Following Earlier Rulings, ITAT Delhi Holds Air France Income Not Taxable Under India–France DTAA

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has recently held that Air France's income from technical handling services, interest on operational funds, and commission from domestic airlines was not taxable in India for the assessment years 2017–18 and 2018–19.

The tribunal followed its earlier rulings and noted that there was no change in facts. The receipts were held to be covered under Article 8 of the India–France tax treaty.

A coram of Judicial Member Vimal Kumar and Accountant Member M. Balaganesh found no reason to take a different view and applied the same.

The dispute related to two assessment years, 2017–18 and 2018–19. Air France, a French airline operating aircraft in international traffic, had claimed exemption under the India–France Double Taxation Avoidance Agreement.

The Assessing Officer rejected the claim and made additions on three counts. These included income from technical handling services provided to other airlines, interest earned on fixed and security deposits, and commission earned from domestic airlines for the Indian leg of international journeys. The Commissioner of Income Tax (Appeals) deleted the additions, leading to cross appeals by both Air France and the Revenue.

On technical handling services, the tribunal noted that the issue was already examined in earlier years. It recorded that the services involved verification of technical parameters and airworthiness of aircraft after completion of a journey, enabling them to undertake the next flight, and that Air France provided these services as part of its participation in the International Airlines Technical Pool.

Relying on its earlier rulings, the tribunal held that the receipts arose from participation in an international pool and therefore qualified as profits from the operation of aircraft in international traffic. Since there was no change in facts, the additions made by the Assessing Officer on this count were directed to be deleted.

The tribunal took the same approach on interest income. It noted that in earlier years it had already examined the nature of the interest earned by Air France. The interest arose from fixed deposits and security deposits made with the Airports Authority of India out of surplus funds generated from international flight operations. The Revenue did not dispute this factual position.

Following its earlier decisions, the Bench held that the interest income retained a direct nexus with the operation of aircraft in international traffic and was therefore not taxable in India.

On commission income as well, the tribunal noted that the issue stood covered by its previous rulings. It recorded that Air France booked tickets for the entire journey of a passenger, even where the domestic leg was operated by a domestic airline, and that a portion of the ticket value payable to the domestic airline was retained by Air France as commission.

Relying on its earlier findings, the tribunal held that the commission income was directly connected with the operation of aircraft in international traffic and could not be taxed in India.

Finding no reason to take a different view, the tribunal dismissed the Revenue's appeals in full. The appeals filed by Air France on other grounds were also dismissed by a common order.