hand, stated that the base years are AY 2004-05 and 2005-06. That in the su....
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.... in international traffic' has not been defined in Indo Netherland Treaty and Indo German Treaty while in Indo UK Treaty the same has been explained. According to the ITAT there was thus distinction between these three sets of DTAA. The ITAT held that while position with Indo German Treaty and Indo Netherland Treaty was similar, the position in Indo UK Treaty was slightly different. On this basis ITAT's decision in the case of Lufthansa German Airlines was followed. It is submitted that the expression 'profit from the operation in International traffic of aircraft' has also been defined in Indo Netherland Treaty in article 8(2). It is therefore not correct to say that this expression has not been defined in Indo Netherland Treaty. Moreover in Indo UK Treaty expression 'operation of aircraft' has been defined in article 8(3). A perusal thereof would clearly show that the aforesaid expression in Indo UK Treaty is much wider and even then the ITAT in the case of British Airways(in short BA) has held that charges received for rendering ground handling services etc. were not treaty protected under article 8 of the Indo UK Treaty. Similarly article 8(3) of Indo-Germany Treaty also define....
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....The ITAT did not consider whether article 8(4) of Indo German treaty [article 8(3) of Indo Netherland treaty] is to be read alongwith article 8(1) and if not then the reasons thereof. On the contrary in BA's case and in Delta's case these aspects have been elaborately discussed. Strong circumstances in fact exist in the assessee's case to take a stand different from Lufthansa's case. 2.5. The Hon'ble ITAT has held that in Lufthansa's case the ITAT had distinguished the facts then in British Airways case. With respect it is submitted that even if there existed any distinction in facts between Lufthansa's case and BA's case it has not been shown as to how the facts of the assessee's case are similar to Lufthansa's case and dissimilar to BA's case. The subsequent discussion would show that, in fact, the facts of the assessee's case are rather similar to BA's case then with Lufthansa's case. 2.6. The above decision has been followed by the ITAT in assessment year 2006-07 (ITA No. 1394/D/11 dated 20th January, 2012) and assessment year 2007-08 (PB 133). 2.7. It is a settled law that while consistency should be maintained and the earlier decision of the bench should be followed ....
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.... the judicial propriety the matter should have been referred to the larger bench. In any case, a decision which is sub silentio need not be followed [kindly refer to Delhi High Court's decision in the case of Dr. Nalini Mahajan (257 ITR 123), CIT vs. Baroda Peoples Cooperative Bank 280 ITR 282 (Guj.), S.Shanmugavel Nadar vs. State of Tamil Nadu (SC) 263 ITR 658(SC); Amit Das vs. State of Bihar AIR 2000 SC 2264]. 3.2. Para 25: In this para the ITAT has held that IATP was the only pool known to the international aviation industry and the assessee had participated in this pool. The ITAT also held that since there was reciprocity in rendering the services and availing the services it amounted to participation in a pool. Comments: It is submitted that neither article 8 nor OECD commentary nor even the commentary by any of the prominent authors require that for the purposes of article 8 there has to be a pool which is recognized internationally. The only requirement is that two or more airlines should come together to earn and share profit by pooling their resources (like pooling of aircrafts, sharing the routes, etc) in the business of operation of aircraft in international traffi....
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.... separate establishment and separate office set up to monitor ground handling services and different establishment at international airports, New Delhi did not form part and partial of operation of British Airways pertaining to the operation of aircrafts in international traffic. In BA's case the excess/idle capacity was utilized for providing services to other airlines. Similar is the position in the assessee's case. The assessee has also used excess/ideal capacity for providing services to other airlines( AO's page 10) iii The services and facilities provided by British Airways in India to the airlines was a commercial activity. The excess/idle capacity has been provided to various airlines at a price. As mentioned above similar is the position in the assessee's case. iv The British Airways has a branch office in India which constitute permanent establishment "PE" in India and, therefore, the income derived from PE in India was taxable as the same was not covered under DTAA. Assessee also has a branch office in India which constitutes its PE in India and therefore income derived from the PE is taxable. v Article 8(2) of DTAA between India and UK provide....
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....owhere it is mentioned that for claiming exemption under article 8 an airline has to be member of IATP. Moreover, the words 'pool' and 'joint business' have to be seen in the context of article 8(3) of the treaty and not in the context of IATP. This is also evident from the representation made by the Association of European Airlines before the OECD (DRP para 8.4). 3.5. Para 29: After referring to the objectives of IATP the ITAT has stated that Lufthansa had entered into agreement with Alitalia, Air France, Swiss Air which were in IATP form 53. The handling charges were fixed as per IATP manual. The ITAT has also observed that BA had entered into agreements with Royal Brunei Airlines, Atlas Air Corporation, Alitalia and Singapore Airlines and none of the agreements were in IATP form 53 which is prescribed in IATP manual. The ITAT also noted that handling charges received by BA were not as per IATP manual but as per IATA Rules. It was further observed that since in BA's case agreements were not as per IATP manual the ITAT was constrained to interpret the word ' participation in pool of any kind'. According to the ITAT since in Lufthansa's case it was participation in a pool viz IA....
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....held that in view of article 7(7) income from operation of ships or aircraft is covered by article 8 and the PE cannot be a ground for bringing to tax the profits from participation in a pool. The ITAT has also held in para 35 that the 'joint business' will only mean activity of shipping and air transport carried on jointly. Comments: This is nobody's case that once the assessee's income is covered under article 8, the same shall be taxable under article 7 on account of PE being there. Neither in the BA's case nor in Lufthansa's case nor in the assessee's case income from ground handling charges has been taxed on account of mere existence of PE. It is only when it is held that such income is not covered under article 8 then the same would be taxable under article 7 if the tax payer has a PE. The ITAT's view that the word 'joint business' means when the shipping and the air transport activities are carried on jointly is, with due respect, not correct. The word 'joint business' in article 8 refers to the business of operation of aircraft either singly or jointly by more than one airlines. 'Joint business' does not refer to the business of shipping and air transport undertaken j....
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....As the words 'operation of aircraft' have not been defined in the treaty, in view of article 3(2) of the treaty the meaning thereof is to be taken from the domestic law. Section 44BBA of the Income Tax Act defines its scope according to which carriage of passengers, mail, livestock or goods are only included. As regards reciprocity, in any case, unlike in Lufthansa's case, in the present case reciprocity has not been proved by the assessee. Thus, like in BA's case, in this case also there is only one way traffic. 3.9. Para 38: The ITAT has held that in BA's case services rendered by the airline were in the nature of business activity wherein excess staff was employed. It was also noted that in BA's case volume of receipts was in crores which suggested that provision of the services was commercial activity. Comments: In the assessee's case also not only excess staff has been deployed for rendering ground handling services but its receipts from such services are also in crores (more than Rs. 15 crores in the year under reference; in BA's case it was more than Rs. 5 crores). Therefore, following the Lufthansa's logic in the assessee's case also there is a commercial activity whi....
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....us held that because of this difference the ITAT had to find out the meaning of the word 'pool' in the BA's case. The ITAT also held that since in BA's case services were rendered to Atlas Air Corporation which was not a member of IATP, the services rendered to that airline could not be bound by IATP manual. Comments: As discussed above, in BA's case the meaning of the word 'pool' was explained in the context of article 8 as a whole and not on account of the wordings used in article 8(2) alone. The meaning of the word 'pool' as explained by the ITAT in the aforesaid case is equally applicable in the treaty with Netherland also. The ITAT clearly held that (i) profit from rendering ground handling services is not covered under article 8 as the same is not connected with operation of aircraft in international traffic and (ii) simply because the airline was member of IATP it would not amount to participation in a 'pool' as IATP does not represent the 'pool' as envisaged in article 8. As regards the ITAT's observation that in BA's case Atlas Air Corporation was not a member of IATP, firstly the same is not correct. From page 89(sr.no.108) of the paper book filed by the assessee in....
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....d legal inaccuracies. 4. In fact from the above discussion it may kindly be seen that the facts of the assessee's case are in pari materia to the BA's case. The assessee has not been able to point out as to how its case is distinguishable from the BA's decision. The only distinguishing feature cited by the assessee is that in BA's case the services were rendered to some of the airlines which were not IATP member (PB 32-34). As stated above firstly, no service was rendered in BA's case to non IATP member. Secondly, even if it is so, this was not at all the reason in the BA's case while denying the benefit of article 8 of the treaty. Except this no other distinguishing feature has been pointed out by the assessee. 5. The assessee has stated that facts of its case are similar to Lufthansa's case(PB30/31). According to it in its case also there was no actual money transaction in India and only debits/credits were made through ITAT clearing. It may be mentioned that the same was the position in BA's case also (para 4,11,14,29 of AM's decision and 3, 19,36,37,etc. of JM's decision). It is further stated by the assessee that there is reciprocity at the global level. Even in Lufthans....
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....raffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated. ARTICLE 8 -Air transport- 1. Profits from the operation of aircraft in international traffic shall be taxable only in the State in which the place of effective management of the enterprise is situated. 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 other Contracting State. 2. If the place of effective management of a shipping enterprise is abroad a ship, then it shall be deemed to be situated in the Contracting State in which the home harbour of the ship is situated, or, if there is no such home harbour, in the Contracting State of which the operator of the ship is a resident. 2. For the purpose of this Article: (a) profits from the operation in international traffic of aircraft include profits derived from the rental on a bareboat basis of aircraft if operated in international traffic if such rental profits are incidental to the profits described in paragraph 1; (b) interest on funds connected with the operation of a....
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....o-German DTAA and Indo- Netherlands DTAA are similar on the one hand whereas the position in the Indo-UK DTAA, it is slightly different. This question arose before the ITAT in the case of Lufthansa German Airlines also. The ITAT while explaining the meaning of profit from the operation of ships or air-craft in international traffic has took into consideration the bye- laws of international airlines technical pool (IATP) because this organization authorized its members to share air- crafts, air-crafts pooling, ground handling equipment and manpower all over the world. The ITAT has considered the relevant clauses of IATP manual and thereafter concluded that any receipt received by the assessee due to participation in the pool as provided in IATP manual and also explained in sub-article 4 of Indo-German DTAA will not be taxable in India under sub Article 1 of Article 8. In the present appeals, there is no disparity on facts. Learned DR except raising an argument that ground handling and technical handling services are different activities then operation of any air-craft in international traffic failed to bring any rules, regulations, bye-laws for substantiating his contentions. The co....