2021 (7) TMI 221 - AT - Income Tax

TDS u/s 194C or 194I - payment for the use of lounge facilities by the passengers - HELD THAT - The nature of payment for the use of certain facilities for the passengers. What passenger gets by access to the lounge is the privilege of relaxing in a comfortable place with good ambience, 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 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.- Decided in favour of assessee.

Summary

Issues Involved:
Appeal against tax withholding demand under section 201 r.w.s. 194I of the Income Tax Act, 1961 for the assessment year 2012-13.

Analysis:
1. The appellant, an international airline, deducted tax at 2% under section 194C for payments made to Oberoi Airport Services for lounge facilities. The Assessing Officer demanded tax withholding at 10% under section 194I, treating the payments as rent. The CIT(A) upheld the demand. The ITAT found the payments were for services, not rent, and upheld the appellant's position, citing section 194C.

2. The Delhi High Court judgment in CIT Vs Japan Airlines Limited was relied upon by the Assessing Officer. However, the Supreme Court overruled this decision. The CIT(A) used selective observations to justify his decision, ignoring binding precedents. The ITAT emphasized the need to follow higher court decisions and criticized the CIT(A)'s approach. The ITAT ruled in favor of the appellant, deleting the tax demands under section 201 r.w.s. 194I.

3. The ITAT highlighted that tax deduction at source is a vicarious liability, and when the primary liability is discharged, a collection demand cannot be raised. The recipient had declared and paid taxes on the income. The ITAT criticized the authorities for wasting resources on technicalities with minimal revenue implications. Despite the small amount in dispute, the ITAT upheld the appellant's plea and granted relief by deleting the demands.

4. The ITAT allowed the appeal, emphasizing adherence to higher court decisions and the need for a pragmatic approach. The judgment was pronounced on 5th July 2021, granting relief to the appellant.