2015 (11) TMI 1454 - HC - Income Tax

Court rules in favor of Royal Jordanian Airlines, finding no tax liability due to losses. Notices quashed for procedural errors.

Director of Income Tax, Royal Jordanian Airlines And Another Versus Royal Jordanian Airlines, Commissioner of Income Tax, Assistant Director of Income Tax

Director of Income Tax, Royal Jordanian Airlines And Another Versus Royal Jordanian Airlines, Commissioner of Income Tax, Assistant Director of Income Tax ... Issues Involved:1. Applicability of Section 44BBA of the Income Tax Act to Royal Jordanian Airlines (RJA) for various assessment years.2. Validity of reopening assessments under Section 148 of the Income Tax Act for certain assessment years.3. Entitlement of RJA to refunds for taxes paid prior to reassessment proceedings.Detailed Analysis:1. Applicability of Section 44BBA of the Income Tax Act to RJA:The core issue was whether RJA, a foreign airline, was liable to be taxed in India under Section 44BBA of the Income Tax Act, 1961, which prescribes a presumptive taxation scheme for non-resident airlines. The Revenue contended that RJA, being a corporation, should be taxed like any other corporation such as Air India Corporation. However, RJA argued that it was part of the Ministry of Transport of the Government of Jordan and its income was effectively the income of the Jordanian government, thereby exempt from taxation.The Income Tax Appellate Tribunal (ITAT) initially ruled in favor of RJA, holding that its income was not liable to tax based on the precedent set in the case of Iraqi Airways. The ITAT noted that RJA had consistently incurred losses, which were borne by the Jordanian State Treasury, and thus, no taxable income existed. This decision was upheld for AYs 1989-90 to 1993-94.For AYs 1994-95 to 1996-97 and 2000-01, the Special Bench of the ITAT reversed the earlier decision, holding that RJA was liable to be taxed as a foreign company under Section 44BBA. However, the ITAT later clarified that presumptive taxation under Section 44BBA should not apply where the assessee could demonstrate actual losses through its books of accounts. This interpretation was based on Supreme Court rulings in Union of India v. A. Sanyasi Rao and CIT v. Hyundai Heavy Industries Ltd., which allowed for the production of books of accounts to show actual income or losses.Subsequently, the Assessing Officer (AO) accepted RJA's books of accounts, confirming nil income for AYs 1994-95 to 1998-99 and 2000-01. The Revenue did not challenge this, and the ITAT's order attained finality, rendering the question of RJA's tax liability under Section 44BBA academic for these years.2. Validity of Reopening Assessments under Section 148:RJA challenged the reopening of assessments for AYs 1989-90 to 1993-94, 1999-2000, and 2001-02 under Section 148 of the Act. The ITAT had earlier ruled that RJA's income was not taxable, and the Revenue had accepted this for subsequent years. Notices under Section 148 for AYs 1989-90 to 1993-94 were eventually dropped by the Revenue, rendering related writ petitions infructuous.For AYs 1999-2000 and 2001-02, the court found no specific reason for not dropping the Section 148 notices. Additionally, a Double Taxation Avoidance Agreement (DTAA) between Jordan and India effective from 1st April 1999 further supported RJA's position. The court also noted procedural improprieties, such as issuing a Section 148 notice for AY 1999-2000 while proceedings under Section 143(2) were still pending, making the notice unsustainable in law.3. Entitlement of RJA to Refunds:RJA sought refunds for taxes paid prior to reassessment proceedings. The CIT (A) had initially denied refunds, stating that no refund could be granted for income already admitted and taxed. However, the ITAT later allowed RJA's appeals, directing the refund of taxes paid, as Section 44BBA was deemed inapplicable where actual losses were demonstrated.Conclusion:The court concluded that RJA was not liable to tax under Section 44BBA for the AYs in question, as it had demonstrated consistent losses. The notices under Section 148 for AYs 1999-2000 and 2001-02 were quashed, and the appeals and writ petitions were disposed of with no orders as to costs.