ITAT grants Delta Air Lines Inc. exemption under Article 8 of India-USA DTAA for Code Sharing Transportation [Read Order]

The Bench clubbed and heard a total of four Appeals made by the assessee against the separate orders dated 04.06.2024 for the assessment years 2007-08, 2011-12, 2012-13, and 2013-14. The appeal for A.Y 2007-08 was treated as a Lead Case.

The Assessee, Delta Air Lines Inc., an airline operating in international traffic, earned revenue by transporting passengers and cargo, and faced a tax dispute with the Indian Revenue Authorities.

The dispute primarily revolved around whether income generated through "code-sharing arrangements" and the use of "third-party aircraft" qualified for exemption under Article 8 of the India-USA Double Taxation Avoidance Agreement (DTAA).

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The revenue authorities, on the other hand, had sought to tax this income, arguing on the ground that such code-sharing arrangements did not fall within the arena of “Operation of aircraft in International traffic” as defined in section 8 of the India USA DTAA and that the income is taxable under the provisions of Article 7 of the India USA DTAA.

The authorities also raised issues concerning the Legality and validity of reassessment proceedings considering them Void-ab-initio, the methodology computing taxable income, Global profitability rate at Pro Rata basis, Levy of interest under section 234B of Income Tax Act, 1961 and Initiating Penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961.

The Assessee, represented by Sriram Seshadri and Amulya K., argued that the income from these arrangements should be treated as Chartering aircraft. They further argued that code-sharing was directly connected to its main business of operating aircraft in international traffic.

They also argued that this made Delta Air Lines Inc. a charterer under Article 8 of the India-USA DTAA. It was stated that tickets were issued under its specific codes, establishing a direct connection to its operations, and that the concept of "chartering" under the DTAA should encompass booking space on third-party aircraft.

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The Revenue, represented by Krishna Kumar, argued that using third-party aircraft through code-sharing did not qualify as Chartering, lacked proper documentation, and failed to establish a proper linkage between third-party carriers and its own aircraft.

They also argued that the income was taxable as business profits under Article 7 of the India-USA DTAA rather than being exempt under Article 8 of the India–USA DTAA.

The two-member bench comprising Pawan Singh, Judicial Member and Girish Agarwal, Accountant Member, carefully examined and reviewed the orders of the Lower authorities and relied on the order favour of the assessee against the revenue by a series of decisions of the Bench in the A.Y 2014-15 to 2016-17 and 2018-19.

The tribunal referenced the pronouncements of Bombay High Court in cases like Balaji Shipping and DIT(IT) vs APL Co. Pvt. Ltd, which dealt with similar "slot-chartering" arrangements in the shipping industry under DTAA.

The Bench allowed the grounds of appeal raised by the assessee, considering the consistent decision of the co-ordinate bench of the Tribunal. The appeal of the assessee for A.Y. 2007-08 was allowed.

Thus, Delta Air Lines Inc. income from international transportation, including amounts earned through code-sharing arrangements, was exempt from taxation in India under Article 8 of the India-USA DTAA. The Order to be pronounced in the open Court on 28/10/2025.

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