News
ITAT Delhi Upholds Ireland-India DTAA Benefits for Irish Aircraft Lessors; Rejects Finance Lease Re-characterisation and MLI-Based Denial
26 Jun 2026
- DMD Advocates
- Matter Reporting
The Income Tax Appellate Tribunal, Delhi has allowed the appeals filed by several Irish aircraft lessors on the issue of the taxability of lease rentals received by them from Indian lessees, under the India–Ireland Double Taxation Avoidance Agreement (‘DTAA’). The Revenue Department had recharacterised the lease rentals as finance leases while invoking the Principal Purpose Test (‘PPT’) under Articles 6 and 7 of the Multilateral Instrument (‘MLI’) to deny the benefits of Article 8 of the treaty.
On the issue of lease characterisation, the Tribunal held that ownership of the aircraft remained vested with the Irish lessors at all times, with no provision for the transfer of title to the lessees at any stage. Relying on the decisions in Celestial Aviation Trading 15 Ltd. v. ACIT and the Special Bench ruling in InterGlobe Aviation Ltd. (IndiGo) v. ACIT, the Tribunal held that the leases were operating leases in nature. Further, on the issue of applicability of PPT, the Tribunal followed the Mumbai Bench’s comprehensive ruling in Sky High Appeal XLIII Leasing Company Ltd. v. ACIT and the Supreme Court’s landmark decision in Nestlé SA, holding that in the absence of a specific notification issued under Section 90(1) of the Income-tax Act, 1961 incorporating the MLI’s modifications into the India–Ireland DTAA, treaty benefits could not be denied by invoking the MLI. While holding that Article 8 of the India–Ireland DTAA expressly covers rental income derived from aircraft operated in international traffic, the Tribunal concluded that the treaty benefit was available to the lessors in view of lessee’s undisputed status as an international carrier satisfying the conditions for “international traffic” prescribed under Article 8 of the DTAA.
The appellants were represented by Sachit Jolly, Senior Advocate, along with DMD Advocates led by Sherry Goyal, Associate Partner and Viyushti Agarwal, Principal Associate.
