The Bangalore Bench of Income Tax Appellate Tribunal ( ITAT ) in M/s. Delhi International Airport Pvt. Ltd vs. DCIT held that collection of Passenger Service Fee by the Airline Operators on behalf of the Assessee-Airport amounts to Principal-Agent relation and the Assessee-Airport is required to deduct the TDS on the amount retained by the Airlines while making payment to the assessee.
The assessee-appellant is engaged in the business of undertaking the functions relating to operation, maintenance, development, design, construction, organization, finance and management of the Indira Gandhi International Airport, New Delhi (IGI) and to perform certain aeronautical and non-aeronautical services at the IGI Airport. Passenger Service Fees (PSF) is one of the major sources of revenue for the assessee. PSF includes the cost of security expenditure on the designated security agency, which is 65% of the PSF, per embarking passenger (PSF-SC) and the facilitation component, which is 35% of the PSF, per embarking passenger (PSF-FC). The assessee-appellant maintained separate accounts for PSF-SC as per the Statement of Purpose issued by the Ministry of Civil Aviation and therefore financial statement of the appellant doesn’t include balances of PSF-SC.
The assessee received Rs.2.01 Crores as PSF-(SC) and Rs.3.2 Crores as PSF-(FC) through Airline Operators for which the assessee has raised the invoices on Airline Operators and Airline Operators were paying to the assessee after retaining the amount @ 2.5% of the invoice value on account of prompt payment by them to the assessee on or before due date. The assessee has recognized the revenue from PSF-(FC) 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 revenue from PSF-(SC) is also recognized net of prompt payment rebate/cash discount allowed by the assessee on making prompt payment by them on or before due date. However, the assessee has not offered the net surplus related to PSF(SC) as its income, as the assessee considers the net proceeds of PSF(SC), held in fiduciary capacity and collected the same on behalf of Government of India and the income from Government of India is not liable for tax as per Article-289(1) of the Constitution of India.
The Assessing Officer (A.O.) considered the cash collection or the cash discount charges as commission paid by the assessee company to Airline operator towards collection of PSF. He viewed that the assessee should have deducted TDS on collection charges as per Section 194H of the Income Tax Act,1961. As the assessee had failed to deduct tax on such payment, A.O disallowed collection charges or cash discount of Rs.5.22 Crores paid by the assessee to the Airlines Operator invoking Section 40a(ia) of the Income Tax Act,1961 and was added to the income of the assessee.
Assessee appealed before the Commissioner of Income Tax (Appeals) (CIT(A)) and contended the transactions between the Airlines and the appellant/assessee are based on principal to principal and there does not exist any agreement between the Airlines and the appellant for providing any kind of service and that since there was no element of agency section 194H would not apply. It was further contended that there is nothing on record to prove that element of agency existed between the appellant and the Airlines. The counsel for the assessee also argued that it was not possible for the appellant to deduct any tax at source since the assessee had never paid any amount to the Airlines. He pointed out that the Airlines were only facilitating in receiving the amount of PSF (FC&SC) as part of sale of tickets and passing the same to the appellant out of total amount
collected, after retaining an amount of 2.5% towards facilitating this as service/discount. The CIT(A) rejected the contentions of the assessee and upheld the order of the A.O. Aggrieved, the assessee filed an appeal before the Tribunal. The Counsel for the assessee placed reliance on the decision of Delhi High Court in CIT Vs. Ansal Landmark Township (P.) Ltd., wherein it was held that proviso to section 40(a)(ia) inserted by the Finance Act, 2012 w.e.f. 01.04.2013 creates a legal fiction where an assessee fails to deduct tax in accordance with provisions of chapter XVIIB where such assessee is deemed not to be an assessee in default in terms of the first proviso to subsection (1) of section 201 of the Act, then in such event “it shall be deemed that assessee has deducted and paid tax on such sum on the date of furnishing of return of income by the resident payee referred to in said proviso”.
The bench comprising of Judicial Member Sunil Kumar Yadav and Accountant Member Jason P. Boaz relied on the Circular issued by the Central Board of Direct Taxes (CBDT) and observed “Once 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. In the judgments referred to by the assessee, this clarification by the Board was not at all examined. Therefore, we are of the view that the judgments would not render much assistance to the assessee. 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 under section 194H of the IT Act. In the light of these facts, we are of the considered view that the assessee is required to deduct the TDS on the amount retained by the Airlines while making the payment to the assessee.”
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