2020 (12) TMI 573 - HC - Income Tax

Withholding certificate u/s 197(1) as effective from 1st April, 2019 for Financial Year - income/profits are not chargeable to tax under Article 8 of India-UK DTAA r/w Section 90(2) - Petitioner is engaged in the business of operating aircraft in international traffic and its revenue/income in relation to its international air traffic to and from India is derived from ticket sales and cargo traffic - HELD THAT - Having perused the record and considering the fact that the parties to whom the withholding tax certificates were issued for the FY 2018-19 are the same, we have no reason to doubt that the Petitioner was incapacitated from making applications as per the online format for all the parties for whom it wanted to have the withholding tax certificates issued. Petitioner has also asserted that it could not make an application for more than 3 TANs initially, and thereafter, when the system allowed for applying for 50 TANs, multiple applications could not be made. With the initial application, Petitioner also enclosed the particulars of 337 parties for whom similar certificates were requested. The only plausible reason the names could not be added in the designated fields, was the technical inadequacy of the system. That said, concededly, for the TANs in the said list, the Revenue subsequently has indeed issued certificates.No reason to deny the relief sought for in the present petition. Accordingly, it is declared that the withholding tax certificates issued by the respondents which are the subject matter of the present writ petition shall be effective from 1st April, 2019 for FY 2019-20. The interim orders are made absolute.

Summary

Issues Involved:
1. Issuance of a lower withholding certificate under Section 197(1) of the Income Tax Act, 1961.
2. Effective date of the withholding tax certificate.
3. Technical constraints and procedural challenges in the TRACES system.

Detailed Analysis:

1. Issuance of a lower withholding certificate under Section 197(1) of the Income Tax Act, 1961:
The Petitioner, a foreign company operating aircraft in international traffic, sought a lower withholding certificate under Section 197(1) of the Income Tax Act, 1961, effective from 1st April, 2019, for FY 2019-20. The Petitioner argued that its income from international air traffic to and from India is not chargeable to tax under Article 8 of the India-UK DTAA read with Section 90(2) of the Act, justifying a nil rate of withholding tax.

2. Effective date of the withholding tax certificate:
The Petitioner contended that the withholding tax certificates should be effective from the beginning of the financial year, i.e., 1st April, 2019. The certificates issued by the Respondents were effective from the date of issuance, causing hardship to the Petitioner. The Court noted that the Petitioner had applied for the certificates within time and that similar certificates had been issued in previous years from the start of the financial year.

3. Technical constraints and procedural challenges in the TRACES system:
The Petitioner faced issues with the TRACES system, which initially did not accept applications for more than three parties. Despite submitting an application on 18th March, 2019, including an annexure with 300 additional parties, the system only processed certificates for the three parties listed in the designated fields. Subsequent applications were made as the system allowed for more parties, but the certificates were issued from the date of application rather than the start of the financial year. The Respondents argued that the system was functional and that the Petitioner should have used the offline utility mode for more than 50 TANs. However, the Court acknowledged the Petitioner's challenges and the subsequent issuance of certificates for all parties listed in the initial application.

Judgment:
The Court declared that the withholding tax certificates issued by the Respondents shall be effective from 1st April, 2019, for FY 2019-20. The interim orders were made absolute, and the writ petition was allowed, providing relief to the Petitioner from the date of application.