In a major relief to the Airport Authority of India (AAI), the Income Tax Appellate Authority of India (ITAT), Delhi bench has held that the provisions of Tax Deduction at Source (TDS) would not be applicable to the payments made by the Company to the Federal Aviation Administration, USA (FAA), for providing technical assistance to AAI by way of providing its personnel and meeting on ATFM requirements and assisting AAI in connection with ATFM by development of detailed quantitative requirements, detailed ATFM system architecture and draft ATFM implementation plan.
The Airport Authority of India (AAI) has entered into Memorandum of Agreement with Federal Aviation Administration, USA (FAA), for providing technical assistance to AAI by way of providing its personnel and meeting on ATFM requirements and assisting AAI in connection with ATFM by development of detailed quantitative requirements, detailed ATFM system architecture and draft ATFM implementation plan.
The AO treated these amounts paid as fees for technical services (FTS), chargeable to tax at the rate of 10%, surcharge and cess on the gross amount as per Section 115A of the Income Tax Act, 1961.
The CIT(A) held that entire payments made by the appellant to FAA are in the nature of FTS and hence chargeable to tax in India under DTAA. Accordingly, it was held that the appellant is under obligation to deduct tax from these payments under section 195 of the Act.
The appellant, Airport Authority of India contended that the provision of TDS shall not apply in case payment is to be made to a Government. In the instant case, the assessee is making payment to the Government. Therefore, the provisions of section 196 shall apply. Provisions of 196 override the provisions contained in section 195.
The coram of K. N. Chary and Dr. B. R. R. Kumar noted thatthe agreement between AAI and FAA is of a commercial character (acta jure gestionis) and state is not liable for the actions or contracts entered between the parties which is different from acts of state and its sovereign capacity (acta jure imperii). Hence, the payments are not excluded from the purview of Section 196 on this ground. FAA per se cannot be treated as a foreign sovereign Government.
“There is no general immunity from taxation unless specified which is found absent by going through the agreements entered between the two organizations. That leads to a conclusion that the taxability is determined based on the law of the land and the treaties entered between two nations as sovereign entities. In case of presence of a treaty or agreements like DTAA, they may take precedence in determination of the taxability of the entities involved,” the ITAT said.
With regard to the issue of TDS, the Tribunal held that a concurrent reading of Section 4(2) and Section 195(1), denotes that the liability to deduct tax arise only when the payee is a non-resident and the amount payable to him is chargeable to tax in India.
Section 195(2) is not merely a provision to provide in formation to the ITO(TDS). It is a provision requiring tax to be deducted at source to be paid to the Revenue by the payer who makes payment to a non- resident.
“In the instant case , AAI has to incur the travelling, salary expenses to the three employees deputed by FAA for assisting the AAI. In this situation, the AAI can pay travelling expenses and salary for the period of 10 days stipulated or FAA can foot the travelling bill expenses, pay salary and get it reimbursed from AAI. In such a situation, FAA doesn’t get any benefit nor it is detrimental to AAI do so. It is a matter of convenience for the parties involved. Hence, the payments received by FAA would not involve any element of profit which makes it liable to pay tax in India,” the Tribunal said.
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