Section 10(6BB)- Exemption for Foreign Governments/Enterprises on Aircraft Leasing Income

Section 10(6BB) of the Income Tax Act, 1961 provides a tax exemption to foreign governments or foreign enterprises on income earned from leasing aircraft or aircraft engines to Indian companies. This exemption applies when the Indian lessee (company) pays the tax on behalf of the foreign entity under an approved agreement.

Key Features of Section 10(6BB)

1. Eligible Entities:
   • Government of a foreign state
   • Foreign enterprise(any non-resident entity engaged in aircraft leasing)

2. Nature of Income:

• Income from leasing aircraft or aircraft enginesto an Indian company.
• Excluded: Income from providing spares, facilities, or services related to aircraft operations.

3. Exemption Scope:

• Entire tax paid by the Indian lesseeis exempt for the foreign entity.
• The income remains taxable, but the tax liability is shifted to the Indian company.

4. Conditions:

• The agreement must be approved by the Central Government.
• The agreement must be signed:
  • Between 1 April 1997 and 31 March 1999, OR
  • After 31 March 2007.
• The Indian lessee must be engaged in the business of aircraft operations(e.g., airlines, cargo operators).

Example of Section 10(6BB) in Action

Scenario

• Foreign Enterprise: SkyLease Inc. (a UK-based aircraft leasing company).
• Indian Lessee: Bharat Airlines (an Indian airline company).
• Lease Agreement: Bharat Airlines leases 3 Boeing 787 aircraftfrom SkyLease Inc. under an agreement signed on 15 May 2008, approved by the Indian government.
• Lease Payment: ₹50 crores per year.
• Tax Rate on Lease Income: 10% (₹5 crores).

Tax Treatment Under Section 10(6BB)

1. Bharat Airlinespays ₹50 crores to SkyLease Inc. as lease rental.
2. Bharat Airlines also pays the tax (₹5 crores)on behalf of SkyLease Inc. under the agreement.
3. SkyLease Inc. claims exemption under Section 10(6BB)for the ₹5 crores tax paid by Bharat Airlines.
4. Result:

• SkyLease Inc.’s taxable income in India = ₹50 crores (lease income).
• Tax liability (₹5 crores) already paid by Bharat Airlines is exempt for SkyLease Inc.
• Net tax burden on SkyLease Inc. = ₹0.

Comparison with Other Similar Exemptions

Key Points

✅ Purpose: Encourages foreign aircraft leasing to Indian airlines by reducing tax burdens.

✅ Reciprocity Not Required: Unlike Section 10(6)(ii) for diplomats, no reciprocal tax exemption is needed.

✅ Time-Bound Benefit: Only applies to agreements signed in 1997-1999 or after 2007.

✅ Approval Mandatory: Central Government approval is required for the lease agreement.