Facts of the Case

The petitioner, British Airways PLC, a UK-based company engaged in international air transport operations, sought issuance of a nil/lower withholding tax certificate under Section 197 for FY 2019–20.

  • Its income from international air traffic was not taxable in India under Article 8 of the India–UK DTAA.
  • The petitioner applied through the TRACES system, but faced technical limitations:
    • Initially, only 3 parties (TANs) could be entered.
    • Later, the system allowed 50 TANs, but still restricted multiple applications.
  • Though the petitioner submitted details of over 300 parties via annexures, certificates were issued only from dates of respective applications, not from 1 April 2019.
  • This caused higher TDS deductions for the period prior to certificate issuance.

 

Issues Involved

  1. Whether withholding tax certificates issued under Section 197 can be made effective from the beginning of the financial year instead of the date of issuance.
  2. Whether technical glitches in the TRACES system can prejudice the taxpayer’s rights.
  3. Whether the petitioner is entitled to nil TDS benefit retrospectively from 01.04.2019.

 

Petitioner’s Arguments

  • Income is exempt under Article 8 of DTAA, hence nil withholding applies.
  • Application was made within time (18.03.2019) for FY 2019–20.
  • Technical limitations of TRACES:
    • Only limited TAN entries allowed initially.
    • No provision for multiple simultaneous applications.
  • Similar certificates were granted in previous years from 1 April.
  • Delay in issuance was not attributable to the petitioner, causing undue hardship due to excess TDS deductions.

 

Respondent’s Arguments

  • TRACES system was functional and allowed:
    • Online mode (up to 50 TANs)
    • Offline utility mode (for more than 50 TANs)
  • Petitioner failed to use offline mode for bulk TAN submissions.
  • Certificates were issued based on proper applications submitted in prescribed format.

 

Court’s Findings / Order

  • The Court acknowledged:
    • Petitioner had applied within time.
    • Technical constraints in TRACES restricted proper filing.
    • Similar certificates were issued in prior years for same parties.
  • The Court held:
    • The inability to include all TANs was due to system inadequacy, not petitioner fault.
    • Revenue eventually issued certificates for all parties, confirming eligibility.

Final Order:

  • Withholding tax certificates shall be effective from 1 April 2019 (start of FY 2019–20).
  • Interim relief was made absolute.
  • Writ petition allowed in favour of the petitioner.

 

Important Clarifications

  • Technical/system limitations cannot override substantive tax rights.
  • Section 197 certificates can be granted retrospectively, if justified.
  • Administrative inefficiencies must not lead to excess tax burden on taxpayers.
  • Courts may intervene where procedural constraints defeat lawful entitlement.

Sections Involved

  • Section 197(1), Income Tax Act, 1961
  • Section 90(2), Income Tax Act, 1961
  • Article 8, India–UK Double Taxation Avoidance Agreement (DTAA)


Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:3459-DB/SVN03122020CW134962019_154606.pdf 

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