Section 194C, r.w.s. 194-I – Deduction of tax at source – Contractors payment to – Payment was made to agencies towards lounging and catering services provided to customers of airlines as a part of single arrangement – Same would fall under generalised contractual category u/s. 194C

9

CIT (ITD)-1 vs. Jet Airways (India)
Ltd. [Income-tax Appeal No. 628 of 2018; (Bombay High Court) Dated 23^rd
April, 2019]

[ACIT vs. Jet Airways
(India) Ltd.; Mum ITAT]

Section
194C, r.w.s. 194-I – Deduction of tax at source – Contractors payment to –
Payment was made to agencies towards lounging and catering services provided to
customers of airlines as a part of single arrangement – Same would fall under
generalised contractual category u/s. 194C

The assessee is an airlines company. As part of
its business, the assessee would provide lounge services to select customers at
various airports. In a typical case, a lounge would be rented out by an agency,
in the nature of an intermediary from the airport authority. The assessee
airlines company and other airlines as well as, in some cases, credit card
companies, would provide the lounge facility to premier class customers. As is
well known, a lounge is an exclusive secluded hall or a place at the airport
where a comfortable sitting arrangement and washrooms are provided to the
flying customers. Most of these lounges would have basic refreshments for which
no separate charge would be levied. According to the assessee, the assessee
would pay the agency for use of such lounge space by its customers as per
pre-agreed terms. While making such payment, the assessee used to deduct tax at
source in terms of section 194C of the Act, treating it as a payment to a
contractor for performance of a work.

The
Revenue contends that the assessee had paid rent to the agency and, therefore,
while paying such rental charges, tax at source u/s. 194-I of the Act should
have been deducted.

The
Tribunal by the impugned judgement referred to and relied upon a decision of
the coordinate Bench in the case of ACIT vs. Qantas Airways Ltd.,
reported in (2015) 152 ITD 434 and held that the department was not
right in insisting on deduction of tax at source u/s. 194-I of the Act.

Being aggrieved with the ITAT order, the Revenue
filed an appeal to the High Court. The Court held that the A.O. in the present
case had placed reliance on a decision of the Delhi High Court in the case of Japan
Airlines Ltd., reported in (2009) 325 ITR 298 and United Airlines
(2006) 287 ITR 281. The Court, however, noted that the Supreme Court in
the case of Japan Airlines Company Limited reported in (2015) 377 ITR 372
had overruled such decision of the Delhi High Court. The Supreme Court approved
the view of the Madras High Court in the case of CIT vs. Singapore
Airlines Ltd. reported in (2013) 358 ITR 237.

The issue
before the Supreme Court was regarding the nature of payments made by the
international airlines to the Airport Authority of India for availing the
services for the purpose of landing and take-off of aircrafts. The Revenue was
of the opinion that the charges paid for such purposes were in the nature of
rent for use of land, a view which was accepted by the Delhi High Court in the
above-noted judgment. The Supreme Court, in the judgement in case of Japan
Airlines (supra), held that the charges paid by the international
airlines for landing and take-off services, as also for parking of aircrafts
are in substance not for use of the land but for various other facilities such
as providing of air traffic services, ground safety services, aeronautical
communication facilities, etc. The Court, therefore, held that the payment of
such charges did not invite section 194-I of the Act. The Court observed that
this decision of the Supreme Court does not automatically answer the question
at hand.

Reference
to this decision was made for two purposes. Firstly, to record that the
reliance placed by the A.O. on the decision of the Delhi High Court is no longer
valid. Secondly, for the purpose of drawing an analogy that the payment for
certain services need not be seen in isolation. The real character of the
service provided and for which the payment is made would have to be judged. In
the present case, as noted, the assessee would enter into an agreement with the
agency which has rented out the lounge space at the airport from the Airport
Authority. Under such agreement, the assessee would pay committed charges be it
on a lump sum basis or on the basis of customer flow to such an agency. This,
in turn, would enable the passengers of the airlines to utilise the lounge
facilities while in transit.