DTAA Relief Granted on Technical Handling, Interest & Commission Income: ITAT Upholds Addition On Account of Collection Charges [Read Order]

The Income Tax Appellate Tribunal (ITAT) Delhi Bench held that the technical handling income, interest income, and commission income earned by the foreign airline are not taxable in India under the India-France DTAA. However, the Tribunal has upheld the addition of income on account of the collection charges, which has been held to be taxable income.

The Air France, a foreign company incorporated in France and operating a branch office in India, had filed its return claiming exemption of its income under Section 90 of the Income Tax Act, read with Article 8 of the India-France DTAA.

The Assessing Officer (AO), however, made additions to the income of Air France on account of technical handling income interest on fixed deposits, commission income from domestic airlines and collection charges which were held to be taxable income in India.

The assessee claimed that all the incomes had a direct connection with the operation of the aircraft in international traffic and were therefore, included under Article 8 of the DTAA and were taxable only in France.

On the other hand, the Revenue department claimed that these incomes were either fees for technical services or had no sufficient connection with international traffic and were, therefore, taxable in India.

The Tribunal comprising Vikas Awasthy [Judicial Member] and Renu Jauhari [Accountant Member] observed that the issue of technical handling income, interest income and commission income had already been decided in favor of the assessee in the past.Therefore,it held that these incomes are intrinsically connected with the operation of the aircraft in international traffic and are included under Article 8 of the DTAA and are not taxable in India.

However, with regard to the collection charges received for the timely remittance of the Passenger Service Fee (PSF) and User Development Fee (UDF), the Tribunal was of the view that the receipts were in the nature of incentives or discounts, and they do not have any nexus with the main business of running the aircraft on international traffic. Thus, the same were held to be assessable.

Accordingly, the ITAT allowed the assessee’s appeal partially and dismissed the Revenue’s appeals.

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