Relief to KLM Royal Dutch Airlines: Profits from Providing Technical Services to other Airlines is Covered under DTAA and Not Liable to Tax in India, rules ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) upholds decision CIT (A) and held that profits from providing technical services to other airlines is covered under Double Taxation Avoidance Agreement (DTAA) and not liable to tax in India.

The assessee, KLM Royal Dutch Airlines, is a foreign company incorporated under the laws of the Netherlands and is engaged in the business of “Operations of Aircraft in International Traffic”. It operates in India through a branch office by virtue of approval from Reserve Bank of India.

During the course of assessment proceedings, the AO has assessed the income of the assessee by treating the entire income from technical handling as taxable in India after allowing 5% Adhoc allowance for expenses. Aggrieved assessee filed appeal before CIT (A), which allowed the appeal based on the earlier decisions of ITAT in assessee’s own case. Against the order, revenue has filed appeal before the ITAT

The assessee submitted that no income is chargeable to tax in India, as the entire income of the assessee is exempt from taxation in India u/s 90 of the Act read with Article 8 of the Double Taxation Avoidance Agreement (DTAA) between the India and Netherlands. The income from technical handling is also exempt from taxation in India as the same is covered under Article 8 of the DTAA between India & Netherlands and hence not liable to tax in India.

The Tribunal observed that the Delhi High Court has decided the issue in favour of assessee in assessee,s own case and held that

“Whether profits of the assessee from providing technical services to other airlines is covered by Article 8(1) and 8(4) of the Double Taxation Avoidance Agreement between India and Germany and by Article 8(1) and 8(3) of Double Taxation Avoidance Agreement between India and Netherland”.

The Coram of Mr. Shamim Yahya, Accountant Member and Ms. Astha Chandra, Judicial Member has held that “respectfully following the precedent, we uphold the order of CIT (A)”.

Mr. Salil Aggarwal and Sahilesh Gupta appeared on behalf of assessee and Mr. Sanjay Kumar, appeared on behalf of the revenue.

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