Tribunal rules on tax deductions for Passenger Services Fees and Credit Card Gateway Facility Fee

The Tribunal partially allowed the assessee's appeal and dismissed the revenue's appeal for the assessment years 2010-11 and 2011-12. The Tribunal held that tax deduction on Passenger Services Fees (PSF) should be at 2% under section 194C, not 10% under section 194J. It also ruled that tax should have been deducted on year-end provisions as ascertained liabilities. The Tribunal directed the assessee to furnish details to potentially avoid default. Additionally, the Tribunal upheld that the liability to deduct tax on Credit Card Gateway Facility Fee was on banks, not the assessee, dismissing the revenue's appeal.

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Issues Involved:
1. Deduction of tax at source on Passenger Services Fees (PSF).
2. Deduction of tax at source on year-end provisions.
3. Period of levy of interest under section 201(1A) of the Income Tax Act.
4. Deduction of tax at source on credit card gateway facility fee.

Detailed Analysis:

1. Deduction of Tax at Source on Passenger Services Fees (PSF):
- Facts and Circumstances: The assessee, a public limited company running a passenger airline, collected PSF from passengers and paid it to airport operators. PSF consists of two components: security and facilitation. The assessee did not deduct tax on the security component, citing section 196, and deducted tax at 2% on the facilitation component.
- Assessing Officer's (AO) Decision: The AO held that tax should have been deducted under section 194J, considering both components as professional fees.
- CIT(A) Decision: The CIT(A) ruled that tax should be deducted at 2% under section 194C, not 10% under section 194J.
- Tribunal's Decision: The Tribunal upheld the CIT(A)’s decision, stating that the services provided were standard facilities and did not qualify as technical or professional services under section 194J. The Tribunal also directed the assessee to furnish necessary details to avail the benefit of the proviso to section 201, which could prevent the assessee from being deemed in default if the airport operators included the PSF in their taxable income.

2. Deduction of Tax at Source on Year-End Provisions:
- Facts and Circumstances: The assessee made year-end provisions for various expenses without deducting tax at source, arguing that the payees were not identifiable at the time of making the provisions.
- Assessing Officer's (AO) Decision: The AO rejected the assessee’s explanation, stating that tax should be deducted as the provisions were ascertained liabilities.
- CIT(A) Decision: The CIT(A) agreed with the AO but noted that tax was deducted in the subsequent year when the provisions were utilized.
- Tribunal's Decision: The Tribunal upheld the CIT(A)’s decision, emphasizing that the provisions made were ascertained liabilities, and tax should be deducted at the time of making the provisions. However, the Tribunal allowed the assessee to submit relevant details in Form 26A to determine if the payees had included the provisions in their taxable income, potentially relieving the assessee from being deemed in default.

3. Period of Levy of Interest under Section 201(1A):
- Facts and Circumstances: The AO charged interest from the month in which tax was deductible until the end of the month in which the return was due.
- Tribunal's Decision: The Tribunal noted the proviso to section 201(1A) and set aside this issue to the AO, allowing the assessee to raise arguments regarding the period for which interest is chargeable.

4. Deduction of Tax at Source on Credit Card Gateway Facility Fee:
- Facts and Circumstances: The assessee entered into agreements with banks for credit card gateway services. The AO argued that tax should be deducted under section 194H.
- CIT(A) Decision: The CIT(A) held that the liability to deduct tax was on the banks, not the assessee.
- Tribunal's Decision: The Tribunal upheld the CIT(A)’s decision, referencing a circular that no deduction is required on such payments and a coordinate bench decision that supported this view. The Tribunal found no infirmity in the CIT(A)’s order and dismissed the revenue’s appeal on this ground.

Conclusion:
For the assessment year 2010-11, the assessee's appeal was partly allowed, and the revenue's appeal was dismissed. For the assessment year 2011-12, the decisions mirrored those of 2010-11, with the assessee's appeal being partly allowed and the revenue's appeal dismissed. The Tribunal emphasized compliance with relevant sections and allowed the assessee to provide additional evidence to potentially avoid being deemed in default.

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