CIT, International Taxation Vs Air India Ltd. (Delhi High Court)
The Delhi High Court heard an Income Tax Appeal challenging the order dated 23rd April 2021 passed by the Income Tax Appellate Tribunal (ITAT) in ITA Nos. 2260/DEL/2018, 2261/DEL/2018, and 2262/DEL/2018 concerning Assessment Year 2013-14. The appellant contended that the ITAT erred in holding that Section 206AA of the Income Tax Act, 1961, which mandates higher tax deduction rates for non-residents without PAN, could not override the provisions of the Double Taxation Avoidance Agreement (DTAA). The appellant argued that Section 206AA is a “non obstante” provision and therefore overrides other sections, including Section 90(2), which allows an assessee to avail of DTAA benefits. It was also argued that Section 206AA pertains to tax deduction at source and not the charge of tax, and the highest rate under Section 206AA(1) should apply, even if the DTAA prescribes a lower rate.
Read SC Judgment: SC Confirms DTAA Protection Against Higher TDS Under Section 206AA
The ITAT had observed that the dispute concerned the TDS rate applicable to payments made by the assessee, Air India Ltd., to a foreign lessor, ELFC, for leasing an aircraft engine. ELFC, a foreign company and a tax resident of the Netherlands, had no permanent establishment (PE) in India. The payment was for the rent of an aircraft engine, which is treated as equipment under Article 12(4) of the DTAA between India and the Netherlands, not as an aircraft. The assessee had not deducted TDS from the payment but had deposited it from its own account, absorbing it as a cost. ELFC did not have a PAN, and the assessee reported the transaction in quarterly TDS statements without PAN. The primary legal question was whether the applicable TDS rate should be 20.12% under Section 206AA or 10% under the DTAA provisions.
