Treaty Provisions Prevails Over Income Tax Act – Receipts From Aircraft Leasing Is Not Taxable As Royalty: Delhi High Court
The Delhi High Court held that consideration received by Assessee from aircraft leasing activity is not taxable as royalty either u/s 9(1)(vi) of Income Tax Act or under India-Ireland DTAA. Under section 9(1)(vi) of the Income tax Act, royalty payable by the Indian Government to any non-resident, shall always be deemed to accrue or arise in India, without any exception. In such a...
The Delhi High Court held that consideration received by Assessee from aircraft leasing activity is not taxable as royalty either u/s 9(1)(vi) of Income Tax Act or under India-Ireland DTAA.
Under section 9(1)(vi) of the Income tax Act, royalty payable by the Indian Government to any non-resident, shall always be deemed to accrue or arise in India, without any exception. In such a case, the government could be the Central government or the State government.
Pointing out that the treaty provisions would override Income tax Act being more beneficial to the assessee, the Division Bench comprising Justice Yashwant Varma and Justice Ravinder Dudeja observed that “it would be wholly impermissible for the AO to invoke Section 9(1)(vi) of the Act in light of the express exemption under the DTAA”. (Para 4)
Facts of the case:
The respondent/ AO observed that income of Rs. 6,35,91,111/- had escaped assessment, which was received by the petitioner/ assessee from one M/s Global Vectra Helicorp Ltd during F.Y 2015-16. The respondent proceeded on the assumption that the said receipt was on account of aircraft leasing. Accordingly, the AO proceeded to hold that the consideration received by assessee would be in the nature of 'royalty' for use of aircraft and thus taxable both in terms of Section 9(1)(vi) of the Income Tax Act as well as the provisions of the India-Ireland DTAA.
Observations of the High Court
The Bench took note of the assessee's contention that Article 12 of the Indo Ireland DTAA exempts revenue receipts from aircraft leasing from the purview of taxation altogether.
Thus, the Bench negated the Revenue's argument that the consideration received by assessee from aircraft leasing amounts to 'royalty' by virtue of Article 12(3)(a) of the DTAA.
The Bench observed that it is impermissible for the AO to invoke Section 9(1)(vi) of Income tax Act due to express exemption provided under the DTAA.
Regarding interplay between the domestic laws and DTAA, the Bench referred to the Co-ordinate bench judgment in Commissioner of Income Tax-International Taxation -3 Vs. Telstra [2024 SCC OnLine Del 5016], where it was held that the DTAA would override being more beneficial to the Assessee.
Hence, the High Court quashed the reassessment and allowed Assessee's petition.
Counsel for Petitioner/ Assessee: Advocates Sachit Jolly, Disha Jham, Soumya Singh, Devansh Jain and Raghav Dutt
Counsel for Respondent/ Revenue: Advocates Sunil Agarwal, Shivansh B. Pandya, Viplav Acharya and Utkarsh Tiwari
Case Title: The Milestone Aviation Asset Holding Group vs. ACIT
Case Number: W.P.(C) 5220/2022