2005 (8) TMI 302 - AT - Income Tax

Royal Jordanian Airlines liable for tax in India under Income-tax Act

Deputy Commissioner Of Income-tax, Special Range - 14. Versus Royal Jordanians Airlines.

Deputy Commissioner Of Income-tax, Special Range - 14. Versus Royal Jordanians Airlines. - ITD 098, 001, TTJ 097, 434, Issues Involved:1. Whether the Royal Jordanian Airlines (RJA) is liable to be taxed in India under the Income-tax Act, 1961.2. Whether RJA enjoys sovereign immunity from taxation in India.3. Whether RJA qualifies as a 'person' under section 2(31) of the Income-tax Act, 1961.4. Computation of income under section 44BBA of the Income-tax Act.5. Levy of interest under section 234B of the Income-tax Act.Issue-wise Detailed Analysis:1. Tax Liability of RJA in India:The primary issue was whether RJA is liable to be taxed in India for the assessment years in question. The Tribunal considered previous decisions, including those in the case of Iraqi Airways, which held that the income of RJA is not liable for assessment in India. However, the Tribunal in the present case decided that RJA's income is indeed taxable in India. The Tribunal emphasized that the Income-tax Act, 1961, is a self-contained code, and any immunity from taxation must be found within its provisions or other applicable laws. It was concluded that in the absence of any specific exemption under the Income-tax Act or any treaty, RJA's income is chargeable to tax in India.2. Sovereign Immunity from Taxation:The Tribunal revisited the principle of sovereign immunity, which suggests that a sovereign state is immune from taxation in another state. It was argued that RJA, being part of the sovereign Government of Jordan, should enjoy such immunity. However, the Tribunal noted that modern international law distinguishes between sovereign acts (acta jure imperii) and commercial acts (acta jure gestionis), with the latter not enjoying sovereign immunity. The Tribunal concluded that RJA, engaged in commercial activities, does not enjoy sovereign immunity from taxation in India.3. RJA as a 'Person' under Section 2(31):The Tribunal examined whether RJA qualifies as a 'person' under section 2(31) of the Income-tax Act, which includes entities like companies, firms, and associations of persons. The Tribunal noted that RJA is a body corporate under Jordanian law, and thus fits within the definition of a 'company' under section 2(17) of the Act. Consequently, RJA is considered a 'person' and is liable to tax in India.4. Computation of Income under Section 44BBA:The Tribunal addressed the method of computing RJA's income under section 44BBA, which deals with the taxation of non-resident airlines. The Tribunal found that the authorities had not properly considered the deductions claimed by RJA, such as commissions retained by agents and sums refundable to customers. The matter was remanded to the Assessing Officer for a fresh computation of income, allowing RJA to present its arguments.5. Levy of Interest under Section 234B:The issue of interest under section 234B, which pertains to interest for defaults in payment of advance tax, was also considered. The Tribunal noted that the Assessing Officer had not explicitly mentioned the levy of interest in the assessment order, although it was included in the demand notice. Citing the Supreme Court's decision in Ranchi Club Ltd., the Tribunal held that a speaking order is required for the levy of interest. The matter was remanded to the Assessing Officer to pass a speaking order on the levy of interest under section 234B.Conclusion:The Tribunal concluded that RJA is liable to be taxed in India for the assessment years in question and does not enjoy sovereign immunity from such taxation. RJA qualifies as a 'person' under section 2(31) of the Income-tax Act. The computation of income under section 44BBA and the levy of interest under section 234B were remanded to the Assessing Officer for fresh consideration.