The Indian tax authority has challenged the Mumbai ITAT’s August 2025 order that allowed Irish aircraft lessors to claim treaty benefits. The tribunal had ruled the leases were operating leases and taxable only in Ireland, rejecting claims of permanent establishment or misuse of the India–Ireland DTA.
The Indian tax authority has filed an appeal before the High Court against the Mumbai bench of the Income Tax Appellate Tribunal’s (ITAT) consolidated order of August 2025, which granted treaty benefits to several Irish aircraft leasing companies.
The ITAT had considered the lead case of TFDAC Ireland II Limited and other Irish lessors for the Assessment Year 2022–23. The appeals arose after the Revenue Department denied treaty benefits and classified lease rentals as taxable income in India.
The Tribunal found that Articles 6 and 7 of the Multilateral Instrument (MLI) cannot restrict benefits under the India–Ireland DTAA unless a formal notification under Section 90(1) of the Income-tax Act is issued. Even assuming MLI applicability, the Irish entities had genuine commercial substance, with Ireland recognised as a global hub for aircraft leasing and the use of Special Purpose Vehicles considered standard industry practice.
The ITAT also rejected the Revenue’s re-characterisation of operating leases as finance leases. Key factors included the absence of a purchase option for the lessee, retention of legal ownership by the lessor, and mandatory redelivery of aircraft at lease end. Irish depreciation rules were deemed irrelevant under Indian law.
On the issue of permanent establishment, the Tribunal concluded that the leased aircraft in India did not create a fixed place PE. The aircraft were under the lessee’s exclusive operational control, with the lessor’s inspection rights deemed merely protective.
Finally, the Tribunal confirmed that lease income fell under Article 8(1) of the India–Ireland treaty, covering profits from the “operation or rental” of aircraft in international traffic. Since the aircraft were used by IndiGo for international flights, the rental income was taxable only in Ireland.
