Delhi High Court Relief To Lufthansa; Income Tax Department’s Order Set Aside

Delhi High Court Relief To Lufthansa; Income Tax Department’s Order Set Aside

The cargo airline claimed its income was not to be taxed in India under the Double Taxation Avoidance Agreement

Providing relief to Lufthansa Airlines, the Delhi High Court has set aside the order of the Income Tax Department denying it nil Tax Deducted at Source (TDS) certificate for the Financial Year 2024-25.

Section 195 of the Income Tax Act, 1961, deals with the deduction of TDS on payments made to non-resident Indians (NRIs). However, 'nil' withholding tax certificates can be issued under Section 195(3), under certain provisions.

Thus, Lufthansa appealed to the IT Department to issue a certificate, which was rejected. However, the Assessing Officer (AO) issued a certificate for withholding the tax at a lower rate of 0.10 percent.

Aggrieved by the decision, the company approached the high court. It claimed that being a tax resident of Germany, its income was not to be taxed in India under Article 8 of the India-Germany Double Taxation Avoidance Agreement (DTAA).

The German cargo airline claimed it was granted certificates under Section 195(3) for receiving the payment for services at nil TDS for over a decade. The services or the income received had not undergone any change to be denied relief.

The revenue department contended that Lufthansa's application was rejected because it did not submit any document to prove that it qualified for a deduction.

However, Lufthansa stated that for the past 14 years, it regularly filed its Income Tax Return (ITR). The company claimed its income was generated only from cargo handling and operating aircraft. It received interest on income tax refund, for which tax was deposited.

The court noted that the AO did not provide any reason to permit the payments at a lower rate of 0.10 percent and by withholding tax as against the nil rate claimed by the petitioner.

The bench held, “The petitioner has been granted a certificate at nil withholding tax for prior assessment years. Thus, there’s no issue with the chargeability of the petitioner's income to tax. The impugned certificate requiring withholding tax at a reduced rate instead of nil rate cannot be sustained.”

While allowing the petition, the court directed the IT Department to issue a certificate for nil TDS to Lufthansa.

However, the bench directed the revenue department to examine whether the income/receipts of the company were chargeable to tax in India.

Senior Advocate Sujit Ghosh, with Advocates Mannat Waraich and Ajinkya Tiwari, appeared for the petitioner.

Puneet Rai, SSC, Ashvini Kumar and Rishabh Nangia, SCs and Nikhil Jain, Advocate, appeared for the respondent.