ITAT Rules ‘Supplementary Rent’ Paid by Spice Jet to Foreign Lessors Not Subject to Tax in India

ITAT Rules ‘Supplementary Rent’ Paid by Spice Jet to Foreign Lessors Not Subject to Tax in India

The Income Tax Appellate Tribunal (ITAT), Delhi has upheld the order of the Commissioner of Income Tax (Appeals) (CIT[Appeals]), holding that ‘supplementary rent’ paid by Spice Jet Limited (assessee) to foreign companies/entities, from whom the assessee acquired aircraft on lease after 1 April, 2007, is not subject to tax in India.

In the instant case, the dispute was regarding the disallowance of supplemental lease rent made by the Assessing Officer (AO) under Section 40(a)(i) of the Income Tax Act, 1961.

The AO contended that the supplementary rent paid by the assessee to lessors was for the replacement of parts and services related to the operation of the leased aircraft. Therefore, the AO had concluded that the exemption under Section 10(15A) did not apply, and the assessee was required to deduct tax at source.

However, the CIT(Appeals) deleted the disallowance.

The Revenue conceded that the issue had already been decided in favor of the assessee by the Tribunal for lease agreements executed before 1 April, 2007. However, it was argued that the treatment of supplemental lease rentals as royalty for agreements executed after 1 April, 2007, had not been decided by the Tribunal.

The two-member bench of Challa Nagendra Prasad (Judicial Member) and Narendra Kumar Billaiya (Accountant Member) referred to the Special Bench decision in the case of Inter Globe Aviation Ltd. (Indigo) vs. Addl. CIT (2021) wherein the lease rental pursuant to agreements executed after 1 April, 2007 and its chargeability to tax in the hands of lesser under Article 12 of Double Taxation Avoidance Agreement (DTAA) between India and Ireland and the Special Bench held that supplementary rent paid for lease agreements executed after 1 April, 2007 are not chargeable to tax in India.

Moreover, the ITAT on careful perusal of the Ld. CIT(Appeals) order, observed that the disallowance was deleted on appreciation of facts and the evidences on record and also applyed the decision of the Mumbai Bench in the case of Sri Radha Krishna Shipping Ltd., wherein it was held that interest on account of delay in payment of service tax is allowable as deduction under 37(1) of the Act.

Thus, the grounds raised by the Revenue were rejected.