TaxTMI 
TaxTMI 
2026 (7) TMI 1153
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....ever, ground no.1 of appeal assails the core issue. Ground no. 1 of appeal reads as under:- "1. The learned Commissioner of Income Tax (Appeals) -42 ('Ld. CIT (A)') has erred in not exempting the income derived from Ground Handling and Engineering Services ('GHE Services') in terms of Article 8 of the India-UK DTAA (the treaty'). 1.1. Ld. CIT (A) has erred in upholding the order of the Learned Assessing Officer Ld. AO') in rejecting the contention of the Appellant that surplus if any derived by it from rendering engineering and ground handling services to other airlines in India is not taxable in India in view of the provisions of Article 8 of the treaty." The remaining grounds i.e. ground 2 to 8 are argumentative and are in support of ground no. 1 of appeal. 4. Shri Tarandeep Singh, appearing on behalf of the assessee submits that the solitary issue for adjudication in appeal is taxability of Ground Handling and Engineering Service Charge received by the assessee in India. Narrating facts of the case, the ld. Counsel submits that the assessee company was incorporated in United Kingdom (UK) and is engaged in the business of operation ....
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....rvices at Delhi and Mumbai. The assessee received 'L' Pool services at Hyderabad. 4.1. The CIT(A) in para 7.6.2 of the impugned order accepts that the assessee has not only provided services to other airlines but also availed services from other airlines within India as well as outside India. The ld. Counsel referred to the decision of Delhi Bench of the Tribunal in the case of Lufthansa German Airlines vs. DCIT 90 ITD 310 to contend that for rendering and receiving services requisition is to be made in IATP Form 53 as per IATP manual. The ld. Counsel referred to Form 55 as per IATP manual in support of his submissions at page 345 of the paper book. To further elaborate meaning of various pools, the ld. Counsel referred to page 523 of the paper book Vol-III. The ld. Counsel contended that in the case of KLM Royal Dutch Airlines and Lufthansa German Airlines, the Tribunal granted relief to the assessee holding that services rendered and availed were as per IATP manual and there were reciprocation of services between members of pool. IATP pool is covered under Article 8(4) of DTAA (India- Netherlands DTAA & India-Germany DTAA), therefore, such profits could not be brought into tax....
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....d order prayed for dismissing appeal of the assessee. The ld. DR reiterating findings of the CIT(A) submits that there is significant difference in India-UK DTAA and India-Germany/India-Netherlands DTAA. In India-Germany and India-Netherlands DTAA ground handling services are included, whereas, in India-UK DTAA such services are not included. He further submitted that ground handling and engineering services cannot be considered directly connected activity to operation of aircraft merely because it is pool IATP activity. The ld. DR asserted that India has made its position clear on OECD commentary Article 8 that India reserves its position on application of Article 8 to income from ancillary activities. The ld. DR further stated that in any case OECD commentary cannot override tax treaty, hence, OECD commentary is not binding. 6. We have heard submissions made by rival sides at length. We have also considered the documents and decisions referred to during the course of submissions by ld. Counsel for the assessee. The issue for consideration in the instant case falls within narrow encompass i.e. assessee's eligibility to claim benefit of Article 8 of India-UK DTAA on revenue gene....
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....r AY 1996- 97 to 1998-99. For the sake of ready reference, the relevant excerpts from the submissions made on behalf of the assessee in AY 1996-97 to 1998-99 are reproduced herein under:- "19. With specific reference to the facts of the assessee's case it was pointed out by its counsel that British Airways was one of the leading operators of aircrafts in international flights for carriage of passengers and cargo and it had been a member of the International Air Transport Association (hereinafter called IATA) and IATP Organization. It was explained that IATP was formed for the purpose of providing reciprocal technical support at line stations throughout the world and the support included spare parts, ground and ramp handling equipment and manpower. According to the assessee the primary aim of IATP was to generate economic savings and it was dedicated to the spirit of mutual cooperation and high degree of technical performance. It was explained that under the Agreement the parties provided certain technical facilities and services as may be available with them at a particular airport for use by other parties on reciprocal basis. Such agreements, according to the assessee....
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.... the expression 'pool' vis-à-vis clause 2 of Article 8 and after considering various decisions on which reliance was placed by the assessee concluded that the amount received by assessee on rendering ground handling and engineering services to other airlines in India is not eligible for treaty benefit under Article 8, hence, dismissed this ground of appeal. For the sake of completeness, relevant findings of the Tribunal on this issue are as under: "52. Dealing at this stage with the arguments of the learned counsel for the assessee about the formation of "pools" vis-a-vis clause (2) of Article 8, this in our opinion envisages co-operation between various Airlines to carry on identical activities by pooling their resources and dividing the resultant profits. This may involve provision of services to each other or to persons outside the pool. No facts of the aforesaid nature emerge from the record in 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 ....
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....ust balance the risk of needing a spare against the cost. IATP airlines exchange information on their fleets, their route networks and availability of spare parts. In this way, an airline may share access to a spare part provided by another airline by paying a share of the cost. Thus IATP airlines enjoy a wider availability of spares at lower cost and the opportunity to receive regular payment for spares which they hold. This is the basic principle of pooling. To become a member of IATP, an airline must be willing to provide spares as well as share. The principle of pooling is also applied to ground equipment. An airline that holds an item of equipment at a down route location can obtain payment by sharing the equipment with other airlines." 57. This was also considered by the CIT(Appeals) who opined that irrespective of the nomenclature used in the IATP Mission Statement there was no bringing together of the assets or personnel under joint command and nor was 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 faciliti....
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....s and the ultimate view expressed by the tax authorities. 61. We now come to Article 8 itself with its separate clauses and on which have centered the arguments of both the parties. 62. Coming to Article 8(1) there is no confusion or ambiguity since it exempts from the pale of taxation in a contracting State the profit earned by the enterprise of the other contracting State from the operation of aircraft in international traffic if the enterprise has effective manage-ment in the contracting State. 63. Article 8(2) in our opinion speaks of the same type of activity giving rise to profits earned by the enterprise participating in a pool for earning the profits derived from international traffic. In other words, what is done by an enterprise singly in Article 1 is done by the same enterprise jointly with others by participating in a pool. We have in the earlier part of this order discussed at length the concept of "Pools" and nothing more is to be said so we move on to Article 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 o....
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....upra) decision was based on the following facts- as held by the ITAT: (i) British Airways provided engineering and ground handling services at IGI Airport, New Delhi to 11 other airlines, at Chennai to 5 other airlines and certain other airlines at Mumbai. It has not availed any services/facilities from any airlines in India. Thus, there was no reciprocity in the agreement entered into between British Airways and other airlines; (ii) British Airways had a 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 parcel of the operation of British Airways pertaining to the operation of aircrafts in international traffic. There is no such finding in the present appeals. (iii) British Airways' services and facilities in India to the other airlines was a commercial activity. The excess/idle capacity was provided to various airlines at a price. The services provided in terms of the IATP manual are not based on any consideration paid or received; a system of credits has been created for IATP members. (iv) British Airways has a branch office....
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....s the Revenue's contentions." 13. The Hon'ble High Court inter alia held that the provisions of Article 8 of India-UK DTAA are not pari materia to the provisions of Article 8 of India-Germany/Netherlands DTAA. The provisions of Article 8 of UK DTAA are narrower and does not extend to pooling services as envisaged in Article 8(4) of India- Germany/Netherlands DTAA. Thus, the decision rendered in the case of KLM Royal Dutch Airlines and Lufthansa German Airlines by Hon'ble High Court, does not support the cause of assessee in any manner. The ld. Counsel has further made an effort to draw some benefit from OECD commentary on Article 8 of tax treaty. It is a well-accepted proposition that OECD commentary is not binding precedent. In any case, Govt. of India has expressed its reservation in accepting the commentary on Article 8 with respect to income from ancillary activities. 14. It would not be out of place to mention that no material was placed on record by the assessee to show that the decision of Tribunal in assessee's appeals for AY 1996-97 to 1998- 99 was ever agitated before the Higher Appellate Authority. Thus, findings of the Tribunal on the issue attained finality. The ....