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Director of Income Tax, Royal Jordanian Airlines And Another Versus Royal Jordanian Airlines, Commissioner of Income Tax, Assistant Director of Income Tax

2015 (11) TMI 1454 - DELHI HIGH COURT

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 a .....

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er 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 a .....

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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 ye .....

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ct 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 incom .....

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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 - ITA 159 .....

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order dated 2nd November 2001 of the Income Tax Appellate Tribunal ( ITAT ) in ITA Nos.790-794/Del/96 for Assessment Years ('AYs') 1989-90 to 1993-94. 2. ITA No.278 of 2006 by the Assessee, Royal Jordanian Airlines ( RJA ) is directed against the order dated 31st August 2005 of the ITAT in ITA No. 1786/De/2000 for the AY 1996-97, ITA No. 279 of 2006 by RJA is directed against the order dated 31st August 2005 of the ITAT in ITA No.5252/Del/98 for the AY 1995-96, ITA No. 280 of 2006 by RJ .....

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Act seeking to reopen the assessments for AYs 1989-90 to 1993-94, 1999-2000 and 2001-02 and the orders dated 18th September 2006 rejecting RJA's objections to the said notices have been challenged. 4. Since the appeals and the writ petitions arise from a common set of facts, they are being disposed of by this common order. Background facts 5. The background facts are that RJA came to existence by Ordinance No. 10 of 1969 issued by the Hashemite Kingdom of Jordan under Article 31 of the Cons .....

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nd Jordanian Dinars was to be paid out of the State s treasury. The Council of Ministers of Jordan would have the right to terminate the members of the Board of Directors of RJA. The Government of Jordan guaranteed all the obligations of RJA Corporation and it was to be specially exempted from customs and duty fees. A certificate dated 10th October 1995 issued by the Ministry of Transport of the Kingdom of Jordan that RJA would be directly controlled by the Council of Ministers. It was stated th .....

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to 1993-94 7. In response to a notice issued to it under Section 148 of the Act in respect of the AYs 1989-90 to 1992-93, stating that RJA has not declared its income in terms of Section 44BBA of the Act and in response to another notice under Section 142(1) in respect of AY 1993-94, RJA filed its return for the aforementioned AYs 1989-90 to 1993-94. RJA disclosed its gross receipts as well as its expenses, apart from the commission paid to its agents. It pointed out that it had been paying inco .....

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1989-90, a similar order was passed by the AO on 31st March 1994. 8. Aggrieved by the above assessment orders, RJA filed appeals before the Commissioner of Income Tax (Appeals) [ CIT (A)]. By a common order dated 4th December 1995, the CIT (A) allowed the appeals on the short ground that RJA was not liable to tax as its entire income was in fact the income of the Government of Jordan. It may be mentioned at this stage that RJA has specifically urged other issues before the CIT (A), including ch .....

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losses incurred by RJA. The CIT (A) also considered the opinion given by the public accountants of Jordan, M/s Saba & Co. The CIT (A) held that the entire income of RJA was exempt from taxation and that the exercise of jurisdiction by the ADIT under Section 147/148 was unsustainable in law. However, the CIT (A) observed that no refund can be granted with respect to the income already admitted on which tax had been paid. The effect of this appellate order would only be to reduce the addition .....

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IT (A) of the exercise of jurisdiction under Section 147/148 of the Act. The Revenue's contention was that the assessee company is a corporation like any other corporation such as Air India Corporation and is liable to pay tax in India . 11. The ITAT in the order dated 2nd November 2011, followed its earlier order in the case of Iraqi Airways (supra) and, therefore, upheld the order of the CIT (A) that the income of RJA was not liable to be assessed to income tax. It was also noticed that be .....

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r dated 2nd November 2001 of the ITAT that the Revenue has filed ITA No. 159 of 2002 in this Court. While admitting the said appeal on 15th November 2002, the following question of law was framed by this Court for consideration: Whether the tribunal was correct in law in holding that Royal Jordanian Airlines was not liable to taxed in India under the Income Tax Act, 1961, in respect of the assessment years 1989-90 to 1993-94. Facts concerning AYs 1994-95 to 1996-97 and 2000-01 14. For the AYs 19 .....

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me at ₹ 1,91,63,360. Another order dated 28th December 1998 was passed by the AO under Section 143(3) of the Act for AY 1996-97, assessing the income of RJA at ₹ 2,07,08,260. For AY 2000-01, the AO passed an order dated 30th October 2002 under Section 143(3) of the Act, determining the income at ₹ 63,13,422. 15. Appeals were filed by RJA against the aforementioned assessment order for AY 1994-95. The CIT (A) passed an order on 4th June 1999 affirming the order of the AO as far .....

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ference of opinion amongst its members, where one of them was inclined to follow the order of the ITAT in Iraqi Airlines (supra) as well as order dated 2nd November 2001 in the Assessee s own case for AY 1993-94, whereas the other was not. As a result, a Special Bench of the ITAT was constituted. 17. For AY 1995-96, the CIT (A) allowed the appeal of RJA. The Revenue went in appeal before the ITAT. Likewise, for AY 1996-97, the CIT (A) held against the Revenue and therefore the appeal for that ye .....

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h held that it was unable to subscribe to the view taken by the ITAT in the Iraqi Airways case (supra). It held that RJA is a company under the Jordan company law and was therefore a person under Section 2 (17) read with Section 2 (31) of the Act. 19. The Special Bench then referred to the alternative plea of RJA in its appeals for AYs 1994-95 and 2000-01 that the Income Tax authority had erred, for the purposes of Section 44BBA of the Act, in not reducing the gross sales by the commission paid .....

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August 2005 of the Special Bench of the ITAT, RJA filed ITA Nos. 278, 279, 280 and 580 of 2006. While admitting the said appeals on 4th July 2006, the following question of law was framed by the Court: 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?" Facts in the two writ petitions 21. While the aforementioned appeals were pending, a notice u .....

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and 150 of the Act were being invoked. 22. Pursuant to the objections filed by RJA to the above notices, a hearing was afforded to it in light of the decision of the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO 250 ITR 19. The objections were disposed of by the Dy. Commissioner of Income Tax by an order dated 18th September 2006 in respect of each of the seven AYs, upholding the notices for reopening of the assessments. 23. Aggrieved by the notice dated 27th February 2006 and the order d .....

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dings have already been dropped. He has produced before us a copy of the letter dated 20.10.2008 issued by the Assistant Director of Income Tax (IT), Circle 2(I), New Delhi issued to the assessee indicating that proceedings pursuant to the notices under Section 148, which had been issued on 27th February 2006 for the assessment years 1989-90 to 1993-94, have been dropped. A signed copy of the said letter is placed in the file of W.P.(C) 16089-90/2006. In view of the aforesaid, these writ petitio .....

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the course of hearing, Mr.C.S.Aggarwal, learned senior counsel appearing for the petitioner referred to the order dated 24th August, passed in WP(C) No. 16089-90/2006 wherein the revenue has recalled notices issued under Section 148 of the Income Tax Act, 1961 (for brevity the Act ) for a span of 5 years. It is submitted by Mr. Aggarwal, learned senior counsel that the contents of said letter would reveal that identical reasons have been recorded while issuing notice under Section 148 of the Ac .....

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te of hearing. On the next date of hearing, learned counsel for the parties shall formulate the proposition of law and come with relevant citations. 25. It is stated that till date, a letter by which the proceedings under Section 148 of the Act in respect of AYs 1989-90 and 1993-94 has not been produced and the proceedings in respect of the AYs 1999-2000 and 2001-02 has also not been brought. Subsequent orders of the ITAT 26. Mr. C.S. Aggarwal, learned Senior counsel for the Assessee, has placed .....

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AO by order dated 27th December 2006 held that despite the losses incurred by RJA both in India as well as globally, the income had to be computed at 5% of the gross receipts in terms of Section 44BBA of the Act. 28. In the appeals filed by RJA against the said orders, the CIT (A) by order dated 14th January 2008 confirmed the computation of income made by the AO. It was held, inter alia, that Section 44BBA of the Act did not entitle RJA to claim deductions of any other expenditure or a lower ra .....

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ia v. A. Sanyasi Rao 219 ITR 330 (rendered in the context of Section 44AC of the Act) and CIT v. Hyundai Heavy Industries Ltd. 291 ITR 482 (supra), it was concluded by the ITAT that the purpose of presumptive provisions is to provide a simple manner of calculation and not to bring to tax an income when there is no income . It was further held as under: though there is no specific provision in the Act to compute the income at a lower rate in Section 448BA of the Act, yet in a case where there are .....

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Sections 44B, 44BB, 44BA and 44BBB of the Act. In the scheme of presumptive taxation, the Assessee is presumed to have earned income at the rate of a certain percentage of his total turnover or gross receipts. If the Assessee agrees to be taxed on presumed income, he is not required to maintain books of account. If, however, he claims that his income is less than the presumed figure, he is required to support his claim by producing books of account. 30. After noting that RJA had been consistentl .....

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curred losses in the business of operation of aircrafts. Accordingly the matter was restored to the file of the AO. On the basis of the above order, a separate order was passed on 22nd March 2009 in the same terms in respect of AY 1994-95. 31. 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 computati .....

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estion 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. 34. 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. Legal position qua Section 44 BBA 35. In this regard, it is necessary for the Court to discuss the legal p .....

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d gains of such business chargeable to tax under the head Profits and gains of business or profession. (2) The amounts referred to in sub-section (1) shall be the following, namely: (a) the amount paid or payable (whether in or out of India) to the assessee or to any person on his behalf on account of the carriage of passengers, livestock, mail or goods from any place in India; and (b) the amount received or deemed to be received in India by or on behalf of the assessee on account of the carriag .....

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to the Assessee to produce the books of accounts to show that the assessable income is in fact less than the presumptive income. 37. In Hyundai Heavy Industries (supra) the question that was addressed was what are the profits reasonably attributable to the assessee s permanent establishment in India? In that context, the Court observed as under: Thirdly, it is important to note that Chapter IV of the Act contains provisions for presumptive taxation of business income in certain cases as prescri .....

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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 t .....

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et to be verified by the AO. In response Mr. Aggarwal pointed out that RJA had ceased its operations from India and the working sheets for the aforementioned AYs 1989-90 to 1993-94, copies of which were placed before this Court in a compilation filed by RJA, show that it had consistently been suffering losses for all these AYs. 40. While it is correct that for the aforementioned AYs 1989-90 to 1993-94, RJA s accounts showing losses do not appear to have been verified by the AO, the Court finds t .....

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in 23 lTD 115. In ours considered opinion, it cannot be denied that assessee is a part of Ministry of Transport of Government of Jordan as has duly been certified both by the Government of Jordan and Ambassador of Jordan in Their certificates filed. In our opinion once the Government of Jordan has duly certified that Royal Jordanian Airlines is part of Ministry of Transport and its income belongs to sovereign state of Jordan, we do not find any justification to hold that it is a separate corpor .....

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t December, 1994 203579000 7. 31st December, 1995 220493000 8. 31st December, 1996 288172000 9. 31st December, 1997 315742000 10. 31st December, 1998 348557000 In our opinion therefore, there is no merit in the contention of the revenue that assessee was liable to be assessed as it is not an income of sovereign state. In arriving at the aforesaid conclusion we find ourselves in agreement with the order of ITAT in the case of Iraqi Airways (supra). In the instant case we also find that there is a .....

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ion 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. 42. The offshoot of the above discussion is that the only question framed in the Revenue s appeal, ITA No. 159 of 2002, and in the Assessee s appeals, ITA No. 278, 279 and 280 of 2006, has been rendered academic. On application of Section 44BBA of the Act, there is no taxable income of RJA for the AYs covered by the said ap .....

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