We wet-lease aircraft with crew to an Indian airline. Can we be assessed at five per cent under s.44BBA?
On these facts, no. Section 44BBA requires the non-resident to be engaged in the business of operation of aircraft, and the Tribunal held that a wet lease — even one under which the lessor provides crew, maintenance, navigation and insurance — remains a lease and does not make the lessor the operator of the aircraft.
Decided by the ITAT (Dr. O.K. Narayanan, Accountant Member (the copy read names no other member)) on 2005-06-21, reported as Income Tax Appellate Tribunal, Mumbai; assessment years 1995-96, 1996-97 and 1997-98; appeals against orders of CIT(A)-IV, Mumbai dated 23 February 2001. It bears on section 44BBA, section 9(1)(i), section 10(15A), section 143(3), section 147, section 148 of the Income Tax Act 1961, in Presumptive Taxation & Audit and Assessment & Scrutiny matters.
This is the Revenue-side authority on s.44BBA and it is worth knowing before an aircraft-leasing structure is offered for the five per cent regime. The Tribunal's point is that the additional responsibilities a wet lessor carries are value added services inherent in leasing an aircraft and do not change the character of the transaction; what mattered on the facts was that the flights were flown under the lessee airline's banner, on its allotted schedules and routes, with its tickets, and at its risk and responsibility. The consequence for the taxpayer was severe: with s.44BBA out and no books maintained, the officer estimated the income at 29.7 per cent of Indian revenues, taken from an international arbitration award between the same parties, and the Tribunal upheld that estimate. The taxpayer also lost its alternative argument that only a proportionate part of the receipts was attributable to Indian operations.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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Caribjet Inc is a company incorporated in Antigua and Barbuda, West Indies. It entered into agreements with Air India for wet leasing aircraft at Air India's disposal, Air India paying rentals on the basis of block hours flown. Under the arrangement the assessee provided the aircraft with operating crew and took responsibility for operation, maintenance, airworthiness, flight crews, flight planning and navigation, technical records and log books, compliance with DGCA airworthiness requirements and third party and other insurance, and had operating permits in its own name; no payment was made for cancelled flights. The assessee had not voluntarily filed returns for the three years, notices under s.148 were issued and the assessments were completed under s.143(3) read with s.147. The assessee contended that its income should be assessed under s.44BBA at five per cent of the amounts received on account of carriage of passengers, mail and goods, and in the alternative that only the portion attributable to operations in India was taxable under s.9(1)(i). The Assessing Officer held that s.44BBA applies only where the assessee is engaged in the business of operation of aircraft, whereas this assessee was leasing out aircraft, and — no regular accounts of Indian operations having been maintained — estimated income at 29.7 per cent of the revenues from the Air India contract, adopting that rate from an award of the Tribunal for International Arbitration in London in a dispute between the assessee and Air India. The CIT(A) confirmed the computation.
All three appeals were dismissed. The assessee was in fact leasing out its aircraft to Air India and was not carrying on the business of operation of aircraft, so its income could not be brought to tax under s.44BBA (paragraph 19). The claim under s.10(15A) was not pressed and was in any event not made out (paragraph 20). On attribution, since the basis of earning revenue in India was the business connection with Air India, the Assessing Officer had rightly taken the entire payment made by Air India as the basis for computing taxable income (paragraph 21). Since no books or particulars had been produced, the Assessing Officer was bound to estimate, and an estimate at 29.7 per cent taken from the finding of the International Arbitration Tribunal was neither erroneous nor arbitrary (paragraph 22).
Section 44BBA applies where a non-resident is engaged in the business of operation of aircraft, and the Tribunal read that expression as a comprehensive term covering the entire activities necessary for running an airline business engaged in the carriage of passengers, livestock, mail or goods; satisfying part of the conditions is not enough. In civil aviation the responsibility for maintenance and technical upkeep is usually borne by lessors and crew is often provided by them, so the additional responsibilities of a wet lease are value added services which do not create a fundamental distinction between dry and wet leasing — the basic character of both is leasing. The responsibilities the assessee pointed to were inherent in flying aircraft and could not be delegated by a lessor who also supplies the crew, so discharging them could not be a determining factor. Drawing an analogy with cars and ships, the Tribunal reasoned that the greater responsibilities a lessor assumes as the subject of the lease becomes more complex are priced into the rental and do not make the lessor assume the lessee's business. Decisively, the flights were flown under Air India's banner and were known as Air India flights, schedules were allotted to Air India by the international civil aviation authority, routes were pre-determined, tickets were issued by Air India, and passengers, mail and goods were carried at Air India's sole risk with all commercial, civil and criminal liability borne by Air India.
Therefore, we hold that the assessee was in fact leasing out its aircrafts to Air India and not carrying on "business of operation of aircraft".
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Handle my notice → Ask a CA on WhatsAppOn these facts, no. Section 44BBA requires the non-resident to be engaged in the business of operation of aircraft, and the Tribunal held that a wet lease — even one under which the lessor provides crew, maintenance, navigation and insurance — remains a lease and does not make the lessor the operator of the aircraft. This was decided by the ITAT (Dr. O.K. Narayanan, Accountant Member (the copy read names no other member)) and bears on section 44BBA, section 9(1)(i), section 10(15A), section 143(3), section 147, section 148 of the Income Tax Act 1961. It is reported as Income Tax Appellate Tribunal, Mumbai; assessment years 1995-96, 1996-97 and 1997-98; appeals against orders of CIT(A)-IV, Mumbai dated 23 February 2001. This is the Revenue-side authority on s.44BBA and it is worth knowing before an aircraft-leasing structure is offered for the five per cent regime. The Tribunal's point is that the additional responsibilities a wet lessor carries are value added services inherent in leasing an aircraft and do not change the character of the transaction; what mattered on the facts was that the flights were flown under the lessee airline's banner, on its allotted schedules and routes, with its tickets, and at its risk and responsibility. The consequence for the taxpayer was severe: with s.44BBA out and no books maintained, the officer estimated the income at 29.7 per cent of Indian revenues, taken from an international arbitration award between the same parties, and the Tribunal upheld that estimate. The taxpayer also lost its alternative argument that only a proportionate part of the receipts was attributable to Indian operations. If it applies to you, the first step is this: Before claiming s.44BBA, test the facts against the operator question the Tribunal asked: whose banner do the flights fly under, whose schedules and routes, whose tickets, and at whose commercial and legal risk are passengers, mail and goods carried?
Caribjet Inc is a company incorporated in Antigua and Barbuda, West Indies. It entered into agreements with Air India for wet leasing aircraft at Air India's disposal, Air India paying rentals on the basis of block hours flown. Under the arrangement the assessee provided the aircraft with operating crew and took responsibility for operation, maintenance, airworthiness, flight crews, flight planning and navigation, technical records and log books, compliance with DGCA airworthiness requirements and third party and other insurance, and had operating permits in its own name; no payment was made for cancelled flights. The assessee had not voluntarily filed returns for the three years, notices under s.148 were issued and the assessments were completed under s.143(3) read with s.147. The assessee contended that its income should be assessed under s.44BBA at five per cent of the amounts received on account of carriage of passengers, mail and goods, and in the alternative that only the portion attributable to operations in India was taxable under s.9(1)(i). The Assessing Officer held that s.44BBA applies only where the assessee is engaged in the business of operation of aircraft, whereas this assessee was leasing out aircraft, and — no regular accounts of Indian operations having been maintained — estimated income at 29.7 per cent of the revenues from the Air India contract, adopting that rate from an award of the Tribunal for International Arbitration in London in a dispute between the assessee and Air India. The CIT(A) confirmed the computation. The matter was decided on 2005-06-21 by the ITAT (Dr. O.K. Narayanan, Accountant Member (the copy read names no other member)). On those facts the ITAT held as follows. All three appeals were dismissed. The assessee was in fact leasing out its aircraft to Air India and was not carrying on the business of operation of aircraft, so its income could not be brought to tax under s.44BBA (paragraph 19). The claim under s.10(15A) was not pressed and was in any event not made out (paragraph 20). On attribution, since the basis of earning revenue in India was the business connection with Air India, the Assessing Officer had rightly taken the entire payment made by Air India as the basis for computing taxable income (paragraph 21). Since no books or particulars had been produced, the Assessing Officer was bound to estimate, and an estimate at 29.7 per cent taken from the finding of the International Arbitration Tribunal was neither erroneous nor arbitrary (paragraph 22).
Section 44BBA applies where a non-resident is engaged in the business of operation of aircraft, and the Tribunal read that expression as a comprehensive term covering the entire activities necessary for running an airline business engaged in the carriage of passengers, livestock, mail or goods; satisfying part of the conditions is not enough. In civil aviation the responsibility for maintenance and technical upkeep is usually borne by lessors and crew is often provided by them, so the additional responsibilities of a wet lease are value added services which do not create a fundamental distinction between dry and wet leasing — the basic character of both is leasing. The responsibilities the assessee pointed to were inherent in flying aircraft and could not be delegated by a lessor who also supplies the crew, so discharging them could not be a determining factor. Drawing an analogy with cars and ships, the Tribunal reasoned that the greater responsibilities a lessor assumes as the subject of the lease becomes more complex are priced into the rental and do not make the lessor assume the lessee's business. Decisively, the flights were flown under Air India's banner and were known as Air India flights, schedules were allotted to Air India by the international civil aviation authority, routes were pre-determined, tickets were issued by Air India, and passengers, mail and goods were carried at Air India's sole risk with all commercial, civil and criminal liability borne by Air India. In the words reproduced by the source cited on this page: "Therefore, we hold that the assessee was in fact leasing out its aircrafts to Air India and not carrying on "business of operation of aircraft"."
It was decided by the ITAT on 2005-06-21 and is reported as Income Tax Appellate Tribunal, Mumbai; assessment years 1995-96, 1996-97 and 1997-98; appeals against orders of CIT(A)-IV, Mumbai dated 23 February 2001. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 44BBA, section 9(1)(i), section 10(15A), section 143(3), section 147, section 148, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. All three appeals were dismissed. The assessee was in fact leasing out its aircraft to Air India and was not carrying on the business of operation of aircraft, so its income could not be brought to tax under s.44BBA (paragraph 19). The claim under s.10(15A) was not pressed and was in any event not made out (paragraph 20). On attribution, since the basis of earning revenue in India was the business connection with Air India, the Assessing Officer had rightly taken the entire payment made by Air India as the basis for computing taxable income (paragraph 21). Since no books or particulars had been produced, the Assessing Officer was bound to estimate, and an estimate at 29.7 per cent taken from the finding of the International Arbitration Tribunal was neither erroneous nor arbitrary (paragraph 22). It arises in Presumptive Taxation & Audit and Assessment & Scrutiny matters, on section 44BBA, section 9(1)(i), section 10(15A), section 143(3), section 147, section 148 of the Income Tax Act 1961, and was decided by Dr. O.K. Narayanan, Accountant Member (the copy read names no other member). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not rest the claim on technical and operational responsibilities alone — crew, maintenance, airworthiness, navigation and flight despatch were all with the assessee here and did not save the claim. If s.44BBA may be denied, maintain books and particulars for the Indian operations anyway; the absence of books is what let the officer estimate at 29.7 per cent, and the Tribunal held he was duty bound to estimate once regular assessment applied. Do not assume a proportionate attribution under the Explanation to s.9(1)(i) will follow automatically — the Tribunal held that where the basis of earning was the business connection with the Indian airline, the entire payment was the right starting point. Treat any adverse finding in a commercial arbitration about your margins as evidence the Revenue can use; here an award of the Tribunal for International Arbitration in London supplied the estimate.
Searched for later treatment; none was found. That is not the same as a source affirming it. A citedby: search returns nothing. A second probe on the party name returns 51 documents, but every court decision involving Caribjet Inc is a commercial suit between Air India Ltd and Caribjet in the Bombay High Court (orders of 2004, 2005, 2007, 2019, 2021 and 2023) arising out of Suit No. 3228 of 2001 — none is an income-tax appeal and none deals with s.44BBA or the wet-lease question. No later Tribunal order was found discussing whether a wet lease is 'operation of aircraft'. Nothing overruling, doubting or affirming this order was found. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Two points on the report. The copy of the order names only one member in its header, Dr. O.K. Narayanan, Accountant Member, and does not show a Judicial Member; whether the order was passed by a Division Bench is therefore not established here. And the opening paragraph is unnumbered in the report, so the numbering runs from 2, which means a paragraph reference taken from this entry is one behind any count that treats the opening paragraph as paragraph 1. The disposal is at paragraph 23. Two points on the scope of the decision. The holding on s.44BBA is that the section requires the non-resident to be engaged in the business of operation of aircraft and that a wet lease, however full the package of services supplied with the aircraft — crew, maintenance and insurance among them — leaves the lessor a lessor. That is a conclusion on the character of the arrangement before the Bench, and a different lease may be characterised differently on its own terms; the order does not lay down that no wet lease can ever amount to operation. The rest of the order is not a holding on s.44BBA at all. The claim under s.10(15A) was not pressed and was in any event not made out, so nothing in the order decides the scope of that exemption. The attribution point at paragraph 21 — that the entire payment made by Air India was rightly taken as the basis of computation — rests on the finding that the business connection with Air India was the basis of earning revenue in India, and the estimate at 29.7 per cent upheld at paragraph 22 was upheld only because no books or particulars had been produced, the Assessing Officer was consequently bound to estimate, and the percentage was taken from a finding of the International Arbitration Tribunal. An assessee who does produce books is not answered by paragraph 22. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
All three appeals were dismissed. The assessee was in fact leasing out its aircraft to Air India and was not carrying on the business of operation of aircraft, so its income could not be brought to tax under s.44BBA (paragraph 19). The claim under s.10(15A) was not pressed and was in any event not made out (paragraph 20). On attribution, since the basis of earning revenue in India was the business connection with Air India, the Assessing Officer had rightly taken the entire payment made by Air India as the basis for computing taxable income (paragraph 21). Since no books or particulars had been produced, the Assessing Officer was bound to estimate, and an estimate at 29.7 per cent taken from the finding of the International Arbitration Tribunal was neither erroneous nor arbitrary (paragraph 22).
TaxSphere, “Caribjet Inc v DCIT”, https://taxnotice.vittsphere.com/caselaw/case/caribjet-inc-v-dcit-44bba-wet-lease-is-not-operation-of-aircraft/ (validity last checked 2026-09-08)
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