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Singapore Airlines Ltd. v. Income-tax Officer, TDS-IV

Income Tax Appellate Tribunal
Jul 13, 2005
Judgment
Subsequent
References
CaseIQ
Case Information
CITATION CODES
citation codes
CASE NO.

IT APPEAL NOS. 701 TO 706 (MAD.) OF 2002

Attorney(S)

R. VijayaraghavanS.P. Chidambaram

JUDGES

N.R.S. GANESANT.R. Sood

ACTS

provisions of section 194C of the Income-tax Act.

section 201(1) and 201(1A) of the Income-tax Act.

section 201(1A) of the Income-tax Act.

section 201(1) of the Income-tax Act.

SECTION 194 A INCOME TAX ACT

INCOME TAX ACT

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Tribunal Opinion Summary — N.R.S. Ganesan, Judicial Member

Factual and Procedural Background

Six appeals by the assessee relating to assessment years 1997-98, 1998-99 and 1999-2000 were heard together because they involved a common issue. The appeals challenge a common order of the Commissioner of Income Tax (Appeals) confirming the Assessing Officer's order under section 201(1) and section 201(1A) of the Income-tax Act. The factual matrix, as set out in the opinion, is that the assessee (a foreign airline company) paid landing and parking charges and navigational charges to the International Airport Authority of India (IAAI) but did not deduct tax at source. The IAAI, however, paid tax on the amounts it received. The Assessing Officer treated landing and parking charges as rent (triggering section 194-I) and navigational charges as technical services (triggering section 194J), levied tax and interest under sections 201(1) and 201(1A), and later issued a rectification under section 154. The first appellate authority reinstated the original treatment. The Tribunal considered these issues and issued this common order.

Legal Issues Presented

  1. Whether payments made to the International Airport Authority of India for landing and parking facilities constitute "rent" under section 194-I of the Income-tax Act, or are contract payments covered by section 194C.
  2. Whether payments for navigational facilities provided by the International Airport Authority of India amount to fees for technical services and thus attract deduction under section 194J.
  3. Whether the assessee should be treated as an assessee-in-default under section 201(1) when the recipient (IAAI) has paid tax on the amounts received.
  4. Extent of liability for interest under section 201(1A): whether interest is payable by the assessee beyond the date on which the recipient actually paid the tax.

Arguments of the Parties

Assessee's Arguments (Appellant)

  • The amounts paid to IAAI for landing and parking charges were not rent; IAAI did not give exclusive possession of land, and therefore the payments should not attract section 194-I.
  • Following the Tribunal's decision in Dy. CIT v. Japan Airlines, landing and parking charges should be treated as contract payments under section 194C, attracting tax deduction at source at 2%, not 20%.
  • Some payments were for navigational facilities; these are analogous to services provided by cellular companies and therefore may not be technical services under section 194J — though counsel ultimately conceded that, in this factual matrix, technical services were indeed provided in addition to mere equipment use.
  • The recipient (IAAI) paid the taxes due on the amounts received; therefore the assessee cannot be an assessee-in-default under section 201(1). Interest under section 201(1A) should be levied only up to the date when IAAI actually paid the taxes (relying on a CBDT circular F. No. 275/201/95-IT (B), dated 29-1-1997, and supporting authority).
  • The Assessing Officer's rectification under section 154, cancelling tax under section 201(1) and levying interest under section 201(1A), should not have been overridden by the first appellate authority.

Revenue's Arguments (Departmental Representative)

  • Landing and parking charges are in the nature of rent; therefore section 194-I (20% TDS) applies and the assessee should have deducted tax at source at 20%.
  • Navigational charges are fees for technical services and are therefore taxable under section 194J (and tax should have been deducted accordingly).
  • Because the assessee did not deduct tax as required, the Assessing Officer correctly levied tax and interest under sections 201(1) and 201(1A) up to October 1999 (the month by which IAAI is said to have paid taxes, according to the Assessing Officer's order).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Dy. CIT v. Japan Airlines [2005] 92 TTJ 687 (Delhi Bench, Tribunal) Landing and parking charges do not amount to rent (no exclusive possession); such payments are contractual and fall under section 194C (2% TDS). The Tribunal followed this co-ordinate Bench decision and held that landing and parking charges cannot be treated as rent under section 194-I; instead, section 194C applies and the assessee is liable to deduct 2%.
Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53 (Madras High Court) Provision of cellular mobile telephone facility was held not to be a "technical service" requiring deduction under section 194J (in the factual context of cell-phone services). The Tribunal noted this authority but recorded the assessee's concession that Skycell is not applicable to the facts here because IAAI provided technical services (weather reports, flight instructions, etc.); accordingly, section 194J was held applicable to navigational charges.
Commissioner Of Income-Tax v. Rishikesh Apartments Co-Operative Housing Society Ltd. [2002] 253 ITR 310 (Gujarat High Court) Held that if the person liable to pay tax has paid tax on the due date, Revenue cannot thereafter levy interest under section 201(1A) to garner an undue advantage; interest should not be charged beyond the date of payment by the recipient. The Tribunal relied on this High Court judgment to conclude that interest under section 201(1A) should be limited up to the actual date the recipient paid the tax and that levying interest beyond that date (as done by the first appellate authority/AO) was unjustified.
Chennai Metropolitan Water Supply & Sewerage Board v. ITO, I.T. Appeal No. 2232 (Mad.) of 2003 (Tribunal order) Authority cited for the proposition that interest cannot be levied under section 201(1A) once the entire tax was paid by the recipient. The assessee relied on this order; the Tribunal referenced it in support of the approach that interest should not be charged past the date tax was paid by the recipient.

Court's Reasoning and Analysis

The Tribunal examined the rival contentions and the record. The analysis proceeded in steps:

  1. Landing and parking charges: The Tribunal accepted the reasoning of the Delhi Bench in Dy. CIT v. Japan Airlines. That bench had examined the factual nature of landing and parking facilities and concluded that IAAI never granted exclusive possession of any part of the landed property; permission to land and park did not confer an exclusive right or interest in land. Because exclusive possession was absent, the payments could not be treated as "rent" under section 194-I. Given the existence of a contract between the airline and IAAI, the payment was held to attract section 194C (contractual payments), requiring deduction at 2%. The Tribunal followed that decision and applied the same conclusion here.
  2. Navigational charges: During hearing, counsel for the assessee conceded that the navigational facilities involved more than mere use of equipment and included technical services (such as weather reports and instructions necessary for flying over Indian territory). The Tribunal therefore concluded that the payments for navigational facilities fall within section 194J (fees for professional or technical services) and the assessee ought to have deducted tax accordingly.
  3. Section 201(1) (assessee-in-default): The Tribunal observed as an admitted fact that IAAI had paid tax on the amounts received. It reasoned that the purpose of TDS provisions is to secure tax collection for the Government; once the recipient has paid the tax, that purpose is achieved. Declaring the payer an assessee-in-default when the recipient has discharged the tax obligation would amount to double recovery, which the Tribunal deemed impermissible under the Act. The Tribunal therefore held there was no justification to treat the assessee as an assessee-in-default under section 201(1).
  4. Section 201(1A) (interest): The Tribunal accepted the principle, supported by a CBDT circular and the Gujarat High Court decision in Rishikesh Apartments, that interest under section 201(1A) is recoverable only up to the date on which the tax was actually paid by the recipient. The Tribunal did not find justification for the Assessing Officer's or first appellate authority's approach that extended the period to October 1999; because the exact date of payment by IAAI was not on the Tribunal record, the matter was remitted to the Assessing Officer to verify the actual date and recompute interest from the date on which TDS was deductible until the date of actual payment by IAAI.
  5. Procedural corrections: The Tribunal noted that the Assessing Officer had issued a rectification under section 154 cancelling the levy under section 201(1) and levying interest under section 201(1A); the first appellate authority had improperly restored the original levy under section 201(1). Given the Tribunal's view that the assessee is not in default where the recipient paid the tax, the Tribunal set aside the lower authority's order to the extent it treated the assessee as in default.

Holding and Implications

Final Disposition: The Tribunal set aside the lower authority's treatment of the assessee as an assessee-in-default under section 201(1) and its levy of interest under section 201(1A), remitted the computation of interest to the Assessing Officer for fresh calculation, and in consequence partly allowed all the appeals of the assessee.

Core Rulings (as applied to the parties):

  • The payments for landing and parking charges to the International Airport Authority of India are not "rent" for the purposes of section 194-I; they are contractual payments attracting section 194C and a TDS rate of 2% (Tribunal followed Dy. CIT v. Japan Airlines).
  • The payments for navigational facilities involve technical services and therefore attract deduction under section 194J; the assessee should have deducted tax as per section 194J.
  • Because the recipient (IAAI) paid taxes on the amounts received, the assessee is not an assessee-in-default under section 201(1), and tax need not be recovered again from the assessee.
  • Interest under section 201(1A) is recoverable only until the date the recipient actually paid the tax. The Assessing Officer is directed to verify the date of payment by IAAI and recompute interest from the date the deduction was due until the date of actual payment, after giving the assessee opportunity of being heard.

Consequences and Broader Implications:

  • Direct effect on the parties: The appeals are partly allowed; the assessee will not be treated as an assessee-in-default and will avoid double recovery of tax. The Assessing Officer must recompute interest limited to the period until IAAI actually paid the taxes. The nature of the payments determines the applicable TDS provisions: 194C (2%) for landing/parking and 194J for navigational charges.
  • On precedent: The Tribunal followed existing Tribunal and High Court authorities (as cited) rather than announcing any new principle of law. The opinion does not purport to set a new binding precedent beyond applying cited authorities to the facts of these appeals.

Result: All six appeals by the assessee are partly allowed; there will be no order as to costs. The issue of interest under section 201(1A) is remitted to the Assessing Officer for recomputation consistent with this order.

Show all summary ...

N.R.S. Ganesan, Judicial Member. - All the six appeals of the assessee relate to assessment years 1997-98, 1998-99 and 1999-2000 against the common order passed by CIT(A) confirming the order of the Assessing Officer under section 201(1) and 201(1A) of the Income-tax Act. Since common issue arises for consideration in all the six appeals, we heard the same together and disposing of the same by this common order.

2. Mr. R. Vijayaraghavan, the learned counsel for the assessee submitted that the assessee paid charges to International Airport Authority of India towards landing and parking charges. The learned counsel for the assessee further submitted that the assessee has also paid charges for navigational facilities. However, the assessee has not deducted tax at source before making the payment. According to the learned counsel, the recipient of the amount namely International Airport Authority of India has paid the entire tax due on the amount paid by the assessee. Therefore, the assessee cannot be treated as assessee-in-default under section 201(1) of the Income-tax Act. According to the learned counsel, the Assessing Officer treated the payment made by the assessee towards landing and parking charges as rent and ultimately concluded that the assessee ought to have deducted 20% of the amount paid to International Airport Authority of India as tax at source under section 194-I of the Income-tax Act. Since the assessee has not deducted tax at source before making the payment, the Assessing Officer has also levied interest under section 201(1A) of the Income-tax Act. According to the learned counsel, interest under section 201(1A) could be levied from the date of actual payment of the money till the date of payment of taxes by the International Airport Authority of India. The learned counsel for the assessee further submitted that the very same issue of landing and parking charges to International Airport Authority of India was considered by the Delhi Bench of this Tribunal in the case of Dy. CIT v. Japan Airlines [2005] 92 TTJ 6871 and submitted that the Tribunal after considering the characteristics of the payment found that the landing and parking charges cannot be construed as payment of rent so as to bring the payment within the purview of section 194-I of the Income-tax Act. The learned counsel for the assessee further submitted that since there was a contract between the assessee and the International Airport Authority of India, the payment of landing and parking charges would be covered under the provisions of section 194C of the Income-tax Act. Therefore, the assessee is liable to deduct tax at source at the rate of 2% and not at the rate of 20%. Since the liability to deduct tax is reduced to the extent of 2% on the amount paid, the interest shall also be computed only on the amount of 2% and not on the amount of 20%. Therefore, according to the learned counsel, in respect of landing and parking charges, the interest has to be levied on the amount of 2% till the taxes are paid by the International Airport Authority of India.

3. Coming to the payment relating to navigational charges, the learned counsel for the assessee submitted that navigational facilities are almost like the services provided by cell phone operators. Since the assessee has availed the navigational facilities by utilizing the equipment installed by the International Airport Authority of India, it does not amount to providing technical services to the assessee. The learned counsel for the assessee further submitted that the Madras High Court in the case of Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 532 considered the provisions of cellular mobile telephone facility and it was found that the provision of facility by the cellular mobile companies cannot be construed as offering technical services. Therefore, it was held that deduction of tax at source need not be made from the cell phone subscribers under section 194J. On a specific query from Bench whether the assessee is utilizing the equipments installed by the International Airport Authority of India or getting any other service apart from using the equipments, the learned counsel for the assessee Mr. R. Vijayaraghavan very fairly conceded that the assessee apart from using equipments for navigation, also getting other technical services for which the payments were made. According to the learned counsel, the technical services are like getting weather report, instruction to over flights to fly over Indian territories, such other technical services which are needed to fly the aircraft on the Indian territory. The learned counsel for the assessee Mr. R. Vijayaraghavan clarified that the navigational facilities are not just like using the cell phone subscribers, the sophisticated equipments installed by cell phone companies for the purpose of communication. Therefore, he very fairly conceded the judgment of the Madras High Court in the case of Skycell Communications Ltd. (supra) may not be applicable to the facilities and technical services offered by International Airport Authority of India to the assessee-company.

4. Regarding the levy of interest under section 201(1A), the learned counsel for the assessee submitted that the interest could be levied till the tax due has been paid either by the assessee or by the recipient of the amount. The Assessing Officer, however, levied interest till October, 1999 by which time the recipient International Airport Authority of India had paid all the taxes on the income. The learned counsel placed his reliance on the CBDT Circular in F. No. 275/201/95-IT (B), dated 29-1-1997 and submitted that according to this circular once tax has been paid by the recipient, tax under section 201(1) need not be recovered and interest under section 201(1A) has to be collected till the tax due has been paid. According to the learned counsel, the Assessing Officer by an order of rectification under section 154 cancelled the levy of tax under section 201(1) and levied interest under section 201(1A) till the end of the relevant previous year. However, the first Appellate Authority held that the Assessing Officer cannot reduce the interest under section 201(1A) in an order of rectification and restore the original levy of interest. The learned counsel placed his reliance on the order of this Tribunal in the case of Chennai Metropolitan Water Supply & Sewerage Board v. ITO [I.T. Appeal No. 2232 (Mad.) of 2003 and submitted that the interest cannot be levied once the entire tax was paid by the recipient. The learned counsel for the assessee also placed his reliance on the judgment of the Gujarat High Court in the case of Commissioner Of Income-Tax v. Rishikesh Apartments Co-Operative Housing Society Ltd. [2002] 253 ITR 3101 and submitted that once the recipient paid the advance tax and tax on self-assessment, the interest cannot be levied under section 201(1A) of the Act.

5. On the contrary, Mr. K. Srinivasan, the learned Departmental Represen-tative (D.R.) submitted that the assessee is a foreign company operating airlines in India. In the course of its business, the assessee paid landing and parking charges and also charges for navigational facilities to International Airport Authority of India. According to the learned D.R., landing and parking charges are nothing but rent, therefore, the provisions of section 194-I would be squarely applicable. Therefore, according to the learned D.R., the assessee ought to have deducted 20% of the amount paid to International Airport Authority of India as tax at source. Moreover, the amount paid for getting navigational facilities has to be treated as fees paid on technical services. Therefore, the assessee has to deduct tax at source at the time of making payment under section 194J.

6. Coming to the levy of interest under section 201(1A), the learned D.R. submitted that since the assessee has not deducted tax at source either under section 194-I in respect of landing and parking charges or under section 194J in respect of navigational charges, the Assessing Officer rightly levied tax till the month of October 1999.

7. We have considered the rival submissions on either side, and also perused the material available on record. The first issue is regarding the liability of the assessee for deduction of tax at source with respect to payment for landing and parking facilities. The only contention of the Revenue is that the landing and parking facilities provided by International Airport Authority of India is in the nature of providing a space for rent, therefore, the payment has to be treated as payment of rent. This issue has been elaborately discussed by the Delhi Bench of this Tribunal in the case of Japan Airlines ( supra). After considering the entire factual situation in the case of landing and parking of aircraft in the airport, a co-ordinate Bench of this Tribunal in the case of Japan Airlines (supra), came to a conclusion that the International Airport Authority of India never intended to give out exclusive possession of any part of the landed property in relation to landing and parking area. Since the International Airport Authority of India granted permission for landing and parking without providing any exclusive right or interest in any specific portion of the land, the payment made by airline company cannot be construed as payment of rent. Therefore, the co-ordinate Bench of this Tribunal came to the conclusion that section 194-I is not applicable with regard to payment of landing and parking charges. However, the Delhi Bench of this Tribunal found that the payment attracts the provisions of section 194C since there was a contract between the assessee-company and the International Airport Authority of India. Therefore, the assessee is liable to deduct tax at the rate of 2%. By following the decision of Delhi Bench of this Tribunal in the case of Japan Airlines (supra) and for the very same reasons stated therein, we hold that the payment of landing and parking charges cannot be termed as payment of rent. Therefore, the provisions of section 194-I is not attract. As held by the Delhi Bench of this Tribunal, the payment attracts the provisions of section 194C. Therefore, the assessee is liable to deduct tax at the rate of 2%.

8. With regard to the navigational facilities, the learned counsel for the assessee, during the course of hearing, very fairly conceded that it is not a mere utilisation of equipments installed by the International Airport Authority of India. The assessee is in fact getting technical service which is required for flying the aircraft over the Indian territory. The learned representative also very fairly conceded that the judgment of the Madras High Court in the case of Skycell Communications Ltd. (supra) may not be applicable to the factual situation of this case. In view of the above clarification made by the learned counsel for the assessee that the assessee was in fact getting technical services apart from using the equipments for the purpose of communication between the aircraft and the air traffic controller, in our opinion, the provisions of section 194J would be applicable. Accordingly the assessee ought to have deducted tax as provided under section 194J in respect of payment made for navigational facility.

9. Now coming to the application of section 201(1) and 201(1A), admittedly, the assessee failed to deduct tax at source and it is also an admitted fact that the International Airport Authority of India had paid taxes on the amount received from the assessee-company also. Hence, in our opinion, the assessee need not be treated as assessee-in-default. Under the scheme of the Income-tax Act, the deduction of tax at source is only to ensure collection of tax on behalf of Government. Once the recipient paid the tax, the purpose or object sought to be achieved under the scheme of the Act is achieved. Therefore, the tax need not be once again recovered from the assessee. The question of declaring the assessee as assessee-in-default would arise when the recipient failed to pay the tax. Since the recipient company, admittedly, paid the tax, in our opinion, any further recovery from assessee would amount to double taxation which is not permissible under the Act. Accordingly, we hold that there is no justification to treat the assessee as assessee-in-default. When the Assessing Officer himself revised the order by making a rectification under section 154, in our opinion, there is no justification on the part of the first Appellate Authority to restore the original order with respect to section 201(1).

10. Now coming to levy of interest, the Department is entitled to recover the interest on the amount of tax from the date on which such tax was deductible till the tax was actually paid. In this case, it is an admitted case of both parties that the tax was paid by the International Airport Authority of India in respect of amount paid by the assessee. Therefore, at best the assessee may liable to pay interest till the date on which the International Airport Authority of India paid the taxes in respect of the amount received from the assessee.

11. We have also carefully gone through the judgment of the Gujarat High Court in the case of Rishikesh Apartments Co-operative Housing Society Ltd. (supra). The Gujarat High Court held that if the Revenue is permitted to levy interest under section 201(1A) of the Act even in a case where the person liable to pay tax has paid the tax on the date due for the tax the Revenue would derive undue benefit or advantage by getting interest on the amount of tax which had already been paid on the due date. According to the Gujarat High Court, such a position cannot be permitted. The CBDT has also clarified in the circular (supra) that interest has to be recovered till the taxes are paid. In view of the above, we do not find any justification for levying tax till the month of October 1999. Since the actual date of payment of tax by the International Airport Authority of India is not available on the file of this Tribunal, the Assessing Officer may verify the actual date on which the taxes were paid by International Airport Authority of India and thereafter compute the interest from the date on which the deduction has to be made till the date of actual payment at the rate applicable as per the statutory provision.

12. In the result, the order of the lower authority is set aside with regard to treating the assessee as assessee-in-default under section 201(1) and levying interest under section 201(1A). The issue of levy of interest under section 201(1A) is remitted back to the file of the Assessing Officer. The Assessing Officer shall recompute the interest on the amount of tax as per the order of this Tribunal from the date on which deduction has to be made till the date of actual payment of tax by International Airport Authority of India after giving sufficient opportunity to the assessee in accordance with law.

13. In the result, all the appeals filed by the assessee are partly allowed. However, there will be no order as to cost.

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