Airline Operations Exempt Under India-UK DTAA: Delhi High Court Directs NIL TDS Certificate For British Airways

The Delhi High Court has set aside an order of the Income Tax Department issuing a 0.1% TDS certificate to British Airways under Section 197 of the Income Tax Act, 1961.

A Division Bench of Justices Dinesh Mehta and Vinod Kumar directed the authorities to issue a NIL TDS certificate, holding that income from airline operations is exempt under the India–UK Double Taxation Avoidance Agreement (DTAA).

The development comes in a petition moved by British Airways, a tax resident of the United Kingdom, contending that its income from operation of airline and cargo services is covered by Article 8 of the India–UK DTAA and is therefore not taxable in India.

It was argued that for the last 16 years, the tax authorities had consistently issued NIL TDS certificates in respect of airline operations. However, for the latter part of FY 2025–26, the authority surprisingly issued a certificate prescribing TDS at 0.1%.

British Airways argued that the reason assigned in the impugned order that there is demand outstanding against it is factually incorrect and highlighted that rather a huge amount of refund is due to be paid by the respondents.

The Income Tax Department on the other hand contended that TDS under Section 197 is only in the nature of advance tax and that British Airways also renders services such as ground handling and engineering services, which are taxable in India.

It was further argued that issuance of NIL certificates in previous years does not bind the department for subsequent assessment years.

Rejecting these submissions, the High Court observed that the impugned order was founded on an incorrect factual premise regarding outstanding demands. The Bench noted that once this erroneous assumption was excluded, the competent authority itself had acknowledged that airline operations were not exigible to tax in India.

“It is true that the rate of .1% appears to be very low or negligible but given the volume of transactions which the petitioner undertakes in India (about Rs.4000 Crores per year) even this .1% turns out to be substantial for an Airline company,” the Court said.

The airline was however obliged to pay tax for its Ground Handling and Engineering services, which the Court found it was already doing.

Accordingly, the Court set aside the impugned order and directed the authorities to issue a NIL TDS certificate within seven days.

The bench further directed the competent authority to continue issuing NIL rate certificates in respect of airline operations within 30 days of receipt of applications, or by May 15, 2026, whichever is later, unless there is any change in law or in the nature of the transactions undertaken by the airline.

For Petitioner: Advocates Vishal Kalra, Anil Kumar and S.S. Tomar

For Respondents: Advocate Anurag Ojha, SSC