TaxTMI 
TaxTMI 
2021 (11) TMI 317
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.... facts and in law the orders passed by the Commissioner of Income Tax (Appeals) {hereinafter referred to as "the CIT (A)"} and the Assessing Officer {hereinafter referred to as "the AO"} are bad in law and void-ab-initio. 2. That on facts and in law the CIT(A) erred in assuming jurisdiction to adjudicate upon issues not forming part of the grounds of appeal. 3. That on facts and in law the CIT(A) has erred in making a ad-hoc Disallowance u/s 37(1) of Lease Rental Payments to the tune of Rs. 366,32,13,778/-. 3.1 That on facts and in law the CIT(A) erred in following his predecessor to conclude that credits of IAE are capital in nature and hence to the extent such credits are amortised and netted with Lease Rent payable in the P&L Account, the Lease Rent is to be disallowed as capital expenditure. 4. That on facts and in law the CIT(A) has erred in upholding disallowance u/s section 40(a)(i) of the Act on account of Supplementary Rent as under: (a) Supplementary Rent for lease agreements executed prior Rs. 27,27,45,720/- to 01st April 2007 (b) Supplementary Rent for lease agreements executed after Rs. 507,89,21,321/- 01st April 2007 Total ....
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...., even if the same is admitted, it has already been decided in the favour of the assessee. 7. Briefly stated the facts shows that the assessee is a company engaged in the business of operating Airlines. It filed its return of income on 29.11.2013 declaring income of Rs. 2,32,97,58,440/-. The book profit was also shown u/s 115JB of the Act at Rs. 967,73,83,147/-. The case of the assessee was selected for scrutiny and order u/s 143(3) of the Act was passed on 06.12.2016 determining the total income of the assessee at Rs. 16,54,80,19,120/-. The ld AO made the following adjustments to the return of income of the assessee at Rs. 232,97,58,440/-:- a. Addition on account of credit received against purchase of engines amounting to Rs. 716,35,59,916/-. b. Disallowances u/s 40(a)(i) of the Act of Rs. 535,16,67,041/- c. Disallowance of claim of setting off of brought forward business loss and unabsorbed deprecation of Rs. 170,30,33,727/-. 8. The assessee is aggrieved with the order of the ld AO preferred an appeal before the ld CIT(A)-35, New Delhi. The ld CIT(A) with respect to the addition of Rs. 716,35,59,916/- followed the binding precedent decision of the....
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....n case of the assessee. He referred to the chart submitted by him. He also referred to the various pages and paragraphs where the identical issue is covered by the decision of the coordinate bench. 12. He did not press ground No. 5 of the appeal. 13. The ld DR submitted that now the Special Bench has decided the issue involved in this appeal of the assessee as well as appeal of the ld AO and therefore, same may be followed. 14. With respect to the appeal of the revenue the ld AR also submitted a details chart. He submitted that ground No. 1 of the appeal with respect to the taxability supplies credit from International Air Engines (IEA) has been held by the Special Bench in assessee's own case for Assessment Year 2012-13 and therefore, ground No. 1 of the appeal of the ld AO is squarely covered in favour of the assessee. 15. With respect to ground No. 2 about taxability of the above sum received from IEA of Rs. 716,35,59,916/- chargeability to tax u/s 28(iv) of the Act. He submitted that same is also been decided by the Special Bench in favour of the assessee. 16. With respect to additional ground raised by the revenue vide letter dated 09.02.2018 stating that if the....
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....2012-13, it is submitted by the Ld. Special Counsel for the Revenue that the credits do not relate to the choice of the engine, but, are for the purchase of aircrafts with the engine. It is also submitted that credits are also inextricably linked to the operating lease of aircrafts. It is also the submission of the Revenue in the written synopsis that "no manufacturer of engine would ever grant any such benefit as given to the assessee, if it was a case of mere exercise of choice of engine not resulting in purchase or acquisition by other modes and in final delivery of the aircrafts to the assessee." 33.1. We do not find any force in the above argument of the Ld. Special Counsel for the Revenue. It is an industry practice that the credits are received by airlines for selection of engines which is evident from Accounting guidelines and Airline Disclosure guide on Aircraft acquisition cost and depreciation issued by IATA, copy of which is placed at paper book page 1097 to 1127. We find relevant para at paper book page1104 reads as under:- It is common for airlines to receive credits from aircraft or engine manufacturers to incentivise the purchase. These credits com....
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....e, therefore, hold that the credits received by the assessee from IAE are for selection of its engines. The credits given by the engine manufacturer had nothing with the mode of acquisition of the Aircraft by the assessee. 33.2. The Learned Special Counsel for the Revenue has argued that the credits were open for adjustment either against the price of the firm aircraft from Airbus or purchase of engine spares parts, tooling and services or receivable as cash. It was his argument that since credits can be used against the price payable for the aircraft it is linked to the acquisition of the aircraft and is in form of a "discount". He had first presumed that the engines were purchased by the assessee and then it is also presumed that credits were a "discount" for the purchase. However, the credits in the instant case in our opinion are not "discounts". Discount means reduction of purchase price. For aircrafts acquired on operating lease there is no purchase of aircraft by the assessee who is only a lessee. Since, the assessee has not purchased the "installed engines" from IAE, the credits in our opinion are not in the nature of "discount". Options given by IAE for utilisatio....
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....h ? He had bought as part of the capital of the business his father's contracts. These enabled him to purchase coal from the colliery owners at what we were told was a very advantageous price, about fourteen shillings per ton. He was able to buy at this price because the right to do so was part of the assets of the business. Was it circulating capital ? My Lords, it is not necessary to draw an exact line of demarcation between fixed and circulating capital. Since Adam Smith drew the distinction in the Second Book of his " Wealth of Nations ", which appears in the chapter on the Division of Stock, a distinction which has since become classical, economists have never been able to define much more precisely what the line of demarcation is. Adam Smith described fixed capital as what the owner turns to profit by keeping it in his own possession, circulating capital as what he makes profit of by parting with it and letting it change masters. The latter capital circulates in this sense. My Lords, in the case before us the Appellant, of course, made profit with circulating capital, by buying coal under the contracts he had acquired from his father's estate at the stipulated price o....
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.... March 31, 1948, the assessee received Rs. 12,530 for new service connections granted to its customers. Out of this amount, Rs. 5,929 were spent for laying the service lines, and Rs. 1,338 were spent for laying certain mains. The Income Tax Officer treated the entire amount of Rs. 12,530 as trading receipt. In appeal to the Appellate Assistant Commissioner, the cost incurred for laying service lines and mains was excluded and the balance was treated as taxable income. In appeal, the Appellate Tribunal agreed with the Appellate Assistant Commissioner and held that the service connection receipts were trading receipts and that the "profit element" therein was taxable income in the hands of the assessee. In a reference under s. 66(1) of the Income Tax Act, the High Court substantially agreed with the view of the Tribunal. The assessee has installed machinery for producing electrical energy and has also laid mains and distributing lines for supplying it to its customers. The assessee makes no charge to the consumers for laying service lines not exceeding 100 ft. in length from its distributing main to the point of connection on the consumer's property in accordance with cl. 6(1)(b)....
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.... and it was not converted into a trading profit because the assessee was engaged in the business of distribution of electrical energy, with which the receipt was connected. In Commissioner of Income-tax v. Poona Electric Supply Co. Ltd. (1), it was held by a Division Bench of the Bombay High Court that the amount received from the Government of Bombay by the Poona Electric Company in reimbursement of expenses incurred for constructing new supply lines for supplying energy to new areas not previously served, was a capital receipt and not a trade receipt. The question of the taxability of the "profit element" in the contribution received from the Government was not expressly determined; but the court in that case held that the entire amount received by the Poona Electric Company from the Government as contribution was a capital receipt. In Monghyr Electric Supply Co. Ltd. v. Commissioner of Income-tax, Bihar and Orissa (2), it was held that the amount paid by consumers of electricity for meeting the cost of service connections was a capital receipt in the hands of the electricity undertaking and not revenue receipt and the difference between the amount received on a....
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....value of the shares which represented the stock in trade of the assessee remained the same both in the opening and the closing stock. It was claimed that the dividend received were arrear dividends pertaining to the year 1936 to 1945 and therefore such arrear dividend received was not in the nature of income liable to tax as it was merely a realization of capital. The Hon'ble Supreme Court has held as under:- "Whether in the facts and circumstances of the case the assessee had purchased the arrears of dividend ? If so whether the said sum of Rs. 43,925/- could at all be assessed either as dividend or as profit ?" It is manifest that dividends declared by Kedarnath Jute Manufacturing Co., between the years 1936 and 1945 were the property of the persons whose names stood on the share register on the relevant dates. When a company declares dividend the same can only be paid to the person who is then the registered holder. A purchaser of shares becomes entitled to all dividends declared since his purchase but not before. If the purchase is made on the eve of declaration of dividend but the purchaser does not get his name mutated in the records of the company in time t....
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.... was included in the total consideration of Rs. 1,12,575/-. What the assessee acquired in the form of share scrip represented its stock-in-trade, which consisted of the shares and the dividends potential which had to be realised. In this state of facts it is manifest that the assessee paid the amount of Rs. 1,12,575/- not only for the share scrips but also for the arrear dividends which was inextricably connected with the purchase of the share scrips. In our opinion the High Court rightly held that the amount of Rs. 43,925/- was not income which could be assessed in the hands of the assessee." 33.10. From the above, we note that although a consolidated payment was made by the assessee for purchase of shares, yet the Hon'ble Supreme Court examined the intention/ purpose of this receipt and held that although the dividend was related to the transaction of purchase of shares which was stock in trade, however it was to be viewed separately and was capital in nature. 33.11. We further find merit in the arguments of the learned senior counsel for the assessee that there is no statutory definition under the Income Tax Act as to what is "capital receipt" or what ....
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.... the expense of 'aircraft lease rental' in its Profit and Loss Account. It would first be relevant to consider the well-settled purpose test, which we need to keep into consideration while opinion upon the issue under consideration. In this regard Hon'ble Apex Court in case of Ponni Sugars & Chemicals (supra) has held as under: , - " The importance of the judgment of this Court in Sahney Steel & Press Work's Ltd. 's case (supra) lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character oj the receipt in the hands of the assesses has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid-is not relevant. The source is immaterial, The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this....
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....couraging establishment of new multiplexes. A subsidy of such nature cannot possibly be granted by the Government directly. Entertainment tax is leviable on the admission tickets to cinema halls only after the facility becomes operational. Since the source of the subsidy is the public at large which is to be attracted as viewers to the cinema halls, the funds to support such an incentive cannot be generated until and unless the cinema halls become functional. 33. The State Government had offered 100% tax exemptions for the first three years reduced to 75% in the remaining two years. Thus, the amount of subsidy earned would depend on the extent of viewership the cinema hall is able to attract. After all, the collections of entertainment tax would correspond to the number of admission tickets sold. Since the maximum amount of subsidy made available is subject to the ceiling equivalent to the amount invested by the assessee in the construction of the multiplex as also the actual cost incurred in arranging the requisite equipment installed therein, it naturally follows that the purpose is to assist the entrepreneur in meeting the expenditure incurred on such accounts. Giver, t....
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....in nautre 38. Indeed, in Ponni Sugars & Chemicals Ltd. (supra), the fact that the amount received as subsidy was required necessarily to be utilized only for repayment of term loans for setting up of the new unit was one of the important factors taken into account for treating it to be capital receipt. The case at hand is not very different. As observed earlier, the subsidy is meant to liquidate the cost incurred in setting up of the multiplex cinema hall and for making it operational by installing the requisite apparatus. The flow of subsidy stops as soon as the expenditure on such account is met in entirety." In the above decision Hon'ble Delhi High Court solely applying the purpose test as propounded by Hon'ble Supreme Court has negated the arguments raised by tax department placing undue importance on facts such as subsequent use of subsidy and that the subsidy was not linked to a particular fixed asset. In our considered opinion the decision of Hon'ble Jurisdictional High Court in Bougainvillea Multiplex Entertainment Center Pvt. Limited (supra) supports the claim made by the appellant that the receipt of credits from IAE are capital in nature. Shri Syali has....
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.... as per the agreed schedule. Assignment of right to purchase the aircraft by triggering Article 21 therein was only a modus operandi of acquiring the aircraft with a finance option Ld. CIT(DR) Dr. Prabhakant has merely reiterated the arguments taken by learned CIT in the impugned order. In his written note he has characterized the credits received from IAE as commission income. We do not concur with this submission of Ld. CIT(DR). As per letter of intent an option was given to Interglobe by Airbus for choosing the type of engine to be fitted in the aircraft, which Airbus will manufacture for Interglobe. Exercising this option Interglobe selected IAE engines giving them importance over competitors of IAE. In absence of any services been rendered by Interglobe to IAE we fail to appreciate how can receipt of credits in the present case be termed as a commission income. We therefore reverse the finding recorded by CIT in the impugned order and hold that the credits received by the appellant from IAE are capital in nature. 9.2. Ld. CIT(DR) in his submissions has placed reliance on the case of Gee Vee Enterprises vs. Addl. CIT and Ors. 99 ITR 375 (Del) to hold that proper enquir....
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....y, hence this decision is also distinguishable factually. In the case of Enter)' Stone Mfg Co. (supra) relied upon by the LD C1T(DR) assessment order was held to be erroneous as applicability of section 43(1) which on admitted facts of that case being relevant was not examined by the' AO. We have already upheld the arguments of appellant in the present case that on facts section 43(1) is totally irrelevant for an adjudication of the issue in dispute before us. Similarly the decision of Tara Devi Aggarwa] (supra) relied upon by the CIT(DR) is also irrelevant. We may make a reference here to the decision of Hon'ble Jurisdictional High Court in case of DG Housing reported in 343 ITR 329(Del) wherein the Hon'ble High Court has been pleased to hold as under: "12. Delhi High Court in Gee Vee Enterprises vs. Additional Commission of Income-Tax, Delhi-I & Ors.,(1975) 99 ITR 375 has observed as under : "The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil....
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.... We are, therefore, not convinced by the submissions made by the Ld. CIT(BR), who -has vehemently tried to support the action of-Ld. CIT on this issue, Even on the jurisdictional aspect we fail to convince ourself to uphold the action of Ld CIT in invoking proceedings u/s 263 of the Act. Action u/s. 263 is therefore held to be bad. in law. Ground Nos. 1 to 1.5 are therefore allowed in favour of the appellant." 33.12. As held above, the lower authorities accept that the assessee is engaged in the business of operating of low cost airline and its source of revenue is to earn income from passenger/cargo transportation. We have already held in the preceding paragraphs that the credits received are not derived from the business activity which is to earn revenue from passenger/cargo transportation. Therefore, the credits are Fleet Introductory Assistance (FIA) and were received as a consideration for selecting engines of IAE in preference to others. This is the purpose. 33.13. We find the Hon'ble Supreme Court in the case of CIT v. Ponni Sugar and Chemicals Ltd., 306 ITR 392 (SC) after considering the decision in the case of Sahney Steels and Press Work Ltd. and Ors. v.....
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....t Year 2007-08 when it applies "Purpose Test". The Hon'ble Supreme Court has laid down the proposition in the case of Sahney Steels and Press Work Ltd. (supra) and Ponni Sugar and Chemicals Ltd. (supra), that purpose is to be seen for which the amount is received and not the manner or form in which money is provided. 33.15. The doctrine of precedent also requires us to follow the statement of principles in law as laid down by the higher Courts. It is the settled proposition of law that under the provisions of the Act all receipts are not taxable. Whether a particular receipt is income or not depends on the nature/purpose of that receipt and the true scope and effect of the relevant taxing provisions. It is trite law that it is the quality of the receipt that is decisive of the Character of the Payment and not the Method of the Payment or its measure. It is to ascertain the quality and the character that purpose test has to be applied. Purpose test, therefore, remains a valid test for ascertaining the true nature of any receipt, be it unilateral, multilateral, grant of subsidy or otherwise. 33.16. So far as the arguments made by the learned special counsel for the ....
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....described as "pay" "remuneration", etc., but that does not determine its quality, though the name by which it has been called may be relevant in determining its true nature, because this gives an indication of how the person who paid the money and the person who received it viewed it in the first instance. The periodicity of the payment does not make the payment a recurring income because periodicity may be the result of convenience and not necessarily the result of the establishment of a source expected to be productive over a certain period." 33.19. So far as the decision in the case of CIT v. T.V. Sundaram Iyengar & Sons Ltd. reported in 222 ITR 344 (SC) relied upon by the learned special counsel for the Revenue is concerned, we find the said decision is distinguishable on facts and not applicable to the case of the assessee. In that case, the amount was received by the assessee from its customers in the course of a trade transaction. Since, over the period of time these amounts were not claimed back by the customers, these amounts were transferred by the assessee to its profit & loss account. The AO held that surplus had arisen as a result of trade transactions. It was....
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....e of the assessee." 33.21. Therefore, in that case, the amounts received to start with was of the Revenue character but not an income at the stage of receipt. However, the subsequent event was of such that a different quality was imprinted on the receipt. In the present case, the assessee is engaged in the business of providing aircraft passenger services. It has already been held by us in preceding paragraph that the aircrafts are part of its fixed capital. At the time of acquisition of aircraft there were options available to the assessee. It may purchase the aircraft out rightly or it may acquire it on a financial lease or on an operating lease. This was a commercial decision which the assessee takes on the delivery date depending upon its capital, market condition and other ground realities. The learned Senior Counsel for the assessee has filed before the Bench the details of 34 aircrafts which have been purchased by the assessee. The credits received for these aircrafts have been reduced from the cost of acquisition in accordance with the provisions of section 43(1). This has been accepted by the Revenue. The nature of receipt for 34 aircrafts is accepted to be capita....
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....sing from business or the exercise of a profession ;" 36.2. Once a receipt is capital it is not an income which arises from business. The A.O. in the instant case has also noted in the order of assessment that assessee-company has been engaged in the business of operating of low cost airline in India. The assessee is neither a trader of aircrafts nor its engines and is also not engaged in any business of selecting aircraft engines. For the applicability of provisions of Section 28(i), it is necessary that "business is carried on.......at any time during the previous year." Since, there is no business of selection of engines was carried-on by the assessee-company, therefore, the provisions of section 28(i) are not applicable. 36.3 Further, for applying Section 28(iv), the statutory requirement is that the value of any benefit or perquisite, whether convertible into money or not, must arise from the business or exercise of a profession. 36.4. We find, the Hon'ble Bombay High Court in the case of Mahindra & Mahindra (supra) reported in 261 ITR 501 (Bom.) has held that capital receipt do not come within the purview of section 28(iv) of the Act. The relevant o....
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....urchase consideration relating to capital asset. The toolings were in the nature of dies. The assessee was a manufacturer of heavy vehicles and jeeps. It required these dies for expansion. Therefore, the import was that of plant and machinery. The consideration paid was for such import. In the circumstances, Section 28(iv) is not attracted. Lastly, we may mention that, in this case, AMC agreed to forego the principal amount of loan as a part of take-over arrangement with KJC to which the assessee was not a party. The waiver of the principal amount was unexpected. In the circumstances, one fails to understand how such waiver would constitute business income." 36.5. We find, the Hon'ble Delhi High Court in the case of Jindal Equipments Leasing & Consultancy Services Ltd., reported in 325 ITR 87 (Del.), following the above decision at Para-8 of the Order has observed as under :- "8. With this, we proceed to examine this aspect on its own merit, viz., whether provisions of s. 28 (iv) of the Act are attracted in the given case. Thus, what is to be seen is that as to whether the written off amount of Rs. 1,46,53,065 in its books of accounts by JSPL amounts to the value ....
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....nue on this issue. Moreover, the nature of the receipt is to be examined in the hands of the assessee and not IAE. For the above proposition, we rely on the decision of the Hon'ble Supreme Court in the case of Empire Jute Company, reported in 124 ITR 1 (SC) where it has been held that "a receipt may be revenue in the hands of the payer, but, capital in the hands of the recipient". 36.9. The Ld. Special Counsel for the Revenue also made an argument for the first time before us that the term 'Business' as defined in Section 2(13) includes "any adventure or concern in the nature of trade, commerce or manufacture". It was his submission that even a single adventure in the nature of trade, commerce or business would amount to "business" and the profit gained as a consequence of the adventure would be chargeable to tax as business profits. It was accordingly submitted that the activity of the assessee of selecting engines has trappings of an adventure in the nature of trade, commerce or business and, therefore, would fall within the definition of "business" as appearing in Section 2(13) of the Income Tax Act, 1961. The Ld. Special Counsel for the Revenue drew our attention to Pa....
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....apital gains." As per the provisions of Income Tax Act, 1961 capital receipts are chargeable to tax as income from "Capital Gains" provided the conditions stipulated in Section 45 read with Section 48 are satisfied. In the impugned order, the Ld. CIT(A) has held that credits received from IAE are taxable as income from "Capital Gains" as per Para-10.2.1 of his Order which was heavily relied on by the Learned Special Counsel for the Revenue. According to the Learned Special Counsel, the consideration for assignment less cost of right to purchase, is assessable as capital gains. It is also his submission that by entering into Purchase Agreement with AIRBUS, Assessee has acquired a valuable right which would be a capital asset being a commercial right. By the Deed of Assignment, the assessee transferred such right in favour of Lessors. Amounts paid by Lessors represent a consideration as the taking over of the liability amounts to a consideration. It was also submitted in his written submissions as under : "The cost of acquisition would comprise initial money paid to Airbus or engine manufacturer and the total purchase price of the aircraft minus the discounts appropriated by....
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....hat under the Purchase Agreement the assessee was under an obligation to only take delivery of Aircrafts. There was no compulsion on the Assessee to mandatorily purchase the Aircraft. The Learned Special Counsel for the Revenue, in our opinion, has erroneously presumed that "amount paid by Lessors represents a consideration as the taking-over of a liability amounts to a consideration". We find in the year under consideration the Lease Agreements are in the nature of Operating Lease. The A.O. in the Order has also mentioned that the Lessors are the owners and are claiming depreciation. Therefore, consideration paid by Lessors to AIRBUS is not on account of the Assessee. The transaction of payment of purchase price by Lessors to AIRBUS is a separate transaction, under which, no right to the Aircraft is flowing to the Assessee. There is, therefore, no "Sale Consideration" received by the Assessee which could be held assessable to "__________Capital Gains Tax". We, therefore, hold that credits received by the Assessee are not taxable as capital gains." 23. Respectfully following the decision of the special bench which covers the above issue we dismiss additional ground raised by the....
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....e, hold that there is no connection between transaction of payment of lease rentals and transaction of receipt of credits from IAE. 39.3. We find somewhat identical issue had come up before the Coordinate Bench of the Tribunal in the case of Bharat Seats Ltd. vs JCIT reported in 120 Taxman 210(Del.(Mag.). In that case, necessary equipment was acquired by the assessee on a lease finance arrangement. Assessee applied for a grant to meet the capital cost. The authorities below did not accept the contention of the assessee that the grant was a capital receipt. Since the capital equipment was acquired by the assessee initially on lease finance basis, the authorities below held that the grant was given to recoup the revenue expenditure incurred by the assessee on acquiring the asset on lease finance basis. The Tribunal however held as under: "Nothing has been shown with reference to documents and agreement on record to support the submission that the grant was by way of recoupment or revenue expenditure incurred by the assessee. The Department's case as we see is that since the assessee initially acquired the capital equipment on lease finance basis, the lease rentals w....
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....graphs that credits received under agreement dated 19.10.2005 and payment of lease rentals under lease agreements executed much after are separate transactions not related to each other. Therefore, there cannot be any disallowance of proportionate lease rentals." 27. Therefore respectfully following the decision of the special bench we allow ground number 3 of the appeal of the assessee holding that no disallowance u/s 37 (1) of the lease rent payments could be made. Accordingly, the AO is directed to delete the same. 28. Ground number four is with respect to the disallowance u/s 40 a (i) on account of payment of supplementary rent for non-deduction of the tax. The fact shows that supplementary rent for lease agreement executed prior to 1 April 2007 amounting to Rs. 272,745,720 has also been dealt with by the special bench in its order wide para number 40 as Under:- I DISALLOWANCE OF SUPPLEMENTARY RENT (SR) 40. The next issue that it to be adjudicated is regarding disallowance of Supplementary Rent (SR). We find from the details filed in the paper book that during the year under consideration, assessee had incurred an expenditure of Rs. 338,09,64,412/- as SR....
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....s to pay under any Operative Document to or on behalf of Lessor or any other Person, including without limitation, payments of Total Loss Proceeds, interest at the Default Rate and payments of indemnities under Article 12 of this Sublease. 3.12.3 Payment by Lessor any Lessor maintenance Disbursement under Section 3.12.4 (the "Lessor Obligations") shall be subject to Lerssor having approved the applicable work scope and maintenance provider (such approval not to be unreasonably withheld) for the related maintenance work prior to the commencement thereof. Lessee agrees to provide Lessor with the planned work scope and maintenance provider for any such maintenance work no later than 45 days prior to the scheduled commencement thereof. Any failure by the Lessee to obtain lessor's approval in respect of any such maintenance work as aforesaid shall relieve the Lessor of the related Lessor Obligation hereunder. 3.12.4 Lessor Maintenance Disbursements (1) If lessee submits to Lessor, within sixty (60) days after the completion of the applicable approved maintenance work (except if otherwise agreed between Lessor and Lessee, it being agreed that such time periods may b....
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....s with less life than the originally installed LLP offsetting any charges for installation of longer life remaining LLPs) and (ii) the net balance of Engine LLP Maintenance Supplemental Rent received by Lessor in respect of such Engine at the time of payment; (v) APU: with respect to any scheduled APU Overhaul, the lesser of (i) the amount of such invoice and (ii) the net balance of APU Maintenance Supplemental Rent received by Lessor at the time of payment; (vi) Landing Gear: with respect to a scheduled Landing Gear Overhaul if it comes during the Sublease Term, the lesser of (i) the amount of such invoice and (ii) the net balance of the Landline Gear Maintenance Supplemental Rent Page | 46 received by Lessor at the time of payment. (2) For the avoidance of doubt, Lessee has no right to payment of any Lessor maintenance Disbursement except (i) following the occurrence of a Total Loss following payment of all moneys due and owing pursuant to Section 14.3.2 (ii) as expressly provided in this Section 3.12.4 and (in) as expressly provided in Exhibit H, and any remaining balances of the Maintenance Supplemental Rent following the Expiry Date, after applicatio....
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....ine is removed from an Aircraft for repair. 8.1.3. Lessee shall not make any material change to its Maintenance Program or make any material deviations from the Manufacturer's approved maintenance program (including the MPD) (in each case excluding changes or deviaitions made mandatory by the Aviation Authority or Manufacturer) without the prior written consent of Lessor." 10.3 Explaining the nature of the transactions farther it was submitted by the learned senior counsel Shri Syali that payment of supplementary lease rent is an industrial norm which ensures that the lessor is compensated for regular wear & tear of the critical components of the aircrafts. It was submitted by the learned senior counsel that as per the lease agreement the primary responsibility of maintenance of the aircraft is that of the lessee and the lessor was under no obligation to meet any expenditure or bear any loss in respect of the lease aircraft. It was submitted that the Interglobe's obligation to repair and keep the aircraft in worthy condition could have been discharged by it by either paying directly to the repair agency without the lessor having any role or in the manner as pr....
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....ve considered the arguments advanced by the parties and also have gone through the material available on record as well as the decisions relied upon. As rightly submitted by the learned senior counsel that the claim for supplementary lease rent being exempt as per provision of section 10(15A) of the Act was inquired upon by the Assessing Officer during the course of original assessment proceedings. Thus this is not a case of lack of enquiry. We agree with the submissions made by the appellant that the payment of supplementary lease rent in the present case is not for provision of spares, facilities or any such services being rendered by the lessor in the present case. A coordinate bench of Delhi ITAT in the case of Sahara Airlines (supra) had considered identical issue and had held as under:- "10. The perusal of the above covenants of the agreement reveals that lessee was responsible to bear all the expenses in the course of the term of the lease on account of operational cost, repair and replacement, losses and other expenditure which were required to keep the aircraft in air-worthy condition. So the lessor was under no obligation to meet any expenditure or bear any loss ....
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....tion of the leased aircraft. It is not the case of the department that the lessor provided any spares to the lessee against such payments. Further, there is no material/evidence to suggest that the lessor ever provided for any of facility or service to the lessee against such payments. Merely because that the payment of supplemental rent was to meet certain types of operational cost, it cannot be said that such payment was attributable to any facility or service by the lessor. ...................... 13. So the question that arises is as to what was intended to be excluded by the Legislature by amendment made by Finance Act, 1995 w.e.f. 1-4-1996. From the perusal of the memorandum explaining the provisions of Finance Bill, 1995, it appears that after the insertion of section 10(15A) in the statute, it was experienced by the Government that the non-resident companies were receiving payments in consideration of facilities or services provided/rendered by the lessors such as training to the pilots or other crew men, providing technicians etc. in the guise of leased rent. It is this mischief which was suppressed by the substitution of section 10(15A) w.e.f. 1/4/1996. T....
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....9;bie jurisdictional High Court of Delhi in the case of Jet Lite (India) Ltd. (supra), wherein Hon'ble Court has been pleased to hold as under:- "47. Clause 13 of the Agreement between Sahara and ILFC shows that the lessor was not under obligation to meet any expenditure or bear any loss in respect of the leased aircraft. Complete maintenance of the aircraft was the absolute responsibility of the lessee. Clause 13.1 talks of Airframe Reserves. It states that the Lessor will reimburse Lessee from the Airframe Reserves for the actual cost of the completed scheduled major structural inspection and rectification of structural deficiencies (overhauls) of the Airframe (i.e., the complete 'D' check or equivalent if the aircraft is on a block 'D' maintenance system under Lessee's Maintenance Programme or 'D' check level structural inspections carried out during a 'C check if the aircraft is on a phased V check system under Lessee's Maintenance Programme), with any other partial structural overhauls and work performed for all other causes excluded, including those causes set forth in Article 13.4. Reimbursement will be made up to the amount in th....
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....AO. As held by coordinate bench in case of Sahara Airlines (supra) to fall within the exception of section 10(15A) there must exist an inextricable link between the expenditure regarding supply of spares or for use of any facility or for rendering of any service by the lessor and operation of the leased aircraft. This clearly has not been demonstrated by the learned CIT in the impugned order or by the AO in his order of assessment for AY 2008-09. Facts of the present case being similar to that of Sahara Airlines (supra), respectfully following the decision of Hon'ble Jurisdictional High Court we hold that payment of Supplementary Lease rent was exempt u/s 10(15A) of the Act and the appellant was not required to deduct TDS thereon ....................." 40.2. Thereafter, this issue again came up before the Tribunal in A.Ys. 2008-09 and 2009-10 wherein decision for AY 2007-08 was followed. Being aggrieved, the revenue filed an appeal before the Hon'ble Delhi High Court which has been dismissed vide orders dated 07th July, 2017 and 31st October, 2017. Aggrieved further, SLP was filed by the Tax Department which has also been dismissed vide order dated 30.07.2018 ....
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....the Airframe, US$45 for each Airframe Flight Hour operated by the Aircraft to cover scheduled heavy structural/4C/6Y checks of the Airframe ("Airframe 4C Maintenance Supplemental Rent"); (ii) in respect of the Airframe, US$22.50 for each Airframe Flight Hour operated by the Aircraft to cover scheduled heavy structural/8C/12Y checks of the Airframe ("Airframe 8C Maintenance Supplemental Rent"); (iii) in respect of each Engine, an amount determined in accordance with Exhibit G attached hereto for each Engine Flight Hour, in each case operated by that Engine to cover such Engine's Overhauls (as to each Engine, "Engine Refurbishment Maintenance Supplemental Rent"); (iv) in respect of each Engine, US$111 for each Engine Cycle, in each case relating to that Engine to cover such Engine's LLP replacements (as to each Engine, "Engine LLP Maintenance Supplemental Rent"); (v) in respect of the APU, US$20 for each Airframe Flight Hour to cover APU Overhauls ("APU Maintenance Supplemental Rent"); and (vi) in respect of the Landing Gear, US$2,700 for each calendar month (prorated for partial months) during the Sublease Term to cover the Landing Ge....
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....nts including but not limited to nacelle structures, the thrust reversers, cowlings and engine mounts, or shipping charges, and (ii) no Material Default or Event of Default is continuing, promptly pay to lessee the following amounts ("Lessors Maintenance Disbursements") from the respective Maintenance Supplemental Rent account. (i) Airframe 4C/6Y Checks : with respect to a scheduled heavy structural 4C/6Y checks of the Airframe if it comes due during the Sublease Term, the lesser of (i) the amount of such invoice and (ii) the net balance of Airframe 4C Maintenance Supplemental Rent received by Lessor at the time of payment; (ii) Airframe 8C/12Y Checks : with respect to a scheduled heavy structural 8C/12Y checks of the Airframe if it comes due during the Sublease Term, the lesser of (i) the amount of such invoice and (ii) the net balance of Airframe 8C Maintenance Supplemental Rent received by Lessor at the time of payment; (iii)Engine Refurbishment : with respect to any Overhaul for an Engine, the lesser of (i) the amount of such invoice and (ii) the net balance of Engine Refurbishment Maintenance Rent Received by Lessor in respect of such Engine at the t....
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....y". As per the lease agreement post incurring of scheduled maintenance expenditure the assessee is entitled to reimbursement of the expense incurred on maintenance. Amount of reimbursement is lesser of actual expense or the SR Fund maintained by the lessor. Expense incurred for SR in thus not contingent. It is determinative and due as per lease agreement. Contingency if at all is attached to the expenditure incurred on maintenance of aircraft and its reimbursement from the lessor. 40.6. Assessee has also demonstrated before us that when actual maintenance expenditure is incurred by it then only the net amount (i.e., net of reimbursement received from the lessor) is debited by it to its P&L Account and therefore there is no double deduction claimed. This was also demonstrated before the Ld. CIT(A). 40.7. The Ld. CIT(A), in our opinion, has not properly understood the facts of the case. The fact that Supplemental Rent is determinable as per the terms of the Agreement and is mandatory payment demolishes the presumption of the Ld. CIT(A) that it is reimbursable. Reimbursement of actual maintenance expenditure if at all is a future contingent event, but, Supplemental R....
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...."42. For Lease Agreements executed after 1st April, 2007, a claim was made by the assessee before the lower authorities that the income is not chargeable to tax in hands of Lessor under Article 12 of the DTAA between India and Ireland. We find the AO has not accepted this the reasons of which has already been reproduced at para 1.5 of the order. 42.1. Cross border leasing of aircraft enjoyed a special exemption under section 10(15A) of the I.T. Act. However, a sunset clause was introduced by Finance Act, 2005 to provide that this exemption shall not be available for agreements entered after 1st April, 2007. In the aftermath of withdrawal of exemption the tax liability of the lessor is to be governed by the provisions of bilateral tax treaties. Learned Senior counsel for the assessee submitted that as per provisions of section 90 of the Act, provisions of DTAA shall apply to the extent they are beneficial. Under the DTAA the foremost consideration is whether the non-resident lessor has a permanent establishment (PE) in India as per Article 5 of the relevant. According to him, mere leasing of an aircraft which is located in India ought not to result in an existence of PE and....
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....at other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 1 or Article 14, as the case may be, shall apply. 5. Royalties or fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political subdivision, a local authority or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 6. Where, by reason of a special relationship between the payer and....
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....n of the special bench we allow ground number 4 (b) of the appeal of the assessee. 32. Ground number 5 was not pressed and therefore it is dismissed. 33. Accordingly, ITA number 432/Del/2018 filed by the assessee for assessment year 2013 - 14 is partly allowed. 34. Thus for assessment year 2013 - 14 ITA number 432/Del/2018 filed by the assessee is partly allowed and ITA number 412/Del/2018 filed by the learned assessing officer is dismissed. Assessment year 2014 - 15 ITA number 413/Del/2018 by the learned assessing officer And ITA number 433/Del/2018 filed by the assessee 35. Now we come to the appeals of the assessee and the revenue for assessment year 2014 - 15. ITA number 433 Del 2018 is filed by the assessee and ITA number 413 Del 2018 is filed by the additional CIT special range - 4, New Delhi against the order of the Commissioner of income tax - A - 35, New Delhi dated 10/10/2017. In both these appeals, the grounds are identical as ground is in appeal of both the parties for assessment year 2013 - 14. Both the parties confirmed that there is no change in the facts and circumstances of the case and the issue is squarely covered by the order of the speci....
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....round raised by the learned assessing officer for assessment year 2013 - 14, which has been admitted by us and adjudicate. Accordingly we also admit this ground of appeal and adjudicate based on the decision of the special bench in assessee's own case for assessment year 2012 - 13, as we have dismiss the additional ground for assessment year 2013 - 14. Accordingly, additional ground raised by the learned assessing officer is dismissed. 40. Now we come to the appeal of assessee in ITA number 433 Del 2018 for assessment year 2014 - 15. 41. Ground number 1 and 2 are general in nature, no specific arguments were advanced, and therefore those are dismissed. 42. Ground number 3 of the appeal is against the order of the learned CIT - A who has upheld the disallowance u/s 37 (1) of lease rental payment to the tune of Rs. 392,05,55,831. This is identical to ground number three of the appeal of the assessee for assessment year 2013 - 14. This ground of appeal is been allowed by us in assessment year 2013 - 14 by following the decision of the special bench. For the similar reasons we allow ground number three of the appeal of the assessee. 43. Ground number 4 (a) is with respect t....