HC Sets Aside 0.1% TDS for British Airways; Orders NIL Certificate Under Section 197

British Airways PLC, a UK tax resident company, challenged before the High Court the order and certificate dated 25.09.2025 issued under Section 197 of the Income Tax Act, 1961 prescribing withholding tax at 0.1%. The matter was decided on 17.02.2026. The petitioner, engaged in airline and cargo operations, relied on Article 8 of the India-UK DTAA, under which profits from the operation of aircraft in international traffic are taxable only in the UK and exempt in India by virtue of Section 90 of the Act.

Main Issue: Whether issuance of a 0.1% withholding certificate under Section 197 was justified in respect of airline operations exempt under Article 8 of the India-UK DTAA.

HC’s Decision: The Bench held that the principal basis for prescribing 0.1% was admittedly incorrect. Once that ground was removed, the authority itself had acknowledged that airline operations were not taxable in India. The Court observed that even a nominal rate of 0.1% would have substantial financial impact given the annual turnover of approximately Rs. 4,000 crores, and that deviation from long-standing issuance of NIL certificates without valid basis reflected non-application of mind.

Thus, the writ petition was allowed. The impugned order and certificate dated 25.09.2025 were set aside and the authority was directed to issue a NIL rate certificate within seven days. It was further directed that NIL certificates for airline operations be issued within 30 days of application, unless there is a change in law or in the nature of transactions. The Court clarified that the direction applies only to airline operations, and taxable services such as ground handling and engineering services would continue to be governed by law.

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