By TIOL News Service

BANGALORE, MAY 01, 2018: THE ISSUE IS - 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 IS THE VERDICT.

Facts of the case:

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.

Tribunal held that,

++ 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.

(See 2018-TIOL-637-ITAT-BANG)