2% TDS to be Deducted on Payment for use of lounge facilities by passengers: ITAT grants relief to Qantas Airways [Read Order]

Qantas Airways - TDS - ITAT - Taxscan

In the relief to Qantas Airways, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench ruled that 2% TDS be deducted on Payment for use of lounge facilities by passengers.

The assessee, Qantas Airways is an international airline that operates its services to and from, amongst other places, Indian airports. The assessee has entered into an arrangement with Oberoi Airport Services to enable its business and first-class passengers to use the airport lounge, run by the Oberoi Airport Services, at Mumbai airport. The assessee has duly deducted  2% tax at source, under section 194C, from these payments. These payments were treated as contractual payments for the services rendered by the Oberoi Airport Services.

The Assessing Officer was, however, of the view that the payments were in the nature of rental payments for the use of space and, such, are required to be treated as rent. The tax as deduction liability on this basis was to be computed at the rate of 10% under section 194 I of the Act. Reliance was placed on a judgment of Hon’ble Delhi High Court, in the case of CIT Vs Japan Airlines Limited. Accordingly, a tax withholding demand 8% for short deduction of tax at source was raised, and interest was also levied on the delay in realization of this short deduction of tax at source. Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) has confirmed the action of the Assessing Officer and declined to interfere in the matter.

The coram headed by President Justice P P Bhatt and Vice President Pramod Kumar observed that payment for the use of lounge facilities by the passengers is clearly in the nature of payment for the use of certain facilities for the passengers. What passengers get by access to the lounge is the privilege of relaxing in a comfortable place with good ambiance, reading material, computer and internet access, and being allowed to consume food and drinks, etc. Viewed thus, the tax required to be withheld from these payments, for the rendition of services under a contract, is 2% as per the requirements of section 194C.

“The authorities below are, however, not content by this tax withholding. Their view is that the assessee ought to have treated these payments as rental payments and, accordingly, deducted the tax at source @ 10% under section 194 I. However, the payment of lounge facilities cannot, by any stretch of logic, be characterized as payment “under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,—(a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h)fittings” as is the condition precedent for invoking section 194 I. The payments in question have been rightly treated as payments for services rendered under a contract, which are covered under section 194C, and, accordingly, we see no infirmity in the deduction of tax at source @ 2% from the payments in question,” the ITAT observed.

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