Dispute Resolution Panel —Holds In Favor Of Airlines

Update On Proceedings Before DRP (Asiana Airlines/Others-PSF/UDF) Collection Charges Being Treated As Taxable By The Tax Officer-Airlines Income (PSF/UDF)

The Tax Officer in an attempt to tax Passenger Service Fee/User Development Fee collected by international airlines on behalf of DIAL/MIAL (Airport Authority) be an activity other than “operation of aircraft in international traffic”. The attempt of the Tax Officer was to treat this discount received by airlines on such activity performed on behalf of DIAL/MIAL as income of airlines not covered by DTAA and same to be treated as taxable income in the hands of international airlines operating in India.

We had represented before the Dispute Resolution Panel (DRP) and argued the matter and vehemently emphasized the fact that such discount received by airlines is an activity connected with operation of aircraft in international traffic and is a related activity duly covered by DTAA. (Article 8 of most of DTAA)

A Ray of Hope

We are pleased to inform that the Hon’ble DRP vide its order dated 14/9/2015 in case of Asiana Airlines has held :-

“It is a matter of fact that the collection of UDF/PSF is connected with the activity of transportation by air.  The airline collects the said fee from its passengers along with sale of tickets and remittance to Delhi International Airport Ltd. (DIAL).  The amount sought to be taxed by the Ld. A.O. is in the nature of discount for timely remittance and thus squarely covered in the computation of profit from operation of aircraft in international traffic, which is exempt under article 8 of India-Korea DTAA. The Ld. A.O. is directed to delete the addition.”

Conclusion

This is a major relief to the airlines industry in terms of litigation and cost, which, it would have had to incur had the said addition, not been deleted at the assessment stage itself by DRP.

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