Delhi High Court
Director Of Income Tax, New Delhi vs Klm Royal Dutch Airlines on 22 October, 2008
Author: Badar Durrez Ahmed
THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 22.10.2008
+ ITA 1241/2008 & ITA 1245/2008
DIRECTOR OF INCOME
TAX, NEW DELHI ... Appellant
- versus -
KLM ROYAL DUTCH AIRLINES ... Respondent
Advocates who appeared in this case:
For the Appellant : Mr Sanjeev Sabharwal
For the Respondent : Mr Prakash Kumar
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE RAJIV SHAKDHER
1. Whether Reporters of local papers may be allowed to
see the judgment ?
2. To be referred to the Reporter or not ?
3. Whether the judgment should be reported in Digest ?
BADAR DURREZ AHMED, J (ORAL)
CM No. 14909/2008 in ITA 1241/2008
Allowed subject to all just exceptions.
ITA 1241/2008 & ITA 1245/2008
1. These appeals under Section 260A of the Income Tax Act,
1961 arise out of the common order dated 31.03.2008 passed by the
Income Tax Appellate Tribunal in ITA Nos. 96-97/Del/2002 relating to
the assessment years 1996-1997 and 1997-1998.
2. The limited question that arose for consideration before the
Tribunal was whether the recovery/ adjustment of rent from CSC
Private Limited by the assessee (KLM) was an income chargeable to
tax in India. This question arose in the backdrop of Articles 6 and 8 of
the Double Taxation Avoidance Agreement between India and the
Netherlands. There is no dispute that the assessee is a company
incorporated in the Netherlands and its main activity is operation of
aircrafts in international traffic both for transport of passengers as well
as of cargo handling. There is also no dispute that the profits from the
international traffic would be taxable in the Netherlands, being the
place of effective management of the assessee.
3. In respect of the cargo business, the assessee had obtained a
licence to use certain premises situated in Bombay from the Airport
Authority of India. The licence was specifically granted for the
purpose of cargo handling and the licensee, that is, the assessee was not
to use the premises for any other purpose other than for which the
licence had been granted. The assessee entered into an agreement with
CSC Private Limited for handling the cargo in India on its behalf.
Under the agreement the assessee was liable to pay CSC for
management, supervision, document handling, physical handling and
tracking and tracing export and import cargo at Bombay. For these
services the assessee was liable to pay CSC a sum at the rate of Rs 9
per ton of the cargo handled.
4. Since the assessee was taxable in the Netherlands, it had not
filed any returns. However, the Assessing Officer, while conducting
the assessment proceedings with regard to CSC, came to learn that as
per the accounts between the parties, the assessee had received certain
amounts from CSC under the head "expenses payable being warehouse
rent adjusted against revenue received".
5. The exact nature of the transaction was that the assessee was
required to pay licence fee / rent to Airport Authority of India for use
of the space for cargo handling. The assessee had entered into an
agreement with CSC for handling its cargo at Bombay. The payment
made by the assessee to CSC was after adjustment of the licence fee /
rent paid by KLM to Airport Authority of India. This adjustment was
treated by the department as income of the assessee chargeable to tax in
India under Article 6 of the said Double Taxation Avoidance
Agreement.
6. The Commissioner of Income Tax (Appeals) also confirmed
the view taken by the Assessing Officer.
7. However, the Income Tax Appellate Tribunal, after
examining the entire matter, came to the conclusion that the
arrangement between the assessee and the CSC was that the rent
payable to Airport Authority of India, though payable by the assessee
in the first instance, was recovered from the charges payable by the
assessee to CSC. From this, the Tribunal concluded that the recovery
of the said charges towards licence fee/ rent did not arise from any
activity outside the activity of cargo handling in international traffic.
The Tribunal concluded that such adjustment was directly and
inextricably linked to the cargo handling business of the assessee. The
only effect was that the ultimate expense payable by the assessee to
CSC got reduced and that the recovery of licence fee / rent was not in
the course of a separate business of renting out the premises. The
Tribunal also noted that at no point of time was it ever alleged that the
premises were used for any purpose other than for which the licence
had been granted by the Airport Authority of India.
8. The Tribunal, therefore, came to the conclusion that all the
activities were linked to each other and there was no scope for
dissecting the activities by excluding the recovery of rent from CSC as
a separate source of income for the assessee in India. The Tribunal also
held that the assessee did not carry on any business operations in India
by letting out the premises on lease or by subletting the same.
Consequently, the Tribunal concluded that the provisions of Article 6
of the Double Taxation Avoidance Agreement were not applicable.
The Tribunal ultimately held that the assessee did not derive any
income other than the profits from the operation of aircrafts in
international traffic and, hence, in terms of Article 8, the same was not
subject to tax in India but was subject to tax in the Netherlands as,
admittedly, the effective management of the assessee was situated
outside India and in the Netherlands. The additions made by the
Assessing Officer and the Commissioner of Income Tax (Appeals)
were consequently deleted.
9. The Tribunal also accepted the alternative contention raised
on behalf of the assessee that even if the recovery of rent was to be
treated as an income from other sources at the hands of the assessee,
since an identical amount was paid to the Airport Authority of India,
the same would be entirely offset against each other because there was
a direct nexus between the receipt and the payment. The Tribunal
concluded that in such a situation, the assessee would be entitled to
deduction under Section 57 (iii) of the said Act being expenditure
wholly and exclusively for the purpose of making or earning such
income. Thus, even on the alternative plea, the Tribunal decided in
favour of the assessee.
10. We have heard the learned counsel for the appellant, who
argued to the contrary and supported the view taken by the Assessing
Officer as well as the Commissioner of Income Tax (Appeals). We are
unable to agree with the submissions made by the learned counsel for
the appellant. The Tribunal has correctly appreciated the law on the
issue and has also determined the facts. We find no perversity in the
factual conclusions. No substantial question of law arises for our
consideration.
The appeals are dismissed.
BADAR DURREZ AHMED, J
RAJIV SHAKDHER, J
October 22, 2008
SR
