TMI Blog2005 (8) TMI 302X X X X Extracts X X X X X X X X Extracts X X X X ..... .)/2003 is the appeal filed by the assessee on 14-10-2003 against the order of the learned CIT (Appeals)-XXIX, New Delhi dated 29-9-2003 in the case of the assessee in relation to assessment order under section 143(3) for assessment year 2000-2001. 2. These four appeals have been assigned to us for disposal by the order of the Hon'ble President, Income-tax Appellate Tribunal. We may briefly trace the sequence of events leading to these four appeals being assigned to us as a Special Bench. The issue involved in these appeals mainly is whether the appellant/respondent Royal Jordanian Airlines (hereinafter referred to as "RJA") is liable to be taxed inIndiaunder the Income-tax Act, 1961 in respect of the assessment years in question. The same issue arose in the case of the assessee in earlier years and the Income-tax Appellate Tribunal, Delhi Bench "C", New Delhi as per its order dated 2-11-2001 in ITA Nos. 1152 to 1156(Del.)/96 in the revenue's appeals for assessment years 1989-90 to 1993-94, following the decision of the Tribunal in the case of Iraqi Airways v. IAC [1987] 23 ITD 115 (Delhi) held that the income of RJA is not liable for assessment in India. By the same order Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from the finding of the learned CIT (Appeals) that RJA was constituted in the same lines as Indian Railways. While Indian Railways could be sued against in the name of Government of India, RJA could not be sued against in the name of King of Jordan. Moreover the order of learned CIT (Appeals) had not been accepted and a second appeal had already been filed before the Tribunal for assessment years 1989-90 to 1993-94. According to the learned Assessing Officer, RJA was a corporation like any other corporation, such as AirIndiaand was, therefore, liable to pay tax inIndia. RJA had themselves admitted that position at one point of time in the past and paid taxes accordingly. On RJA's appeal the learned CIT (Appeals) by his order dated4-8-1998, fallowing the decision of Income-tax Appellate Tribunal, Delhi Bench in the case of Iraqi Airways, held that RJA was a sovereign which enjoy the immunity of tax and its income was exempt. Aggrieved, the revenue is in appeal before us for assessment year 1995-96. 4. In this case proceedings for assessment year 1994-95 have been taken up by the learned CIT (Appeals) subsequent to the order of CIT (Appeals) for assessment year 1995-96. The CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it became clear that RJA and the Government of Jordan were two separate and distinct entities and were being treated as such by the auditors of RJA. Note 10, Note 13(a) and Note 14(6) also suggested that RJA and the Government of Jordan were two distinct and separate entities. As to the certificate of the Minister of Transport and Ambassador of Jordan, the learned CIT (Appeals) held the view that both these authorities were parties having interest in the matter. The learned CIT (Appeals) further found that the main test whether the income earned by the concern belonged to the Government or any other corporation could be decided by looking at the manner in which the income itself was to be dealt with as per law. This main or clinching test did not hold good when applied to RJA. There was no provision in the Ordinance of Incorporation of RJA providing for transfer of its profits to the Government of Jordan. On the other hand, RJA was to have an independent budget which was to be approved by the council of ministers. There was no instance of transfer of any profits of RJA to the Government treasury. It was, however, argued that RJA had incurred substantial losses by far in excess of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s AirIndiawas a Corporation and no parallel could be drawn between RJA and Indian Railways. Moreover, the orders in the earlier years had not been accepted and revenue was disputing those orders in further proceedings. 6. During the course of proceedings before the learned CIT (Appeals), the authorized representative filed a detailed note in relation to the provisions of Royal Decree made by the King of Jordan published in Jordanian official gazette on10-4-1969. Having regard to the difference of opinion between the appellate orders for assessment years 1995-96 and 1994-95 RJA made detailed written submissions before the learned CIT (Appeals), on which the learned CIT (Appeals) obtained the comments of the Assessing Officer. The learned CIT(Appeals) took note of the fact that the orders of his predecessors were mostly in favour of RJA. He found that while deciding the appeal for assessment year 1994-95, his predecessor had brushed aside important evidence submitted by RJA, such as, the certificate dated 18-12-1994 issued by Ambassador of Hashemite Kingdom of Jordan in New Delhi, the certificate dated 10-10-1995 issued by the Hon'ble Minister of Transport of the Hashemite Kingdom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a body independent of the Government was a distinct body and if it was carrying on trading activity or a commercial activity, which could not be called Government in character, that was liable to tax. RJA was a corporate body distinct from the Ministry of Transport as also Royal Government of Jordan having its own independent entity. The basic fact was that it was a separate corporation carrying on commercial activities which were different from Government activities. Its activities were similar to AirIndiaor Indian Airlines Corporation. The learned CIT (Appeals) held that the Assessing Officer was, therefore, justified in treating RJA as a taxable entity inIndia. He, therefore, confirmed the assessment order. Aggrieved, the assessee is in appeal before us. 9. When these appeals were taken up for hearing by us on 11-10-2004, it was pointed out that the revenue had filed appeals against the order of the learned CIT (Appeals) in the case of the assessee for assessment years 1997-98 and 1998-99 also and the same were pending before the Tribunal. Further for assessment year 1999-2000 while a notice under section 143(2) was issued on22-12-2000no order of assessment under section 143 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged to furnish such evidence and material on the basis whereof alone it could claim that the findings recorded for the preceding years had no application. No such material fact from which it could be concluded that RJA was not owned and run by the sovereign ofJordanhad been brought on record. 12. The learned counsel referred to the queries of the earlier Bench. The first query was whether the assessee was covered within the meaning of the term "State" in terms of Article 12 of Constitution of India, vis-a-vis decision of Apex Court in Ram Chander v. Union of India AIR 1984 SC 541 and argued that the term 'State' had been explained in the judgment of Ajay Hasia v. Khalid Mujid Sehravardi AIR 1981 SC 487. In that judgment the court observed that by carrying on state business through the instrumentality or agency of a Corporation, the Government cannot exonerate itself from its basic obligation to respect the Fundamental Rights. In that judgment the Hon'ble Supreme Court laid down the following tests for determining whether an entity is an instrumentality or agency of the State:- "1. Where, the entire share capital of the corporation is held by Government, it would go a long way t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be paid out of the State's treasury. It also provided that the Board of Directors of RJA would comprise of various governmental authorities. All important business of RJA was required to be decided or approved by the Council of Ministers. The budget of RJA had to be submitted through the Ministry of Transport for approval by the Council of Ministers. RJA was also required to make quarterly reports of the financial position to the Council of Ministers. RJA was specifically exempted at Jordanian airports from landing fees, fares etc., and also from customs duty and fees on all the imports and local purchases. In the face of such material there could not be doubt that the status of RJA was that of a sovereign. The learned counsel, however, did not make any submission in relation to the judgment of the Hon'ble Supreme Court in the case of Ram Chandra. 13. As to the second query whether the running of business of Airlines by the assessee was a sovereign function in the State of India, the learned counsel submitted that RJA had been created by the Royal Decree of the King of Jordan. As per accepted principle of international law, a sovereign could not be taxed by another sovereign. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the case of BCCI was not admitted by the Delhi High Court. The learned CIT, DR referred to the judgment of Hon'ble Supreme Court reported in Union of India v. Paras Laminates (P.) Ltd. [1990] 186 ITR 722 (SC) and argued that fresh facts can always be brought in. 18. On consideration of the matter, we are of the view that while the significance of an earlier precedent cannot be under-estimated, a court in subsequent case has to make an intelligent application of the earlier precedent. Regard has to be given to every distinction in facts of the case and the intensity and magnitude of the same. Moreover, it is always open to a subsequent Bench of the same status to question the earlier decision and express its difference of opinion if the judicial conscience of the subsequent Bench requires them to do so. It is in this context that the matters are frequently referred to a larger Bench for decision. A larger-Bench always has full powers to overrule the earlier decision. On the question as to how far the decisions rendered earlier would be binding on a subsequent Bench, reference may be fruitfully made to the judgment of Hon'ble Supreme Court in the case of Union of India v. Ragh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 3(a) of the Royal Decree, "The Royal Jordanian Airlines Corporation Ordinance (Ordinance No. 10) of 1969" provided that the RJA "shall be a body corporate having financial and administrative independence. It may sue and be sued in this capacity....". Hence the contention of RJA that it was entitled to sovereign immunity was not acceptable. 21. The learned CIT, DR argued that sovereign immunity was available to States only in matter of 'acta jure imperii' and not in matters of 'acta jure gestionis' that is, when the State acted like a sovereign and not when the State acted otherwise than a sovereign in private or commercial matters. He relied upon in this respect on "State Immunities Trading Activities in International Law" (1959); Dunbar, Hag R, 132. He also relied upon the observations in Halsbury's Law of England (Fourth Edition, page 797). The learned CIT, DR pointed out that during the course of discussion in the European Convention, the Government of India had filed a written memorandum clarifying India's view and stand. That was also supported by the statement of the Indian delegate before the Convention, "if a State enters the area of trading activities, it shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings against foreign States arising out of their tortuous acts, a decree of local jurisdiction is often asserted. More far reaching, however, has been the distinction drawn by an increasing number of States between the acts of a state in its sovereign capacity (acta jure imperii) and those of a private law or commercial character (acta jure gestionis), immunity not being granted for the latter. The adoption of this restrictive attitude to State immunity has been encouraged by the circumstance that the vast expansion of activities of the modern state in the economic sphere has tended to render not workable a rule which granted to the State operating as a trader a privileged position as compared with private traders. Most States have now abandoned or are in the process of abandoning the rule of absolute immunity, and now accept that, for what arc usually described as acts of a private law or commercial nature, a foreign State may be subject to the jurisdiction of the courts; immunity from suit being restricted to proceedings relating to its acts jure imperii The United States of America adopted the restrictive approach to State immunity in 1952. The rule of absolute immunity sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment of that State and to any department thereof. Provision is made for the application of the Act by Order in Council to the constituent territories of a federal State. This is because such constituent territories do not automatically enjoy immunity under the 1972 Convention but only if the federal State so declares. A difficult question before the passing of the 1978 Act was to determine whether a State corporation such as a State bank or the United States Shipping Board, could properly claim to be an emanation of the foreign State and thus entitled to immunity. This problem is dealt with in the 1978 Act through the use of the concept of "a separate entity". Such an entity, being distinct from the executive organs of the Government of the foreign State and being capable of suing or being sued, is not entitled to immunity unless the proceedings relate to something done by the "separate entity" in the exercise of sovereign authority and the circumstances were such that the State would have been immune. The question of when a "separate entity" is exercising sovereign authority came before the House of Lords where it was held that this term refers to the common law concept of acta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of State already discussed. Until fairly recently, the position at common law was that a foreign State was immune even with regard to its purely commercial activities. However, this wide immunity was rejected in a series of cases culminating in two decisions of the House of Lords. Instead, the "restrictive" doctrine of immunity was applied, both to actions in rem and in personam, under which a foreign State was entitled to immunity in respect of its governmental acts but not in respect of its commercial transactions. These common law developments are now, in substance, embodied in the 1978 Act. "Commercial transaction" is defined to include not only contracts for the supply of goods or services but also the provision of finance though loans and the like, and any guarantee or indemnity in respect of such transactions. Even more widely it extends to "any other transaction or activity (whether of a commercial, industrial, financial, professional or other similar character) into which a State enters or in which it engages otherwise than in the exercise of sovereign authority". Indeed, this commercial exception from immunity extends further to include any obligation of the foreign Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that this term referred to the common law concept of 'acta juri imperii' and that Iraqi Airways was so acting when it removed aircraft from Kuwait following the Iraqi invasion. However, subsequent retention and use of such aircraft did not amount to acta jure imperii even though that was done in consequence of legislative decree vesting the aircraft in Iraqi Airways. Indeed, once this decree was passed the situation changed and the acts of Iraqi Airways were no longer in the exercise of sovereign authority but were commercial acts. The learned CIT, D.R. further elaborated that section 3 of the European Convention also provided that a foreign State is not immune in respects of acts relating to commercial transaction. This concept was a new milestone in the earlier position of common law with regard to purely commercial activity. In fact, the terms "Restrictive" doctrine of Immunity was applied under which a foreign state was entitled to immunity in respect of its governmental acts but not in respect of its commercial transactions. 26. The learned CIT, D.R. pointed out that the State Immunity Act, 1978Englandalso provided Immunities in section 3. It provided that a foreign St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia. 29. The learned CIT, DR referred to the history of RJA as copied by him from the official website of RJA. He pointed out that in the year 2001 RJA has been registered as a Public Shareholding Company with a capital of JD 40 millions and is now known as Alia. The learned CIT, DR also referred to the Royal Jordanian Airlines Corporation Ordinance of 1969. He pointed out that the initial capital of the Corporation was 22,50,000 Jordanian Dinar paid out of the States treasury. Section 19 of the Ordinance described at length how an independent budget of RJA should be prepared. Section 21(b) and (c) exempted RJA from charges of airport usages and airport facilities as well as customs duties etc. That showed that but for the special provisions of exemption incorporated in the Ordinance, RJA would have paid taxes like any other private enterprise. 30. The learned CIT, DR referred to Double Taxation Avoidance Agreement between the Government of Republic of India and the Government of Hashemite Kingdom of Jordan, that has come into force on 16-10-1999. According to clause 1 of Article 8, "Profits derived by an enterprise of aContractingStatefrom the operation by that enterprise of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r's case. Furthermore, the judgment of Punjab Province v. Federation of Pakistan [1957] 32 ITR 198 (Pakistan) relied upon by the Tribunal in the case of Iraqi Airways did not deal with the larger issue of a sovereign state and its scope was restricted to the Union of Pakistan and Punjab Province thereof. The learned CIT, DR argued that there were several other judgments wherein different view had been taken. For example Sudhansusekhar Singh Deo v. State of Orissa [1961] 41 ITR 743 (SC); Andhra Pradesh State Road Transport Corpn.'s case, H.E.H. Mir Osman Ali Bahadur's case, Col. H.H. Raja Sir Harindar Singh v. CIT [1972] 83 ITR 197 (SC) and Vidarbha Housing Board v. ITO [1973] 92 ITR 430 (Bom.), did not approve the kind of reasoning adopted in Maharaja Bikram Kishore of Tripura's case and Punjab Province's case. For those reasons the decision of the Tribunal in the case of Iraqi Airways did not hold good. As the decision in the case of RJA for earlier years was mainly based on the Tribunal decision in the case of Iraqi Airways, the same did not hold good. 34. The learned CIT, DR strongly argued that Income-tax Act, 1961 was a self-contained code and, therefore, any immunity or exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue to establish that a particular receipt was in the nature of income. Thereafter the burden to prove that an income was exempt rested on the person who claimed exemption. 36. The learned CIT, DR referred to the judgment of the Hon'ble Supreme Court in the case of Andhra Pradesh Slate Road Transport Corporation. In that case theHon'ble Apex Courtdealt with the doctrine of immunity of State agencies or instrumentalities from taxation by referring to the provisions of Article 289 of the Constitution. TheHon'ble Apex Courtobserved as under:- "Reading the three clauses together, one consideration emerges beyond all doubt and that is that the property as well as the income in respect of which exemption is claimed under clause (1) must be the property and income of the State, and so, the same question faces us again: is the income derived by the appellant from its transport activities the income of the State? If a trade or business is carried on by the State departmentally and income is derived from it, there would be no difficulty in holding that the said income is the income of the State. If a trade or business is carried on by a State through its agents appointed exclusiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gland, the House of Lords in Sultan of Johore v. Abubakar Tunku Aris Bendahar observed: 'Their Lordships do not consider that there has been finally established in England.... any absolute rule that a foreign independent sovereign cannot be impleaded in our courts in any circumstances.' Interesting and instructive discussion on the question of a foreign sovereign's immunity from taxation in respect of his private properties is found in the American Journal of International Law, volume 46, at page 239, under the head "Immunity from Taxation of Foreign State-owned Property". After an elaborate consideration of the relevant material on the subject, the learned author concludes thus, at page 258: 'Immunity from taxation should be the rule when the activities concerned are those normally and traditionally regarded as governmental in character; but when a foreign State engages in trading operations of a type generally open to private persons, there seems no need to better its competitive position or to shift tax burdens to others through giving it exemption from taxes.'" 38. The learned CIT, DR also relied upon the judgment of Hon'ble Supreme Court in the case of Col. H.H. Raja S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnational law." The learned CIT, DR argued that there have been a gradual but certain shift in the concept of sovereign immunity inIndia. He pointed out that this could been seen from scores of judgment considered by Hon'ble Supreme Court in the following recent judgments:- (i) Chairman, Railway Board v. Chandrima Das 2000 AIR SC 988; (ii) State ofAndhra Pradeshv. Challam Ram Krishna Reddy 2000 AIR SC 2083. In these judgments Hon'ble Supreme Court held that the theory of sovereign power has yielded to new theory and is no longer available in a welfare State. The maxim that the King can do no wrong or that the Crown is not answerable has no place in Indian jurisprudence. 39. The learned counsel for the assessee argued that there was no substance in the argument of the learned CIT, DR that the facts of the case in the years before us were not pari materia with the facts of the case in earlier years and in the case of Iraqi Airways. There was no change in the principle of law to be applied and the facts of the case in the assessment years before us were more or less the same as in the earlier assessment years as also in the case of Iraqi Airways. There was also no justificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect had also been dealt with in detail by the learned CIT (Appeals) in his order for assessment year 1996-97, as also by the learned CIT (Appeals) in his order for assessment years 1989-90 to 1993-94. As to the provision that RJA could sue and be sued in commercial matters, that was only with a view to avoid inconvenience to the king. It was an internationally accepted practice to exclude Head of State. Fact of the matter was that RJA had suffered huge losses in billions of Dinar that had been borne by the State treasury ofJordan. Had it been an independent corporation the loss suffered would not have been borne by the State treasury. 40. In relation to the arguments of the learned CIT, DR based on the distinction between 'acta jure imperii' and 'acta jure gestionis', the learned counsel for the assessee argued that in a welfare State sovereign not only performs the conventional functions but a multitude of functions. The contention that sovereign immunity cannot be extended to the other functions was contrary to the law laid down by the Hon'ble Supreme Court in the judgment reported in Col. H.H. Raja Sir Harindar Singh's case and various other judgments relied upon by the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rintendent Government Soap Factory was incorrect. In that case immunity was denied to the State of Mysore, as it had ceased to be a state. 42. The learned counsel emphasized that various arguments of the learned CIT, DR were based on misconception that immunity from taxation also went away if immunity from commercial liability was taken away. For that reason the reliance of the learned CIT, DR on various foreign authorities, such as Oppenheim was misplaced. What was true in respect of civil and criminal liability of a sovereign was not true about the immunity from taxation. The extracts relied upon by the learned CIT, DR itself stated, "As regards proceedings against foreign States arising out of their tortuous acts, a degree of local jurisdiction is often asserted". Further-in the next paragraph it was stated, "Most states have now abandoned or are in the process of abandoning the rule of absolute immunity, and now accept that, for what are usually described as acts of a private law or commercial nature, a foreign State may be subject to the jurisdiction of the courts": According to the learned counsel for the assessee these extracts proved that till date immunities are granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statute compel the court to put such a construction upon it." The learned counsel further argued that RJA was not a "person" underIndia's Income-tax Act, 1961. As section 2(31) did not apply to RJA and going by rule of interpretation, the assessee could not be subjected to tax because the status of RJA was that of a sovereign. The position in law was contrary to what the CIT, DR argued. Instead of there being a specific provision exempting RJA from levy of tax inIndia, there was requirement of a specific provision to tax RJA i.e., sovereign under Indian laws. For that reason reliance placed by the learned CIT, DR on provisions of sections 4, 5, 6, 9 and 10 of the Act was of no avail. There was no point in arguing that definition of "person" under section 2(31) was an inclusive definition. Fact of the matter was that RJA did not fall in any of the categories mentioned in section 2(31). 46. The learned counsel made detailed arguments in relation to the contention of the revenue that the assessee could be construed as a foreign company within the meaning of section 2(22A) and section 2(23A). The submissions of the learned counsel in that regard were that the assessee came into exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Council of Ministers shall, following the completion of tin-company's formation and registration procedures, appoint a Chairman and members of the Board of Directors and its General Manager. The Council of Ministers shall also have the right at any time to discharge all or any of the aforesaid from their duties and to appoint one or more supervisors to follow up the administrative and financial matters of the company, and to submit periodic and non*periodic reports to the Council about those matters and the appropriate recommendations relating to them. 3-The provisions of this law shall apply to the company in all cases and for all the matters not stipulated in its Articles of Association. (b) The Council of Ministers, at the recommendation of the Minister, Minister of Finance, and General Manager, of Amman Financial Market, will approve to offer all or part of the shares of the established company, in accordance with the provisions of paragraph (a) of this Article, for public subscription. The company as such shall become then, subject to the provisions of this law relating to the public shareholding companies including the election of promoters committee to assume the duties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect on the assessment years prior to assessment year 2000-01. The learned counsel further argued that reference to Article 289 of the Constitution of India was uncalled for. The concept of welfare State was now fully recognized by almost all the countries of the world. Having regard to the requirements of a welfare State an airline had to be necessarily construed as sovereign function and not a commercial activity for profit motive. At any rate, the assessee was not seeking any exemption under the provisions of Article 289 of the Constitution of India. The same applied to Indian states only and reference to the same was misconceived. The learned counsel further argued that Vienna Convention of 1961 did not have a binding force on theRepublicofIndia. At any rate the assessee was not seeking sovereign immunity in respect of any private income of theKingdomofJordan. The revenue of RJA represented State revenue. The learned counsel argued that reference to section 10(6)(ii) was also misconceived. That provision applied to individuals working in official capacity for Embassies/High Commissions etc. The same relate to "Person" under the Income-tax Act, 1961. The provisions of Indian Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofar as the question whether there exists a rule of international law exempting a State or the property which it owns, from taxation by a foreign State, is concerned, there seems to be no uniform practice followed by the various States. It is, however, suggested that immunity from taxation "appears as a logical accompaniment of the principle of immunity of foreign State owned property from judicial process" and on this basis it is sought to be contended that even personal, private property of the head of a State is exempt. It is unnecessary for us to examine this position because even if there was such an immunity the rulers of anIndianStatecould only avail of it, if they are recognized as international personalities which, as we have seen, they are not. Any exemptions which they may be given must in our view, be under the relevant taxing Acts. The learned Advocate for the assssee, however, points out that if the Rulers of Indian States were not exempted from tax apart from the Statute there was no need to make a provision in section 3 of the Bengal Agricultural Income-tax Act, IV of 1944, specifically making every Ruler of anIndianStateliable to agricultural income-tax. On the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given after considering other precedents and, therefore, that view should be preferred because there was no change in the facts of the case. 52. During the course of his arguments the learned counsel for the assessee strongly emphasized the certificates given at pages 40,41 and 42 of the paper book for the assessment year 1997-98. He also strongly relied upon the order of the learned CIT (Appeals) in the case of the assessee for assessment years 1989-90 to 1993-94. He referred to paragraph 3.3 of the order of the learned CIT (Appeals) and pointed out that on the basis of clauses of Jordanian Ordinance the learned CIT (Appeals) gave a clear finding that RJA was a part of the Government. He took into account various aspects, such as Board of Directors, General Manager, exemptions and privileges of The Corporation. He also took into account the financial management and budget of The Corporation. Based on all these in paragraph 4.5 the learned CIT (Appeals) came to the conclusion that RJA was not a Corporation in the same sense as Indian public sector undertakings are. Rather RJA was to be construed on the same lines as Indian Railways. He found facts of the case of RJA identical to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kingdom of Jordan should be viewed keeping this essential facts in mind. At any rate, they clinch the issue. For that purpose the learned counsel relied on the judgment in 263 ITR 706 (SC). 56. We have carefully considered the rival submissions. We find that the decision of the Tribunal in the earlier years are based on the decision of the Tribunal in the case of Iraqi Airways. In some of the impugned orders considerable reliance has been placed on that decision. The learned counsel for the assessee has also placed heavy reliance and has urged us that having regard to the fact that the issue had been examined and considered threadbare in the case of Iraqi Airways, we should follow the precedent as long as there is no change in the facts of that case and that of the assessee in the appeals before us. We are of the view that being a larger Bench and a Special Bench constituted by the President of the Tribunal, we are not fettered by the decision of Iraqi Airways. At the same time, we are conscious that the decision of the earlier Bench must be regarded by us with respect. We, therefore, propose to begin the consideration of the matter with the decision of the Tribunal in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernational Law on the question of sovereign immunity. Hall's International Law, 8th Edition at page 220 carries the following observation: 'A sovereign, while within foreign territory, possesses immunity from all local jurisdiction insofar and For so long as he is there in his capacity of a sovereign. He cannot be proceeded against either in ordinary or extraordinary civil or criminal Tribunals, he is exempted from payment of all dues and taxes, he is not subject to police or other administrative regulations, his house cannot be entered into by the authorities of the State, and the members of his suite enjoy the same personal immunity as himself.' Another expert Oppenheim in his book on International Law, Volume I, Fifth Edition at page 590, observes:- 'He (meaning a sovereign) must, be granted so called exterritoriality conformably with the principle, per in parem non habet imperium, according to which one sovereign cannot have any power over another sovereign. He must, therefore, in every point be exempt from taxation, rating and every fiscal regulation and likewise, from civil jurisdiction, except when he himself is the plaintiff,' Hollandin his Lectures on International ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n being simultaneously a department of the State. Referring to the decision in the case of Baccus (S.R.L.) referred to above, the commentary further observes that the circumstance that the sovereign effectuate its nationalization scheme through the medium of a corporate body does not mean that the sovereign Government have deprived that particular corporation of the immunity, which normally attaches to a Department of a sovereign State. It is also clarified that the general sovereign immunity yet remains inIndiaa matter of convention. 16. In view of the above legal position the plea of the assessee that the income of a sovereign State is immune from taxation in another State, has to be accepted. This could be overcome only by a specific clear legislation to the contrary. Now on the basis of the law under which Iraqi Airways was formed and the manner in which it was organised and administered it is a part of the Iraqi Government and a department of its Ministries. The main test to decide whether the income earned by Iraqi Airways belongs to the Iraqi Government or any other corporation is clinched by the provision under which the income earned by the corporation can be accumulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the income earned by it is the income of the sovereign State of Iraq. We further hold that as the income of a sovereign State is immune from taxation, the plea of Iraqi Airways should have been accepted. We thus hold that the assessment of income of Iraqi Airways was illegal and we hold accordingly." 57. On consideration of the matter we find that in the case of Iraqi Airways, the decision of the Tribunal on the first issue framed by them i.e., whether the income of a sovereign State is immune from taxation is based on the following extracts:- (i) Hall's International Law, 8th Edition at page 220; (ii) International Law by Oppenheium, Vol. I, 5th Edition at page 590; (iii) Lectures on International Law byHollandat page 201; (iv) Observation in the case of Parlement Belge [1980] 5 P.D. 197; (v) Maharaja Bikram Kishore of Tripura; (vi) Extracts from Sampath Iyengar's Law of Income-tax, 7th Edition, Vol. I, page 14. On perusal of the various authorities relied upon in the Tribunal decision in the case of Iraqi Airways, we find that the same are mainly in respect of the person or property of one sovereign in the territory of another sovereign. A sovereign may visit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there are provisions of section 11 to deal with the question of taxation. Section 11 of the Immunity Act reads as under:- "11. A State is not immune as respects proceedings relating to its liability for- (a) value added tax, any duty of customs or excise or any agricultural levy; or (b) rates in respect of premises occupied by it for commercial purposes." It, therefore, appears that exception from sovereign immunity does not extend to payment of direct taxes. However, in the absence of any specific information or evidence it is not possible to hold that the income of the assessee before us enjoys sovereign immunity in the other countries, such asUnited Kingdomor USA etc. and vice-versa. 60. There has been a considerable debate in this case as to whether or not RJA is a Government department. The question has been described during the course of proceedings before the authorities below illustratively as to whether it is an entity like Indian Railways or like AirIndia. The arguments for and against the assessee in this respect have been elaborated in the orders of the learned CIT (Appeals) for assessment years 1994-95 and 1995-96 where different findings on this issue have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Central Sales Tax Act, 1956, Customs Act, 1962 and Central Excise and Salt Act, 1944. The reference to relevant provisions will be made hereafter at appropriate place. Further, it is important to note that Article 285 of the Constitution of India permits the Parliament to provide to the contrary as is apparent from the expression "save insofar as Parliament may by law otherwise provide". This shows that immunity granted under Article 285 is not for ever and the Parliament has been empowered to withdraw the same as and when it desires to do so. Further, Article 289 grants immunity from Union taxation in respect of property and income of State but sub-Article (2) authorizes the Parliament to impose tax in respect of a trade or business carried on by or on behalf of State Government. Apart from the above provisions, Article 287 provides immunity from State taxation to Union of India on the consumption or sale of electricity which is consumed by or sold to Government of India or consumed in the construction, maintenance or operation of any Railway of Government of India. Even this immunity can be withdrawn since Parliament has been empowered to provide otherwise. 63. Now we may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd approved by the Central Government in this behalf. Explanation - For the purposes of this clause, the expression "foreign enterprise" means a person who is a non-resident;]" 68. The perusal of above provision shows that exemption to a foreign State has been provided in respect of a particular income i.e., where payment is made by Indian company engaged in business of operation of aircraft, for acquiring an aircraft engine on least.' By implication, exemption is not available to foreign State in other circumstances. The payment for providing spares, facilities or services has been specifically excluded from the exemption. Further, this exemption is no more available w.e.f.1-4-2006. This shows the clear intent of the Parliament. Had there been a general immunity to a foreign State, there was no question of granting exemption to foreign State under section 10(15A). 69. In our view, this entire debate on the question of sovereign immunity is uncalled for. It is because if the assessee enjoys any sovereign immunity from taxation, the source of that immunity has to be found in the provisions of Income-tax Act, 1961 itself or in any other law for the time being in force. It is we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in the case of Iraqi Airways that there is sovereign immunity from tax in operation and in the absence of a specific legislation in India to bring the income of Iraqi Airways to charge of tax in India, provisions of Income-tax Act of India did not apply to the income of Iraqi Airways. In our view, the Tribunal approached the issue from the wrong end. The question to be asked is whether there is any provision in Income-tax Act, 1961 or any other law for the time being in force to exempt the income of RJA from taxation inIndia. In the absence of any specific provision to that effect or any treaty between Government of India and Government of Jordan or any Government order, we would not be justified to declare the income of RJA as not chargeable to tax inIndia. During the course of hearing before us no specific authority of any court in India has been relied upon to establish that any sovereign immunity from income-tax is in operation in India outside the provision of Income-tax Act and the international treaties made in relation thereof. 72. During the course of hearing before us the learned counsel for the assessee argued that in order to bring the income of RJA to charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot erase the fact that if it is a company in Jordan, it, must be a company under section 2(31) also. We, therefore, do not accept the broad proposition that RJA cannot be an "assessee" for the purposes of Income-tax Act, 1961. 73. We have already held that in the absence of any specific law in India under which the assessee may claim sovereign immunity, the entire debate as to whether the commercial activity of RJA would be covered by sovereign immunity is unnecessary. We may, however, briefly refer to section (3) of Royal Ordinance No. 10 of the year 1969 that created RJA. The same reads as under:- "Section (3) (a) The Corporation shall be a body corporate having financial and administrative independence. It may sue and be sued in this capacity and it may appoint the Attorney General or any other person to represent it in any judicial proceedings related to it. The Corporation shall be attached to the Ministry of Transport. (b) Notwithstanding any provisions of any other Ordinance and as from the date of the coming into force of this Ordinance, the Corporation shall become the legal and actual successor of Alia- The Royal Jordanian Airline Company Limited, and will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 234B has also been disputed. We find that in the body of assessment orders for these two years the learned Assessing Officer has not specifically ordered for interest being charged under the provisions of section 234B. 77. We have carefully considered the rival submissions. It is correct that in CIT v. Ranchi Club Ltd. [2001] 247 ITR 209(SC), the Hon'ble Supreme Court have upheld the judgment of Hon'ble Patna High Court reported in Ranchi Club Ltd. v. CIT [1996] 217 ITR 722 (Pat.) to the effect that interest under section 234B cannot be charged without there being a speaking order of the Assessing Officer. At the same time, in CIT v. Anjum M.H. Ghaswala [2001] 252 ITR 1 (SC), the Hon'ble Supreme Court have held that the expression "shall" used in sections 234A, 234B and 234C cannot be construed as "may" because there is a clear indication that the expression has been used by the Legislature deliberately. On this basis, the Hon'ble Supreme Court have held that levy of interest under the provisions of sections 234A, 234B and 234C is mandatory unless the same is waived or reduced by Chief Commissioner of Income-tax or Director General of Income-tax acting under CBDT Circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection with an order of Settlement Commission, but the law pronounced in that judgment is binding upon all authorities concerned. In our humble opinion there is no apparent conflict between the two judgments of Hon'ble Supreme Court in the case of Ranchi Club Ltd. and in the case of Anjum M.H. Ghaswala. If there is one, the judgment of Hon'ble Supreme Court in the case of Anjum M.H. Ghaswala, being of a larger Bench and a subsequent judgment, would prevail. To sum up, these two judgments have laid down the following propositions:- (i) Interest under sections 234A, 234B and 234C should be charged only when there is a speaking order in the body of assessment order; (ii) Interest under sections 234A, 234B and 234C must be charged in all cases where the levy is attracted. That being the legal position, we hold that there is immense justification for restoration of the matter to the file of the Assessing Officer for decision afresh after allowing the assessee reasonable opportunity of being heard in the matter and after passing a speaking order. We order accordingly. Reference in this respect is also invited to the judgment of Hon'ble Supreme Court in the case of CIT v. Jai Prak ..... X X X X Extracts X X X X X X X X Extracts X X X X
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