TaxTMI 
TaxTMI 
2026 (8) TMI 1246
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....ute Resolution Panel- 1, Mumbai (DRP). Since the facts and grounds are similar, with the consent of both parties, the appeals were clubbed and heard together and a common order is being passed for the sake of convenience and brevity. ITA No. 3330/Mum/2026 (AY: 2023-24) is taken as the "lead case." 2. The grounds of appeal raised by the assessee in ITA No. 3330/Mum/2026 (AY 2023-24) are as under: "1. That on the facts and circumstances of the case, the Assessing Officer ("Ld. AO") erred on facts and in law in passing the Assessment Order dated 14.01.2026 ("Final Assessment Order") under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 ("Act") and in computing the income of the Appellant for the relevant Assessment Year ("AY") at Rs. 118,85,20,970/- as against "Nil" income returned by the Appellant. 1.1. That on the facts and circumstances of the case, the Final Assessment Order passed by the L.d. AO is contrary to the principles of natural justice and therefore void-ab-initio, and liable to be set aside. Limitation 2. That on the facts and circumstances of the case, the Final Assessment Order passed by the 1.d. AO is illegal and void ....
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.... the receipts of the Appellant from India constituted:- (i) royalty for use of equipment, and/or (ii) interest, and (iii) the equipment constituted PE of the Appellant in India, which is impermissible in law. 3.5. That the DRP erred in recording inherently contradictory findings qua the ownership of the aircraft leased by holding that the receipts of the Appellant from India constituted both royalty for use of equipment and business income from alleged PE, and at the same time holding the lease agreements to be finance lease, which is impermissible in law. 3.6. That on the facts and circumstances of the case and in law, the Ld. AO and the Ld. DRP erred in disregarding the binding orders of the Hon'ble ITAT wherein, on similar facts, all issues arising in the present appeal have been decided in favour of the Appellant in similar cases and therefore the Final Assessment Order is illegal, unsustainable in law, and liable to be quashed. Re: A valid TRC is sufficient proof for claim of benefits under the Treaty 4. That on the facts and circumstances of the case, the Ld. AO and the Ld. DRP grossly erred in denying the benefits under the India-Irela....
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....n the facts and circumstances of the case, the Ld. AO as well as the DRP have failed to appreciate that application of MLI and PPT provisions are prospective in nature; and application thereof to the facts of the present case is in contravention to Circular No. 1/2025 dated 21.01.2025 issued by the Central Board of Direct Taxes ("CBDT") which clearly provides for prospective application of the PPT provisions. Re: Treaty benefits cannot be denied in cases that are supported by commercial considerations or in accordance with the Object and Purpose of the Treaty - without prejudice to non-applicability of PPT 6. That on the facts and circumstances of the case, the Ld. AO and the Ld. DRP grossly erred in denying the benefits under the India-Ireland DTAA by invoking Article 6 and Article 7 of the MLI and alleging that the PPT contained therein was met in the Appellant's case. 6.1. That on the facts and circumstances of the case, the Ld. DRP erred holding that there is tax avoidance in Ireland on the ground that the Appellant is offsetting tax depreciation claimed on the use of the aircraft against income from lease rentals, without appreciating that deprec....
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.... in concluding that Lessee is enjoying the "risks and rewards" of ownership when (i) Lessor-Appellant claims depreciation on the aircraft; (ii) The lease is for a limited term, post expiry of such lease the aircraft reverts to the Appellant; (iii) No right whatsoever in the aircraft gets created against the rights of the Appellant; (iv) the risk associated with the market value of the aircraft at the end of the lease term remains exclusively with the Appellant; which is not borne out of records and is basis conjectures and surmises. 7.4. That on the facts and circumstances of the case and in law, the Ld. AO and Ld. DRP grossly erred in misconstruing the clauses of the lease agreements and moreover, erred in characterizing the same as a finance lease solely on the basis of conjectures and surmises. 7.5. On the facts and circumstances of the case and in law, Ld. AO and Ld. DRP have inconsistently characterized the lease agreement as a finance lease, while also acknowledging that the aircraft gets returned/re-delivered after use by the lessee, thus, the Ld. DRP erred in not appreciating the decisive criteria to distinguish between operating and finance lease is the s....
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....lessor will utilize in case of default by the lessee to carry out any maintenance required as per the lease agreements. 8.2. On the facts and circumstances of the case and in law, the Ld. DRP erred in holding that there is no scientific basis for determination of supplementary lease payments without appreciating that such amount, has been calculated in the books as per the agreement itself. 8.3. On the facts and in the circumstances of the case and in law, the Ld. DRP has erred in alleging that the Appellant had employed a 'colourable arrangement' to bifurcate Supplementary Rent from lease rent without appreciating that supplementary rent in not in the nature of income and is to be utilized in case of default by the lessee to carry out any maintenance required as per the lease agreements. 8.4. On the facts and in the circumstances of the case and in law, the Ld. AO and the Ld. DRP have erred in examining and questioning the accounting treatment adopted by the Appellant, which has been undertaken in accordance with the applicable accounting standards in Ireland. Re: Appellant is eligible to take treaty benefits under Article 8 and 11 of th....
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....n and interest portion. 9.7. Without prejudice, the Ld. DRP has blown hot and cold at the same time inasmuch as it has erred in construing the arrangement to be non-applicable for benefits qua Article 8 of the India-Ireland DTAA inasmuch as the Appellant is not engaged in active operations of the aircraft and at the same time itself holds that the Appellant runs a business in India in order that the aircraft constitutes PE in India. Re: Appellant does not have a Permanent Establishment in India 10. That on the facts and circumstances of the case, the Ld. DRP grossly erred on the facts and in law by analysing the Appellant's receipts from aircraft lease rental and supplementary rent transaction as income from PE, which is beyond the scope of the Ld. DRP as it was never alleged by the Ld. AO. 10.1. That on the facts and circumstances of the case, the Ld. DRP erred on facts and in law in holding that Appellant has a PE in India merely basis surmises and conjectures. 10.2. That the Ld. DRP erred in holding that during the period of lease, the aircraft in India was under the control and at the disposal of the Appellant without appreciatin....
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.... for the year under consideration, AY 202324, to income qua equipment royalty. 11.1. Without prejudice, that on the facts and in law the Ld. AO and Ld. DRP erred in directing the interest income to be taxable under the Act, instead of 5% under Section 194LC of the Act. 12. That the AO erred on the facts and in law by proposing to levy interest under section 234B of the Act. 13. That the AO erred on the facts and in law by initiating penalty under Section 270A r.w.s. 274 of the Act." 3. Facts of the case, in brief, are that the assessee filed return of income for the AY 2023-24 on 25.10.2023 declaring total income at Rs. Nil. The case was selected for scrutiny under CASS for the reason of "Large exempt income under DTAA claimed by non-resident." The appellant was incorporated in Ireland as a limited liability company and is subject to Irish corporation tax at 12.5% on its taxadjusted profits. During the year under consideration, the applicant has leased 4 out of 49 aircrafts to InterGlobe Aviation Limited ("Lessee"/"InterGlobe"), an Indian lessee under four operating lease agreements. The aircrafts were duly registered in the name of the appellant, whic....
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.... (v) Pembroke Aircraft Leasing 4 Limited vs. DCIT (ITA No. 127/DEL/2026, AY 2023-24). 4.1 The Ld. AR also submitted that the aforesaid order of the Tribunal in Sky High Appeal XLIII Leasing Company Ltd. (supra) was duly placed on record during the course of proceedings before DRP. The DRP sought a remand report from AO on the applicability of the said decision to the facts of the present case. In the remand proceedings, the AO despite admitting that the grounds and issues involved in the present case are identical to those adjudicated in Sky High Appeal XLIII Leasing Company Ltd. (supra), refused to follow the binding decision of the Tribunal on the untenable ground that a revenue appeal has been preferred against the said order before the Hon'ble Bombay High Court. In the absence of any stay on the operation of the decision in Sky High Appeal XLIII Leasing Company Ltd. (supra), the action of the AO in disregarding the binding precedent is contrary to settled principles of judicial discipline and renders the impugned directions unsustainable in law. The DRP, in its directions dated 26.12.2025 declined to follow the same, inter alia observing that acceptance of the Tribunal&#....
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....246-287 of the Appeal Ld. DRP has erred in upholding the findings of Ld. AO, despite the categorical admission in the remand report that the grounds and issues involved in Sky High are same to those arising in the present case, as it was incumbent upon Ld. DRP to follow binding judicial precedent [Refer Internal Pg 229, 383 of DRP Directions/ Running Pg 316, 470 of the Appeal 2.2.2. Tribunal Findings: In Sky High-paras 55 to 79 conclude that bona fide operating lease transactions, backed by commercial rationale, do not violate the PPT. In the decision of Sky High XXXIV, this Bench relied on the decision of Sky High - para 9. 2.2.3. Submission: The Appellant's operating lease arrangement is materially similar to the one examined by the Hon'ble Tribunal in Sky High. In that case, the Tribunal observed that the PPT cannot be applied to deny treaty benefits where such benefits align with the very purpose of the treaty itself. Given that Articles 8 and 12 of the India-Ireland DTAA expressly exclude aircraft leasing income from source-country taxation, claiming relief under these provisions is not an abuse of the treaty but a legitimate exercise of rights confer....
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....n the case of Sunflower Aircraft-paras 23 to 37 and Sky High paras 105 to 106 categorically hold that leased aircraft flying in India do not constitute a fixed place PE of the lessor 2.4.3 Submission: The issue is thus squarely covered in favour of the Appellant by Sunflower Aircraft and Sky High as the aircraft was placed at the disposal of the Lessee, not the Appellant, and operated solely for the Lessee's business. With no personnel or infrastructure in India, the "disposal test' is not met in the present case, which rules out the allegation of Appellant having a fixed place PE in India. 2.5. Applicability of Article 8(1) of the DTAA Grounds of Appeal Nos. 9-9.7 2.5.1. Present Case: Alternatively, even if a PE is assumed, Article 8(1) precludes taxation of profits from aircraft leasing in India. [Refer Internal Pgs. 331-336 of DRP Directions/ Running Pgs. 418-423 of the Appeal] Ld. DRP has erred in upholding the findings of Ld. AO, despite the categorical admission in the remand report that the grounds and issues involved in Sky High are same to those arising in the present case, as it was incumbent upon Ld. DRP to follow binding judicial prece....
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....ld be seen from the aforesaid observations of the Coordinate Bench, each and every reasoning of the Departmental Authorities based on which the lease rentals were brought to tax in India, were comprehensively dealt with and rejected with sound reasoning. In case of Kosi Ayiation Leasing Ltd. vs. ACIT (Supra), the Coordinate Bench, while following the ratio laid down in case of Sky High Appeal XLIII (Supra), has given its finding on certain additional submissions made by learned Special Counsel appearing for the Department. The observations of the Coordinate Bench are reproduced hereunder- "44. The Special Counsel for the Department has raised some additional arguments on issues with regard to applicability of Article 8. We find that in the case of Sunflower Aircraft Leasing Limited (Supra), the Tribunal has already examined Article 8 in OECD Convention viz a viz India-Ireland DTAA. The provisions of Article 8 as given in India-Ireland DTAA are much broader than the OECD Convention. If the submissions of the Id. Special Counsel for the Department are to be accepted then it would mean that the lessor of the aircraft should also be an operator in international traffic as is t....
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....d has operated in international traffic. The assessee earns rentals from lease of aircraft. The lessor has no control on the schedule of the aircrafts or the destination of the aircraft where they are operated. The lessor/assessee does not lay down any restrictions the lease agreement as to whether the aircraft shall operate in domestic lerritory or operate internationally. It is the discretion of the lessee to schedule the operation of the aircraft. It is no denying that lessee/Indigo is operating internationally. Therefore, to presume that the aircraft are not operated internationally is superfluous. Nevertheless, the assesses being the lessor of the aircraft would continue to receive rentals even if the aircraft is not put to operation by the lessee. The assessee has filed a certificate of deployment of aircraft issued by the lessee which confirms the fact that leased aircraft has not been deployed anywhere in Ireland during the relevant period and is operated in international traffic. Thus, the condition of Article 8(1) is satisfied. 47. For the reasons mentioned above and in light of order in the case of Sky High Appeal XLIII Leasing Company Ltd. (supra), we hold the ....