2018 (5) TMI 334 - AT - Income Tax

Tribunal Appeals Outcome: Partial Allowance, Remanded Issues, Disallowance Upheld

M/s. Delhi International Airport Pvt. Ltd. Versus The Deputy Commissioner of Income Tax, Central Circle 2 (2), Bengaluru

The Tribunal partially allowed the appeals, remanding certain issues for re-examination while confirming others. The disallowance of collection charges ... TDS u/s 194H - disallowance of collection charges retained by the airlines u/s 40(a)(ia)- Held that:- 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. The assessee is required to deduct the TDS on the amount retained by the Airlines while making the payment to the assessee. Referring to the proviso to section 40(a)(ia) of the Act, according to which if the respondent has paid the tax on the receipt and filed the return before the due date of filing the return, the assessee cannot be deemed to be in default. The scope of proviso was examined at number of occasions by the Tribunal and various High Courts. The Hon’ble Delhi High Court in in the case of CIT Vs. Ansal Landmark Counsel Pvt. Ltd., (2015 (9) TMI 79 - DELHI HIGH COURT) examined this aspect and has held that though the proviso was inserted w.e.f. 01.07.2012, but it was declaratory and curative in nature and has retrospective effect from 01.04.2005 being the date from 40(a)(ia) inserted by the Finance Act, 2004. But this aspect was not examined by the CIT(A). Since it requires verification of facts, we feel it proper to set aside the order of the CIT(A) and restore the matter to the file of the AO and if it is established that the respondent has paid the tax and filed the return in time, the assessee should not be held in default for the purpose of making disallowance under section 40(a)(ia) of the Act. Addition by treating the duty credit entitlement under SFIS - Held that:- CIT(A) has not properly adjudicated the character of receipts and the year of taxability. If itis held to be the capital receipt, it may reduce the value of the capital assets but it cannot be taxed as a revenue receipt. In any case, this issue was not properly examined by the CIT(A). We therefore set aside his order and restore the matter to his file with a direction to readjudicate this issue afresh in the light of assessee’s contentions and also in the light of the judgment of the Apex Court in the case of Ponni Sugars Ltd., (2008 (9) TMI 14 - SUPREME COURT ). Disallowance under section 14A - Held that:- In the absence of exempted income, disallowance under section 14A cannot be made and we accordingly set aside the order of the CIT(A) and delete the additionmade by the AO. Non-allowance of deduction for 1/30th of upfront fee and repair and maintenance for assessment year 2007-08 and depreciation under section 32 on repairs and maintenance - Held that:- CIT(A) rejected the grounds of the assessee being infructuous relying upon its order dated 20.08.2011 in which he has allowed the upfront, repairs and maintenance expenditure as revenue expenditure and directed the AO to allow depreciation on capital work in progress. Now the assessee is before us but could not make out his case. No merit in this ground and we reject the same and confirm the order of the CIT(A). Addition on account of inclusion of revenue from National Aviation Company India Ltd., (NACIL) on accrual basis - Held that:- Assessee was dealing with the public sectors and that too with the essential services providers. Despite of non receipt from the NACIL and its affiliates, the assessee was contributing the revenue shares @ 45.99% to Airport Authority of India of the projected pre-tax Gross Revenue for each year in 12 equal monthly instalments. He has explained as to what efforts he has made to get the recovery of the outstanding dues and after the meeting the Chairman and Managing Director and senior officers of the MOCA a decision was taken to change the mode of recognition of revenue. Since the assessee has satisfactorily explained the circumstances under which he was forced to change the mode of revenue recognition from mercantile to cash basis, we are of the view that he should be allowed as there is no loss to the revenue. Assessee was dealing with the public sectors which are engaged in essential services. Therefore, we do not find anything wrong in conversion of mode of recognition of revenue from mercantile to cash basis only with regard to receipt from M/s. NACIL and its affiliates. Set aside the order of the CIT(A) and direct the AO to accept the mode of recognition of revenue by the AO. Issues Involved:1. Disallowance of collection charges under section 40(a)(ia).2. Treatment of duty credit entitlement under SFIS.3. Disallowance under section 14A.4. Deduction for 1/30th of upfront fee and repair and maintenance, and depreciation under section 32.5. Inclusion of revenue from National Aviation Company India Ltd. on accrual basis.Issue-wise Detailed Analysis:1. Disallowance of Collection Charges under Section 40(a)(ia):The assessee challenged the disallowance of collection charges retained by airlines under section 40(a)(ia). The AO disallowed these charges, arguing that the assessee should have deducted TDS under section 194H. The CIT(A) upheld this disallowance. The Tribunal noted that the assessee collected Passenger Service Fees (PSF) through airlines, which retained 2.5% of the invoice value as a prompt payment rebate. The Tribunal referred to various judicial precedents, including the case of Jet Airways, where it was held that airlines collect PSF on behalf of airport authorities and pass it to them, thus not attracting TDS under section 194H. The Tribunal concluded that the assessee was required to deduct TDS on the amount retained by airlines but also noted the proviso to section 40(a)(ia) which protects the assessee if the payee has paid the tax. The matter was remanded to the AO for verification.2. Treatment of Duty Credit Entitlement under SFIS:The assessee contested the addition of duty credit entitlement under SFIS as revenue. The AO added the entitlement on an accrual basis, treating it as revenue. The CIT(A) upheld this view. The Tribunal noted that the duty credit scrips were used for importing capital goods and should be treated as a capital receipt. The Tribunal referred to the Supreme Court’s judgment in the case of Ponni Sugars Ltd., which emphasized the purpose test in determining the nature of the subsidy. The Tribunal remanded the matter to the CIT(A) for re-examination in light of the Supreme Court’s judgment, directing that if the entitlement is capital in nature, it should reduce the value of the capital assets rather than being taxed as revenue.3. Disallowance under Section 14A:The assessee argued against the disallowance under section 14A, stating that no exempt income was earned during the relevant assessment year. The Tribunal referred to the Delhi High Court’s judgment in the case of Cheminvest Ltd., which held that no disallowance under section 14A can be made if no exempt income is earned. The Tribunal, following this precedent, set aside the CIT(A)’s order and deleted the disallowance.4. Deduction for 1/30th of Upfront Fee and Repair and Maintenance, and Depreciation under Section 32:The assessee sought deduction for 1/30th of upfront fee and repair and maintenance, and depreciation under section 32 for various assessment years. The CIT(A) had allowed these expenses as revenue expenditure in earlier years, but the AO did not accept this. The Tribunal found no merit in the assessee’s appeal, confirming the CIT(A)’s order that allowed the expenses as revenue expenditure and directed the AO to allow depreciation on capital work in progress.5. Inclusion of Revenue from National Aviation Company India Ltd. on Accrual Basis:The assessee contested the inclusion of revenue from NACIL on an accrual basis, arguing for recognition on a cash basis due to uncertainty in collection. The AO included the revenue on an accrual basis, which the CIT(A) upheld. The Tribunal noted the severe cash flow issues faced by the assessee due to delayed payments from NACIL and the efforts made to recover dues. The Tribunal accepted the assessee’s rationale for recognizing revenue on a cash basis, setting aside the CIT(A)’s order and directing the AO to accept the cash basis of revenue recognition for NACIL.Conclusion:The Tribunal provided a detailed analysis and remanded certain issues for re-examination while confirming others. The appeals were partly allowed, with specific directions for the AO and CIT(A) to reconsider the matters in light of judicial precedents and the facts presented.