Tax Demand of Rs. 1,666 crore on IndiGo: Company to Contest

The Commissioner of Income Tax-Appeals has verified a tax demand totalling around Rs. 1,666 crore against Interglobe Aviation, the parent company of IndiGo Airlines, the carrier announced on November 22 in a notice to stock markets.

The low-cost carrier intends to appeal the ruling of the Commissioner of Income Tax — Appeals, which seeks Rs. 740 crore in recovery for the financial year (AY)2016-17 and Rs 927 crore in recovery for the financial year (AY)2017-18.

The airline claimed that the commissioner denied it the right to a personal hearing.

According to the airline’s statement, the case was not decided on merit.

“The CIT-Appeal has now passed the relevant orders, wherein the modification 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 providing an opportunity of personal hearing and adjudicating the matter on merits,” the company said in a statement.

In 2015, the Commissioner of Income Tax (Appeals), a quasi-judicial appellate body, requested that the Central Board of Direct Taxes investigate the possibility of classifying discounts earned by Indian airlines on aircraft purchases as commission when calculating their taxable income.

Based on this assessment, the CIT sent letters to InterGlobe Aviation in 2015, asking the operator of Indigo Airlines why its taxable income should not be raised by more than Rs. 400 crore for the assessment years 2008-11 in order to account for the discounts it obtained.

InterGlobe had reported these discounts as capital receipts, which are tax-free. However, the commissioner denied the appeal and issued the notices of augmentation.

According to the airline, the Commissioner of Income Tax-Appeals has now issued respective orders confirming the revision to the taxable income due to the tax treatment of certain incentives received by the company from aircraft and engine manufacturers, as well as the disallowance of certain expenses, without granting an opportunity for personal hearing and adjudicating the matter on merits.

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

Airlines frequently sell aeroplanes shortly after receiving them and then lease them back, allowing them to free up funds. They receive significant savings from the manufacturers on the advertised price when purchasing aeroplanes in bulk.

As per the CIT, this reduction is nothing more than a commission for negotiating a bulk purchase for aircraft and engines between manufacturers and lessors.

According to the Commissioner of Income Tax, the lessee (airline) has no right to depreciate these assets.