Relief to SpiceJet: ITAT Dismisses Income Tax Department Appeals on Supplementary Rent Disallowance [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) ruled that supplementary rent payments are exempt from tax in India under Section 10(15A) of the Income Tax Act, 1961, and not subject to disallowance under Section 40(a)(i) of the Income Tax Act.

SpiceJet Limited (assessee), a company faced scrutiny for AY 2020-21 and AY 2021-22. The Assessing Officer (AO) disallowed Rs. 1,16,32,302 and Rs. 11,66,32,06,064 for AY 2020-21, and Rs. 643,80,46,168 for AY 2021-22, on account of supplementary rent and maintenance reserve.

The Assessing Officer (AO) alleged these payments constituted royalty and required tax deduction at source under Section 40(a)(i) of the Income Tax Act.

The AO contended that the supplementary rent payments, made to foreign lessors for aircraft leases, were not covered by the exemption under Section 10(15A) and were taxable as royalty, justifying the disallowance due to non-deduction of tax at source.

Aggrieved by the AO’s orders, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A), relying on prior tribunal rulings in SpiceJet’s own case for earlier assessment years, deleted the disallowances, holding that supplementary rent was exempt under Section 10(15A) and not taxable as royalty in India.

Aggrieved by the CIT(A)’s order, the Income Tax Department filed appeals before the ITAT. The Counsel for the Revenue argued that the CIT(A) erred in law and facts by deleting the additions. The Department’s counsel supported the AO’s stance, stating that the issue lacked finality as the Department had not accepted earlier Tribunal orders.

The counsel for SpiceJet argued that the issues were squarely covered by prior ITAT decisions in the company’s favor for AY 2006-07 to AY 2018-19. The assessee stated that there was no material change in facts or circumstances, and the coordinate bench’s rulings.

The two-member bench, comprising Anubhav Sharma (Judicial Member) and Manish Agarwal (Accountant Member), observed that the facts for AY 2020-21 and AY 2021-22 were identical to those in prior years, where the tribunal had consistently deleted similar disallowances.

The Tribunal observed that the Special Bench in Interglobe Aviation Ltd. held that supplementary rent, akin to basic rent, is exempt under Section 10(15A) for lease agreements executed before 01.04.2007, and not taxable as royalty under the India-Ireland Double Taxation Avoidance Agreement (DTAA) for agreements post-01.04.2007.

The Tribunal observed that Article 12 of the India-Ireland DTAA excludes aircraft from the definition of royalty, and Article 8 taxes profits from aircraft rentals only in the lessor’s resident state.

The tribunal held that no disallowance under Section 40(a)(i) was warranted. The tribunal upheld the CIT(A)’s orders. The appeals of the Revenue were dismissed.

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