The Kolkata Bench of the Income Tax Appellate Tribunal ( ITAT ), held that Profits from transport of air passengers to be taxed in contracting state as per Indo Bhutan Double Taxation Avoidance Agreement (DTAA).
The assessee,M/s Tashi Air Pvt Ltd is an Airline having its establishment in Bhutan. The issue under consideration in the present appeal is whether the income of the assessee from sale of tickets to air passengers, insurance and fuel charges, etc. in India is to be taxable in India or not.
In the Assessment order for AY 2017-18, the Assessing Officer (AO) held that as the assessee was having its “Permanent Establishment (PE) in India and hence its income was taxable in India under the provisions of section 9 of the Income Tax Act.
The Counsel for the assessee submitted that the First Appellate Authority has accepted the contention of the assessee that since the ‘Place of Effective Management’(POEM) of the assessee has been in Bhutan, therefore as per Article 8 of the India-Bhutan Double Taxation Avoidance Agreement, the assessee’s income from Air Transport was taxable in Bhutan only. The CIT(A) accordingly allowed the appeal of the assessee, for which the revenue is in appeal before the Tribunal.
The Counsel further stated that Dispute Resolution Panel (DRP) has issued a direction to the Assessing Officer to determine whether the POEM of the assessee is existing India to decide the place of taxation of the assessee as per Article 8 of the DTAA and that the guidelines were not given effect to by the AO in right perspective.
A Division Bench consisting of Sanjay Garg, Judicial Member and Dr Manish Borad, Accountant Member observed that “Since Article 8 of the Indo Bhutan DTAA is more beneficial to the assessee, therefore the profits derived by the assessee from the operation of ships or aircraft in international traffic are liable to be taxed in the contracting state in which its place of effective management of the enterprise is situated, which undisputedly is Bhutan.”
“The definition the profit derived “Profits derived from the operation of ships or aircraft in international traffic”, in the India- Singapore DTAA is exhaustive enough not only to include the air passengers but also mail, livestock or goods. There is nothing mentioned in the India-Singapore DTAA to make an inference that the profits from transport of air passengers should not be covered under Article 8 of the Indo-Bhutan DTAA” the Tribunal noted.
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