The Delhi High Court has granted relief to Lufthansa Cargo AG by setting aside the Revenue Department’s order that denied the airline a nil Tax Deducted at Source (TDS) certificate for the financial year 2024-25. The court directed the Revenue to issue a certificate for nil TDS to the German airline, affirming its tax-exempt status under the India-Germany Double Taxation Avoidance Agreement (DTAA).
Background of the Case
Lufthansa Cargo, a tax resident of Germany, provides international cargo handling and transportation services. The company operates through registered agents of the International Air Transport Association (IATA) who generate airway bills for cargo transportation.
Under Section 195 of the Income Tax Act, 1961, tax deduction at source applies to payments made to non-residents. However, as per Section 195(3), a nil withholding tax certificate can be issued if certain conditions are met.
Lufthansa applied for such a certificate for FY 2024-25, asserting that its income from operating aircraft in international traffic is not chargeable to tax in India under Article 8 of the India-Germany DTAA. Despite previously receiving nil TDS certificates for over a decade, the Revenue rejected Lufthansa’s application and instead issued a certificate with a reduced withholding tax rate of 0.10%.
The court examined the matter and found several inconsistencies in the Revenue’s decision:
- The Assessing Officer (AO) did not provide substantial reasons for allowing a lower tax deduction rate instead of a nil rate.
- Lufthansa Cargo had consistently received nil TDS certificates in prior years, and no change in its service operations justified the denial.
- The Revenue’s claim that Lufthansa failed to furnish necessary documents was unfounded, as the airline had submitted all required financial details and indemnity bonds.
“Where the petitioner has been granted a nil withholding tax certificate for prior assessment years, and there is no issue regarding the chargeability of its income to tax under the Act, the impugned certificate requiring withholding tax at a reduced rate cannot be sustained,” the High Court stated.
Given these findings, the Delhi High Court ruled in favor of Lufthansa Cargo and directed the Revenue to issue a nil TDS certificate. However, the court also granted the Revenue the liberty to examine whether Lufthansa’s income is chargeable to tax during the assessment proceedings.
This decision reinforces the principle that an entity's tax status should remain consistent unless there are substantial grounds for modification. The ruling provides significant relief to multinational companies operating under DTAA provisions, ensuring that tax authorities follow precedents and established tax treaties fairly.
Appearance: Mr. Sujit Ghosh, Sr. Advocate with Ms. Mannat Waraich & Mr. Ajinkya Tiwari, Advocates for Petitioner; Mr Puneet Rai, SSC, Mr Ashvini Kumar and Mr Rishabh Nangia, SCs and Mr Nikhil Jain, Advocate for Respondent
Case title: Lufthansa Cargo AG v. Assistant Commissioner Of Income Tax & Ors.
Case no.: W.P.(C) 11376/2024
