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Case Number

I.T.A No. 4637.Del/2011 Assessment Year: 2008-09

Advocates

Appellant by: Shri Salil Aggarwal, Advocate.
Respondent by: Shri D.K Gupta, CIT-DR.

Judges

G.D Agrawal, V.P
Chandra Mohan Garg, J.M

Acts

INCOME TAX ACT
provisions of Article Income-tax

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Smart Summary

Concise Analytical Summary of the Opinion (AY 2008-09)

Factual and Procedural Background

This appeal by the assessee is directed against the order of the Deputy Director of Income Tax, Circle-3(1), International Taxation, New Delhi dated 5 October 2011, relating to assessment year (AY) 2008-09. The assessee advanced 18 grounds, all contesting the taxability of income of Rs. 15,26,30,882 arising from ground handling and technical handling services.

At the hearing, the assessee's counsel submitted that the issue was already decided in favour of the assessee by earlier ITAT decisions for AY 2004-05 & 2005-06 (ITA Nos. 403 & 404/Del/2010 dated 19 November 2010), and that that decision was followed by ITAT in AY 2006-07 (ITA No.1394/Del/2011) and AY 2007-08 (ITA No.4811/Del/2010). The assessee relied on the factual identity between AY 2008-09 and earlier years (noting identical paragraphs in the assessment orders). The Revenue (CIT-DR) sought reconsideration of earlier ITAT conclusions and filed detailed written submissions arguing the earlier decisions contained errors of fact and law and that the matter required re-examination (or referral to a Larger Bench).

The Tribunal considered the arguments and prior ITAT decisions, found the facts of AY 2008-09 identical to the earlier years which had been decided in favour of the assessee, and accordingly allowed the appeal for AY 2008-09, following the coordinate decisions of the ITAT for AY 2004-05 through AY 2007-08. The opinion notes that the Revenue is in appeal in earlier years before the Hon'ble Jurisdictional High Court.

Legal Issues Presented

Whether charges received by the assessee from various airlines for ground handling and technical handling services fall within "profits from the operation of aircraft in international traffic" and are therefore exempt under Article 8 of the relevant Double Taxation Avoidance Agreement (specifically the Indo–Netherlands DTAA), or whether such receipts are taxable under Article 7 (business profits).
Whether receipts from participation in a pool, joint business or international operating agency (as contemplated by the relevant Article 8 sub‑clauses) include amounts received for ground handling/technical handling, and if so whether the assessee's arrangements constitute such "pool" or "joint business" for treaty relief.
Whether prior ITAT bench decisions (in the assessee's own case and in other airline cases) should be followed by the Tribunal or reconsidered/refereed to a Larger Bench in light of alleged factual and legal distinctions.

Arguments of the Parties

Assessee's Arguments

The issue for AY 2008-09 is squarely covered in favour of the assessee by the ITAT decision dated 19 November 2010 in the assessee's own case for AY 2004-05 & 2005-06 (ITA Nos. 403 & 404/Del/2010) which was followed in subsequent years (AY 2006-07 and AY 2007-08).
Facts of AY 2008-09 are identical to earlier years (the assessee pointed to verbatim paragraphs in assessment orders), so the earlier ITAT decisions must be applied.
The Department has appealed in respect of earlier years to the High Court, but until those decisions are reversed the coordinate bench should follow the prior ITAT rulings.

Revenue's (CIT-DR) Arguments

The foundational ITAT decisions (the "base years" of AY 2004-05 & 2005-06) require reconsideration because the facts were not correctly appreciated and certain legal points were not properly addressed.
The ITAT in the Lufthansa decision and subsequent follow‑on orders misinterpreted or failed to consider the interplay between Article 8(1) and Article 8(4)/8(3) (as applicable), the precise meaning of "operation of aircraft", and whether ground handling services qualify as part of that operation.
The ITAT's treatment of "pool", "joint business" and the role of the International Airlines Technical Pool (IATP) was incorrect or incomplete; membership of IATP and the form of agreements (e.g., Form 53/55, SGHA) were mischaracterized in prior decisions.
The facts in the assessee's case (including lack of reciprocity at the India level) warrant a different conclusion than in Lufthansa and thus either a re-hearing or referral to a Larger Bench; written submissions elaborated these points and cited multiple authorities and prior decisions to support reconsideration.

Table of Precedents Cited

Precedent	Rule or Principle Cited For (as stated in the opinion)	Application by the Court (how the opinion used or treated the precedent)
ITAT, ITA Nos. 403 & 404/Del/2010 (assessee's own case for AY 2004-05 & 2005-06)	Held that ground handling and technical handling services rendered to other airlines in India are part of the business from operation of aircraft in international traffic and thus covered by Article 8 (as explained in para 9 of that order).	The Tribunal treated this decision as the binding coordinate-bench precedent that governs the assessee's AY 2008-09; it followed the decision and dismissed the Revenue's contention to deviate.
ITAT order for AY 2006-07 (ITA No.1394/Del/2011 or 1394/D/11 dated 20 Jan 2012)	Followed the earlier ITAT reasoning that ground handling/technical services are part of operation of aircraft for treaty purposes.	The Tribunal noted that this subsequent ITAT bench followed the AY 2004-05/2005-06 decision and thus reinforced the line of authority it applied to AY 2008-09.
ITAT order for AY 2007-08 (referred to in the opinion)	Coordinate-bench decision applying the earlier ITAT ratio to similar facts, holding receipts not liable to tax in India under Article 8.	The Tribunal observed that multiple benches (including this one for AY 2007-08) had reached similar conclusions, supporting application of that line to AY 2008-09.
Lufthansa German Airlines (ITAT) — reported as 90 ITD 310	ITAT examined IATP bye‑laws and concluded receipts from participation in the pool (as per IATP/manual) were covered by Article 8; interpreted meaning of "operation" in context of IATP participation.	The Tribunal relied on the Lufthansa reasoning as examined by prior benches and noted Revenue had unsuccessfully sought to distinguish it; the Revenue argued Lufthansa was wrongly decided but the Tribunal found no material to depart from it.
British Airways (BA) — ITAT decisions (bench decisions cited)	In BA's case, after detailed analysis the ITAT held that charges for ground handling services were not covered under Article 8 of the treaty (as described in the written submissions reproduced in the opinion).	The Revenue relied on BA to argue for a contrary result; the Tribunal noted BA had been considered in prior debate, but the coordinate bench in the assessee's earlier appeals had distinguished or interpreted treaties differently and the Tribunal followed the line favouring the assessee.
Delta Airlines — ITAT Mumbai (referenced)	Delta's case followed the BA ratio (as per the Revenue's submissions); described as supporting the view that ground handling receipts are not covered.	The Revenue cited Delta as supportive of reconsideration; the Tribunal recorded that Delta had followed BA but found the prior ITAT line in the assessee's case remained binding on the facts before it.
Napar Drugs (P) Ltd. v. Deputy Commissioner of Income Tax, 98 ITD 285 TM (Del)	Illustrates that a subsequent bench can take a different view where earlier bench had not been presented with facts or law; consistency should be maintained but not at the cost of perpetuating an error.	The Revenue cited this decision to support seeking a different view; the Tribunal acknowledged the principle but found no "strong circumstances" or fresh material before it to depart from the earlier ITAT decisions in the assessee's case.
Roshan Lal v. Commissioner of Income-Tax, 309 ITR 174 (Gujarat HC) (as cited)	Cited as authority on when prior rulings may be re-examined by subsequent benches (referenced by Revenue's written submissions).	The Revenue relied on this authority to seek reconsideration; the Tribunal recorded the citation but did not find it sufficient to overturn the coordinate ITAT decisions applied to the present facts.
Distributor (Baroda) Pvt Ltd, 155 ITR 120 (Supreme Court)	Held that the principle of res judicata does not apply to Income Tax proceedings and "there is no heroism in perpetuating a mistake"—supporting re-examination where appropriate.	The Revenue cited this Supreme Court principle to argue for reconsideration; the Tribunal noted the principle but concluded there was insufficient justification to depart from the prior consistent ITAT rulings on the identical facts.
Dr. Nalini Mahajan, 257 ITR 123; Commissioner of Income-Tax v. Baroda Peoples Co-Operative Bank Ltd., 280 ITR 282 (Guj.); S. Shanmugavel Nadar v. State of Tamil Nadu, 263 ITR 658 (SC); Amit Das v. State of Bihar, AIR 2000 SC 2264	Grouped citations invoked by Revenue/Appellant's submissions to support principles such as not following sub‑silentio decisions, and circumstances for re-examination of prior rulings.	The Revenue cited these authorities to press for re-evaluation or reference to a Larger Bench; the Tribunal recorded these references but found the prior ITAT decisions controlling in the present matter and did not refer the issue to a Larger Bench.

Court's Reasoning and Analysis

The Tribunal's reasoning proceeded along these lines (as expressed in the opinion):

The decisive legal question is whether ground handling and technical handling services rendered by the assessee to other airlines in India form part of the "business of the assessee from operation of aircraft in international traffic" and hence are within the scope of Article 8 of the DTAA applicable to the assessee (Indo–Netherlands treaty), or whether they are separate commercial activities taxable under Article 7.
The Tribunal noted that the ITAT had examined this matter in detail in the assessee's own case for AY 2004-05 & 2005-06 (ITA Nos. 403 & 404/Del/2010). That ITAT decision performed a comparative study of the relevant Article 8 language across Indo‑German, Indo‑Netherlands and Indo‑UK DTAAs and concluded that in the assessee's factual matrix the receipts in question formed part of profits from operation of aircraft (or were covered via pool participation) and were therefore not taxable in India.
The Tribunal reviewed the Revenue's written submissions that sought to distinguish the earlier ITAT rulings (arguing misappreciation of facts; incorrect treatment of IATP, "pool", reciprocity, and the interplay between Article 8 sub‑clauses). The Tribunal recorded the Revenue's points at length (including the Revenue's detailed critique of the Lufthansa decision and preference for the BA ratio).
Despite the Revenue's challenge, the Tribunal observed that multiple ITAT benches (for AYs 2004-05/2005-06, 2006-07 and 2007-08) had considered the identical issue on substantially identical facts and reached the same conclusion favouring the assessee. The Tribunal emphasized the settled administrative practice that a subsequent coordinate bench ordinarily follows earlier coordinate-bench decisions on identical facts unless there are strong circumstances or fresh material warranting a different view.
The Tribunal found that the Revenue did not produce sufficient new material or a compelling reason to displace the earlier ITAT findings. It therefore declined to re-open or refer the question to a Larger Bench and followed the earlier ITAT conclusions that the receipts were not taxable in India under the treaty.

Holding and Implications

Holding: The Tribunal allowed the assessee's appeal for AY 2008-09 and held that the income from ground handling and technical handling services is not taxable in India under the treaty provisions as applied by the earlier ITAT decisions. (Assessee's appeal allowed)

Implications:

Direct effect: The immediate practical consequence is that the assessed income of Rs. 15,26,30,882 arising from ground handling and technical handling services for AY 2008-09 is held not to be chargeable to tax in India under the reasoning the Tribunal adopted (following prior ITAT decisions).
Precedential effect: The Tribunal explicitly followed prior coordinate-bench ITAT decisions (AYs 2004-05 through 2007-08). The opinion records that Revenue is in appeal for earlier years before the Hon'ble Jurisdictional High Court; the Tribunal indicated that until those higher-court decisions modify or reverse the earlier ITAT rulings, the coordinate-bench line should ordinarily be followed. The Tribunal did not purport to establish a new, broader precedent beyond applying the line of earlier ITAT decisions to identical facts.
On referral: Although the Revenue requested reconsideration and a reference to a Larger Bench, the Tribunal concluded there were no strong circumstances or fresh material presented that would justify departing from the earlier consistent line of authority, and therefore it did not refer the matter to a Larger Bench.

This summary is confined strictly to the materials and statements contained in the provided opinion. No facts or legal propositions beyond those expressly set out in the opinion have been added or inferred.

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M/S Klm Royal Dutch Airlines, Prakash Deep Building, 7, Tolstoy Marg, New Delhi () v. Deputy Director Of Income Tax, International Taxation, Circle-3(1), New Delhi ().

ORDER

G.D. Agrawal, Vice-President - This appeal by the assessee is directed against the order of learned Deputy Director of Income Tax, Circle-3(1), International Taxation, New Delhi dated 5th October, 2011 for the AY 2008-09.

2. The assessee has raised as many as 18 grounds in its appeal. However, they are all against the taxability of assessee's income arising from ground handling and technical handling services amounting to Rs. 15,26,30,882/-.

3. At the time of hearing before us, it is stated by the learned counsel for the assessee that this issue is squarely covered in favour of the assessee by the decision of ITAT dated 19th November, 2010 in assessee's own case for AY 2004-05 and 2005-06 vide ITA No.403 & 404/Del/2010. This order is followed by the ITAT in AY 2006-07 vide ITA No.1394/Del/2011 and in AY 2007-08 vide ITA No.4811/Del/2010. He stated that since the facts of the year under consideration are identical to the facts in the earlier years, the above decisions of the ITAT would be squarely applicable to the assessee's case for AY 2008-09. To substantiate his contention that the facts of the year under consideration are identical to AY 2007-08, he referred to the assessment order of assessment year 2007-08 which is placed in assessee's paper book pages 16 to 19 and pointed out that paragraph 5 of the assessment order for AY 2007-08 where the Assessing Officer had decided this issue considering the assessee's written submission is identical to paragraph 5 of the assessment order of AY 2008-09. He stated that both the orders are in verbatim. When admittedly the facts of the year under consideration are identical, the decision of ITAT in earlier years would be squarely applicable. He also stated that the department is in appeal in the earlier years which is pending before the Hon'ble Jurisdictional High Court for adjudication.

4. Learned CIT-DR, on the other hand, stated that the base years are AY 2004-05 and 2005-06. That in the subsequent year, the above decision is simply followed. He submitted that the decision of ITAT in the earlier years requires reconsideration because the facts were not correctly appreciated. He filed a detailed written submission in this regard. The same is reproduced below for ready reference:-

"At the time of last hearing conducted on 10-1-2013 the Hon'ble Bench directed the CIT(DR) to submit written submissions. In compliance thereto the following written submissions are made for the kind consideration of the Hon'ble Bench. These are in addition to the reasoning given by the AO and the DRP in their respective orders, oral arguments which shall be made at the time of hearing and the written submissions dated 15-05-2012 submitted by my predecessor before the Hon'ble Bench.

ITATs' decisions in the assessee's case:

2.The issue involved in the appeal is as to whether the charges received by the assessee from various airlines on account of rendering of ground handling services are covered under article 8 of the Indo- Netherlands Double Taxation Avoidance Agreement (in short "Treaty"). The department's stand has been that such charges are not covered under article 8 of the Treaty and hence are taxable under article 7 of the Treaty. Though this issue has been decided by the Hon'ble Tribunal against the department in earlier assessment years it is humbly submitted that the same requires reconsideration. The first decision of the ITAT was for the assessment year 2004-05 and 2005-06 in ITA Nos. 403 and 404/D/2010 (PB 123). The ITAT's decision starts from para 9 (PB 128). In para 9 the ITAT has stated that the sole issue for consideration is whether ground handling services and technical handling services were part of business of assessee from operation of Air craft in International traffic or they were separate distinct activity. With due respect it is submitted that in the appeal in fact two issues are involved whether ground handling services rendered to other airlines are part of 'operation of aircraft' under article 8 of the treaty and ii) whether these services were rendered under any 'pool' or 'joint' business in article 8(3).

2.1. In para 10 (PB 130) the ITAT after reproducing the relevant articles under Indo-German treaty, Indo-Netherlands Treaty and Indo-UK Treaty has stated that the expression 'profit from the operation of ship or aircraft in international traffic' has not been defined in Indo Netherland Treaty and Indo German Treaty while in Indo UK Treaty the same has been explained. According to the ITAT there was thus distinction between these three sets of DTAA. The ITAT held that while position with Indo German Treaty and Indo Netherland Treaty was similar, the position in Indo UK Treaty was slightly different. On this basis ITAT's decision in the case of Lufthansa German Airlines was followed. It is submitted that the expression 'profit from the operation in International traffic of aircraft' has also been defined in Indo Netherland Treaty in article 8(2). It is therefore not correct to say that this expression has not been defined in Indo Netherland Treaty. Moreover in Indo UK Treaty expression 'operation of aircraft' has been defined in article 8(3). A perusal thereof would clearly show that the aforesaid expression in Indo UK Treaty is much wider and even then the ITAT in the case of British Airways(in short BA) has held that charges received for rendering ground handling services etc. were not treaty protected under article 8 of the Indo UK Treaty. Similarly article 8(3) of Indo-Germany Treaty also defines the expression 'operation of ships or aircrafts' but in a very limited way. In my humble opinion, therefore it cannot be said that the position of Indo German treaty and Indo Netherland Treaty is similar.

2.2. The ITAT has held that in the case of Lufthansa the ITAT while explaining the meaning of profit from the operation from aircraft had taken into consideration the bye laws of International Airlines Technical Pool (IATP) because this organization authorized its member to share aircrafts, aircrafts pooling, ground handling equipment and manpower all over the world (emphasis supplied). With due respect, in Lufthansa's case the ITAT unfortunately did not explain the meaning of 'profit from the operation of ships or aircrafts'. As would be seen from the subsequent discussion the ITAT's decision in the case of Lufthansa is practically silent on this aspect. Further IATP does not authorize its members to share aircrafts or aircrafts pooling. It only authorizes its members to share aircraft recovery kits, aircraft parts and tooling, ground handling equipment and manpower/ facilities.

2.3 The ITAT has stated that in Lufthansa's case the ITAT had considered the relevant clauses of IATP manual and thereafter concluded that any receipt received by the assessee due to participation in the pool was covered under article 8 of Indo German Treaty. It is submitted that in Lufthansa's case relevant clauses of IATP manual were not referred/considered. Moreover the ITAT did not elaborate as to whether entering into agreement with other airlines amounted to 'pool', as contemplated in the treaty.

2.4 The ITAT held that in the assessee's case there was no disparity of facts and the learned DR except raising argument that ground handling services were different activities then operation of any aircraft failed to bring any rules, regulations etc. to substantiate his contention. It was further held that the coordinate bench had examined the issue in detail and considered these aspects and therefore unless some strong circumstances are available a different stand cannot be taken. It is submitted that there is in fact disparity of facts which would be evident while discussing the Lufthansa's decision in subsequent part of the submissions. It is also humbly submitted that in Lufthansa's case the Hon'ble ITAT had not examined all the aspects involved in the case. The ITAT did not consider whether article 8(4) of Indo German treaty [article 8(3) of Indo Netherland treaty] is to be read alongwith article 8(1) and if not then the reasons thereof. On the contrary in BA's case and in Delta's case these aspects have been elaborately discussed. Strong circumstances in fact exist in the assessee's case to take a stand different from Lufthansa's case.

2.5. The Hon'ble ITAT has held that in Lufthansa's case the ITAT had distinguished the facts then in British Airways case. With respect it is submitted that even if there existed any distinction in facts between Lufthansa's case and BA's case it has not been shown as to how the facts of the assessee's case are similar to Lufthansa's case and dissimilar to BA's case. The subsequent discussion would show that, in fact, the facts of the assessee's case are rather similar to BA's case then with Lufthansa's case.

2.6 The above decision has been followed by the ITAT in assessment year 2006-07 (ITA No. 1394/D/11 dated 20th January, 2012) and assessment year 2007-08 (PB 133).

2.7 It is a settled law that while consistency should be maintained and the earlier decision of the bench should be followed but this is also a settled law that if all the facts and position of law were either not brought to the notice of the earlier bench or all the facts had remained to be considered then a different view can be taken by the subsequent bench. Reference may kindly be made to the ITAT's decision in the case of Napar Drugs (P) Ltd. v. Deputy Commissioner of Income Tax (Delhi TM) 98 ITD 285 TM (Del) . Reference may also be made to the Gujarat High Court decision in 309 ITR 174 in the case of Roshan Lal v. Commissioner Of Income-Tax.. Also the Hon'ble Supreme Court in the case of Distributor (Baroda) Pvt Ltd 155 ITR 120 has held the principle of res judicata does not apply to the Income Tax proceedings and there is no heroism in perpetuating a mistake. In the present case there is enough justification for taking a view different from the earlier years.

Lufthansa's decision:

3. It is submitted that in the assessee's case the Lufthansa's decision is not applicable. In the aforesaid decision, as mentioned above, not all the aspects have been considered. Moreover facts of the assessee's case are different. Parawise comments on the operative part of the Lufthansa's decision are as under:-

3.1 Para 24:- In this para the ITAT has held that exemption is available to two items viz. profit from operation of aircraft and profits from participation from pool, joint business or an international agency, separately. Unfortunately except mentioning this the ITAT has not given any reasons whatsoever as to how the exemption is available to these two items separately. In fact this is the crux of the entire matter. The major issue involved is as to whether ground handling services are part of profit from operation of aircraft under article 8 or not. This being the core issue was required to be adjudicated in detail particularly when the coordinate bench in the case of BA after elaborate discussion had held that ground handling services etc. can never be part of profits from operation of aircraft and hence were not covered under article 8 of the Act (para 61 to 67 of AM's order and para 41 to 45, 47 & 48 of JM's decision). Similar view has been expressed by the ITAT Mumbai in the case of Delta Airlines (copy enclosed). When there were decisions of two benches on this issue it was all the more necessary to elaborately discuss this issue and if a contrary view was to be taken then as per the judicial propriety the matter should have been referred to the larger bench. In any case, a decision which is sub silentio need not be followed [kindly refer to Delhi High Court's decision in the case of Dr. Nalini Mahajan (257 ITR 123), Commissioner Of Income-Tax v. Baroda Peoples Co-Operative Bank Ltd. 280 ITR 282 (Guj.) , S. Shanmugavel Nadar v. State of Tamil Nadu (SC) 263 ITR 658(SC); Amit Das v. State of Bihar AIR 2000 SC 2264].

3.2 Para 25: In this para the ITAT has held that IATP was the only pool known to the international aviation industry and the assessee had participated in this pool. The ITAT also held that since there was reciprocity in rendering the services and availing the services it amounted to participation in a pool.

Comments: It is submitted that neither article 8 nor OECD commentary nor even the commentary by any of the prominent authors require that for the purposes of article 8 there has to be a pool which is recognized internationally. The only requirement is that two or more airlines should come together to earn and share profit by pooling their resources (like pooling of aircrafts, sharing the routes, etc) in the business of operation of aircraft in international traffic. Under article 8 such profit would only be exempt. Klaus Vogel in his commentary on article 8(4) of the convention has stated that the term pool, joint business and international operating agency are not defined in the Convention and there are various forms of international cooperation by air transport enterprises.

The OECD commentary on article 8(4) in the context of the word 'pool', 'joint business' as it existed at the relevant time has also recognized that various forms of international co-operation exist in shipping or air transport and in this field international co-operation is secured through pooling agreements or other conventions of a similar kind which lay down certain rules for apportioning the receipts or profits from joint business. The commentary further says that in order to clarify the taxation position of the participation in a pool, joint business or in an international operating agency the following may be added bilaterally

"but only to so much of the profits so derived as is attributable to the participant in proportion to its share in the joint operation."

In fact, the issue as to what amounts to pooling has been elaborately discussed in the BA's case (para 52 to58 of AM's decision and 29,33,42,43, etc of JM's decision) As regards reciprocity of services, unlike in Lufthansa's case, in the assessee's case there is no reciprocity. This can be seen from the AO/DRP's order. The assessee has not been able to show that in India it had provided and availed services from the member airlines. Thus on this account the assessee's case is not similar to Lufthansa's case.

3.3. Para 26 & 27: In this para the ITAT has narrated the facts of BA's case and has compared the same with Lufthansa's case. The same are discussed below.

Point No.	BA's facts	Assessee's facts
i.	British airways has provided engineering and ground handling services at IGI Airport, New Delhi to 11 other airlines, at Chennai to 5 other airlines and certain other airlines at Mumbai.	It has not availed any services/facilities from any airlines in India. Thus, there was no reciprocity in the agreement entered into between British Airways and other airlines. In the assessee's case also there is no reciprocity as it has not avail any services/facility from any airlines in India (AO's order page 10/DRP's order page 6,10)
ii.	The British Airways has a separate establishment and separate office set up to monitor ground handling services and different establishment at international airports, New Delhi did not form part and partial of operation of British Airways pertaining to the operation of aircrafts in international traffic.	In BA's case the excess/idle capacity was utilized for providing services to other airlines. Similar is the position in the assessee's case. The assessee has also used excess/ideal capacity for providing services to other airlines (AO's page 10)
iii.	The services and facilities provided by British Airways in India to the airlines was a commercial activity. The excess/idle capacity has been provided to various airlines at a price.	As mentioned above similar is the position in the assessee's case.
iv.	The British Airways has a branch office in India which constitute permanent establishment "PE" in India and, therefore, the income derived from PE in India was taxable as the same was not covered under DTAA.	Assessee also has a branch office in India which constitutes its PE in India and therefore income derived from the PE is taxable.
v.	Article 8(2) of DTAA between India and UK provided that paragraph 1 of article 8 shall likewise apply in respect of participation in pools of any kind. The words "pools of any kind" was interpreted by the ITAT by taking the dictionary meaning of the word "pool".	In BA's case the ITAT had explained the meaning of 'pool'. The interpretation so adopted in BA's case is squarely applicable in the assessee's case also. As mentioned above even when Indo-UK DTAA has a wider meaning of the expression 'operation of aircraft', still the ITAT held that ground handling services were not covered under article 8.
vi.	Article 8(3) of DTAA between India & UK provided that the terms "operation of aircraft" shall include ---charter of aircraft including the sale of tickets for such transportation on behalf of other enterprises---. These activities could not be carried on without excess capacity.	Indo Netherland Treaty has also extended the meaning of profit from 'operation of aircraft' by including rental on a bare boat basis of aircraft in article 8(2). In any case, as mentioned above, the assessee also has excess capacity.
vii.	After meeting the requirement of its own flights, the parts of the employees were acquired for handling the operation of other aircrafts for generating income.	Same is the position in the assessee's case.

From the above it can be seen that the facts of the assessee's case, even as per the Lufthansa's decision, are exactly the same as in BA's case.

3.4. Para 28: The ITAT has stated that there was 'IATP manual' and in BA's case only certain extracts of IATP manual were filed which did not prove the existence of IATP manual. According to the ITAT when there was IATP manual there was no need of interpreting the word 'pool'.

Comments: With due respect, it is not correct to say that in BA's case the ITAT was not aware of the existence of IATP manual. Firstly IATP provisions have been elaborately discussed in BA's case. In fact as can be seen from the BA's decision the assessee in that case had vehemently argued that it was member of IATP and the same amounted to pooling. The ITAT referred to the various clauses of IATP manual and held that neither the same amounted to a pool nor the ground handling services as contemplated in IATP manual were part of 'operation of air craft' (para 3,4,20,23,56 to 58 of AM's decision and 3,29,34 to43 of JM's decision). Secondly, in the treaty nowhere it is mentioned that for claiming exemption under article 8 an airline has to be member of IATP. Moreover, the words 'pool' and 'joint business' have to be seen in the context of article 8(3) of the treaty and not in the context of IATP. This is also evident from the representation made by the Association of European Airlines before the OECD (DRP para 8.4)

3.5. Para 29: After referring to the objectives of IATP the ITAT has stated that Lufthansa had entered into agreement with Alitalia, Air France, Swiss Air which were in IATP form 53. The handling charges were fixed as per IATP manual. The ITAT has also observed that BA had entered into agreements with Royal Brunei Airlines, Atlas Air Corporation, Alitalia and Singapore Airlines and none of the agreements were in IATP form 53 which is prescribed in IATP manual. The ITAT also noted that handling charges received by BA were not as per IATP manual but as per IATA Rules. It was further observed that since in BA's case agreements were not as per IATP manual the ITAT was constrained to interpret the word 'participation in pool of any kind'. According to the ITAT since in Lufthansa's case it was participation in a pool viz IATP, which was internationally recognized income due to participation in the pool was exempt from taxation in India.

Comments: It is not correct to say that in BA's case agreements were not in IATP form. In BA's case also agreement was with Alitalia and the same was in Form 53 (copy enclosed pages 36, 39-54). Similarly the BA had entered into agreement with Saudia-Saudi Arabian Airlines (page 1-3), EL Al Israel Airlines (p.4-6), KLM (p.7-9), Lufthansa (p.10) and Air France (p11-35,37-38), which were either in IATP form 53/55 or as per the simplified procedure of the Standard Ground Handling Agreement (SGHA) prescribed by IATP (copies enclosed). In fact, as can be seen from the BA's decision [para 3(ii),19,20,22,29,35(xxiii), 56 of AM's decision and para 34 to 38, 46 JM's decision] agreements in BA's case were also in IATP form. Moreover even in the assessee's case all the agreements are not in the prescribed form and is in simplified procedure (PB 61).

As regards the ITAT's observation that in BA's case handling charges were as per IATA Rules and not as per IATP manual, the same has no relevance. In fact, there is no distinction between IATP and IATA. The payments in all the cases are made through IATA clearing house. This can be seen from the copies of various SGHAs. In any case in BA's case also charges were as per IATP manual and the same were cleared through IATA clearing house. Same is the position with regard to the agreements entered into by the assessee with various airlines (PB 49, 51,52,53,57,61,62,64,69,etc). In fact the ITAT misconstrued that different handling charges were prescribed by IATP manual and IATA Rules. The fact is that both go together. In any case, as mentioned above, the treaty does not recognized IATP as a pool as contemplated therein.

Further it is not correct to say that in BA's case ITAT was constrained to interpret the word 'participation to pool of any kind' because the agreements were not as per IATP manual. Even remotely such an inference can not be drawn from the BA's decision. If BA's decision is carefully read then this was not at all the reason for interpreting the word 'participation in pool of any kind'. In fact, the ITAT for the purposes of article 8 had interpreted as to what constituted a 'pool'.

3.6. Para 30-35: After referring to article 5, article 7 and article 8 of the Indo German Treaty the ITAT held that in view of article 7(7) income from operation of ships or aircraft is covered by article 8 and the PE cannot be a ground for bringing to tax the profits from participation in a pool. The ITAT has also held in para 35 that the 'joint business' will only mean activity of shipping and air transport carried on jointly.

Comments: This is nobody's case that once the assessee's income is covered under article 8, the same shall be taxable under article 7 on account of PE being there. Neither in the BA's case nor in Lufthansa's case nor in the assessee's case income from ground handling charges has been taxed on account of mere existence of PE. It is only when it is held that such income is not covered under article 8 then the same would be taxable under article 7 if the tax payer has a PE.

The ITAT's view that the word 'joint business' means when the shipping and the air transport activities are carried on jointly is, with due respect, not correct. The word 'joint business' in article 8 refers to the business of operation of aircraft either singly or jointly by more than one airlines. 'Joint business' does not refer to the business of shipping and air transport undertaken jointly. This would be clear from article 8 and article 8A of the Indo Netherland treaty which apply for air transport and the shipping business respectively. In both the articles word 'joint business' has been used.

3.7 Para 36: The ITAT has held that there is no dispute that if any profit has arisen due to participation in a pool or a joint business it will not be liable to tax in India. It has also been mentioned that in BA's case the ITAT had held that income had arisen due to PE in India.

Comments: It is not correct to say that there is no dispute if 'any' profit had arisen due to participation in a pool. Whether article 8 covers 'any' profit earned by an airline or it covers only those profits which are earned from the 'operation of aircrafts' in international traffic is the major bone of contention. Thus, profit earned from rendering ground handling services is covered under article 8 or not, even if it is from participation in a pool, is one of the major issues to be decided in these cases. As mention before, while in Lufthansa's case this issue has not been adjudicated, in BA's and Delta's case the same has been elaborately discussed and decided against the taxpayers. Therefore, it is not correct to say that there is no dispute if 'any' profit is earned due to participation in a pool.

Further, in BA's case the ITAT did not hold that income from ground handling services had arisen in India merely due to PE. It was held to be taxable as the same was not covered under article 8 of the treaty (para 16 of the AM's decision and 31 of JM's decision).

3.8 Para 37: The ITAT has held that admittedly if the profit had arisen due to participation in a pool, the same was not taxable in India. It also held that since the assessee had received Rs. 49.64 lacs for rendering the services and had paid Rs. 45.50 lacs for availing the services, there was reciprocity while in BA's case there was only one way traffic. It (BA) had rendered services to more than 16 airlines but did not avail services from any other airline in India. The ITAT has held that since in BA's case there was no reciprocity the ITAT in that case had held that there was no participation in a pool.

Comments: As mentioned before, profits earned from 'any' pool is not exempt from tax under article 8. Such profits have to be earned from the 'operation of aircraft' in international traffic. As the words 'operation of aircraft' have not been defined in the treaty, in view of article 3(2) of the treaty the meaning thereof is to be taken from the domestic law. Section 44BBA of the Income Tax Act defines its scope according to which carriage of passengers, mail, livestock or goods are only included. As regards reciprocity, in any case, unlike in Lufthansa's case, in the present case reciprocity has not been proved by the assessee. Thus, like in BA's case, in this case also there is only one way traffic.

3.9. Para 38: The ITAT has held that in BA's case services rendered by the airline were in the nature of business activity wherein excess staff was employed. It was also noted that in BA's case volume of receipts was in crores which suggested that provision of the services was commercial activity.

Comments: In the assessee's case also not only excess staff has been deployed for rendering ground handling services but its receipts from such services are also in crores (more than Rs. 15 crores in the year under reference; in BA's case it was more than Rs. 5 crores). Therefore, following the Lufthansa's logic in the assessee's case also there is a commercial activity which is similar to BA's case.

3.10 Para 39: In this para after referring to article 8(3) of Indo UK Treaty, the ITAT held that charter of aircrafts including sale of tickets were not the activity which were provided in the IATP manual. According to the ITAT since in BA's case facility provided to other airlines were beyond the scope of IATP objects profits from rendering such services cannot be termed as profits from participation in a pool and since in Lufthansa's case services were as per IATP manual the same were not taxable in India.

Comments: In Lufthansa's case the ITAT was of the view that for claiming exemption under article 8 the only requirement was that an airline should be member of IATP and profit should be earned only from those activities which were as per IATP manual and any other profit would be taxable. Most humbly it is submitted that the aforesaid view of the ITAT is not correct for the reasons discussed above. Further, in BA's case it was nobody's case that in addition to ground handling services the airline had earned revenues from charter of aircraft or sale of tickets. The precise issue before the ITAT in that case was whether income from ground handling services was taxable in India or not. Whether the services which were supposedly beyond IATP manual were provided or not was not at all the question before the ITAT. The ITAT decided the issue precisely on profits earned from ground handling services. In BA's return of income also receipts were shown from such services (para 1,2,4,28,29,50, etc. of BA's decision). Thirdly, in any case, in Indo Netherland treaty also the activities are beyond IATP manual as in article 8(2) rental on bare boat basis is treated as profit from operation of air transport. Thus, going by Lufthansa's logic in the assessee's case also benefit of article 8 would not be available as such services are beyond the scope of IATP manual.

3.11 Para 40: In this para the ITAT has observed that in India UK DTAA in article 8(2) words 'participation in pools of any kind' have been used which indicated that there could be several pools or understanding. This also indicated that it was in the nature of commercially understood meaning. According to the ITAT in Indo German Treaty in article 8(4) words used are 'participation in a pool' and in international aviation industry there is only one pool i.e. IATP. The ITAT thus held that because of this difference the ITAT had to find out the meaning of the word 'pool' in the BA's case. The ITAT also held that since in BA's case services were rendered to Atlas Air Corporation which was not a member of IATP, the services rendered to that airline could not be bound by IATP manual.

Comments: As discussed above, in BA's case the meaning of the word 'pool' was explained in the context of article 8 as a whole and not on account of the wordings used in article 8(2) alone. The meaning of the word 'pool' as explained by the ITAT in the aforesaid case is equally applicable in the treaty with Netherland also. The ITAT clearly held that (i) profit from rendering ground handling services is not covered under article 8 as the same is not connected with operation of aircraft in international traffic and (ii) simply because the airline was member of IATP it would not amount to participation in a 'pool' as IATP does not represent the 'pool' as envisaged in article 8.

As regards the ITAT's observation that in BA's case Atlas Air Corporation was not a member of IATP, firstly the same is not correct. From page 89(sr.no.108) of the paper book filed by the assessee in the present case it can be seen that Atlas Air Corporation is in fact a member of IATP. Secondly, even if it is so, in BA's case this was not the ground of denying benefit of article 8 to the airline. Had this been the reason the ITAT would have at least granted the benefit on service charges received from the airlines which were members of IATP.

3.12. Comments on the decision of the ITAT in the case of Lufthansa is summarized below:-

(i) Interplay and interdependence between article 8(1) and 8(4) [8(3) in the present case] was not considered by the ITAT

(ii) While in Lufthansa's case reciprocity was found, in the assessee's case there is no such reciprocity.

(iii) In Lufthansa's case it was found that in BA's case it was a commercial activity wherein receipts were received in crores. Same is the position in the assessee's case.

(iv) In Lufthansa's case being member of IATP was held to be the sufficient compliance and it was held that it was not so in BA's case. For the reasons discussed above this view of the ITAT is not correct.

(v) Meaning of 'joint business' was not correctly interpreted by the ITAT.

(vi) In BA's case also payments were cleared through IATA clearance house. In Lufthansa's case this was considered to be a distinguishing feature.

(vii) The ITAT held that in Indo UK treaty activities were beyond IATP's activities. Though the aforesaid view is not correct but in any case in Indo Netherland treaty also activities are beyond IATP manual.

(viii) ITAT held that in BA's case agreements were not in IATP's prescribed form. As mentioned above this was not factually correct. In any case in assessee's case also all the agreements are not in the prescribed form.

(ix) According to the ITAT, in BA's case charges were not as per IATP manual but as per IATA manual. As mentioned above there is no such distinction. In any case, in the assessee's case also payments are as per IATA .

(x) The ITAT held that in BA's case services were rendered to Atlas Air Corporation which was not a member of IATP. This is not factually correct.

(xi) There are similarities between the assessee's case and the BA's case

3.13. In view of the above discussion it is submitted that the decision in the case of Lufthansa should not be followed. The aforesaid decision is not only distinguishable on facts but also in my humble view contains certain factual and legal inaccuracies.

4. In fact from the above discussion it may kindly be seen that the facts of the assessee's case are in pari materia to the BA's case. The assessee has not been able to point out as to how its case is distinguishable from the BA's decision. The only distinguishing feature cited by the assessee is that in BA's case the services were rendered to some of the airlines which were not IATP member (PB 32-34). As stated above firstly, no service was rendered in BA's case to non IATP member. Secondly, even if it is so, this was not at all the reason in the BA's case while denying the benefit of article 8 of the treaty. Except this no other distinguishing feature has been pointed out by the assessee.

5. The assessee has stated that facts of its case are similar to Lufthansa's case(PB30/31). According to it in its case also there was no actual money transaction in India and only debits/credits were made through ITAT clearing. It may be mentioned that the same was the position in BA's case also (para 4,11,14,29 of AM's decision and 3, 19,36,37,etc. of JM's decision). It is further stated by the assessee that there is reciprocity at the global level. Even in Lufthansa's case the ITAT accepted reciprocity only in India and not globally. The assessee has further stated that provisions of treaty between India & Germany and India & Netherland are in pari materia (PB 30/31). As discussed above this is not so.

6. It is humbly submitted that the decision of the ITAT in the case of British Airways may kindly be followed as in this decision all the issues including the scope of article 8(1) and 8(2) of Indo UK treaty [8(3) for Indo Netherland treaty], meaning of the word 'pool', whether ground handling services fall under article 8, whether being a member of IATP amounts to a 'pool', etc have been elaborately discussed. Most importantly, the facts of the assessee's case are exactly the same as in BA's case. It may also be mentioned that the ratio laid down in BA's case has been followed by the ITAT, Mumbai in the case of Delta Airlines (copy enclosed). In Delta Airlines case also the issue has been elaborately discussed."

5. Learned CIT-DR also stated that if the Bench is not prepared to take a different view than what is taken in the earlier years, it would be appropriate to refer the matter to the Larger Bench.

6. We have carefully considered the arguments of both the sides and perused the material placed before us. We find that the ITAT has considered this issue in AY 2004-05 & 2005-06 vide ITA No.403 & 404/Del/2010. The ITAT, after considering the arguments of both the sides and also the relevant Double Tax Avoidance Agreements, decided the issue in favour of the assessee with the following finding:-

"9. We have duly considered the rival contentions and gone through the record carefully. The sole issue for our adjudication is whether ground handling services and technical handling services rendered by the assessee to other airlines in India are to be considered part of business of assessee from operation of aircraft in international traffic or they are separate distinct activities. In order to appreciate this issue, the Article 8 available in the three treaties referred above has a direct bearing, therefore, it is salutary upon us to take note of this article in all the three treaties in a tabular form for comparative study which reads as under:

Indo Germany DTAA	Indo-Netherland DTAA	Indo-UK DTAA
ARTICLE-B Shipping and air transport	ARTICLE 8 -Air transport-	ARTICLE 8-Air transport -
1. Profit from the operation of ships or aircraft in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.	1. Profits from the operation of aircraft in international traffic shall be taxable only in the State in which the place of effective management of the enterprise is situated.	1. Profits derived from the operation of aircraft in international traffic by an enterprise of one of the Contracting States shall not be taxed in the other Contracting State.
2. If the place of effective management of a shipping enterprise is abroad a ship, then it shall be deemed to be situated in the Contracting State in which the home harbour of the ship is situated, or, if there is no such home harbour, in the Contracting State of which the operator of the ship is a resident.	2. For the purpose of this Article: (a) profits from the operation in international traffic of aircraft include profits derived from the rental on a bareboat basis of aircraft if operated in international traffic if such rental profits are incidental to the profits described in paragraph 1; (b) interest on funds connected with the operation of aircraft in international traffic shall be regarded as profits derived from the operation of such aircraft and the provisions of Article 11 shall not apply in relation to such interest.	2. The provision of paragraph 1 of this Article shall likewise apply in respect of participation in pools of any kind by enterprises engaged in air transport.
3. For the purposes of this Article, interest on funds connected with the operation of ships or aircraft in international traffic shall be regarded as profits derived from the operation of such ships or aircraft, and the provisions of Article Income-tax Officer, shall not apply in relation to such interest.	3. The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.	3. For the purposes of this Article the term "operation of aircraft" shall include transportation by air of persons livestock, goods or mail, carried on by the owners or lessees or characters of aircraft, including the sale of tickets for such transportation on behalf of other enterprises, the incidental lease of aircraft on a character basis and any other activity directly connected with such transportation.
4. The provisions of Paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.		4. Gains derived by an enterprise of a Contracting State from the alienation of aircraft owned and operated by the enterprise, the income from which is taxable only in that State, shall be taxed only in that State."

10. The expression "profit from the operation of ship or air-craft in international traffic" has not been defined in Indo-Netherlands DTAA. Similarly, it has not been defined in the Indo-German DTAA. However, in sub-article-3 of Article 8 in the treaty between Indo & UK, it has been explained. Thus, there is a distinction between these three sets of DTAA. The position in Indo-German DTAA and Indo-Netherlands DTAA are similar on the one hand whereas the position in the Indo-UK DTAA, it is slightly different. This question arose before the ITAT in the case of Lufthansa German Airlines also. The ITAT while explaining the meaning of profit from the operation of ships or air-craft in international traffic has took into consideration the bye-laws of international airlines technical pool (IATP) because this organization authorized its members to share air-crafts, air-crafts pooling, ground handling equipment and manpower all over the world. The ITAT has considered the relevant clauses of IATP manual and thereafter concluded that any receipt received by the assessee due to participation in the pool as provided in IATP manual and also explained in sub-article 4 of Indo-German DTAA will not be taxable in India under sub Article 1 of Article 8. In the present appeals, there is no disparity on facts. Learned DR except raising an argument that ground handling and technical handling services are different activities then operation of any air-craft in international traffic failed to bring any rules, regulations, bye-laws for substantiating his contentions. The co-ordinate Bench of the ITAT has examined this issue in detail and considered these aspects. Unless some strong circumstances which has not been brought to the notice of the earlier Bench, are available, we cannot take a different stand even if it is possible to take the other view. The revenue is unable to bring any material on record which can pursued us to take a different view then the one earlier taken by the ITAT in the case of Lufthansa Airlines reported in 90 ITD page 310. The ITAT has distinguished the facts in the case of Lufthansa then British Airways. The Indo-Netherlands treaty is similar to that of Indo-German and not in parity with Indo UK Treaty. In view of the above discussion, we do not find any merit in these appeals. They are dismissed."

7. That in AY 2006-07, again, the same issue arose before the ITAT and, in this year also, the Revenue raised an argument that the earlier decision of the ITAT should not be followed. However, the ITAT, in its order dated 20th January, 2012, dismissed the appeal of the Revenue following the order of the Tribunal for AY 2004-05 & 2005-06 in ITA No.403 & 404/Del/2010. The relevant finding of the ITAT reads as under:-

"5. In the case of Lufthansa Airlines, Tribunal has considered this aspect more elaborately. There is no disparity on facts. The appeals against the orders of the Tribunal are stated to be pending before the Hon'ble Delhi High Court. In our opinion, in the case of Lufthansa Airlines though section 44BBA has not been taken into consideration, but Tribunal has explained the meaning of operation of aircraft in international traffic and arrived at a conclusion that ground handling services and technical services rendered to other airlines at Indian airport would be considered as part of operation of aircraft in international traffic. Such conclusion was drawn by construing position available in the DTAA. Therefore, we do not see any reason to deviate ourselves from the orders of the Tribunal in the cases of both the assessees in earlier years. Accordingly, we do not find any merit in these appeals they are dismissed."

8. In AY 2007-08, again, an identical issue arose before the ITAT and it was claimed by the learned DR that the earlier year's decision of ITAT is not applicable because the provisions of Indo-UK Treaty are wider in nature than Indo-Netherlands Treaty. This aspect is noted in paragraph No.3.1 of the ITAT's order. However, after considering the argument of the learned DR, the Bench preferred to follow the decision of the ITAT in AY 2004-05 & 2005-06 supra. The relevant portion of the ITAT's order reads as under:-

"4. We have considered the facts of the case and submissions made before us. The issue stands covered in paragraph 10 of the aforesaid order of the Tribunal, in which it has been held that such receipts are not liable to be taxed in India. The order of the coordinate Bench is in the nature of a binding precedent. Therefore, following this order, the appeal of the assessee requires to be allowed. For the sake of convenience, paragraph 10 of the order is reproduced below:"

9. Admittedly, the facts of the year under consideration are identical to the earlier years i.e. AY 2004-05, 2005-06, 2006-07 & 2007-08. In the earlier years, three different Benches of the ITAT, one Bench for AY 2004-05 & 2005-06 and another Bench for AY 2006-07 and third Bench for AY 2007-08, have considered this issue and have arrived at a similar conclusion that the income from ground handling and technical handling services is not chargeable to tax in India. Therefore, we do not find any merit in the Revenue's contention that the decision of ITAT for AY 2004-05, 2005-06 and other years requires reconsideration and the matter needs to be referred to the Larger Bench. The issue is squarely covered in favour of the assessee by the above decisions of the ITAT for AY 2004-05 to 2007-08. The Revenue is already in appeal before the Hon'ble Jurisdictional High Court in the earlier years. However, so long as the decision of earlier year is not modified or reversed by the Hon'ble Jurisdictional High Court, ordinarily, the same should be followed by the subsequent Coordinate Bench. Merely because the Revenue is not satisfied with the decision of the ITAT in earlier year would not be a sufficient ground for referring the matter to the Larger Bench. In view of the above, respectfully following the decision of ITAT, we hold that the income from ground handling and technical handling services is not taxable in India. Accordingly, the assessee's appeal is allowed.

10. In the result, the appeal of the assessee is allowed.

M/S Klm Royal Dutch ... v. Deputy Director Of I...