ITAT provides relief to Indigo Airlines

ITAT provides relief to Indigo Airlines

The assessing officer erred in computing the income of the appellant

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has reversed the order of the revenue department and held that the credit or subsidy from suppliers of aircraft engines and other components are capital receipts.

The appellant, Inter Globe Aviation Ltd is engaged in the business of operation of low-cost airlines Indigo. It filed an Income Tax Return (ITR) declaring 'Nil' income.

During the scrutiny, the assessing officer (AO) observed that the appellant had entered into a purchase agreement with Airbus SAS, for the supply of 100 aircraft. The company had selected V-2500 engines manufactured by IAE International Aero Engineers AG, Switzerland (IAE) as the supplier of engines to be fitted in the aircraft. For this, certain credits are allowed to the appellant company from IAE on the delivery of such aircraft.

The AO treated the credit as a revenue receipt and added it to the total income of the appellant.

Aggrieved by it, the appellant filed an appeal before the first appellate authority which upheld the addition. The appellant then filed an appeal before ITAT.

The tribunal observed that the Commissioner of Income Tax gave undue importance to the fact that the aircraft was only taken on lease by the appellant. And the appellant credited the receipts by deducting the same from the expense's aircraft lease rental in its Profit and Loss Account. It held that merely because a capital receipt was utilized for incurring revenue expenditure, it did not change the nature of capital receipt into a revenue item.

The Coram of Anubhav Sharma (judicial member) and Anil Chaturvedi (accountant member) stated, "We reverse the finding recorded by CIT in the impugned order and hold that the credits received by the appellant from IAE are capital in nature."