Delhi High Court Overturns Revenue Order, Grants Lufthansa NIL TDS Certificate
Introduction:
In the case of Lufthansa Cargo AG v. Assistant Commissioner of Income Tax & Ors.[1], Lufthansa Cargo AG challenged a decision by the Income Tax Department that denied the airline a certificate for zero tax deduction at source for financial year 2024-25. The airline filed its application under Section 195(3) of the Income Tax Act, 1961, noting that its income is not subject to Indian tax under Article 8 of the India-Germany Double Taxation Avoidance Agreement. The airline seeks to restore past treatment while leaving open future review of its income assessment process.
Table of Contents
Background:
Lufthansa Cargo AG submitted an application to the Revenue to obtain a certificate that would allow the airline to receive payments without a deduction of tax at source. The application was filed using Form 15D and was based on Section 195(3) of the Income Tax Act. The airline relied on the provision that permits a zero-rate certificate if certain conditions are met. It stated that its income comes from handling cargo and operating aircraft and that its earnings fall under the treaty between India and Germany. The airline noted that it had a history of filing returns and receiving certificates that allowed payments without any tax deduction over several periods.
After the application was filed, the assessing officer (AO) reviewed the file and issued an order. Although the order bore the same date as the application, it was passed later. The order did not grant the requested certificate. Instead, the AO issued a certificate with a 0.10 percent tax deduction rate for the financial period 2024-25. The AO explained that the airline did not provide sufficient material, such as financial statements or details on various income streams, required to support a claim for a zero-rate certificate under Section 195(3) and Rule 29B(1) and (2) of the Income Tax Rules. An indemnity bond was also submitted, which the AO saw as an indication that some income might be taxable.
Court Proceedings:
Following receipt of the certificate with a nonzero rate, the airline challenged the decision in court. The airline explained that its income comes from cargo handling and aircraft operations. It presented its record, which showed that over many periods it had received a certificate with no tax deduction. The airline stated that there had been no change in the manner of earning income and that past treatment should apply to the current case. It also noted that it had used an option under Section 197 to file another application, yet that certificate, too, carried a nonzero deduction rate. The airline asked the court to set aside the current certificate and to issue one with zero deduction, relying on its consistent history.
The case was brought before the Delhi High Court. The airline laid out the sequence of events in filing the application under Section 195(3) and in responding to queries from the Revenue. The court reviewed the record and the submission of the indemnity bond, noting that the airline’s records showed repeated issuance of zero-rate certificates. The court found no evidence to support a change in treatment and noted that the assessing officer gave no detailed reasoning for imposing a deduction rate.
Analysis:
The case raises several issues that call for detailed analysis. First, the process provided under Section 195(3) gives persons receiving payments from sources outside India a way to request a certificate that allows them to receive funds without any tax deducted at the source. This process requires the submission of certain forms and supporting documents. In this case, the airline used Form 15D and sent an indemnity bond along with its application. The record shows that the airline has followed this process over several periods and has, on those occasions, been granted a certificate that permitted receipt of funds without any tax deduction.
Reviewing an application heavily relies on assessing officer’s pivotal role. AO must determine whether material on file sufficiently supports claim under Section 195(3) alongside associated rules quite thoroughly. AO noted airline failed miserably to submit sufficient supporting material in this particular instance somehow rather inexplicably. The AO saw that the airline did not send financial statements or details of the various income streams it receives. This finding led to the decision to issue a certificate that imposed a 0.10 percent deduction rate.
The case record indicates that the airline’s operations and income have followed a set pattern over time. Court examined airline’s application history and observed it had repeatedly received certificates allowing payments with no tax deduction whatsoever normally. Court found current treatment should remain aligned with past since operational facts and flow of income seemingly remained unchanged entirely. The court’s review shows that the decision by the AO to diverge from the historical treatment did not rest on sufficient evidence from the file.
Another important aspect of the case is the requirement that the decision made by the AO be supported by clear evidence and reasoning. The court looked for a detailed explanation as to why the certificate’s rate was changed from zero to a nonzero rate and was unable to find such support in the record. The analysis also notes that the airline was given an opportunity to use Section 197 of the Act to file another application. Even after that step, the certificate continued to carry a nonzero deduction rate. The lack of an explanation for this change was a key point in the court’s review.
Finally, the court made it clear that the decision on the current certificate does not prevent a later review of the airline’s income. During future assessments AO can examine whether any airline income should be deemed taxable under Indian law effectively or not. Decision on certificate gets treated as procedural matter for current period and doesn’t represent final determination on overall tax liability effectively. The approach ensures that while the certificate for the current period is set at a zero rate, future reviews may address any income that might fall under the provisions of the Income Tax Act.
Conclusion:
In the present case, the court made it clear that issuing the zero-rate certificate does not determine the final tax liability. The order permits the Assessing Officer to review any income that may later be found taxable under the Income Tax Act during the overall assessment process. The case shows how a taxpayer and the tax department work through the process by reviewing the record of submissions and past practice. The airline used available legal procedures to demonstrate that its operations and income have followed a consistent pattern. The court looked for clear evidence linking the record to the decision and, finding none for the change, restored the earlier practice.
[1] W.P.(C) 11376/2024.
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