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* IN THE HIGH COURT OF DELHI AT NEW DELHI
R-73
+ ITA 159/2002
DIRECTOR OF INCOME TAX ..... Appellant
Through: Mr Rohit Madan, Mr Zoheb
Hossain and Mr Akash Vajpai, Advocates.
versus
ROYAL JORDANIAN AIRLINES ..... Respondent
Through: Mr. C.S. Aggarwal, Senior
Advocate with Mr. Prakash Kumar, Advocate
and Mr. Anil
K. Makhija, Advocate.
With
R- 73A
+ ITA 278/2006
ROYAL JORDANIAN AIRLINES ..... Appellant
Through: Mr. C.S. Aggarwal, Senior
Advocate with Mr. Prakash Kumar, Advocate
and Mr. Anil
K. Makhija, Advocate.
versus
COMMISSIONER OF INCOME TAX ..... Respondent
Through: Mr. C.S. Aggarwal, Senior
Advocate with Mr. Prakash Kumar, Advocate
and Mr. Anil
K. Makhija, Advocate.
With
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 1 of 23
R-73B.
+ ITA 279/2006
ROYAL JORDANIAN AIRLINES ..... Appellant
Through: Mr. C.S. Aggarwal, Senior
Advocate with Mr. Prakash Kumar, Advocate
and Mr. Anil
K. Makhija, Advocate.
versus
COMMISSIONER OF INCOME TAX ..... Respondent
Through: Mr Rohit Madan, Mr Zoheb
Hossain and Mr Akash Vajpai, Advocates.
With
R-73C.
+ ITA 280/2006 & CM 2072/2006
ROYAL JORDANIAN AIRLINES ..... Appellant
Through: Mr. C.S. Aggarwal, Senior
Advocate with Mr. Prakash Kumar, Advocate
and Mr. Anil
K. Makhija, Advocate.
versus
COMMISSIONER OF INCOME TAX ..... Respondent
Through: Mr Rohit Madan, Mr Zoheb
Hossain and Mr Akash Vajpai, Advocates.
With
R-73D.
+ ITA 580/2006 & CM 4482/2006
ROYAL JORDANIAN AIRLINES ..... Appellant
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 2 of 23
Through: Mr. C.S. Aggarwal, Senior
Advocate with Mr. Prakash Kumar, Advocate
and Mr. Anil K. Makhija, Advocate.
versus
COMMISSIONER OF INCOME TAX ..... Respondent
Through: Mr Rohit Madan, Mr Zoheb
Hossain and Mr Akash Vajpai, Advocates.
With
R-73E.
+ W.P.(C) 16060/2006
ROYAL JORDANIAN AIRLINES & ANR ..... Appellant
Through: Mr. C.S. Aggarwal, Senior
Advocate with Mr. Prakash Kumar, Advocate
and Mr. Anil
K. Makhija, Advocate.
versus
ASSISTANT DIRECTOR OF INCOME TAX ..... Respondent
Through: Mr Rohit Madan, Mr Zoheb
Hossain and Mr Akash Vajpai, Advocates.
And
R-73F.
+ W.P.(C) 16068/2006
ROYAL JORDANIAN AIRLINES & ANR ..... Appellant
Through: Mr. C.S. Aggarwal, Senior
Advocate with Mr. Prakash Kumar, Advocate
and Mr. Anil
K. Makhija, Advocate.
versus
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 3 of 23
ASSISTANT DIRECTOR OF INCOME TAX ..... Respondent
Through: Mr Rohit Madan, Mr Zoheb
Hossain and Mr Akash Vajpai, Advocates.
CORAM:
JUSTICE S. MURALIDHAR
JUSTICE VIBHU BAKHRU
ORDER
% 24.11.2015
Dr. S. Muralidhar,J.
Introduction
1. ITA No. 159 of 2002 is an appeal by the Revenue against the 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 RJA is directed against the order dated 31st August 2005 of the
ITAT in ITA No. 4670/Del/03 for the AY 2000-01 and ITA No. 580 of
2006 by RJA is against the order dated 31st August 2005 of the ITAT in
ITA No. 3805/Del/99 for the AYs 1994-95.
3. Apart from the above appeals, two writ petitions have been filed by
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 4 of 23
RJA, i.e., W.P.(C) No.16060 of 2006 and W.P.(C) No. 16068 of 2006,
in which notices dated 27th February 2006 issued by the Assistant
Director of Income Tax (`ADIT') under Section 148 of the 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 Constitution of Jordan. The said Ordinance was
published in the Jordanian official gazette dated 10th April 1969. The
features of RJA as spelt out in the Ordinance were that it was a body
corporate having financial and administrative independence, it was a
part of the Ministry of Transport of the Government of Jordan and it
was to undertake all the scheduled air transport activities from and to
the Kingdom of Jordan. The initial capital of RJA Corporation was two
million and two hundred fifty thousand 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
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 5 of 23
Transport of the Kingdom of Jordan that RJA would be directly
controlled by the Council of Ministers. It was stated that for all
purposes RJA has the status of a Department of the Government in the
Kingdom of Jordan.
6. RJA has its principal office in Amman in Jordan. It appointed Jet Air
Pvt. Ltd. as its general sales agent in India. RJA commenced its
operations in India, carrying passengers and cargo on international
flights from and to India from 1989 onwards. Since commencement of
operations in India, RJA has been incurring losses. It did not file any
return of income in India.
Facts concerning AYs 1989-90 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
income tax to the Government account since September 1993 in order
to obtain a 'No Objection Certificate' for remittance of sales proceeds
calculated on the basis of gross receipts less commission under Section
44BBA of the Act. The Assessing Officer (`AO'), nevertheless,
proceeded to pass orders on 28th February 1994, in respect of AYs
1990-91 to 1993-94 holding that in terms of Section 44BBA, 5% of the
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 6 of 23
gross receipts were to be deemed to be taxable income on a presumptive
basis. For the AY 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 challenging the invocation of Section 148 of the Act and
that Section 44BBA of the Act did not apply to it.
9. The CIT(A) also referred to the decision of the ITAT in Iraqi
Airways v. Inspecting Assistant Commissioner 23 ITD 115 and noticed
that there was no distinction between the case of RJA and that of Iraqi
Airways. Reference was also made to Note 11 attached to the audited
accounts of RJA for the year ending 31st December 1993 which stated
that the Kingdom of Jordan was committed to cover the 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 additional
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 7 of 23
demand, if any raised in the reassessment proceedings which should be
refunded to the appellant, if already collected".
10. Aggrieved by the above order of the CIT (A), both the Revenue and
RJA filed appeals before the ITAT. In RJA's five appeals, the issue
raised was the refusal by the CIT (A) to grant refund in respect of the
taxes that had already been paid prior to the re-assessment proceedings.
The solitary ground in the Revenue's five appeals was a challenge to
the invalidation by the CIT (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 between the financial
year ending 31st December 1989 to 31st December 1998, RJA has
suffered losses and all the losses had been borne by the State treasury.
The Revenue's appeals were dismissed.
12. As far as RJA's appeals were concerned, the ITAT held that Section
44BBA could not have been applied to Assessee. Therefore, there was
"no alternative but, to cancel the assessment and direct the refund of
amount of tax paid". As a result, RJA's appeals were allowed.
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 8 of 23
13. It is against the above order 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 1994-95, 1995-96, 1996-97 and 2000-01 RJA filed its
return of income declaring nil income. Nonetheless, the AO framed
assessment under Section 143(3) of the Act on 14 th March 1997,
holding that RJA is a foreign company and is liable to pay tax in India,
in terms of Section 44BBA of the Act. The AO proceeded to determine
income @5% of the net sales and assessed the income of RJA for AY
1994-95 at Rs.2,09,01,800. For AY 1995-96, a similar order was passed
on 6th March 1998, determining the income at Rs.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
Rs.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 Rs. 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 as applicability of Section 44BBA
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 9 of 23
was concerned. However, it felt that the AO had incorrectly allowed
deduction from the gross receipts and accordingly its income was
enhanced to that extent. Similar orders were passed by the CIT (A) in
respect of the appeals against the assessment orders for AYs 1995-96,
1996-97 and 2000-01.
16. Aggrieved by the above orders, appeals were filed by RJA before
the ITAT. For AY 1994-95 when the appeal of RJA being 3085/Del/99
was heard by the ITAT, there was a difference 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
year was also filed by the Revenue before the ITAT. However, for AY
2000-01, against the decision of the CIT (A), RJA again filed an appeal
before the ITAT.
18. The Special Bench passed a common order dated 31st August 2005
in the four appeals pertaining to the above AYs. The Special Bench held
that RJA was liable to be re-assessed to income tax as a foreign
company. It was held that there was no immunity from tax to sovereigns
unless it was specifically granted by the Parliament. The Special Bench
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 10 of 23
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 to its agents and the
sums refundable to the customers. It was held that since there was no
discussion in the impugned order of the CIT(A) in that regard, RJA
should be given a specific opportunity to put forth its arguments in
relation to the computation of its income under Section 44BBA. The
matter was therefore restored to the file of the AO for that purpose. The
AO was also asked to examine the question of levy of interest under
Section 234B of the Act.
20. Against the above order dated 31st 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
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 11 of 23
21. While the aforementioned appeals were pending, a notice under
Section 148 of the Act was served upon RJA on 27 th February 2006
under Section 148 of the Act asking RJA to file its return for AYs 1999-
2000. Similar notices were issued for AYs 1994-95 to 1998-99 and
2001-02. A copy of the reasons for issuance of the said notice has been
placed on record. It inter alia stated that, in view of the decision of the
Special Bench dated 31st August 2005 (relevant portions of which were
quoted in the reasons), Section 148 read with Section 147 and Sections
149 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
dated 18th September 2006, RJA filed separate writ petitions in this
Court being W.P.(C) No. 16062-63/ 2006, 16064/2006, 16066/2006,
16089-90/2006 and 16091-92/2006 in respect of AYs 1989-90 to 1993-
94. The said writ petitions were listed before the Court on 24th October
2008 when the following order was passed:
"Mr. Sabharwal states that he has taken instructions with
regard to the withdrawal of the proceedings under Section 147
pursuant to the Section 148 notices. He submits that the said
proceedings have already been dropped. He has produced
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 12 of 23
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 petitions have become
infructuous. They are disposed of as such. All pending
applications also stand disposed of."
24. However for some reason, it appears that notices under Section 148
issued in respect of the AYs 1999-2000 and 2001-02 were not dropped.
The present two writ petitions (W.P.(C) 16060 of 2006 and 16068 of
2006 pertaining to the notice under Section 148 of the Act issued for the
said two AYs came up for hearing before the Court on 16 th November
2010, when the following order was passed:
"In the course of hearing, Mr.C.S.Aggarwal, learned senior counsel
appearing for the petitioner referred to the order dated 24 th 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 Act.
Mr. Sabharwal, learned counsel appearing for the revenue
undertakes to produce the said letter. That apart, learned counsel for
the revenue shall also produce the record indicating why the
proceedings were dropped.
Be it noted, direction for production of record or the letter that has
been referred to hereinabove is without prejudice to the contentions
to be raised by the learned counsel for the parties.
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 13 of 23
Matter be listed on 11th February, 2011.
Interim orders shall remain in force till the date 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 before the Court a compilation of the relevant documents. Two
of the documents in the said compilation are significant. The first is the
order dated 29th August 2008 passed by the ITAT in ITA No.
407/Del/2008 being the appeal filed by RJA for AYs 1995-96, 1997-98
and 2000-2001.
27. The said appeal arose from the consequential orders passed by the
AO after order of the Special Bench of the ITAT dated 31 st August
2005. For each of the four AYs forming subject matter of the order of
the ITAT, the 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.
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 14 of 23
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 rate of profit even if it had maintained books of accounts. It was
further observed that the decision of the Supreme Court in CIT v.
Hyundai Heavy Industries Ltd. 291 ITR 482 would not apply to
the facts of the case since the said decision was not rendered in the
context of Section 44BBA of the Act.
29. The order dated 29th August 2008 of the ITAT was essentially
on the interpretation and applicability of Section 44BBA of the
Act. After discussing the decisions of the Supreme Court in Union
of India 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 losses to an Assessee, firstly, the provisions are
not applicable, and assuming they are applicable then too, the
provisions for lower rate of taxation have to be understood within
the scheme of the Act as has been held by the apex Court in the
case of Hyundai Heavy Industries Co. Ltd. (supra), wherein at p.
494, it was observed as under:
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 15 of 23
`Thirdly, it is important to note that Chapter IV of the
Act contains provisions for presumptive taxation of
business income in certain cases as prescribed in
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 consistently reporting losses, the
ITAT held that the "income could not have been artificially computed
by invoking provisions of Section 44BBA particularly when the
assessee has shown his book results showing loss. We, therefore, direct
the AO to compute income on the basis of books of accounts
maintained by the assessee." Section 234B could not be invoked to levy
interest to charge interest and that was deleted. The ITAT held that RJA
would produce its books of accounts to justify its claims that it had
incurred 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
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 16 of 23
necessary bills and invoices etc, in support of the computation of losses
in its profit and loss accounts. Accordingly, the AO accepted the
income to be nil.
32. It is significant that the Revenue has accepted the order dated 29th
August 2008 as well as 29th March 2009 passed by the ITAT and not
challenged the said orders by filing appeals before this Court. As a
result, the consequential order of the AO dated 16th October 2009
accepting the income of RJA to be nil for AYs 1994-95 to 1998-99 and
2000-01 has also attained finality.
33. 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.
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
position as regards Section 44BBA of the Act, which reads as under:
"44BBA. Special provision for computing profits and gains of the
business of operation of aircraft in the case of non-residents.-
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 17 of 23
(1) Notwithstanding anything to the contrary contained in sections 28 to
43A, in the case of an assessee, being a non-resident, engaged in the
business of operation of aircraft, a sum equal to five per cent of the
aggregate of the amounts specified in sub-section (2) shall be deemed to
be the profits and 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 carriage of
passengers, livestock, mail or goods from any place outside
India."
36. In Sanyasi Rao (supra), the Supreme Court was interpreting Section
44AC which provides for taxation of presumptive income based on the
gross receipts. The Supreme Court in the said case held that even where
Section 44AC is sought to be applied to a trader, it was only a
machinery provision and could not deny the normal relief afforded to all
Assessees. It was accordingly held in such instance an option would be
available 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
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 18 of 23
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 prescribed in 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."
38. In as much as Section 44BBA is not 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 29 th 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 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.
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 19 of 23
39. It was then submitted by Mr.Madan that as far as AYs 1989-90 to
1993-94 are concerned, RJA is yet to produce books of accounts to
show that it has been incurring losses and these are yet 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 that the ITAT has in para 14 of its
order dated 2nd November 2001 referred to this fact as under:
"14. We have heard both the parties at length and have also
carefully perused the orders of both the lower income-tax
authorities. We have also gone through the voluminous
paper book filed by the assessee and we find the facts of the
instant case appear to almost identical to the facts of the
Iraqi Airways on which a heavy reliance was placed by the
assessee's learned counsel and which is reported 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 corporation. The assessee has specifically brought
to our notice that between financial year's ending 31. 12.
1989 to 31.12.1998 it has suffered the losses and all these
losses have been borne by the State Treasury. The aforesaid
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 20 of 23
figures are given on pages No. 241-242 of the paper Book
and are as under:-
S. No. Date (Dinar Jordan)
1. 31st December, 1989 84383645
2. 31st December, 1990 94792193
3. 31st December, 1991 133137074
4. 31st December, 1992 144788000
5. 31st December, 1993 143876783
6. 31st 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 certificate of Government of
Jordan and also that of the Ambassador of Jordan in India. In
view of these material submissions we dismiss the appeals of
the department and uphold the order of the CIT(A) who is
correct in holding that the purported income is not liable for
assessment."
41. The ITAT has thus noted the factual position regarding the losses
incurred by RJA for the above years. This has not been disputed by the
Revenue in its appeal against the aforesaid order. Consequently, the
question 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.
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 21 of 23
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 appeals.
The writ petitions
43. Now turning to W.P.(C) Nos. 16060 of 2006 and 16068 of 2006, it
is seen that apart from the fact 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 income for AY 2001-02 or being
amenable to income tax does not arise.
44. As regards the notice under Section 148 for AY 1999-2000, the
Court finds that it was issued even while the proceedings which
commenced with the notice under Section 143(2) of the Act issued on
26th December 2000 were not yet closed. In other words, even without
passing the further consequential order under Section 143(3) of the Act,
a notice under Section 148 of the Act was issued to RJA on 23rd
February 2006 asking it to file a return for AY 1999-2000. This was
impermissible in law and there are at least two decisions of this Court
ITA Nos. 159/2002, 278, 279,280, 580/2006 & W.P(C) 16060, 16068/2006 Page 22 of 23
that support the Assessee. These are KLM Royal Dutch Airlines v.
Additional Director of Income Tax (2007) 292 ITR 49 (Del) and
Commissioner of Income Tax v. Ved & Co. (2008) 302 ITR 328(Del).
This is, therefore, another reason why the notice under Section 148 of
the Act for AY 1999-2000 is unsustainable in law.
Conclusion
45. Consequently, the notices dated 23rd February 2006 issued to RJA
under Section 148 of the Act and the rejection of the objections of RJA
to the said notices by the order dated 18 th September 2006 for AYs
1999-2000 and 2001-02, are held unsustainable in law and are hereby
quashed.
46. The appeals are disposed of and the writ petitions are allowed in the
above terms, but in the circumstances, with no orders as to costs.
S.MURALIDHAR, J
VIBHU BAKHRU, J
NOVEMBER 24, 2015
mg
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