The Delhi Bench of the Income Tax Appellate Tribunal declined to give relief to British Airways on tax benefits under the Double Taxation Avoidance Agreement (DTAA) for services provided to other airlines in India.
Experts opined that other airlines from the UK will face a similar issue, while there would be relief for airlines from Germany and the Netherlands.
Pooling dispute
The bench highlighted that, as per the contention of British Airways, the ground handling and engineering services rendered by it to other airlines in India are ancillary to the main activity of operating aircraft in India, and such ancillary services fall under a pooling activity. Hence, the revenue generated from rendering of such services deserves the benefit of the India-UK DTAA.
“We find that the issue raised by the assessee in the present appeal is a legacy issue, the assessee was denied treaty benefit on the revenue generated from such pooling activity for the first time in AY 1996-97 and thereafter in subsequent assessment years, the revenue has consistently denied benefit of Article 8 of the India-UK DTAA on receipts from rendering of ground handling and engineering services to other airlines in India,” the bench said.
Outlining that the Assessee has tried to draw parity between its own case and Delhi HC decisions in KLM Royal Dutch Airlines and Lufthansa German Airlines, the bench specified that the High Court had categorically held that the provisions of Article 8 of the DTAA are not pari materia to the provisions of Article 8 of the India-Germany/Netherlands DTAA. Further, it opined that it is a well-accepted proposition that OECD commentary is not a binding precedent.
Sandeep Sehgal, Partner-Tax at AKM Global, said that this correctly underscores that treaty benefits under Article 8 of the India-UK DTAA are strictly confined to profits from the operation of aircraft in international traffic. Unlike the India-Germany and India-Netherlands treaties, which contain an express pooling clause, the UK treaty is narrower. The Tribunal has rightly distinguished the Delhi High Court decisions in KLM and Lufthansa on this precise ground — the High Court had observed that the UK provision is not pari materia.
While airlines may view ground-handling and engineering services to other carriers as commercially ancillary to their international operations, the plain language of the India-UK DTAA does not extend the exemption.
“The issue having attained finality in British Airways’ own cases since AY 1996-97, the ruling reinforces that treaty interpretation remains text-driven and jurisdiction-specific. UK airlines (and others with similarly worded Article 8) will continue to face Indian tax on such receipts, while German and Dutch carriers enjoy a broader shield,” seghal said.
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