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Revenue by: Shri Manjunath Swamy-CIT -DR Assessee by: Shri Dhanesh Bafna and Ms. Anusha Singh सुनवाई क� तारीख / Date of Hearing: 11.07.2016 घोषणा क� तारीख / Date of Pronouncement: 03.08.2016 आयकर आयकर अिधिनयम अिधिनयम,1961 क� क� धारा धारा 254(1)केकेकेके अ�तग�त अ�तग�त आदेश आदेश आयकर आयकर अिधिनयम अिधिनयम क� क� धारा धारा अ�तग�त अ�तग�त आदेश आदेश Order u/s.254(1)of the Income-tax Act,1961(Act) खंडपीठ के अनुसार PER BENCH- Challenging the order,dated 18/04/2011,of the CIT (A)-14,Mumbai, the Assessing Officer(AO)and the assessee have filed appeals/cross objections for the above-mentioned three AY.s,raising various grounds.As the issues involved in the appeals /Cross objections(CO.s.)are common,so,for the sake of convenience,we are adjudicating all the matters by a single order.Assessee company is engaged in the business of operation of aircraft and other related activities. ITA/4982/Mum/2013-AY.2008-09. Brief Facts: 2.A survey action u/s.133A of the Act was conducted at the office premises of the assessee.On verification of the TDS-returns, it was found that the assessee 4982, 83 & 84/M/13-+CO.s Emirates (08-09 to 10-11)(6) had deducted tax at various rates for payments made to Mumbai International Airports Ltd.(MIAL) and Airports Authority of India,that it was deducting TDS @of 2% on exercises and Passenger Service Fees(PSF).The assessee was asked to explain as to why the TDS was deducted at 2% instead of 10%.Accordingly,a show cause notice,dated 24/ 01/ 2011,was issued calling for various details and to explain as to why the assessee should not be treated as an assessee in default for short deduction of TDS u/s. 201 of the Act on expenses on X-Ray and PSF. In response to the show cause notice, the assessee stated TDS on X-Ray charges and PSF were correctly being deducted @2%,as per the certificate u/s.197 of the Act,issued by the DC/ACIT TDS for the consolidated figure provided by them to cover those deduction as well as their earlier certificate issued to the assessee, that it could not be treated in assessee in default.The assessee also furnished month wise payments made on account of PSF and X-Ray charges. After considering submission of the assessee and the details filed by it, the AO held that it had obtained only one TAN for expenses all over India, that only one e-TDS return was filed for the expenses incurred by it, that it had furnished the lower deduction certificate from the DCIT,TDS(2)(1),Mumbai issued to MIAL,that MIAL had obtained the exemption certificate u/s. 197 of the Act for all the receipts from various Airlines u/s. 194-I of the Act, that the payments made by the assessee was for use of the premises of MIAL and for other different facilities provided by the Airport Authorities, that the payments made by it were covered u/s.194-I of the Act. He worked out short deduction of tax on account of PSF for the period 01/04/2007 to 28/12/2007 and observed that no certificate u/s.197 of the Act was issued for X-Ray charges for the year under consideration, that MIAL had obtained the certificate u/s.197 for receipt of PSF charges from the assessee for Rs. 2.59 crores.The AO tabulated the details of payment on account of PSF and X-Ray and calculated the short deduction of tax under the head PSF charges as under: Short deduction on PSF- Rs.29,13,676/- 2 4982, 83 & 84/M/13-+CO.s Emirates (08-09 to 10-11)(6)
Interest u/s.201(1A)-Rs.11,99, 294/-. Short deduction on account of X-Ray charges in details of payment were worked out as follow: Short deduction on account of X-Ray charges- Rs.66,54,152/- Interest u/s. 201(1A)- Rs.30,60,910/-. In response to the notices issued u/s.201(1)/201(1A)for 24Q and 26Q for all the quarters,the assessee requested for some time to submit to the details.The AO calculated the defaults on processing of statement as under: Form Qtr. Short Interest Short Interest Interest U/s. Total(Rs.) No. deduction (Rs.) Payment(Rs.) (Rs.) 201(1A)(Rs.) (Rs.) 24Q 2857620 1384620 330 4242570 1st 26Q 13715390 6230700 138690 65790 757800 20908370 2nd 26Q 9929880 4289280 1194290 513550 78500 16005500 3rd 26Q 10577670 4225800 14803470 4th 26Q 12603120 4664630 110 40 88350 17356250 Total 46826060 19410410 3084800 1964000 924980 73316160 The AO calculated short deduction of tax,including interest,u/s.201(1A) at Rs.8.30 crores. 3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority (FAA).Before him,it contended it had a separate License Agreement for using part of the premises of MIAL,that it was paying licence fee for the same to MIAL separately,that other services and facilities provided by MIAL had no connection with the use of premises,that same were distinct and separately identifiable services and facilities,that the AO had erred in not appreciating the true nature of the PSF charges in the X-Ray charges, that PSF charges were charged by MIAL for the services provided to the persons by them such as Security guards,checking and other facilities,that those payments were different from the use of the premises,that X-Ray charges were paid for screening of the luggage of the passengers,that both those charges were not even remotely connected to the nature of rent,that same could not be clubbed,that the services and facilities provided by MIAL did not fall within the purview of any specific section, that same had been treated in the residual 4982, 83 & 84/M/13-+CO.s Emirates (08-09 to 10-11)(6) category falling within the purview of section 194-C of the Act,that the rate of TDS applicable u/s.194-C should be applied,that section 194-I was not applicable, that the action of the AO taxing the payments of PSF/X-Ray charges as rent was totally arbitrary and without any authority of law,that MIAL had included those payments in its total income computed under the Act and had accordingly paid the full applicable tax,that the department was not deprived of any revenue on account of tax on those payments, that the AO had erred in holding that certificate issued by the TDS authorities covered only PSF charges and did not cover X-Ray charges,that the AO had ignored the fact that X-Ray charges were part of Cargo and the payment in relation to Cargo were also covered by the certificate, that the certificate was issued for the year ended on 31/03/2008,that no demand u/s. 201/201(1A)of the Act can be raised on the payer without first verifying as to whether the receiver had discharged the income tax liability on the income received from the payer as per the provisions of section 191 of the Act,that the order passed by the AO was bad in law and deserved to be quashed.The assessee relied upon the cases of Jagran Prakashan Ltd.(345ITR288),Mahindra and Mahindra Ltd.(22DTR361),Vedanta Math(55 SOT470) and stated that the AO had not follow the provisions of section 191 of the Act. With regard to the nature of X-Ray charges paid to MIAL,the assessee further argued that it had entered into an agreement with MIAL to avail X-Ray services for the scanning of the cargo carried by the assessee to/from the Mumbai airport, that it was paying the screening charges at pre-agreed rates based on the total quantum of cargo, that the rates for the X-Ray screening facilities were better back by the Airports Economic Regulatory Authority of India. About PSF charges, the assessee contended same represented fees paid by the passengers for the provision of security and passengers facilitation services provided by MIAL, that assessee was required to collect PSF from embarking passengers and remit it to MIAL, that it was acting merely as a collecting agent of MIAL.It 4 4982, 83 & 84/M/13-+CO.s Emirates (08-09 to 10-11)(6) submitted a copy of notification dated 05/07/2004, issued by Government of India to the Airports Authority of India in connection with levy of PSF charges and stated that same constituted a statutory collection from passengers, that the airline companies were required to act as collecting agents and consequently recover the PSF while selling tickets to the passengers and thereafter remit the PSF to MIAL, that PSF was leveid at the rate of Rs.200 per embarking passengers at international/domestic airports and US $ 5 per passenger in respect of tickets issued in foreign currency,that the compo -nents of PSF were the security component (65% of total PSF collected) and the passenger facilitation component (35% of the PSF), that the amount was collected by MIAL and was kept on an escrow account, that MIAL would make payment to Central Industrial Security Force, that both the charges were not linked to rent payments for uses of premises alleged by the AO, that it had leased premises at the Mumbai International Airport from MIAL under a license agreement, that it had duly deducted tax u/s. 194-I of the Act on payment for lease of office premises, that the payment of X-Ray charges and PSF charges was a separate obligation of the assessee, that those payments did not arise at all from the license agreement for office premises with MIAL, that those payments were independent of lease of the premises, that remittance of PSF charges collected from the passengers represented only a collection activity performed by it with respect to a contractual and legal obligation,that in order to hold the payment within the ambit of the definition of rent the payment must be made for use of land,building,furniture,fittings,plant, machinery or equipment,that what was contemplated by the word ‘Rent’used in the definition of Rent under the section 194-I was that payer must operate or utilise the premises. Without prejudice,the assessee further argued that it was not liable to pay the principal amount of TDS where MIAL had discharged its own income tax liability on income received from the assessee, that assessee was liable to pay interest u/s.201(1A) only till the date of payment of taxes by the payees/filing of 5 4982, 83 & 84/M/13-+CO.s Emirates (08-09 to 10-11)(6) return of income by MIAL, it was not liable to pay tax is MIAL had discharged its own tax liability on income received from the assessee.It relied upon the cases of Coca-Cola Beverages Private Ltd.(293 ITR 226) and Vodafone Essar Ltd., Mumbai (45 SOT 82). It was further stated that system error had resulted on account of incorrect processing of the TDS returns,that such errors had arisen because of incomplete information being in certain fields of TDS return forms completed by the assessee, that it had already filed revised TDS returns in which the errors were corrected, that assessee could not be treated as an assessing the fourth for the principal amount of TDS on technical default, assessee would be liable to pay interest only till the date of payment of taxes by the payee or date of filing of return of income by the payee and not till date of order, that the AO had incorrectly computed interest on the alleged TDS default till the date of assessment order, that lower/middle withholding tax certificate,issued as per the provisions of section 197 of the Act, provided by MIAL covered both PSF charges and X-Ray charges, that the AO had wrongly held that the certificates covered only PSF charges. 3.1.After considering the submission of the assessee and the order passed by the AO u/s.201(1)/201(1A),the FAA held that PSF was collected by it was handed over to the relevant Airport Authority, that it had duly withheld tax at the rate of 2% u/s. 194C of the Act from payments of X-Ray charges and PSF charges to MIAL.He referred to Rule 88 of the Aircraft Rules and order,dated 09/05/2006 of the Ministry of Civil Aviation dealing with PSF and held that the payments were primarily borne by the embarking passengers,that the assessee was merely acting as a collecting agency, that PSF charges were collected by it in fiduciary capacity and were handed over to airport operators, that the PSF was basically a consideration paid by the passengers to airport operators for various services provided to them including security, handling of baggage’s and other facilities,that same could not be termed as Rent by any chance-as had been wrongly held by the AO,that the PSF payments could not be categorised as Rent 6 4982, 83 & 84/M/13-+CO.s Emirates (08-09 to 10-11)(6) because it was a composite fee for many services and that passengers were paying the fees on behalf of airport authority to the assessee, that it did not deny the tax ability of PSF in the hands of airport operators.Finally,he held that PSF payments could not be categorised as rent u/s. 194-I of the Act. With regard to X-Ray charges,the FAA held that it was in the nature of contractual liability of the assessee for a routine service, that it had entered into an agreement with MIAL to avail skin services to X-Ray the cargo carried by it to/from Mumbai airport, that the assessee would pay the screening fee at the pre-agreed rates based on the total control of cargo,that there was no hiring of any specific machine by the assessee,that the airport operator would provide the screening facility to the assessee as per the contract,that X-Ray charges were governed by section 194-C of the Act for TDS provisions,that it had already deducted tax as per the provisions of said section,that it could not be treated an assessee in default. He deducted the AO to delete the demands raised by him u/s. 201(1)/201(1A)for the year under consideration. 4.During the course of hearing before us,the Departmental Representative(DR) supported the order of the AO and stated that both the charges were part of the rent paid by the assessee.The Authorised Representative (AR) argued that assessee had deducted tax at source at the rate of 2%, as per the provisions of section 194C,that the AO had promptly invoke the section 194-I.He referred to the case of Jet Airways (India) Ltd (40 taxmann.com 178) and the Circulars No. 75 and 1,dated 08/08/1995 and 10/01/2008 respectively. 5.We have heard the rival submissions and perused the material available on record.We find that the assessee had paid PSF and X-Ray charges to MIAL as per the agreement entered with it, that it had deducted tax at the rate of 2%, that the AO had held that the payment made by the assessee was covered by the provisions of section 194-I of the Act,that he treated the assessee in default for not deducting the taxed at higher rate,that it had hired a office premises at the international airport, that a separate agreement was entered into with regard to 7 4982, 83 & 84/M/13-+CO.s Emirates (08-09 to 10-11)(6) hiring of that premises, that it was deducting tax as per the provisions of section 194-I of the Act for the said premises.In our opinion PSF/X-Ray charges cannot be treated as rent as envisaged by section 194 I. In the case of Japan Airlines Co. Ltd. & others(377 ITR 372)the Hon’bel Apex Court has defined the word Rent as under: “The expression “rent” is given a much wider meaning u/s. 194-I than is normally known in common parlance. In the first instance, it means any payment which is made under any lease, sub-lease, tenancy. Once the payment is made under lease, sub-lease or tenancy, the nomenclature which is given is inconsequential. Such payment under lease, sub-lease or tenancy would be treated as “rent”. In the second place, such a payment made even under any other “agreement or arrangement for the use of any land or any building” would also be treated as “rent”. Whether or not such building is owned by the payee is not relevant. The expressions “any payment”, by whatever name called and “any other agreement or arrangement” have the widest import. Likewise, payment made for the “use of any land or any building” widens the scope of the proviso. A bare reading of the definition of “rent” contained in the Explanation to section 194-I would make it clear that in the first place, the payment, by whatever name called, under any lease, sub-lease, tenancy, is to be treated as “rent”. That is rent in traditional sense. However, the second part is independent of the first part which gives much wider scope to the term “rent”. According to this whenever payment is made for use of any land or any building by any other agreement or arrangement, that is also to be treated as “rent”. Once such a payment is made for use of land or building under any other agreement or arrangement, such agreement or arrangement gives the definition of rent of very wide connotation. To that extent, the scope of the definition of “rent” is wide and not limited to what is understood as rent in common parlance.” The facts of the case were that the assessees were foreign airline companies which were members of the International Air Transport Agreement and during the relevant year serviced inward and outbound air traffic to and from India. The Airports Authority of India levied certain charges on them for landing and parking their aircraft.For payment of landing and parking charges of their aircraft,the appellants deducted tax at source u/s. 194C of the Act,@ 2% and deposited it with the Department. The Department, however, took the view that the tax was to be deducted u/s. 194-I of the Act which calls for deduction at 20%. Deciding the issue as to whether the landing and parking charges paid by the airline companies to the Airports Authority of India were payments for a 4982, 83 & 84/M/13-+CO.s Emirates (08-09 to 10-11)(6) contract of work u/s. 194C and not in the nature of “rent” as defined in section 194-I,the Hon’ble Apex Court held as follow: “……….the charges fixed by the Airports Authority of India for landing and take-off services as well as for parking of aircraft were not for the “use of the land”. These charges were for services and facilities offered in connection with the aircraft operation at the airport, which included providing of air traffic services, ground safety services, aeronautical communication facilities, installation and maintenance of navigational aids and meteorological services at the airport. The Airport Economics Manual and the International Airports Transport Agreement among contracting States on charges for airport and air navigation services showed that there were various international protocols which mandated that all authorities manning and managing these airports construct airports of desired standards which were stipulated in the protocols. The services required to be provided by authorities like the Airports Authority of India were aimed at passengers’ safety as well as safe landing and parking of the aircraft. Therefore, it was not mere “use of the land”. On the contrary, it was the facilities, that were to be compulsorily offered by the Airports Authority of India in tune with the requirements of the protocol, which was the primary focus. For example, special technology was required for the construction of runways for smooth landing and take-off of the aircrafts. Technical specifications for lighting, safety area and markings were stipulated. Designs and quality of pavement on these runways were also to be taken compliant. The Airports Authority of India provided all these facilities for landing and take-off of an aircraft and in this whole process, “use of the land” was incidental. On the contrary, the protocol prescribed a detailed methodology for fixing these charges. Thus, the charges were not for use of land per se and, therefore, could not be treated as “rent” within the meaning of section 194-I of the Act.” Respectfully,following the above judgment we hold that payment made by the assessee to MIAL cannot be treated rent,as per the provisions of section 194-I of the Act.There was no use of land by the assessee for both the charges collected by it. Thus,the basic ingredient i.e. use of land,plant,machinery etc.is missing and hence it can safely be held that the assessee had rightly deducted the tax at the rate of 2%, as per the provisions of section 194- C of the Act. As far as PSF 4982, 83 & 84/M/13-+CO.s Emirates (08-09 to 10-11)(6) charges are concerned,we want to mention that in the case of Jet Airways (supra) the Tribunal has held as under: “The facts under consideration show that the PSF is a statutory liability without demarcating/ earmarking the area taken on the rent, nor it is a case of systematic use of land specified for consideration under an agreement, which carries the characteristics of lease or tenancy. A mere use of land and payment charged, which is not for the use of the land but for maintenance of various services including technical services would not technically bring the transaction and the charges within the meaning of either lease or sublease or tenancy or any other agreement or arrangement or any nature of lease or tenancy or rent. It would not be out of place to consider the CBDT Circular No.1/2008, dated 10th, January, 2008 relating to the clarification regarding the applicability of provisions of section 194 – I to payments made by the customers on account of cooling charges to the cold storage owners, wherein the CBD had the occasion to consider the representations in respect of the issue, whether the customer five the building, plant and machinery etc.,without packages for reservation for a required period captain the cold storage after paying cooling charges. The CB DT, thus, clarified that the customer is also not given any right to use any demarcated space less place for the machinery of the cold storage and thus does not become a tenant. Therefore, the provisions of section 194 – I is not applicable to the cooling charges paid by the customers of the cold storage. Applying the same technology, the PSF charges paid by the assessee on behalf of its customer, did not attract the provisions of section 194 –I.” After considering the above,we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity.Therefore, upholding his order,we decide the effective ground of appeal against the AO. CO/215/Mum/2014, AY.-2008 -09: 6.The grounds raised by the assessee,in the CO,are allowed for statistical purposes, as we have already decided the issue of applicability of provisions of section 194-I of the Act, against the AO i.e. in favour of the assessee. ITA.s./2983-84/Mum/2013&CO.s./216-17/Mum/2014-AY.s.2009-10,2010- 2011: