NIL TDS Certificate Must Be Issued Where Airline Income Is DTAA-Exempt: Delhi HC Grants Relief To British Airways

The Delhi High Court has set aside an order of the Income Tax Department directing deduction of tax at source (TDS) at 0.1% on payments made to British Airways PLC and ordered the issuance of a NIL withholding tax certificate under Section 197 of the Income Tax Act, 1961. The bench of Justice Dinesh Mehta and Justice Vinod Kumar ruled that once airline income is exempt under the India–UK Double Taxation Avoidance Agreement (DTAA), a non-zero withholding rate cannot be sustained without valid reasons. The appellant/assessee, British Airways PLC, a tax resident of the United Kingdom, challenged a certificate issued under Section 197 prescribing a 0.1% withholding tax rate on its Indian receipts. The airline contended that its primary business activities—operation of airline and cargo services—are exempt from taxation in India under Article 8 of the India–UK DTAA read with Section 90 of the Income Tax Act. The airline pointed out that for nearly sixteen years, the tax authorities had consistently issued NIL withholding tax certificates. Even during the financial year 2025–26, a NIL rate certificate had been granted for transactions worth approximately ₹3,700 crore. However, for the remaining transactions of about ₹3.98 crore, the department issued a certificate prescribing a 0.1% rate. The airline argued that the order was based on an incorrect assumption that tax demands were pending for earlier assessment years. In reality, not only were no demands outstanding, but a refund of approximately ₹7.86 crore was due to the company at the relevant time. The department later acknowledged that the demand reflected on the system was erroneous. It was further contended that once the authority itself recognized that airline operations were not taxable in India, there was no legal basis to impose even a minimal withholding tax rate. The Income Tax Department argued that a certificate issued under Section 197 is provisional in nature and only determines the rate at which tax is to be deducted in advance, subject to final assessment. The department also submitted that the airline provided additional services such as ground handling and engineering services, which are taxable in India, and therefore the certificate could not be faulted. The department emphasized that each assessment year must be evaluated independently and past issuance of NIL certificates does not automatically entitle the taxpayer to similar treatment in subsequent years. The High Court found that the primary reason for issuing the 0.1% certificate was the alleged outstanding tax demand, which was later admitted to be incorrect. Once this factor was excluded, the Court noted that no valid justification remained for deviating from the consistent practice of issuing NIL certificates for airline operations. The Court also observed that although the rate of 0.1% appeared nominal, the scale of the airline’s operations in India—around ₹4,000 crore annually—meant that even such a small rate resulted in a significant financial impact. It further noted that assessments had already been completed and no tax liability had been found in respect of airline operations. The Court allowed the writ petition and set aside the impugned order and certificate. The tax authorities were directed to issue a NIL withholding tax certificate within seven days. Additionally, the Court directed the competent authority to continue issuing NIL rate certificates for income arising from airline operations within the prescribed time frame, unless there is a change in law or in the nature of the airline’s activities. Case Details Case Title: British Airways PLC Versus ACIT Citation: JURISHOUR-58-HC-2026(Del) Case No.: W.P.(C) 18856/2025 Date: 17.02.2026 Counsel For Petitioner: Vishal Kalra Counsel For Respondent: Anurag Ojha Click Here To Read Order Read More: No TDS on Matching Solutions as FIS under India–US DTAA: Delhi High Court Orders NIL Withholding

NIL TDS Certificate Must Be Issued Where Airline Income Is DTAA-Exempt: Delhi HC Grants Relief To British Airways

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