Celestial Aviation Trading 64 Limited Vs ITO (Delhi High Court)
Facts- The petitioner entered into an Aircraft Specified Lease Agreement with Air India Limited for lease of one aircraft for a period of 12 years.
The case of the petitioner is that the petitioner made applications under Section 197 of the Act for ‘Nil‟ rate of withholding tax on the premise that under Articles 8 and 12 of the India Ireland Double Taxation Avoidance Agreement (‘Tax Treaty‟), they were liable to pay tax only in Ireland. These applications made by the petitioner for the FY 2016-17, 201718, 2018-19, 2019-20 and 2020-21 were allowed by the AO, thereby allowing the petitioner to receive considerations from AIL without any deduction of tax.
The petitioner moved an application on 02.03.2021 in Form 13 under Section 197 for the FY 202122, requesting for issuance of ‘Nil‟ withholding tax certificate in respect of the estimated consideration of Rs. 45,65,90,956/- receivable from AIL under the Agreement dated 21.10.2016 on the same basis as before. Respondent No. 1 issued the impugned order/ certificate on 07.09.2021 – prescribing 10% as the withholding tax rate which is not in line with the earlier certificate/ order issue in respect of the petitioner – as taken note of hereinabove.
Conclusion- In the interim, the petitioner will be entitled to avail of the “Nil” rate of withholding Tax, as has been the position in the past several years consistently. Since the aircraft in question is leased to AIL for a period of 12 years, in our view, the interest of Revenue is sufficiently protected in any eventuality of the petitioner found liable to payment of taxes, interest, or penalty under the Act.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Exemption allowed, subject to all just exceptions.
2. The application stands disposed of.
P.(C) 12002/2021 and CM No. 37105/2021
3. Issue notice Mr. Agarwal appears and accepts notice. On service of advance notice, Mr. Agarwal has also filed his submissions.
4. With the consent of parties, we have proceeded to hear the present petition and dispose of same at this stage.
5. The petitioner has preferred the present petition to assail the order dated 07.09.2021 passed by respondent No. 1 under Section 197 of the Income Tax Act (‘the Act‟). The petitioner also seeks a direction to respondent to issue an order/ certificate under Section 197 of the Act at ‘Nil‟ rate.
6. The brief background facts are that the petitioner is a foreign company, tax resident of Ireland and is engaged in the business of aircraft leasing. The petitioner states that it has regularly filed returns of income in India since the Assessment Year 2019-20, and thereafter. On 21.10.2016, the petitioner entered into an Aircraft Specified Lease Agreement with Air India Limited (AIL) for lease of one aircraft (Airbus A320-200), referenced as MSN 7662, for a period of 12 years.
7. The case of the petitioner is that the petitioner made applications under Section 197 of the Act for ‘Nil‟ rate of withholding tax on the premise that under Articles 8 and 12 of the India Ireland Double Taxation Avoidance Agreement (‘Tax Treaty‟), they were liable to pay tax only in Ireland. These applications made by the petitioner for the Financial Years 2016-17, 201718, 2018-19, 2019-20 and 2020-21 were allowed by the Assessing Officer, thereby allowing the petitioner to receive considerations from AIL without any deduction of tax at source.
8. The petitioner moved an application on 02.03.2021 before respondent No. 1 in Form 13 under Section 197 of the Act for the Financial Year 202122, requesting for issuance of ‘Nil‟ withholding tax certificate/ order in respect of the estimated consideration of Rs. 45,65,90,956/- receivable from AIL under the Agreement dated 21.10.2016 on the same basis as before. Respondent No. 1 issued the impugned order/ certificate on 07.09.2021 – prescribing 10% as the withholding tax rate which is not in line with the earlier certificate/ order issue in respect of the petitioner – as taken note of hereinabove. Aggrieved by the same, this petition has been preferred.
9. Mr. Jolly – learned counsel for the petitioner, submits that the impugned order passed by the Assessing Officer cannot be sustained for the reason that the same proceeds on extraneous considerations, and the reasons for passing the same – as provided by the respondent, are not relevant and germane. The reasons on which the impugned order is premised and which have been provided to the petitioner, read as follows:-
“Order u/s 197 of the Income Tax Act, 1961
M/s Celestial Aviation Trading 64 Limited (‘CAT 64‟) is a tax resident of Ireland. The assessee is engaged in the business of aircraft leasing. The applicant has entered into Aircraft Specified Lease Agreements dated 21.10.2016 regarding lease of aircraft with Air India Limited (‘AIL‟), a company incorporated under the laws of Indian having its registered office in New Delhi.
The assessee has filed an application requesting for issue of NIL withholding tax certificate u/s 197 of the I.T. Act, 1961 in respect of payment receivable from Air India Limited on account of payments amounting to Rs. 45,65,90,956/- for Aircraft Specified Lease Agreements.
It is to be mentioned that cases u/s 147 of the I.T. Act, 1961 opened in the case of group companies of Celestial Aviation Trading 64 Limited for the A.Y. – 2012-13 and 2013-14 and notice u/s 148 of the I.T. Act, 1961 were issued in both the years for the reason to believe that assessee had made payments and not deducted the TDS on it. Therefore, it is avoidance of tax on the part of assessee. The reasons recorded in these cases are as follows;
“……An information from ITO, TDS, Ward 2(1)(1), International Taxation-2, New Delhi has been received vide letter F. No. ITO/Intl. Tax (2)(I)(I)2019-20/216 dated 12.03.2020. As per the information, a survey u/s 133A (2A) of the Income Tax Act, 1961 was carried out in the business premises of M/s Interglobe Aviation Ltd. on 20.03.2018. During the survey, it was found that M/s Interglobe Aviation Ltd. has made certain payments to Irish companies in the form of lease rent and has claimed lease rent as exempt as per Ind-Ireland DTAA and also section 10(15A) of the Income tax Act. M/s Celestial Aviation Trading 9 Limited, has received payment in the form of Operating Lease rent of Rs. 52,67,46,907/- and Supplementary Lease rent of Rs. 1,28,26,220/- i.e. total lease rent of Rs. 53,95, 73, 1271- on which no TDS has been deducted. It is also observed that the assessee has not filed its return of income for the F. Y. – 2012-13 relevant to A. Y. – 2013-14″
2. The following cases are reopened u/s 147 of I. T. Act, 1961 in Celestial Aviation Trading 9 Limited:
