Assessee-company, a US tax resident, engaged in operating airlines in international traffic for carriage of passengers and goods and in providing services incidental to such operation. Assessing Officer held that income from providing baggage screening services to other airlines to be taxable as business profits under article 7 since assessee had a PE in India and was not covered article 8(1) read with article 8(2) on basis that said activity was not directly connected with operation of aircraft. Commissioner (Appeals) confirmed additions made by Assessing Officer. Tribunal held that profit derived by assessee from baggage screening services and aircraft handling services provided to other airlines was in no way connected to assessee’s activity of transportation of passengers, mail, livestock or goods etc. by air in its own aircrafts. Assessee itself stated that when not required for its own use, for optimum use of equipment and manpower deployed at IGI airport, services were provided to other airlines, evidencing that provision or non-provision of these services would not affect assessee’s air transportation activity. Therefore, income from baggage screening services and aircraft handling services provided to other airlines will not come within ambit of ‘other activity directly connected to such transport’ as provided under article 8(2)(b) of India-USA Tax Treaty and thus would not be covered under article 8(1). Assessee, foreign airline, as member of International Airlines Technical Pool (IATP), provided and received services from airlines on reciprocal basis, profit derived from providing baggage screening services and aircraft handling services to other airlines as a participant of IATP pool would be covered under article 8(1) read with article 8(4) of India-USA Tax Treaty T herefore, profit derived from providing baggage screening services and aircraft handling services to various other airlines in India will not be taxable in India under article 8(1) read with article 8(4) of the India-USA Tax Treaty. (AY.1996-97 to 2002-03)
United Airlines v. Dy. CIT (2022) 218 TTJ 698 / 138 taxmann.com 137 (Delhi)(Trib)
S. 9(1)(i) : Income deemed to accrue or arise in India-Business connection-Profits derived from baggage screening services and aircraft handling services provided to other airlines-Will not come within ambit of ‘other activity directly connected to such transport-Not covered under article 8(1)-Technical Pool (IATP)-Services from airlines on reciprocal basis, profit derived from providing baggage screening services and aircraft handling services to other airlines as a participant of IATP pool would be covered under article 8(1) read with article 8(4) DTAA-India-USA. [Art.7, 8(1),8(2), 8(4)]