Tax residency and nature of lease agreements under international tax treaties are pivotal in determining tax liabilities.

ORDER 

PER M. BALAGANESH, A. M.:

1. By virtue of this stay application, the assessee seeks to keep the demand raised for the AY 2022-23 in abeyance.

2. We have heard the rival submissions and perused the material available on record. The assessee is based on Ireland, engaged in the business of leasing aircraft. The assessee is a tax resident of Ireland. The assessee had leased aircraft to an Indian entity on operating lease basis and received lease rentals thereon. The lease rental income of the assessee is not taxable in India under India-Ireland Double Taxation Agreement (DTAA). In the assessment proceedings, the ld AO re-characterized the operating lease as finance lease in the draft assessment order by holding that return of aircraft at the end of lease period tantamount to repayment of principal portion of the finance lease. The assessee filed objections before the ld DRP which upheld the draft assessment order. The assessee submitted that Special Bench of Delhi Tribunal in the case of Inter Globe Aviation Ltd (lessee) vs. Addl CIT reported in 131 taxmann.com 98 (Del) (SB) had held that the lease of aircraft to be in the nature of operating lease and discarded the stand of the revenue to re-characterize it as finance lease. It was submitted that once the nature of lease agreement has been held to be operating lease in the hands of the lessee, the said lease agreement cannot be re-characterized as finance lease in the hands of the lessor (i.e. assessee herein). Accordingly, he pleaded that the entire issue in dispute is covered in favour of the assessee thereby making a prima facie case in favour of the assessee.

3. Per contra, the ld DR vehemently supported the orders of the lower authorities and insisted for payment of minimum 20% of outstanding demand subject to which, the demand could be kept in abeyance.

4. We find that the similar fact had cropped in a bunch of stay applications before this Tribunal in the case of Hoohly Aviation Leasing ltd, Ireland vs. ACIT (International Taxation) in SA No. 98/Del/2025 dated 07.03.2025 and others, wherein, under the identical facts and circumstances, this Tribunal had observed that the assessee had made prima facie case in its favour thereby making it eligible to seek stay of demand. Accordingly, the demand was kept in abeyance by this Tribunal. Respectfully following the same, in view of the identical facts, we are inclined to keep the demand in abeyance for a period of 180 days from the date of this order or till the disposal of appeal, whichever is earlier. The appeal be listed for hearing on 08.05.2025. Since, the date of hearing of appeals have been announced in the open court, issuance of separate notice of hearing to the parties is dispensed with. The assessee, if so advised, may file paper book on or before the date of hearing of appeal with an advance copy to the opposite side, in accordance with Income Tax Appellate Tribunal Rules. The revenue, if so desires to seek any report from the ld AO in these appeals, may do so, before the date of hearing. We make it clear that both the sides are refrained from seeking adjournment whenever the main appeals are listed for hearing. In case an adjournment is sought by the assessee for unjust reason, the benefit of stay granted shall be deemed to be withdrawn.

5. We may point here that any observation in this order may not be construed in any manner as our comments on merits of the issue in appeals. The appeal orders may be passed on merits, uninfluenced by any observation made whatsoever in this order by us.

6. In the result, the stay application of the assessee is allowed in the aforesaid terms.

Order pronounced in the open court on 21/03/2025.