Relief to Celestial Aviation Trading: Delhi HC allows Nil Rate of withholding Tax under India-Ireland DTAA on Aircraft leased to AIL [Read Order]

Celestial Aviation Trading - Delhi High Court - India-Ireland DTAA - aircraft leased to AIL - Taxscan

In a major relief to Celestial Aviation Trading, the Delhi High Court allowed the Nil rate of withholding tax under India-Ireland Double Taxation Avoidance Agreement (DTAA) in respect of aircraft leased to  Air India Limited (AIL).

The petitioner, Celestial Aviation Trading 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) for a period of 12 years.

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, they were liable to pay tax only in Ireland. These applications made by the petitioner for the Financial Years 2016-17, 2017- 18, 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.

The petitioner moved an application before respondent in Form 13 under Section 197 of the Act for the Financial Year 2021- 22, requesting for issuance of Nil withholding tax certificate or 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 issued the impugned order/ certificate prescribing 10% as the withholding tax rate which is not in line with the earlier certificate/ order issue in respect of the petitioner.

The division bench of Justice Vipin Sanghi and Justice Jasmeet Singh held that  which the Assessing Officer is obliged to take into consideration, while considering an application under Section 197 of the Act, have not at all been adverted to. The reasons proceed only on the basis of the liability, if any, which may, or may not, be fastened upon another group company, i.e. CAT-9. That, by itself, cannot be a justification for denying the “Nil” rate certificates to the petitioner. Thereasons now brought out do not form part of the reasons contained in the impugned order and the respondents are precluded from citing those as reasons to justify the impugned order issued to the petitioner.

“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,” the court said.

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CELESTIAL AVIATION TRADING 64 LIMITED vs THE INCOME TAX OFFICER

Counsel for Appellant:   Sachit Jolly

Counsel for Respondent:   Sunil Agarwal

CITATION:   2021 TAXSCAN (HC) 170

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