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2022 (1) TMI 841 - HC - Income TaxTDS u/s 194H - Disallowing u/s 40(a)(ia) - amount of collection charges retained by the airlines on collection of passenger service fees amongst other disallowance - HELD THAT - In the case of Additional Commissioner of Income Tax Mumbai v. Mumbai International Airport (P) Ltd. 2017 (2) TMI 640 - ITAT MUMBAI on which heavy reliance was placed by the learned counsel appearing for the appellant the question that fell for consideration was with regard to PSF-(SC) which could not be characterized as income under Section 2(24) of the Act as the assessee merely acted in a fiduciary capacity for collection and disposal of the amount of PSF-(SC). The dispute herein is in a narrow compass with reference to 2.5% of PSF withheld by the Airlines Operators in terms of clause 1.4 of SOP. It is trite that no denial of allowance claimed under Section 40(a)(ia) of the Act could be made by the department in the event the Airlines Operators have offered the said 2.5% of commission which is nothing but income to tax. In order to verify this factual aspect the matter has been restored to the file of the assessing officer which cannot be faulted with. Hence the common substantial question of law No.1 is answered in favour of the Revenue and against the assessee. Addition u/s 14A r.w.r. 8D - HELD THAT - As assessee do not have exempt income and as such no disallowance can be made under section 14A read with rule 8D The issue involved herein is squarely covered by the decision of the Coordinate Bench of this Court in the case of Commissioner of Income Tax v. M/s Quest Global Engineering Services Pvt. Ltd. 2021 (3) TMI 434 - KARNATAKA HIGH COURT Recognised method of accounting - whether Tribunal is right in law in deleting addition of income by directing the assessing authority to allow it on cash basis which was made by assessing authority on accrual basis thereby recognizing mixed system of accounting for assessee-company which is not permissible as per the provisions of section 145 - HELD THAT - It is clear that the assessee being a company has adopted the mercantile system of accounting only for the expenses relating to M/s NACIL without offering the corresponding income to tax in one year the hybrid method of accounting in one Assessment Year is not permissible. Hence we answer this question i.e. substantial question of law No.2 in favour of the Revenue and against the assessee. However we confirm the order of the assessing officer inasmuch as the tax offered on receipt basis for the assessment year 2013-14 would be excluded and the same shall be given effect to in the proceedings for the assessment year 2013-14.
Issues Involved:
1. Disallowance of collection charges retained by airlines under Section 40(a)(ia) of the Income Tax Act. 2. Deduction for 1/30th of upfront fee and repairs and maintenance for Assessment Year 2007-08. 3. Depreciation under Section 32 on repairs and maintenance for AY 2008-09, AY 2009-10, and AY 2010-11. 4. Disallowance under Section 14A read with Rule 8D. 5. Disallowance under Section 40(a)(ia) based on the Delhi High Court decision in Ansal Landmark Township Pvt. Ltd. 6. Addition of income on accrual basis versus cash basis. Detailed Analysis: 1. Disallowance of Collection Charges Retained by Airlines under Section 40(a)(ia): The appellant challenged the Tribunal's decision to restore the issue of disallowance of collection charges retained by airlines under Section 40(a)(ia) of the Act. The Tribunal had directed the Assessing Officer to re-adjudicate the issue, considering whether the recipient had paid the tax and filed the return, which would mean the assessee should not be held in default. The High Court agreed with the Tribunal's decision, noting that the collection charges retained by airlines amounted to commission, thus attracting the provisions of Section 194H. The court cited the Supreme Court's decision in Director, Prasar Bharati v. Commissioner of Income Tax, which held that such transactions are in the nature of commission and attract Section 194H. 2. Deduction for 1/30th of Upfront Fee and Repairs and Maintenance for Assessment Year 2007-08: This issue was not pressed by the appellant during the proceedings. 3. Depreciation under Section 32 on Repairs and Maintenance for AY 2008-09, AY 2009-10, and AY 2010-11: This issue was also not pressed by the appellant during the proceedings. 4. Disallowance under Section 14A Read with Rule 8D: The Revenue challenged the Tribunal's decision to remand the issue of disallowance under Section 14A read with Rule 8D. The High Court noted that the issue is covered by a previous decision of the Karnataka High Court in Commissioner of Income Tax v. M/s Quest Global Engineering Services Pvt. Ltd., which favored the assessee. Therefore, the court ruled in favor of the assessee on this issue. 5. Disallowance under Section 40(a)(ia) Based on the Delhi High Court Decision in Ansal Landmark Township Pvt. Ltd.: The Revenue also challenged the Tribunal's reliance on the Delhi High Court decision in Ansal Landmark Township Pvt. Ltd. The High Court upheld the Tribunal's decision to remand the issue to the Assessing Officer for re-adjudication, noting that the Tribunal's approach was consistent with the legal provisions and judicial precedents. 6. Addition of Income on Accrual Basis Versus Cash Basis: The Revenue questioned the Tribunal's decision to delete the addition of income on an accrual basis and direct the Assessing Officer to allow it on a cash basis. The High Court cited the Supreme Court's decision in Commissioner of Income Tax v. Excel Industries Ltd., which stated that if the tax rate remains the same for both assessment years, the dispute is academic. However, the court noted that the assessee had adopted a hybrid method of accounting, which is not permissible. Therefore, the court ruled in favor of the Revenue, stating that the assessee must follow a consistent method of accounting, and the income should be taxed on an accrual basis. Conclusion: The High Court disposed of the appeals by the assessee and the Revenue, affirming the Tribunal's decision on most issues while ruling in favor of the Revenue on the issue of the hybrid method of accounting. The court emphasized the necessity for a consistent method of accounting and upheld the statutory obligations related to tax deductions at source.
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