In a major relief to Air France, the Income Tax Appellate Tribunal (ITAT) has held that the Company is not liable to income tax in India for its services/activities and profit thereof derives from pool participation.
The Assessing Officer noted that the assessee, through its Indian branch is deriving various income including profit from technical handling to other IATP Pool Members and is taxable in India.
The assessee claimed that since the assessee was rendering Technical Handling services only to IATP Pool Members, it is a pooling activity and not liable to be taxed in India.
Allowing the contentions of the assessee, the Tribunal noted 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 and there are no specific services referred between the head office and the branch office.
“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 the rendering of services to the head office. Thus, the assessee company is not having any permanent establishment in India,” the Tribunal said.
Regarding the tax liability on the income received from pooling activities, the Tribunal noted 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. 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 in 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 Tribunal said.
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