Collection Charges received by Lufthansa German Airlines from AAI can’t be treated as Income from Operation of Aircraft as per DTAA: ITAT [Read Order]

The Delhi bench of the ITAT has held that the collection charges received by the assessee from Airport Authority of India are not income derived from the operation of aircraft falling under Article 8 of DTAA between India and Germany.

The assessee is an international air transport operator having its head office at Germany, having an office at Gurgon. Assessee primarily deriving income from operation of aircrafts for the international traffic, transportation of passengers and cargo. The assessee in its return of income filed on 16.09.2014 claimed its entire income as exempt from tax under Article 8 of DTAA with Germany.

During the course of assessment, the Assessing Officer held that as per Article 8 of DTAA with Germany he found that income is covered under Article 8 and not taxable. However, in respect of collection charges received by the assessee from AAI for assessee collecting UDF charges from passengers and passing it on to AAI within the stipulated time, the assessing officer was of the view that these collection charges paid by AAI to the assessee are noting but commission since UDF is collected as part of sale of tickets and remitted to the AAI for airport operations and for this effort AAI paid commission to the assessee.

Further, the assessing officer was of the view that the collection charges received by the assessee from AAI for the assessee collecting the UDF and passing it on to AAI, are not from the business of operation of aircrafts and these are commercial activities which are independent from the business operations of aircrafts in India. The assessing officer was of the view that the opportunity to earn this income may have arisen due to some connection but these activities are not incidental to the operation of aircraft.

The Tribunal bench comprising of Shri G. S. Pannu, President  and Shri Challa Nagendra Prasad, Judicial Member has held that as the effective management of the assessee company is situated in Germany the profits from operation of aircraft in international traffic is taxable only in Germany.

“The UDF is levied at the Indian airports as a measure to increase revenues of the airport operator. The UDF is levied to bridge any revenue shortfall so that the airport operator is able to get a fair rate of return on investment. The quantum of UDF varies from airport to airport and the rate of UDF at airports is determined by the Airports Economic Regulatory Authority of India (AERA) for major airports and ministry of civil aviation for not major airports. Presently UDF collection charge at a flat rate of Rs.5/- per passenger is allowed to airlines subject to payment of UDF collection to AAI within 15 days of receipt of bill. Airlines will make full payment of UDF to AAI and raise a separate invoice for the collection charges on UDF to AAI. The collection charges paid by AAI to the assessee in whatever name called i.e., either discount or commission is nothing but service charges paid, for assessee collecting UDF and passing it on to AAI. The collection charges paid by AAI to assessee cannot be said to be the income derived from operation of aircraft. Further in assessee’s case on identical facts for the assessment year 2013-14 the Ld. DRP approved the order of the assessing officer in holding that the collection charges received by the assessee from AAI on remitting the UDF within the stipulated time as income from business,” the bench said.

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