In a ruling, pronounced Wednesday, with implications for foreign airlines offering ancillary aviation services in India, the Delhi bench of the tribunal held that receipts from ground handling and engineering services are not covered under Article 8 of the India-UK tax treaty.
Article 8 under DTAA grants relief for profits accrued from operating aircraft in international traffic.
British Airways had argued that the services were ancillary to its international airline operations and constituted “pooling” activities eligible for exemption under Article 8 of the treaty. The appeal was made for assessment years 2009-10 and 2011-12.
The tribunal rejected the contention, relying on earlier decisions that held receipts from providing ground handling and engineering services to other airlines are independent commercial activities and don’t qualify for treaty protection.
Rejecting British Airways’ appeal, ITAT said the issue had already been settled in the airline’s own case beginning with assessment year 1996-97 and had consistently been decided against the taxpayer in subsequent years. It noted that the airline had not shown that those earlier rulings had been overturned by any higher judicial forum.
The bench also rejected the airline’s reliance on Delhi High Court rulings involving KLM Royal Dutch Airlines and Lufthansa German Airlines.The bench observed that those cases were decided under the India-Netherlands and India-Germany tax treaties. In both treaties, Article 8 provisions explicitly cover pooling arrangements and are materially different from the narrower language of the India-UK treaty.
The tribunal also held that the OECD Model Tax Convention commentary, cited by the airline, cannot override the specific provisions of the India-UK treaty or binding judicial precedents.
“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.,” said Sandeep Sehgal, Partner-Tax, AKM Global, a tax and consulting firm