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I-T - Airport Authority is liable to TDS u/s 194H on collection charges or commission retained by Airlines Operators from passenger service fees: ITAT
ST - Construction of building for use as hospital by charitable organization is not taxable being non-commercial venture: CESTAT
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CASE LAWS
2018-TIOL-637-ITAT-BANG + Case Story
DELHI INTERNATIONAL AIRPORT PVT LTD Vs DCIT: BANGALORE ITAT (Dated: April 19, 2018)
Income Tax - Sections 40(a)(ia), 142(1) & 194H.
Keywords - Assessee in default - Collection charges - Duty credit entitlement - Passenger service fees - TDS.
A) The assessee is engaged in the business of development, operation and management of Airport. The assessee had filed return for relevant AY. As per the various orders of the Ministry of Civil Aviation ( MoCA), the passenger service fee was to be charged by the Airlines Operators at the time of booking of tickets of passengers. The 65% passenger fees per embarking passenger is of security component (SC) and balance 35% of passenger service fees (PSF) is a facilitation component (FC). During assessment AO noted that the assessee had collected passenger service fees [PSF (SC & FC)] through Airlines operator at the IGI Airport. The assessee has received the said amount through Airlines operators. The Airlines operators while paying the same to assessee are retaining the amount @ 2.5% of the invoice value on account of prompt payment by them to the assessee before due date.
The assessee recognized the revenue from PSF-(FC) and PSF-(SC) in its books of account net of prompt payment rebate/cash discount and offered the same to tax in the assessment year under consideration. The assessee was asked by the AO to furnish the details regarding the collection charges vide notice u/s 142(1) and in response thereto, assessee filed reply stating therein that assessee company was offering the income to tax only on the net amount of collection charges/cash discount which was not acceptable to the AO. The AO observed that cash collection or the cash discount charges is nothing but a commission paid by the assessee company to Airlines operator towards collection of PSF. Assessee should have deducted TDS on collection charges as provided u/s 194H of the Act. Since the assessee has not deducted the tax on such payment, the AO had disallowed collection charges or cash discount of Rs.5,22,04,677/- paid to the Airlines operator and added to the income of the assessee. On appeal, CIT(A) upheld the order of AO.
B) The assessee was entitled to custom duty credit scrip under the "Served From India Scheme" (SFIS) of Foreign Trade Policy issued by the Government of India. In terms of SFIS, service providers were entitled to custom duty credit scrip as a percentage of foreign exchange earned which could be utilized against the payment of import duty on capital goods imported from outside India. During the financial years 2007-08 to 2012-13, the assessee company became entitled to duty credit entitlement certificate from the Director General of Foreign Trade, Government of India (DGFT) under SFIS. As per the scheme, the certificate is valid for two years.
The assessee used to follow mercantile system of accounting. The foreign exchange accrues to the assessee when the services were provided. Therefore, the duty credit scrip shall be accounted for when the foreign exchange earning exceeds Rs.10,00,000/- during the year. But the assessee had not recognized income on account of duty credit scrips on accrual basis for assessment years 2008-09 to 2013-14. The AO, relying upon the Experts Advisory Committee of Institute of Chartered Accountants of India (ICAI) wherein it was held that duty credit should be recognized as other income, held that assessee should have offered to tax the duty credit entitlement for the assessment year in which the assessee became entitled to the duty credit. The AO accordingly made an addition. On appeal, CIT(A) upheld the order of AO.
On appeal, Tribunal held that,
Whether Airlines Operators act as agent while collecting the passenger service fee on behalf of the Airport Authority - YES: ITAT
Whether Airport Authority is liable to deduct tax at source u/s 194H of Act on collection charges or the commission retained by Airlines Operators from passenger service fee - YES : ITAT
Whether if Airlines Operators have paid tax on collection charges and filed the return in time, the Airport Authority is not liable for disallowance u/s 40(a)(ia) as assessee in default - YES: ITAT
++ as far as dispute with regard to nature of deduction at the rate of 2.5% of the invoice value on account of prompt payment to the assessee by the Airlines Operators was concerned it was noted that it has been repeatedly held that Airlines Operators are collecting the PSF on behalf of the Airport Authorities/Operators and the PSF is to be paid to the airport authority in terms of the notifications issued by the MOCA at different points of time,the relationship of Principal and the Agent exists between the airport authority and the airlines operator;
++ the collection charges or the commission are retained by the Airlines at 2.5% of the invoice amount, the remaining was paid to the assessee, there was no occasion to deduct the TDS. The Board has issued a circular No.619 dated 04.12.1991 in which it has been clarified in para 6 that the retention of commission by the consignee/agent amounts to constructive payment of the same to him by the consignor/principal, deduction of tax at source is required to be made from the amount of commission;
++ once it has been held in the case of assessee that they were collecting the PSF on behalf of the Airport Authorities/Airlines Operators, the collection charges or the commission, whatever nomenclature is given, retained by them assumes the character of commission paid by the Principal to its agents and the Principal is required to deduct the TDS on such payments to its agent u/s 194H of the IT Act. Hence the assessee is required to deduct the TDS on the amount retained by the Airlines while making the payment to the assessee. Attention was drawn to the proviso to section 40(a)(ia) of the Act, according to which if the respondent has paid the tax on the receipt and filed the return before the due date of filing the return, the assessee cannot be deemed to be in default;
++ scope of proviso to section 40(a)(ia) was examined at number of occasions by the Tribunal and various High Courts. The Delhi High Court in the case of CIT Vs. Ansal Landmark Counsel Pvt. Ltd., had examined this aspect and had held that though the proviso was inserted w.e.f. 01.07.2012, but it was declaratory and curative in nature and had retrospective effect from 01.04.2005 being the date from 40(a)(ia) inserted by the Finance Act, 2004. But this aspect was not examined by the CIT(A). Since it requires verification of facts, it was decided to set aside the order of the CIT(A) and restore the matter to the file of the AO with the direction to re adjudicate the issue in the light of proviso to section 40(a)(ia) of the Act, after affording opportunity of being heard to the assessee and if it is established that the Airlines Operators has paid the tax and filed the return in time, the assessee should not be held in default for the purpose of making disallowance u/s 40(a)(ia) of the Act;
Whether duty credit entitlement can be taxed on accrual basis when life span of certificate is very short to use it fully - NO: ITAT
++ from the details furnished it is evident that the assessee utilized the duty credit scrips in different assessment years but the complete SFIS scrips were not utilized. According to the assessee, SFIS schemes amounting to Rs.5,31,85,162/- remains unutilized due to expiry of said SFIS scrips. In the light of these facts, it is not proper to tax the accrual of duty credit scrips on mercantile basis as the life of the certificate is only for 2 years. Moreover, the nature of receipt or the duty credit entitlements is to be examined in the light of judgment of Apex Court in the case of CIT Vs. Ponni Sugars Ltd. Though CIT(A) has recorded the detailed submissions in 4 pages in its order but in one para in few lines, he rejected the claim of the assessee after placing heavy reliance upon the Expert Advisory Committee report whereas the issue should have been examined in the light of the judgment of the Apex Court in the case of Ponni Sugars Ltd. Therefore, CIT(A) has not properly adjudicated the character of receipts and the year of taxability. Therefore it was decided to set aside CIT(A) order and restore the matter to his file with a direction to re adjudicate this issue afresh in the light of assessee's contentions and also in the light of the judgment of the Apex Court in the case of Ponni Sugars Ltd.
Case Remanded
2018-TIOL-1399-CESTAT-MUM + Case Story
SHAPOORJI PALLONJI AND COMPANY LTD Vs CCE & ST: MUMBAI CESTAT (Dated: April 13, 2018)
ST - Construction of building for use as hospital by a charitable organization is not taxable being non-commercial venture - GTA service provided for construction of building for Tata Consultancy Service located in SEZ is exempted from service tax in terms of section 26, clause (e) of SEZ Act, 2005 - GTA service availed in connection with the construction of hospital is liable to service tax in the hands of the appellant; extended period rightly invoked, penalty maintained along with interest in this regard - once the department came to know about the activity of the appellant and a show cause notice was issued, then in the subsequent show cause notice invocation of extended period is not available to the department - demand for normal period only sustainable - Appeal partly allowed: CESTAT [para 10 to 18]
Appeals partly allowed
Observations of Tribunal -
Issue (i)
i) Whether the service provided for construction of hospital which is run by the trust is liable to service tax under 'commercial or industrial construction';
++ Construction (service) of hospital building run by a charitable organization is not taxable being non-commercial venture [Board Circular 80/80/2004-ST dated 17.09.2004 and Circular 86/04/2006-ST dated 01/11/2006 relied upon along with decisions in G Ramamoorthi Constructions (I) P Ltd. - 2015-TIOL-1933-HC-MAD-ST & S M Sai Construction - 2016-TIOL-416-CESTAT-MUM- Demand set aside
Issue (ii)
ii) Whether the GTA service provided for construction of building for Tata Consultancy Service located in SEZ is liable for service tax;
++ Section 26 of the SEZ Act, 2005, clause (e) prescribes exemption from service tax under Chapter V of the Finance Act, 1994 (32 of 1944) on taxable services provided to a Developer or Unit to carry on the authorised operations in a Special Economic Zone. Service of GTA is admittedly provided for construction of building in SEZ, therefore, the said service is exempted. If at all the service tax is payable, the same is available as CENVAT credit to the appellant for the reason that appellant is service provider to SEZ; entire exercise is revenue neutral - Demand on this count is set aside.
Issue (iii)
iii) Whether the GTA service availed in connection with the construction of hospital is liable to service tax;
++ In the present case, the GTA service is used by the appellant and the appellant is the deemed service provider. Hence the GTA service is integral to construction of hospital building. Therefore, the GTA service relating to construction of hospital is taxable in the hands of the appellant.
++ Appellant had not disclosed the transaction of GTA to the department as no ST-3 returns were filed declaring the value of GTA service to the department. Therefore, extended period in respect of show cause notice dated 31/12/2012 is rightly invoked.
++ Penalty commensurate to the demand of GTA relating to the hospital is maintained along with interest.
Issue (iv)
iv) Whether the demand(s) is/are hit by limitation.
++ Limitation - SCN dated 14/10/2013 - once the department came to know about the activity of the appellant and a show cause notice was issued, then in the subsequent show cause notice invocation of extended period is not available to the department as held by the Supreme Court in the case of Nizam Sugar Factory - 2006-TIOL-56-SC-CX. Therefore, demand relating to show cause notice dated 14/10/2013 for the extended period i.e. for April 2011 to September 2011 is time-barred. Remaining demand is sustainable.
