2008 (9) TMI 20 - HC - Income Tax

Petitioner seek approval to the lease agreements u/s 10 (15A) in respect of aircrafts leased to Jet airways aircrafts had been taken out of India and then brought back to India pursuant to the termination and execution of the fresh lease agreements - department contention that new agreement was only for taking benefit u/s 10(15A) as benefit was not available to earlier agreements, is not acceptable new agreements were necessitated because of the change in the ownership approval granted

Issues Involved:
1. Rejection of application under Section 10(15A) of the Income-tax Act, 1961.
2. Approval of lease agreements dated 18.10.1999.
3. Refund of Rs 10,98,42,772/- withheld under Section 195 of the Income-tax Act.
4. Allegation of circumventing the benefit of Section 10(15A) by entering into new agreements.

Detailed Analysis:

1. Rejection of Application under Section 10(15A):
The writ petition challenges the order dated 17.02.2005 by the Under Secretary, Department of Revenue, Central Board of Direct Taxes, which rejected the petitioners' application under Section 10(15A) of the Income-tax Act, 1961. The petitioners sought approval for lease agreements dated 18.10.1999 for two aircrafts leased to Jet Airways. The rejection was based on the grounds that the new lease agreements were identical to previous ones dated 05.10.1997, and the only change was in the name of the owner. The authorities viewed this as an attempt to circumvent the exclusion period of Section 10(15A), which did not apply to agreements entered between 01.04.1997 and 31.03.1999.

2. Approval of Lease Agreements Dated 18.10.1999:
The petitioners argued that the new lease agreements were necessitated by a genuine change in ownership of the aircrafts, as they were sold by Birds of Paradise-I and Birds of Paradise-II to the petitioner No.1 on 05.05.1999. Consequently, fresh lease agreements were executed on 18.10.1999 after the earlier sub-leases were terminated. The court found that the change in ownership was legitimate and not engineered to exploit the end of the exclusion period. Therefore, the reasoning in the impugned order was not accepted, and the court directed the respondents to grant approval under Section 10(15A).

3. Refund of Rs 10,98,42,772/- Withheld under Section 195:
The petitioners also sought a refund of Rs 10,98,42,772/- withheld under Section 195 of the Income-tax Act. The court noted that while disposing of the earlier writ petition (CWP 1067/2003), it had directed the Central Board of Direct Taxes to reconsider the application under Section 10(15A). The non-grant of reliefs in the earlier order did not preclude the petitioners from seeking the same reliefs after reconsideration. The court directed the petitioners to apply for the refund in the appropriate form within two weeks, and the authorities were instructed to process the refund expeditiously, preferably within eight weeks.

4. Allegation of Circumventing the Benefit of Section 10(15A):
The respondents argued that the new agreements were a device to take advantage of Section 10(15A) since the old agreements dated 05.10.1997 fell within the exclusion period. The court, however, did not find merit in this argument. It held that the new lease agreements were necessitated by the change in ownership and were not mere substitutions to exploit the tax exemption. The court emphasized that the change in ownership was not orchestrated to take advantage of the end of the exclusion period.

Conclusion:
The court set aside the impugned order dated 17.02.2005 and directed the respondents to grant approval under Section 10(15A) of the Income-tax Act. The petitioners were also instructed to apply for the refund, which the authorities were to process promptly. The writ petition was disposed of with no order as to costs.

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