Big Tax Relief for Lufthansa: Delhi HC Sets Aside Revenue’s Order on Nil TDS Certificate

The Delhi High Court provided relief to the German cargo airline Lufthansa by overturning the Revenue’s order that denied the company a nil TDS certificate for the fiscal year 2024-25.

Section 195 of the Income Tax Act, of 1961, deals with the deduction of TDS (Tax Deducted at Source) on payments incurred to non-resident Indians (NRIs). Though ‘nil’ withholding tax certificates can be issued u/s 195(3), subject to specified conditions.

As per that Lufthansa filed an application to the Revenue for issuance of a certificate u/s 195(3) of the Act, which came to be rejected. Instead, the assessing officer has issued a certificate for keeping the tax at a lower rate of 0.10%.

The company was dissatisfied and proceeded to the HC, asserting that it is a tax resident of Germany and its income is not leviable to tax in India as per Article 8 of the India-Germany Double Taxation Avoidance Agreements (DTAAs).

U/s 195(3), it has been granted certificates Lufthansa claimed for obtaining the payment for services at nil TDS for more than a decade, and the nature of its services or the income obtained has experienced no revision to refuse the relief now.

It was furnished via the revenue that the application of the company was rejected based on the fact that it does not carry any material on record to show that it is entitled to a deduction.

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Lufthansa, its income return has been regular for the past 14 years. It asserted that it had, in unambiguous terms, cited that its income is generated merely via cargo management and operating the aircraft. Also, it was furnished that it has obtained a certain interest on the refund of income tax for which tax was deposited.

The HC at the outset noted that the AO does not show any reasons that persuaded him to allow the payments at a lower rate of 0.10%, keeping the tax as against the nil rate asserted by the applicant.

“In the given circumstances, where the petitioner has been granted certificate at nil withholding tax for prior assessment years and there is no issue to the chargeability of the petitioner’s income to tax under the Act, the impugned certificate requiring withholding tax at reduced rate instead of nil rate, cannot be sustained,” Court mentioned.

Hence, it permitted the petition and asked the revenue to issue a certificate for nil TDS to the German company. However, the liberty was reserved with the revenue to analyse whether the income/receipts of the company are levied to tax in India in assessment proceedings.