The Income Tax Appellate Tribunal (ITAT) Delhi held that spice jet is not liable to pay income tax on supplementary rent paid to foreign companies for acquiring aircraft on lease as per India -Ireland Double Taxation Avoidance Agreement (DTAA).
The Assessee SpiceJet Limited, after filing the return of income during the assessment proceedings Assessing Officer (AO) noticed that assessee company debited an amount of Rs.168,72,51,723/- under the head “supplementary rent” in its profit and loss account which has been paid to foreign companies/entities from whom the assessee acquired aircrafts on lease.
The AO was required to submit details regarding the amount debited in profit and Loss account of assessee company. Howver, the AO rejected the submissions of the assessee holding that the supplementary rent is actually for the replacement of parts/spares and in connection of services related to operational or lease aircrafts and held that assessee liable to pay tax on supplementary rent paid for leasing aircraft.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] who deleted the disallowance made on the supplementary rent. Thereafter, the revenue filed appeal before the tribunal.
Before the tribunal, Tarandeep Singh, the Counsel for the assessee submitted that the issue was covered in its own case for the assessment year 2006-07 to 2010-11 and held in favor of the assessee.
Vizay B Vasanta, the Departmental representatives submitted before the tribunal that issue has been decided in favor of the assessee by the Tribunal only in respect of the supplemental rent/maintenance reserve paid by the assessee for the lease agreements entered into prior to 01.04.2007.
It was also pointed out by the counsel for the departmental representative that supplemental lease rentals which were paid for the agreements entered into on or after 01.04.2007 and treated as royalty by the Assessing Officer were not decided by the Tribunal.
The tribunal observed that as per the order of the Tribunal in assessee’s own case for the assessment years 2006-07 to 2010-11 supplemental rent/maintenance reserve would be exempt from tax in the hands of lesser in India as per Section 10(15A) of the Income Tax Act.
Further, the bench observed that supplementary rent paid for lease agreements executed after 01.04.2007 are not chargeable to tax in India as per India -Ireland Double Taxation Avoidance Agreement (DTAA).
Therefore, the tribunal after reviewing the facts and submissions of both parties the two-member bench of Narendra Kumar Billaiya (Accountant Member) and Challa Nagendra Prasad, (Judicial Member) held that Spice Jet is not liable to pay income tax on supplementary rent paid to foreign companies for acquiring aircraft on lease as per India-Ireland Double Taxation Avoidance Agreement (DTAA). Thus, the supplemental lease rent paid for the aircrafts taken on lease on or after 01.04.2007 would not be treated as royalty.
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