Passenger service fee and credit card gateway charges: TDS applied under work contract rules, while commission treatment was rejected.

Passenger service fee paid to airport operators for common airport facilities was treated as payment for carrying out work under section 194C, not as technical or professional services under section 194J, and section 196 did not apply because the assessee was not the direct payee to a Government agency. Year-end expense provisions were liable to TDS in principle, but the matter was remitted for verification whether recipients had complied with the proviso to section 201 through Form 26A, with corresponding reworking of default and interest under section 201(1A), if any. Credit card gateway facility fee was held not to be commission or brokerage under section 194H, so no TDS was deductible.

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Issues: (i) whether passenger service fee paid to airport operators was subject to tax deduction at source under section 194C and not under section 194J or section 196 of the Income-tax Act, 1961; (ii) whether year-end provisions for expenses attracted tax deduction at source and whether the assessee could be treated as an assessee in default and charged interest under section 201(1) and section 201(1A); (iii) whether credit card gateway facility fee attracted tax deduction at source under section 194H.

Issue (i): whether passenger service fee paid to airport operators was subject to tax deduction at source under section 194C and not under section 194J or section 196 of the Income-tax Act, 1961

Analysis: Passenger service fee consisted of security and facilitation components. The payments were made to airport operators for standard facilities and services available to all airlines, and the security component was also routed through the airport operators and not paid directly to CISF by the assessee. Such payments were for carrying out work in pursuance of a contractual arrangement and did not constitute technical or professional services. The exemption in section 196 was inapplicable on the facts because the assessee was not the direct payee to the Government agency.

Conclusion: The payment was subject to deduction at source under section 194C and not under section 194J, and section 196 did not absolve the assessee of the obligation.

Issue (ii): whether year-end provisions for expenses attracted tax deduction at source and whether the assessee could be treated as an assessee in default and charged interest under section 201(1) and section 201(1A)

Analysis: The provisions were made on an ascertained basis for identified expense heads. Mere accounting treatment on accrual basis did not by itself eliminate the obligation to deduct tax at source where the liability had crystallised. At the same time, the benefit of the proviso to section 201 was available if the recipients had offered the income to tax and complied with the prescribed requirements, including furnishing the relevant particulars in Form 26A. The interest issue was linked to the same verification exercise under section 201(1A).

Conclusion: The year-end provisions were liable to TDS in principle, but the matter was remitted to the Assessing Officer for verification of compliance with the proviso to section 201 and for reworking the default and interest, if any.

Issue (iii): whether credit card gateway facility fee attracted tax deduction at source under section 194H

Analysis: The bank charges were for standard credit card gateway services provided in a similar manner to multiple merchants. In view of the applicable circular and the coordinate bench precedent relied upon, the commission retained by the bank did not attract the character of commission or brokerage exigible under section 194H in the present context.

Conclusion: No tax was deductible under section 194H on the credit card gateway facility fee.

Final Conclusion: The assessee succeeded on the credit card gateway issue and on the procedural relief available in relation to the year-end provisions, while the passenger service fee was held to fall within section 194C; the Revenue's appeal failed.

Ratio Decidendi: Standard airport passenger service fee payments made to airport operators for common airport facilities are payments for work under section 194C and not technical or professional services under section 194J.

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