Income-tax commissioner confirms Rs 1,666-crore tax demand on IndiGo; airline to contest order

The low-frills carrier plans to contest the order by the Commissioner of Income Tax — Appeals seeking Rs 740 crore recovery for assessment year (AY)2016-17 and Rs 927 crore recovery for AY2017-18

The Commissioner of Income Tax-Appeals has confirmed tax demand totalling around Rs 1,666 crore on Interglobe Aviation, the parent company of IndiGo airlines, the carrier said in a notice to the stock exchanges on November 22.

The low-frills carrier plans to contest the order by the Commissioner of Income Tax — Appeals seeking Rs 740 crore recovery for assessment year (AY)2016-17 and Rs 927 crore recovery for AY2017-18.

The airline alleged that it was not granted an opportunity for a personal hearing by the commissioner.

The matter was not adjudicated on merit, the airline said in its statement.

"The CIT-Appeal has now passed the respective orders, wherein the revision to the taxable income on account of the tax treatment of certain incentives received by the Company from manufacturers with the acquisition of the aircraft and engine and disallowance of certain expenses has been confirmed without granting an opportunity of personal hearing and adjudicating the matter on merits," the airline said.

This is the second time the Commissioner of Income Tax-Appeals has confirmed tax demand on IndiGo, as a similar order was passed in 2015.

Back in 2015, the Commissioner of Income Tax (Appeals), a quasi-judicial appellate authority, had asked the Central Board of Direct Taxes to look at treating discounts received by Indian airlines on purchase of aircraft as commission while computing their taxable income.

Based on this view, the CIT had issued notices to InterGlobe Aviation in 2015, asking the operator of Indigo Airlines why its taxable income should not be increased by more than Rs 400 crore for the assessment years 2008-11 to include the discounts it received.

InterGlobe had presented these discounts as capital receipts, which are exempted from income tax. But the commissioner rejected the plea and served the notices of enhancement.

The Commissioner of Income Tax-Appeals has now passed respective orders wherein the revision to the taxable income on account of tax treatment of certain incentives received by the company from aircraft and engine manufacturers and disallowance of certain expenses has been confirmed without granting an opportunity of personal hearing and adjudicating the matter on merits, the airline said.

“The company believes, based on legal advice from counsels, that the views taken by authority are not sustainable,” it added.

Airlines often sell aircraft immediately after taking delivery of them and then lease them back, a practice that allows them to free up capital. While purchasing aircraft in bulk, they also get huge discounts from the manufacturers on the list price.

This discount is nothing but a commission received for fixing a bulk deal for aircraft and engines between the manufacturers and the lessors, the CIT wrote.

According to the Commissioner of Income Tax, the lessee (airline) is not entitled to claim any depreciation on these assets.