Lufthansa Cargo Ag v. Deputy Commissioner Of Income Tax And Anr

$~32 *IN THE HIGH COURT OF DELHI AT NEW DELHI+W.P.(C) 9136/2019 & CM APPL. 37760/2019 LUFTHANSA CARGO AG ..... Petitioner Through:Mr. Sujit Ghosh, Advocate with Mr.Anand Chaudhuri, Advocate. versus DEPUTY COMMISSIONER OF INCOME TAX AND ANR.... Respondents Through:Mr. Zoheb Hossain, Senior StandingCounsel. CORAM:HON'BLE MR. JUSTICE VIPIN SANGHIHON'BLE MR. JUSTICE SANJEEV NARULA O R D E R%06.11.2019 1. The Petitioner has preferred the present writ petition to assail theorders/directions issued by Respondent No. 1 under Section 197 of theIncome Tax Act, vide certificate dated 29.05.2019, directing withholding ofTDS at the rate of 0.5% for the Financial Year 2019-20 and AssessmentYear 2020-21. 2. The case of the Petitioner is that, it is a Company incorporated under thelaws of Germany and is engaged in the business of transportation of mail,livestock and goods by air through its fleet of aircrafts in internationaltraffic. It is a tax resident of Germany, which is also the Petitioner's place of effective management for the purposes of the Act and the India- GermanyDouble Taxation Avoidance Agreement (hereinafter referred to as the"DTAA"), as evidenced by the required tax residency certificate issued bythe German tax authorities. 3. In terms of the Article 8 of the said DTAA, the profits from the operationof ships or aircraft in international traffic shall be taxable only in theContracting State in which the place of effective management of theenterprise is situated. 4. The Petitioner states that in compliance with the provisions of Section 195of the Act, the Petitioner filed an electronic Form 13 application with theRespondent No. l requesting a certificate to be issued under Section 197(1)of the Act allowing a NIL rate of tax withholding to the deductors, as cargoagents on payments to be made to the Petitioner during Financial Year 2019-20. 5. Petitioner states that it has consistently been receiving withholding taxcertificates in the past years under Section 197(1) of the Act allowing a NILrate of tax withholding on identical payments made to the Petitioner andthere has been no change in its business pattern in the current financial yearrelative to the past years. The Petitioner has placed on record thewithholding tax certificates issued under Section 197 of the Act for theFinancial Years 2009-10 to 2018-19 which described NIL rate of taxwithholding in respect of payments made to the Petitioner. 6. The grievance of the Petitioner is that the impugned certificate dated29.05.2019 has arbitrarily fixed the rate of deduction of tax at source at0.5% even though under the DTAA, the Petitioner’s income is not liable tobe taxed in India. 7. On issuance of notice, Respondents have filed their counter affidavit andalso placed on record the note sheet from the official records, processingPetitioner’s aforesaid application for the current Financial Year i.e. 2019-20. 8. We consider it appropriate to reproduce the said file notice which reads asunder:- F.Y. 2019-20 M/s. Lufthansa Cargo AG (PAN; The applicant M/s. Lufthansa Cargo AG is an internationalairline company incorporated under the laws of Germany andhaving its Head Office at Flughafen, Bereich West, D-60546.Frankfort/ Main, Germany and controlling branch office in Indiafor India operations at Room. no. 202-204, Cargo Complex, IGIAirport,NewDelhi-110037.Theapplicanthasfiledanapplication dated 02.05.2019 for issuance of withholding taxcertificate u/s 197 of the Act, for lower deduction of tax at sourcefor payment received from various customers, agents anddistributors on account of air transportation business in Indiaduring the financial year 2019-20. The applicant company is in the business of transportationof mail, livestock or goods by air through an aircraft ininternational traffic and these activities are carried out at Delhi,Chennai, Mumbai, Hyderabad and Bagalore. The Company hasbeen receiving payments from various customers, agents anddistributors on account of air transportation business in India. The applicant company is in the business of transportationof mail, livestock or goods by air through an aircraft ininternational traffic and these activities are carried out at Delhi,Chennai, Mumbai, Hyderabad and Bagalore. The Company hasbeen receiving payments from various customers, agents anddistributors on account of air transportation business in India. The applicant has stated that as per Article 8 of DTAAbetween India and Germany, the profits derived by an enterprise of a contracting state from operation of ships and aircrafts ininternational traffic is taxable only in that state. For the purposeof taxation, the contacting state of Lufthansa Cargo AG isGermany {Copy of tax residency certificate is placed contra).Lufthansa Cargo AG has been filing its return of Income in Indiaat NIL as per the provision of DTAA between India andGermany. In view of the above, if approval, a certificate u/s 197 forthe financial year 2019-20 may be issued directing the payers todeduct tax at NIL for payments made to M/s Lufthansa Cargo(excluding surcharge and education cess). Such certificate wouldbe provisional in nature and subject to final assessment. Submitted for your kind perusal and direction please. DCIT(IT). Cir-2(2)(1), DelhiITI Plz. ask A following -(i) Submit the reason for claiming Article -8 DTAAapplicability along with supporting documents. Sd/-20.05.19 ITIPVC is LDC A has asked for Nil LDC on the basis of Article &applicability put, up for kind perusal & dir.Pls Sd/-20.05.19 Addl. GIT- 17 Range 2(2)Pl check the earlier years assessment statems & additions madetherein. DCITPut up for perusal. No assessment & addition. SD/-24.05.19 Addl. IT Pay 2(2)To protect the interest of revenue, it is proposed that certificatemay be issued @ 0.05%. SD/-24.05.19 CIT(IT)-2Approved @ 0.5% as proposed. Addl.CIT IT 2(2) SD/-24.05.19 SD/-24.05.19 9. In the light of the aforesaid, the submission of learned counsel for thePetitioner is that the present case is squarely covered by the decision of thisCourt in the case of Bentley Nevada LLC v. Income Tax Officer, Ward-1(1)(2), International Taxation & Anr, in WP(C) No. 7744/2019 decidedon 29.07.2019 by this Court. 10. Mr. Hossain, learned counsel for the Respondent points out that inBentley (supra), the effective rate of tax was worked out at 1.04% of thetotal revenues. 11. In this light, the Court quashed the order under Section 197 of the Act allowing deduction of the tax at source @ of 5% from the payments made tothe Petitioner by its Indian Customers. 12. We may note that the situation in the present case is, in fact, even betterfor the Petitioner inasmuch as the total income of the Petitioner has beenassessed in the return filed by the Petitioner Assessee as NIL. In this regard,the Petitioner has placed on record the assessment orders for the AssessmentYears 2013-14 to 2015-16. 13. A perusal of the file notings as extracted hereinabove, demonstrates theposition beyond doubt that there has been complete non-application of mindto the germane and relevant considerations by the Respondents whiledealing with the Petitioner’s application under Section 197 of the Act. 14. The Assessing Officer had proposed issuance of the certificate underSection 197 of the Act directing the payers to deduct tax at NIL rate inrespect of payments made to the Petitioner. The DCIT (IT) had soughtinformation/reasons for claiming applicability of Article 8 of the Indo-German DTAA along with supporting documents. 15. It appears that the earlier years assessment statements were also calledfor, which shows the taxable income was accepted as NIL, yet there is nodiscussion found in the file notings, as to on what basis the decision wastaken to withhold tax at source in respect of payments made to the petitionerin India at the rate of 0.5%. 14. The Assessing Officer had proposed issuance of the certificate underSection 197 of the Act directing the payers to deduct tax at NIL rate inrespect of payments made to the Petitioner. The DCIT (IT) had soughtinformation/reasons for claiming applicability of Article 8 of the Indo-German DTAA along with supporting documents. 15. It appears that the earlier years assessment statements were also calledfor, which shows the taxable income was accepted as NIL, yet there is nodiscussion found in the file notings, as to on what basis the decision wastaken to withhold tax at source in respect of payments made to the petitionerin India at the rate of 0.5%. 16. Following the decision in Bentley Nevada LLC (supra), we accordinglyquash the certificate dated 29.05.2019 and direct the Respondents to applymind afresh to all the relevant circumstances and issue a fresh certificate.Till the fresh certificate is issued, the Petitioner’s receipts of payment shallbe subject to Nil rate of deduction of tax at source in respect of paymentsmade to it in India. 17. Dasti. VIPIN SANGHI, J NOVEMBER 06, 2019ss SANJEEV NARULA, J