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Judgment
PER RENU JAUHRI:
The above captioned three appeals are filed by the revenue against the orders dated 30.06.2025 of the Commissioner of Income Tax (Appeal), Delhi-42 [hereinafter referred to as, “Ld. CIT(A)”]. The assessments in the respective appeals were framed u/s 143(3) r.w.s. 144C(3) of the Income Tax Act, 1961 [hereinafter referred to as, “Act”].
In appeals IT (IT)A No. 01/DEL/2025 & IT (IT)A No. 02/DEL/2025, filed by revenue, identical grounds have been taken and, therefore, IT (IT)A No. 01/Del/2025 is being taken up as the lead case wherein following grounds have been raised:
“1.On the facts and circumstances of the case, Ld.CIT(A) erred in holding that the revenue received by the revenue received by assessee company on account of Technical Handling Income received from IATP/Non-ITAP Members is not taxable in India as it is covered under Article 8(2)n read with Article 8(1) of India-France DTAA.
2.On the facts and circumstances of the case, Ld. CIT(A) erred in holding that the interest income earned by assessee company on the FDR connected with the operation of aircraft in international traffic and covered under Article 8(1) of India-France DTAA.
3.On the facts and circumstances of the case, Ld.CIT(A) erred in holding that the commission income received by a foreign airline from a domestic airline for the domestic leg of a passenger's journey qualifies as income 'directly connected with the operation of aircraft in international traffic' under Article 8(1) read with Article 8(4) of the relevant DTAA, and is therefore exempt from taxation in India?"
4.The appellant craves to add, amend, modify or alter any ground of appeal at any time or before the hearing of the appeal.”
In ITA No. 5207/Del/2025 [A.Y. 2019-20], filed by assessee following grounds of appeal have been raised:
“1)That the order u/s 250 of the Income Tax Act, 1961, has been passed without appreciating the true and correct facts and the legal position of the instant case of the assessee.
2)That the Learned Commissioner of Income Tax (Appeals) has grossly erred in confirming the addition by the assessing officer that collection charges as income of the assessee without appreciating the fact that "Collection Charges" is not the income of the assessee company, but the same is in the nature of discount provided by the Airport Authorities for timely payment of PSF/UDF and does not partake the character of income.
3)That the Learned Commissioner of Income Tax (Appeals) has grossly erred in not appreciating the fact that even if the "Collection Charges" are considered as income of the assessee company, the same shall be covered under Article 8 of the Double Taxation Avoidance Agreement between India and France and as such exempt in India from taxation as the same is part of the business of the assessee i.e., "operation of aircraft in international traffic".
4)That the Appellant may add, alter, and amend any of the above grounds if so required.”
At the outset, Ld. AR has submitted that all the issued involved in these appals are legacy issues and are covered by the orders of the co-ordinate benches in different years.
Accordingly, these appeals are clubbed together and being decided by a common order. We first take up A.Y. 2019-20 for which cross appeals have been filed by the revenue and the assessee.
5. ITA No. 01/Del/2025 & ITA No. 5207/Del/2025
The revenue has raised the following three issues:
Technical handling income received from IATP/Non-IATP Members claimed exempt but treated as taxable by the Ld. AO
Taxability of interest income on FDRs
Taxability of commission income received from domestic airline by the foreign airline for the domestic leg of the journey.
These are being discussed hereunder.
6. Technical Handling Income (Rs. 1,74,06,325/-)
Briefly stated, the relevant facts are that the assessee is a foreign company incorporated in France and has a branch office in India opened with the approval of the RBI. During the year, the assessee has shown total receipts of Rs. 9,32,24,58,601/- and the entire amount is claimed as exempt u/s 90 of the Act r.w. Article 8 of the India-France Double Taxation Avoidance Agreement [for short, DTAA]. During the year, the assessee has received technical handling income of Rs. 1,74,06,325/-. The assessee claimed the same to be not taxable raising the same argument as made in A.Y. 2010-11 and subsequent years. Ld. AO, however, following his order for A.Y. 2010-11, held the receipts to be ‘fees for technical services’ which arise in India and hence taxable in India under Article 13 of the DTAA. He further held that since Air France has a permanent establishment (PE) in India, and the services are being rendered by its Personnel located in India, therefore, fees for technical services are effectively connected with the PE and are taxable in view of provisions of Article 7 of the DTAA.
Aggrieved, the assessee preferred an appeal before the Ld. CIT(A). Vide order dated 30.06.2025, Ld. CIT(A) noted that the issued stands decided by the Hon’ble Co-ordinate Benches vide orders for A.Y. 2004-05 onwards. Relying on the order dated 24.02.2023 for A.Ys. 2007-08 to A.Y. 2009-10 in ITA No. 4812/Del/2010 and others, Ld. CIT(A) allowed the assessee’s appeal after observing that there was no difference in factual position since A.Y. 2004-05 and, therefore, the income from technical handling services is not taxable in India as it is covered under Article 8(2) r.w. Article 8(1) of the DTAA and thereby deleted the addition of Rs. 1,74,06,325/-made by the Ld. AO on this account.
Aggrieved with the order of Ld. CIT(A), the revenue is in appeal before the Tribunal. We have heard the rival submissions and perused the material placed on record as well as the orders of the Hon’ble Co-ordinate Benches for the earlier years. We note that the issue stands covered by the orders of the Hon’ble Co-ordinate Benches since A.Y. 2004-05 in assessee’s favour. Relevant portion of the findings on this issue vide order dated 24.02.2023 for A.Y. 2007-08 to 2009-10 in ITA No. 4812/Del/2020 are reproduced below:
“ In the present case from the records, it can be seen that the Indian Branch office is merely a branch office of the foreign/assessee company, which is engaged in the operation of aircraft in international traffic. There are no specific services referred between the head office and the branch office as per the submissions of the assessee which appears to be correct and no distinguishing facts were brought on record by the Revenue before us. The entire receipts collected by the branch office are remitted to the head office, after meeting the local expenditure and the said receipt of the branch office are from the public at large and not from rendering of services to the head office. Thus, the assessee company is not having any permanent establishment in India. Therefore, the observation of the Assessing Officer that the assessee company is having permanent establishment in India and hence income arrived in India is taxable, is not correct finding according to the facts on record. Further, from the perusal of the submissions of both the parties and after going through the "International Airlines Technical Pool" (IATP) Agreement along with the Standard Handling Agreement in consonance with the DTAA between India and France, it can be seen that the assessee company is a member of IATP and the services provided by the assessee company to the relevant air companies were also the member of the IATP. There is no dispute on this aspect by the Assessing Officer in the assessment order though the Ld. DR is contending contrary that some of the airlines whom the services provided were not members of IATP. But that is not the case in the present Assessment Year. In fact as per Annexure "A" of IATP manual, it is evidently clear that there is no bar on member airline to provide service to non IATP Pool member and in fact, even non IATP Pool members if takes such service from a pool would be considered as a pool service to them. Thus the submission of the Ld. DR is factually incorrect. Now coming to the DTAA between India and France, it can be seen that Article 8(2) specifically mentions that the DTAA will apply to the profits derived by an enterprise of a Contracting State from the operation of aircraft in international traffic from the participation in a pool, a joint business or an international operating agency and shall be taxable only in that Contracting States. In the present case, the contracting state is France and though under domestic law the assessee has to pay tax in India while deriving income from Indian territory, yet because of Article 8(2) of the DTAA agreement, Air France is exempted to pay any tax in India as its services/activities and profit thereof derives from pool participation. The Hon'ble High Court in case of KLM Royal Dutch Airlines & Lufthansa German Airlines (supra) clearly set out how the facts of the British Airways are distinguishable. In the present case, as well the ratio laid down in British Airways will not be applicable, as the assessee company is a member of IATP and the DTAA between India & France clearly set out that those who are members of pool are exempt from tax in India. Thus, the Assessing Officer was not right in rejecting the claim of the assessee that profit from technical handling services is covered by Article 8 and in treating the Technical Income as "fee for technical services" at Rs. 1,81,79,476/- covered u/s 115A read with Section 44D and taxed the same at 20% of the gross receipts. The CIT(A) rightly held that the assessee's income from ground handling and technical handling services is covered by Article 8 of the Indo-French DTAA. But the CIT(A) further held that income earned from rendering service to Iberworld a non IATP member amounting to Rs. 3,70,098 would be taxed under Article 7, that is what challenged before us by the assessee. The IATP manual clearly set out that there is no bar on member airline to provide service to non IATP Pool member and in fact, even non IATP Pool members if takes such service from a pool would be considered as a pool service to them. Thus, the assessee being a pool member and providing service in that capacity to the guest members comes under the purview of Article 8(2) of the DTAA between India and France. Therefore, the CIT (A) was not right in sustaining the taxability to the extent of Rs. 3, 70,098 under Article 7 of the DTAA. Thus, appeal of the assessee is allowed."
9.No material difference in factual position has been brought to our notice by learned Departmental Representative between assessment years 2004-05, 2005-06 and 2006-07 and the present assessment years. Therefore, respectfully following the decision of the Coordinate Bench in assessee's own case, as discussed above, we hold that the income from technical handling services is not taxable in India as it is covered under Article 8(2) read with Article 8(1) of India - France DTAA. Accordingly, the additions made in all these assessment years are directed to be deleted."
In view of the detailed findings of the Hon’ble Co-ordinate Bench, we hold that the Ld. CIT(A) was justified in deleting the addition and no interference is called for in his order. Accordingly, the appeal of the revenue on this ground is hereby dismissed.
7. Taxability of Interest Income (Rs. 518/-)
Ld. AR has submitted that this issue is also covered in earlier years by the orders of the co-ordinate benches. Brief facts are that the assessee had earned interest income on its fixed deposits but the same was not offered to tax on the ground that the interest earned is from funds connected with operation of aircrafts in international traffic and is to be regarded as profits derived from operations of aircraft and therefore not to be taxed under Article 11 of the DTAA. Ld. AO, however, held 25% of interest income to be relatable to security deposits for lease of space at the airport which has been utilized by the personnel in providing services to other airlines and are not exempt under Article 8 of the DTAA and accordingly added Rs. 518/- [being 25% of total interest of Rs. 2,072/-] to the income of the assessee.
Aggrieved, the assessee preferred an appeal before Ld. CIT(A). Vide order dated 30.06.2025, Ld. CIT(A) deleted the addition after noting that the issue stands decided in earlier years in assessee’s favour and against the orders of the Hon’ble co-ordinate Benches no further appeal has been filed by the revenue.
We have heard the rival submissions. We note that the issue has been decided by the co-ordinate bench in assessee’s favour vide order dated 24.02.2023 (supra) as under:
“16.We have considered rival submissions and perused the materials on record. It is evident, in course of proceedings before the departmental authorities, the assessee had emphasized that the interest income earned is on fixed deposits, either made out of surplus funds generated from its business of operating airlines in international traffic or from fixed deposits kept as security deposit with Airport Authority of India Ltd. The departmental authorities have not doubted or disputed this factual position. Assessee's claim has been rejected only on the ground that the interest income is not connected with the operation of aircraft in international traffic. Article 8(3) of Indian - France DTAA reads as under
"For the purpose of this Article, interest on funds connected with the operation of aircraft in international traffic shall be regarded as profits derived from the operation of such aircraft, and the provisions of Article 12 shall not apply in relation to such interest."
17.Undisputedly, it is a fact on record that the fixed deposits made by the assessee are out of funds connected with the operation of aircraft in international traffic, hence, covered under Article 8(1) as the assessee has no other business. Therefore, in our view, the interest earned on such fixed deposits will be covered under Article 8(3), hence, not taxable. Therefore, the Assessing Officer is directed to delete these additions in all the assessment years. These grounds are allowed. ”
Respectfully following the decision of the co-ordinate benches, the addition of Rs. 578/- made by the Ld. AO is hereby deleted and order of the Ld. CIT(A) is upheld. Accordingly, revenue’s appeal on this ground is also rejected.
8. Commission Income (Rs. 18,73,269/-)
Briefly stated the Ld. AO made an addition of Rs. 18,73,269/- on account of commission received by the assessee from domestic airlines for the domestic leg of travel of the passengers. He held that the same cannot be said to be derived from the operation of aircraft in international traffic and hence not eligible for exemption under Article 8 of DTAA.
Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who allowed the appeal after noting that the issued has already been decided in asseeess’s favour by the ITAT vide order dated 24.02.2023(supra).
Aggrieved, the revenue is in appeal before the Tribunal. After hearing the rival submissions, we hold that the issue is squarely covered in assessee’s favour by the order dated 24.02.2023(supra) of the Hon’ble Co-ordinate Bench. Relevant portion of the order is reproduced below: “22. We have considered rival submissions and perused the material on record. The facts on record reveal that when a passenger travels in assessee's airlines, for instance, from Paris to New Delhi and then to Chennai the assessee books ticket for the entire travel including the domestic leg, though, the domestic leg travel is taken up by the domestic airlines. A part of the cost of tickets of the domestic travel payable to the domestic airlines is retained by the assessee as commission. Thus, in our view, the entire journey of the passenger from the starting point to the destination is arranged by the assessee, though, the domestic leg of travel is completed by a domestic carrier. Thus, in our view, the commission income earned by the assessee is directly connected to operation of aircraft in international traffic, hence, covered under Article 8(1) read with Article 8(4), therefore, is exempt from taxation in India. Accordingly, ground raised by the assessee is allowed, whereas, the Revenue's ground is dismissed.”
Respectfully following the above order, we uphold the order of Ld. CIT(A) on this issue and the addition of Rs. 18,73,269/- on account of commission income is hereby deleted. Revenue’s appeal on this ground is also rejected.
In the result, the revenue’s appeal is dismissed.
9. ITA No. 5207/Del/2025 [A.Y. 2019-20]
In its cross appeal, the assessee has raised four grounds involving the sole substantive issue of taxability of collection charges.
Brief facts are that the assessee received collection charges amounting to Rs. 3,99,544/- from DIAL, MIAL, BIAL on account of User Development Fee (UDF)/ Passenger Service Charges (PSF). The assessee claimed it to be exempt under Article 8 of the Act. However, Ld. AO held the same to be taxable being effectively connected with the PE in India.
Aggrieved, the assessee preferred an appeal before Ld. CIT(A) who noted that the issue stands decided against the assessee by the ITAT in earlier years. Accordingly, he dismissed the assessee’s appeal on this ground. Further aggrieved, the assessee is in appeal before the Tribunal.
We have heard the rival submissions. We note that the issue has been decided by the Hon’ble co-ordinate Bench against the assessee vide order dated 24.02.2023(supra) with the following observations:
“19.We have considered rival submissions and perused the materials on record. Some airports in India levy UDF/PSF on embarking passengers to modernize the airport and augment the facilities provided to passengers in airport. The fee to be charged from the passengers is determined by a Regulatory Authority. The airlines operating to and from the airports are entrusted the task of collecting UDF/PSF travelling in their airlines. In case, the UDF/PSF collected is remitted to the airport authority within the specified time limit, the airline gets certain percentage out of the amount collected as PSF/UDF on behalf of the airport. The amount retained by the airlines from UDF/PSF is known as discount or commission. It is the claim of the assessee that even assuming that it is in the nature of income, however, it will be covered under Article 8 of the tax treaty. It is observed, assessee's claim has been accepted by learned DRP in assessment year 2012-13 and by learned Commissioner (Appeals) in assessment year 2013-14. However, on examining the nature of receipts, we are of the view that it has no connection with assessee's business of operation of aircrafts in international traffic.
20.Rather, the assessee gets some incentive for making timely payment of UDF/PSF to the airports. Therefore, the collection charges are not directly connected to assessee's business of operating aircraft in international traffic, as per Article 8(1) read with Article 8(4) of India - France DTAA. Therefore, we uphold the addition. Ground raised is dimissed.”
Respectfully following the decision of the co-ordinate bench, we, hereby, uphold the addition of Rs. 3,99,544/- made on account of collection charges and confirmed by Ld. CIT(A).
In the result, the assessee’s appeal is hereby dismissed.
10. ITA No. 02/Del/2025 [A.Y. 2020-21]
As the grounds raised by the revenue in this appeal are identical to A.Y. 2019-20, the above decision in ITA No. 01/Del/2025 will apply mutatis mutandis to this year also as facts and circumstances remain unchanged.
In the result, both the revenue’s appeal and the assessee’s appeal are hereby dismissed.