2015 (11) TMI 1454 - HC - Income Tax

Applicability of section 44BBA - AO held that in terms of Section 44BBA, 5% of the gross receipts were to be deemed to be taxable income on a presumptive basis - Whether ITAT was correct in law in holding that Royal Jordanian Airlines is liable to be taxed in India under the Income Tax Act, 1961 for the assessment years1994-95, 1995-96, 1996-97 and 2000-0I? - Held that - Consequent upon the above order dated 29th August 2008, the AO passed separate orders for each of the AYs 1994-95 to 1998-99 and 2000-01 on 16th October 2009 noting that RJA had produced all the necessary bills and invoices etc, in support of the computation of losses in its profit and loss accounts. Accordingly, the AO accepted the income to be nil. It is significant that the Revenue has accepted the order dated 29th August 2008 as well as 29th March 2009 passed by the ITAT and not challenged the said orders by filing appeals before this Court. As a result, the consequential order of the AO dated 16th October 2009 accepting the income of RJA to be nil for AYs 1994-95 to 1998-99 and 2000-01 has also attained finality. Consequently, the question framed in these appeals for AYs 1994-95 to 1996-97 and 2000-01 as regards the liability of RJA to tax under the Act has been rendered academic. As regards the appeal of the Revenue for the AYs 1989-90 to 1993-94, with the Revenue having accepted the interpretation of Section 44BBA qua RJA for the AYs 1994-95 to 2000-01, the same would apply even as regards AYs 1989-90 to 1993-94. In as much as Section 44BBA is not charging provision, but only a machinery provision, it cannot preclude an Assessee from producing books of accounts to show that in any particular AY there is no taxable income. The Court, therefore, concurs with the view expressed in this regard by the ITAT in its order dated 29th August 2008, which in any event has not been challenged by the Revenue and has attained finality. In other words, the Court concurs with a view that where there is no income, Section 44BBA cannot be applied to bring to tax the presumptive income constituting 5% of the gross receipts in terms of Section 44BBA(2) of the Act. No doubt, for that purpose the Assessee has to produce books of accounts to substantiate that it has incurred losses or that its assessable income is less than its presumptive income, as the case may be. The ITAT has noted the factual position regarding the losses incurred by RJA for the mentioned years. This has not been disputed by the Revenue in its appeal against the aforesaid order. Consequently, the question of RJA being asked to pay tax on presumptive basis under Section 44BBA for the said year, or the matters being sent to the AO for verifying the said facts does not arise. On application of Section 44BBA of the Act, there is no taxable income of RJA for the AYs covered by the said appeals. - Decided against revenue. Reopening of assessment - Held that - Apart from the fact that no particular reason has been shown by the Revenue for not dropping the notice under Section 148 of the Act for AYs 1999-2000 and 2001-02, the Revenue also appears to have overlooked the fact that effective from 1st April 1999, there is a Double Taxation Avoidance Agreement ( DTAA ) between Jordan and India. The financial position as regards the relevant financial year 2001-02 is also one where RJA has suffered losses. Therefore, in any event, the question of RJA having any taxable income for AY 2001-02 or being amenable to income tax does not arise. As regards the notice under Section 148 for AY 1999-2000, the Court finds that it was issued even while the proceedings which commenced with the notice under Section 143(2) of the Act issued on 26th December 2000 were not yet closed. In other words, even without passing the further consequential order under Section 143(3) of the Act, a notice under Section 148 of the Act was issued to RJA on 23rd February 2006 asking it to file a return for AY 1999-2000. This was impermissible in law and there are at least two decisions of this Court that support the Assessee. These are KLM Royal Dutch Airlines v. Additional Director of Income Tax (2007 (1) TMI 138 - DELHI High Court ) and Commissioner of Income Tax v. Ved & Co. (2007 (2) TMI 212 - DELHI HIGH COURT ). This is, therefore, another reason why the notice under Section 148 of the Act for AY 1999-2000 is unsustainable in law. - Decided in favour of assessee

Summary

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.