Assessment Year: 2015-16
Appellant: Aircon Beibars (FZE), C/o-AL Sehgal & Co., CA 514, Arunachal Building 19, Barakhamba Road, New Delhi
Respondent: DCIT, Circle -1(1)(1), International Taxation, New Delhi
PAN: AALCA6824C
The present appeal of the assessee arises out of order dated 29.03.2019 of learned Commissioner of Income Tax (Appeals)-42, New Delhi, pertaining to assessment year 2015-16. The solitary dispute arising in the appeal relates to taxability of Rs.1,43,59,792/- as income from royalty.
The assessee, a non-resident corporate entity incorporated under the laws of United Arab Emirates (UAE), is engaged in the business of leasing helicopters to clients across the world. For the assessment year under dispute, the assessee filed its return on 28.03.2017, declaring total income of Rs.5,28,58,080/-. However, the assessee claimed that the amount received, being in the nature of business income, is not taxable in India in the absence of a Permanent Establishment (PE).
During the assessment proceedings, the Assessing Officer (AO) called for details relating to the lease charges. The AO observed that the assessee had leased a helicopter to M/s. Heligo Charter Pvt. Ltd. through a dry lease agreement executed on July 13, 2012, for a period of three years. The AO issued a show-cause notice to the assessee to explain why the lease charges received from leasing the helicopter should not be treated as royalty under Article 12 of India – UAE Double Taxation Avoidance Agreement (DTAA) read with section 9(1)(vi) of the Income-tax Act, 1961 (the Act).
In response, the assessee denied its liability under the Act and the treaty provisions, stating that it had only leased the helicopter to an Indian entity and had not transferred any license or privilege to use an intellectual property in the asset. The AO, however, was not convinced and treated the lease of the helicopter as royalty under section 9(1)(vi) of the Act and Article 12(3) of the India – UAE DTAA.
The assessee contested the addition by filing an appeal before the learned Commissioner (Appeals), who upheld the addition made by the AO.
Before the Tribunal, the assessee’s counsel argued that the word ‘equipment’ used in clause (iva) of Explanation (2) to section 9(1)(vi) and Article 12(3) of India – UAE DTAA should be read in the context of qualifying words. The agreement for leasing the helicopter did not envisage the transfer of any intellectual property rights. The Tribunal considered the assessee’s submissions and various judicial precedents.
The Tribunal noted that the lease income received by the assessee towards leasing a helicopter is not taxable as royalty income under the Act or the treaty provisions. It was established that the assessee did not receive any payment towards leasing of the helicopter from the lessee. The parties were in litigation, and no income was received by the assessee during the assessment year.
The Tribunal directed the AO to delete the addition of Rs.1,43,59,792/- sustained by the learned Commissioner (Appeals). The Tribunal held that the amount is not taxable under Article 12(3) of India – UAE DTAA as no royalty income was actually received by the assessee during the year.
In the result, the appeal was allowed.
Order pronounced in the open court on 31st July, 2023
G.S. PANNU
PRESIDENT
SAKTIJIT DEY
VICE PRESIDENT
Dated: 31st July, 2023.
RK/-
Copy forwarded to:
Asst. Registrar, ITAT, New Delhi
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