TaxTMI 
TaxTMI 
TaxTMI 
2008 (9) TMI 403
X X X X Extracts X X X X
X X X X Extracts X X X X
.... providing of ancillary services to other lines is not an activity directly connected with transportation of passengers and cargo by the assessee, hence such services do not come under para 2(b) of art. 8 of the DTAA." 3. The brief facts giving rise to these appeals are these. The assessee is a company incorporated in and as a tax resident of the United States of America which is engaged in the business of international air transport. In addition to the main activity of operation of aircraft in the international traffic, the assessee is also engaged in providing certain other services against service charges. The other services provided by the assessee, as noted by the AO are these: (i) Security screening services-Delta carries out screening of baggage and cargo items through its own x-ray machines installed at the airport, for security purposes. Besides screening the baggage of Delta's own passengers and cargo, Delta also provides such services to other foreign airlines for a charge. As required by International Airport Authority of India, Delta pays 10 per cent of the charges levied on other airlines, as royalty to them. (ii) Third party charter handling services-Delta, Atlant....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ctivities which should be considered: - sale of tickets on behalf of other enterprises; - the operation of a bus service connecting a town with its airport; - advertising and commercial propaganda; - transportation of goods by trucks connecting a depot with an airport. The above illustrations, while not intended to be all inclusive provide for situations where services are provided to the other airline operators and the same are deemed to be connected to the main activity of an airline. This understanding is further supported by the fact that profits derived by an enterprise from advertising and commercial propaganda could only include the profits made from advertising on behalf of other enterprises, as an airline would not earn any income from advertising for itself. In view of the above, it is fair to interpret as per art. 8 that services provided to other airline operators which are incidental and ancillary to the main operation, need to be considered as connected to the main activity of an airline, i.e., the transportation of passengers, goods, etc. in international traffic. The commentaries further suggest that as long as there is an integration of the airline....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t. 26th June, 1998, had also submitted during the course of its assessment that the views expressed in commentaries are to be considered while deciding the issue related to international taxation. In this connection, it referred to para 29 of the 'Introduction to the 1992 OECD Model' which provided that although the commentaries are not designed to be annexed in any manner to the conventions to be signed by the member countries, which alone constitute legally binding international instruments, they can nevertheless be of great assistance in the application and interpretation of the conventions. It was also submitted that in the case of CIT vs. Visakhapamam Port Trust (1984) 38 CTR (AP) 1, the Andhra Pradesh High Court recognized the fact that a new area of international tax law was in the process of development in view of the standard GECD models. Since the existence of standard GECD models has been recognized by the Indian judicial authorities, the commentary on the standard models would also be relevant. Reference was also made to the commentary of Philip Baker in support of this submission. 4. The AO, considering the provisions of art. 8(1) of Indo-US treaty, was of the view th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to him, the services rendered by him were includible under art. 8(2)(b) of the treaty. Lastly, it was observed by him that there was no valid reason for not taking the help of the various commentaries on the international taxation. In view of the above reasons, the CIT(A) allowed exemption to the assessee in respect Of the services rendered by him to it. Aggrieved by the same, the Revenue is in appeal before the Tribunal. 6. The learned Departmental Representative has strongly assailed the impugned orders of the CIT(A) by contending that provisions of art. 8 of Indo-US treaty are applicable only to the income derived from the operation of ships or aircraft in the international traffic and also from the activities mentioned in para 2 of art. 8. According to him, the contracting parties has used the word 'derived' in para 1 of art. 8, and therefore, the scope of art. 8 could be restricted to the immediate source, i.e., operation of aircraft in the international traffic. Regarding the other activity directly connected with such transportation mentioned in para 2(b) of the said article, it is submitted that the words 'such transportation' are of significance and would refer to the tr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a 2. Such definition is inclusive one and, therefore, the exemption under art. 8 would apply not only to the activity of transportation in the international traffic of passengers by air but also to various other activities mentioned in the para - 2(b). In support of his submission, reliance is placed on the judgment of the Hon'ble Supreme Court in the case of CIT vs. Taj Mahal Hotel 1973 CTR (SC) 480 : (1971) 82 ITR 44 (SC). According to him, the subsidiary activities carried on by the assessee clearly fall under art. 8(2)(b). He also referred to various paras of the OECD Commentary to submit that art. 8 would include not only the main activity of transportation in international traffic but also would include incidental or ancillary activities. Similarly, reference was made to the commentary by author Klaus Vogel, appearing at p. 138 of the paper book, the US ruling dt. 2nd May, 1984 appearing at p. 142 of the paper book as well as the US technical explanation. Proceeding further, it was submitted that security screening service as well as handling and maintenance service are integral part of main activities of operation of aircraft and, therefore, claim of the assessee cannot be d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Canada-UK treaty. The decision was rendered on the basis of literal meaning of the aforesaid expression. Since the expression in the said treaty was not defined, the decision of the Supreme Court of Canada in the above case cannot be applied in interpreting the provisions of art. 8 of Indo-US treaty. 10. Another aspect of the issue is whether the AO was justified in holding that an OECD Commentary or any other commentary cannot be looked into while interpreting the provisions of tax treaty. This aspect has been examined by the Hon'ble Supreme Court in two cases. In the case of CIT vs. P.V.A.L. Kulandagan Chettiar (Dead) Through LRs (2004) 189 CTR (SC) 193 : (2004) 267 ITR 654 (SC), it was observed that if the terms of treaty are clear then it would be unnecessary to refer to the terms addressed in the OECD or any other decision of the foreign jurisdiction or in any other agreements. In the other decision in the case of Union of India vs. Azadi Bachao Andolan (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC), their Lordships held that the principles adopted in interpretation of the treaties are not the same as those in the interpretation of statutory legislation. It was further ob....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n enterprise described in para (1) from the transportation by sea or air, respectively, of passengers, mail, livestock or goods carried on by the owners or lessees or chatterers of ships or aircraft including- (a) The sale of tickets for such transportation on behalf of other enterprises; (b) Other activity directly connected with such transportation; and (c) The rental of ships or aircraft incidental to any activity directly connected with such transportation. (3) Profits of an enterprise of a Contracting State described in para (1) from the use, maintenance, or, rental of containers (including trailers, barges, and related equipment for the transport of containers) used in connection with the operation of ships or aircraft in international traffic shall be taxable only in that State. (4) The provisions of paras (1) and (3) shall also apply to profits from participation in a pool, a joint business, or an international operating agency. (5) For the purposes of this article, interest on funds connected with the operation of ships or aircraft in international traffic shall be regarded as profits derived from the operation of such ships or aircraft, and the provisions of a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the ship or boat is situated, or, if there is no such home harbour, in the Contracting State of which the operator of the ship or boat is a resident. 4. The provisions of para 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency." 12. Perusal of the above shows that art. 8 of OECD Model Convention refers to the profits from the operation of ships and aircraft in the international traffic but the scope of such activity has not been defined there. Similarly, art. 8 of US Model Convention refers to the profits from the operation of ships or aircraft in the international traffic but art. 8(2) includes certain specific incomes within the scope of art. 8(1). Such incomes are (i) rental of ships or aircraft; and (ii) inland transport of property or passengers within either Contracting State. On the other hand, Indo-US treaty specifically defines the scope of the expression "profits from operation of ships or aircraft. in international traffic" in para 2 of art. 8. Thus, it is seen that the Contracting States had deviated from the standard models. Since the scope of para 1 has been defined itself in para 2 of art. 8 of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ial of exemption by the AO is upheld. 14. The only other issue arising from the Departmental appeal for the asst. yr. 1999-2000 relates to the levy of interest under s. 234B of the Act. Both the parties are agreed that this issue is covered in favour of the assessee by the decision of the Special Bench in the case of Motorola Inc. vs. Dy. CIT (2005) 96 TTJ (Del)(SB) 1 : (2005) 95 ITD 269 (Del)(SB). wherein it has been held that interest under s. 234B cannot be levied if the tax is deductible at source. Since in the present case the tax was deductible under s. 195, the question of levy of interest under s. 234B does not arise. Therefore, following the decision of the Special Bench, the order of the CIT(A) is upheld on this issue. 15. Now we take up the appeal of the assessee for asst. yr. 1999-2000. The only issue arising in this appeal is whether the interest income of Rs. 56,95,899 earned on FDs can be exempted from tax in view of para 5 of art. 8 of the Indo-US treaty. 16. The relevant facts are that the assessment proceedings in respect of returns filed for the years ending 31st March, 1992 to 3rd March, 1997 were in progress in the year 1998 and, therefore, the AO vide lette....