Credit received from supplier for choosing its engines in aircraft to be purchased is capital receipt: ITAT

Case Details: InterGlobe Aviation Limited (IndiGo) v. ACIT - [2021] 131 taxmann.com 98 (Delhi - Trib.) (SB)

Judiciary and Counsel Details

• • G.S. Pannu, Vice President, P.P. Bhatt, President and R.K. Panda, Accountant Member
  • M.S. Syali, Sr. Adv. Tarandeep Singh, CA and Pulkit Verma, Adv. for the Appellant. 
  • G.C. Srivastava, Mayank Patawari, CA and Suvinay Dash, Adv. for the Respondent.

Facts of the Case

The assessee was a Company engaged in the business of operating low cost Airlines in India under the Name and Brand “IndiGo”. During the course of assessment proceedings, it was observed that the assessee had entered into a Purchase Agreement with AIRBUS SAS, France, for the supply of 100 Aircrafts. The assessee had selected V2500 engines manufactured by IAE international aero engines AG, Switzerland (IAE) as the supplier of engines that were to be fitted in the Aircraft.
As a consideration for the selection of the IAE engines to be fitted in the aircraft, certain credits were allowable to the assessee from IAE on the delivery of such aircraft. As per assessee, since the credit was given by IAE was linked to the aircraft’s acquisition, the amount being capital receipt is not liable to tax. However, Assessing Officer (AO) treated the same as revenue receipt.
The Hon’ble President vide Order Dated 19.04.2018 had constituted the Special Bench for deciding the issues referred to by the Delhi “C” Bench.

ITAT Held

The Delhi Tribunal Special Bench held that it is the settled proposition of law that under the provisions of the Act, all receipts are not taxable. Whether a particular receipt is an income or not depends on the nature/purpose of that receipt and the true scope and effect of the relevant taxing provisions.
The assessee received credits for the selection of engines for support for aircraft acquisition. Said credits would not be incidental to or derived from the business of operation of commercial aircraft.
Aircrafts were part of fixed capital for the assessee. Thus the entire amount of credit received by the assessee in year under consideration was a capital receipt, not a revenue receipt.