The assessee, a company incorporated in the United Kingdom and a tax resident of the UK, was engaged in the business of operating airline and cargo services in India. It claimed exemption in respect of income derived from such operations under Article 8 of the India-UK DTAA read with section 90 of the Income-tax Act, 1961. For nearly sixteen years, the Income-tax Department had consistently issued certificates under section 197 authorising deduction of tax at source at NIL rate in respect of the assessee’s airline operations. Even during the earlier part of Financial Year 2025-26, a NIL-rate certificate had been granted in respect of transactions aggregating approximately ` 3,700 crores. Subsequently, the assessee applied for a certificate under section 197 in respect of the remaining transactions of approximately ` 3.98 crores for the same financial year. The competent authority, however, issued a certificate directing tax deduction at the rate of 0.1 per cent. The primary reason assigned was that certain outstanding tax demands pertaining to Assessment Years 2013-14 to 2016-17 were reflected on the ITBA portal.

The Hon’ble Delhi High Court allowed relief to the assessee by observing that the assessee’s assessments had already been completed, and no tax liability had been found in respect of such airline operations. Though the withholding rate of 0.1 per cent appeared nominal, considering the substantial volume of transactions undertaken by the assessee in India, the withholding amount would be significant. It is also undisputed that the assessee is paying taxes in respect of other taxable activities such as ground handling and engineering services. Accordingly, the impugned order and certificate issued under section 197 is set aside and the competent authority is directed to issue a certificate authorising deduction of tax at NIL rate. The Court further directed the Revenue authorities to continue issuing NIL-rate certificates in respect of income from airline operations unless there was a change in law or in the nature of the transactions undertaken by the assessee.