The Commissioner Ofincome Tax (Tds)-1 v. Jet Airways (India) Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.628 OF 2018 The Commissioner ofIncome Tax (TDS)-1 .... Appellant versus Jet Airways (India) Ltd.... Respondent….... Mr.A.R. Malhotra, Advocate for Appellant.Mr.A.R. Malhotra, Advocate for Appellant. Mr.Percy Pardiwalla, Senior Counsel, a/w Mr.Atul Jasani, Advocate for Respondent.Mr.Percy Pardiwalla, Senior Counsel, a/w Mr.Atul Jasani, Advocate for Respondent. CORAM : AKIL KURESHI & SARANG V. KOTWAL, JJ.DATE: 23[rd] APRIL, 2019. P.C. : 1. This Appeal is filed by the revenue to challenge the judgment of Income Tax Appellate Tribunal. Following questions are presented for our consideration; “(a)Whether, on the facts and in the circumstances ofthe case and in law, the Hon'ble ITAT was justifiedin upholding the order of the CIT (A) and holdingthat the amount retained by a bank/credit cardthe case and in law, the Hon'ble ITAT was justifiedin upholding the order of the CIT (A) and holdingthat the amount retained by a bank/credit card 2 / 11 08-ITXA-628-18.odt agency out of the sale consideration of the ticketsbooked through credit cards is not covered underthe definition of “commission or brokerage” givenin the Explanation (i) to section 194H of the Actand the assessee was not liable to deduct tax atsource under section 194H in respect of thisamount? (b)Whether, on the facts and in the circumstances ofthe case and in law, the Hon'ble ITAT was justifiedin holding that the use of lounge premises paid bythe assessee were payments for contract of workunder section 194C of the I.T. Act and not in thenature of rent as per section 194I of the I.T. Act?the case and in law, the Hon'ble ITAT was justifiedin holding that the use of lounge premises paid bythe assessee were payments for contract of workunder section 194C of the I.T. Act and not in thenature of rent as per section 194I of the I.T. Act? 2. Learned Counsel for the parties pointed out that question (a) is concluded by a judgment by this Court dated18/12/2018 in Income Tax Appeal No.847/16. In this respect,while dismissing the Appeal, the Court made following observations; “2.The RespondentAssessee is a Company, engagedin the business of setting up of and operating of Deluxe Hotels.While scrutinizing the Assessee's return of income for theAssessment Year 200910, the Assessing Officer noticed that the Assessee had not deducted tax at source in terms of Section194H of the Income Tax Act, 1961 (for short "the Act"), inrelation to commission paid to the banks on processing ofCredit Card Transactions. The Assessing Officer disallowed thecorresponding expenditure of Rs.1,96,68,165/ by invoking toSection 40(a)(ia) of the Act. In Appeal, the Commissioner ofIncome Tax [Appeals] (for short "CIT[A]), deleteddisallowance, upon which the Revenue approached theTribunal. The Tribunal by the impugned Judgment, dismissedthe Revenue's Appeal, relying upon its Judgment in case of theAssessee for the earlier Assessment Year. In such Judgment,the Tribunal had relied upon the decision of the Delhi HighCourt in the case of CIT v/s. JDS Apparels P. Ltd., reportedin 370 ITR 454. The Tribunal held that, in the present case,the bank did not act as an agent of the Assessee whileprocessing the credit card payments and, therefore, the chargecollected by the Bank for such service, does not amount tocommission within the meaning of Section 194H of the Act. 3.The decision of the Delhi High Court in the caseof JDS Apparels P. Ltd., (supra) was also rendered in thebackground of the Revenue's contention of breach of Section194H of the Act in connection with the credit card charges.The Court, after analyzing the provisions contained in Section194H of the Act, held and observed as under: 3.The decision of the Delhi High Court in the caseof JDS Apparels P. Ltd., (supra) was also rendered in thebackground of the Revenue's contention of breach of Section194H of the Act in connection with the credit card charges.The Court, after analyzing the provisions contained in Section194H of the Act, held and observed as under: “15:Applying the above cited case law to thefactual matrix ofthe present case, we feel thatsection 194H of the Act would not be attracted.HDFC was not acting as an agent of the respondentassessee. Once the payment was made by HDFC, itwas received and credited to the account of therespondentassessee. In the process, a small fee wasdeducted by the acquiring bank, i.e. the bank whoseswiping machine was used. On swiping the creditcard on the swiping machine, the customer whosecredit card was used, got access to the internetgateway of the acquiring bank resulting in therealization of payment. Subsequently, the acquiringbank realized and recovered the payment from thebank which had issued the credit card. HDFC hadnot undertaken any act on “behalf” of therespondentassessee. The relationship between HDFCand the respondentassessee was not of an agencybut that of two independent parties on principal toprincipal basis. HDFC was also acting and equallyprotecting the interest of the customer whose creditcard was used in the swiping machines. It isnoticeable that the bank in question or theiremployees were not present at the spot and werenot associated with buying or selling of goods assuch. Upon swiping the card, the bank madepayment of the bill amount to the respondent-assessee. Thus, the respondentassessee received thesale consideration. In turn, the bank in questionhad to collect the amount from the bankers of thecredit card holder. The bank had taken the risk andalso remained out of pocket for sometime as therewould be a time gap between the date of paymentand recovery of the amount paid. 16:The amount retained by the bank is a feecharged by themfor having rendered the bankingservices and cannot be treated as a commission orbrokerage paid in course of use of any services by aperson acting on behalf of another for buying orselling of goods. The intention of the Legislature isto include and treat commission or brokerage paidwhen a third person interacts between the sellerand the buyer as an agent and thereby rendersservices in the course of buying and/or selling ofgoods. This happens when there is a middleman oran agent who interacts on behalf of one of theparties, helps the buyer/seller to meet, orparticipates in the negotiations or transactionsresulting in the contract for buying and selling ofgoods. Thus, the requirement of an agent andprincipal relationship. This is the exact purport andthe rationable behind the provision. The bank inquestion is not concerned with buying or selling ofgoods or even with the reason and cause as to whythe card was swiped. It is not bothered or concernedwith the quality, price, nature, quantum etc., ofgoods bought/ sold. The bank merely providesbanking services in the form of payment and,subsequently, collects the payment. The amountpunched in the swiping machine is credited to theaccount of the retailer by the acquiring bank, i.e.HDFC in this case, after retaining a small portion ofthe same as their charges. The banking servicescannot be covered and treated as services renderedby an agent for the principal during the course ofbuying or selling of goods as the banker does notrender any service in the nature of agency.” 4In view of the decision of the Delhi High Court inJDS Apparels P. Ltd., (supra), we do not find that Tribunalhas committed any error. No question of law arises. 5In order dated 4[th] December, 2018 in IncomeTax Appeal No.769 of 2016, in somewhat similarcircumstances, following observations were made: 4In view of the decision of the Delhi High Court inJDS Apparels P. Ltd., (supra), we do not find that Tribunalhas committed any error. No question of law arises. 5In order dated 4[th] December, 2018 in IncomeTax Appeal No.769 of 2016, in somewhat similarcircumstances, following observations were made: “ Learned counsel for the Revenue stated that theRevenue had filed an appeal against the judgmentof the Tribunal in case of Kotak Securities Ltd.,but that the appeal was withdrawn on the groundof low tax effect. He has, however, made availablea copy of the judgment of the Tribunal in the saidcase which contains a detail discussion on theissue at hand. In the said judgment, the Tribunalreferred to Section 194H of the Act which requiresan assessee responsible for paying any income byway of commission or brokerage to deduct tax atsource. The Tribunal was of the opinion that thewords “commission or brokerage” must makecolour from each other. The Tribunal was of theopinion that the payment in question, thoughcategorized as “bank guarantee commission” isnot strictly speaking payment of commission sincethere is no principal to agent relationship betweenthe payer and the payee. The Tribunal, therefore,held that the requirement of deducting tax atsource emanating from Section 194H of the Act inthe present case does not arise. We are broadly in agreement with the view ofthe Tribunal. The so called bank guaranteecommission is not in the nature of commission paidto an agent but it is in the nature of bank chargesfor providing one of the banking service. Therequirement of Section 194H of the Act, therefore,would not arise. No question of law arises. TheIncome Tax Appeal is dismissed.” Question (b) arises in following background; Respondent-Assessee is an Airlines Company. As part of itsAirlines business, the assessee would provide lounge service to its selected customers at various airports. In a typical case, alounge would be rented out by an agency, in the nature of anintermediary from the Airport Authority. The assessee AirlinesCompany and other Airlines as well as in some cases, credit cardcompanies would provide the lounge facility to its premier classcustomers. As is well known a lounge is an exclusive secludedhall or a place at the Airport site, where a comfortable sittingarrangement and washrooms are provided to the flyingcustomers. Most of these lounges would have basic refreshnersfor which no separate charge would be levied. According to theassessee, the assessee would pay to the agency for use of suchlounge space by its customers as per pre-agreed terms. While 8 / 11 08-ITXA-628-18.odtmaking such payment, the assessee used to deduct tax at sourcein terms of section 194C of the Income Tax Act, 1961 ('the Act'for short) treating it as a payment to a contract for performanceof a worker. The revenue contends that the assessee had paidrent to the agency and therefore while paying such rentalcharges tax at source under section 194I of the Act should havebeen deducted. 4. The Tribunal by the impugned judgment referred toand relied upon a decision of the coordinate Bench in case ofACIT Vs. Qantas Airways Ltd., reported in (2015) 152 ITD434 and held that the department was not right in insistingdeduction of tax at source under section 194I of the Act. 5. Having heard learned Counsel for the parties andhaving perused documents on record, we notice that theAssessing Officer in the present case, had placed reliance on adecision of Delhi High Court in case of Japan Airlines Ltd.,reported in (2009) 325 ITR 298 and United Airlines (2006)287 ITR 281. 9 / 11 08-ITXA-628-18.odt 4. The Tribunal by the impugned judgment referred toand relied upon a decision of the coordinate Bench in case ofACIT Vs. Qantas Airways Ltd., reported in (2015) 152 ITD434 and held that the department was not right in insistingdeduction of tax at source under section 194I of the Act. 5. Having heard learned Counsel for the parties andhaving perused documents on record, we notice that theAssessing Officer in the present case, had placed reliance on adecision of Delhi High Court in case of Japan Airlines Ltd.,reported in (2009) 325 ITR 298 and United Airlines (2006)287 ITR 281. 9 / 11 08-ITXA-628-18.odt We may however note that the Supreme Court in caseof Japan Airlines Company limited reported in (2015) 377ITR 372 has overrulled such decision of Delhi High Court.Supreme Court approved the view of Madras High Court in caseof CIT Vs Singapore Airlines Ltd. reported in (2013) 358 ITR237. The issue before the Supreme Court was regarding natureof payments made by the international Airlines to the AirportAuthority of India for availing the services for the purpose oflanding and take off of the Aircrafts. The revenue was of theopinion that the charges paid for such purposes were in thenature of rent for use of land, a view which was accepted by theDelhi High Court in the above noted judgment. The SupremeCourt in the judgment in case of Japan Airlines (supra) held thatthe charges paid by the international Airlines for landing andtake off services as also for parking of Aircrafts are in substancenot for use of the land but for various other facilities such asproviding of Air traffic services, ground safety servicesaeronautical communication facilities etc. The Court thereforeheld that the payment of such charges did not invite section194I of the Act. 10 / 11 08-ITXA-628-18.odt 6. We are conscious that this decision of the SupremeCourt does not automatically answer the question at hand.Reference to this decision was made for two purposes. Firstly, torecord that the reliance placed by the Assessing Officer on thedecision of Delhi High Court is no longer valid. Secondly, for thepurpose of drawing an analogy that the payment for certainservices, need not be seen in isolation. The real character of theservice provided and for which the payment is made, wouldhave to be judged. 7. In the present case, as noted the assessee would enterinto an agreement with the agency which has rented out thelounge space at the Airport from the Airport Authority. Undersuch agreement, the assessee would pay committed charges be iton lumpsum basis or on the basis of customer flow to suchagency. This in turn would enable the passengers of the Airlinesto utilize the lounge facilities while in transit. 8. We accept the suggestion of Mr.A.R. Malhotraappearing for the revenue that service of providing beverages 11 / 11 08-ITXA-628-18.odtand refreshments was not the dominant part of service. It mayonly be incidental to providing quiet, comfortable and cleanplace for customers to spend some spare time. However, we donot descreen element of rent being paid by the assessee to theagency. The assessee did not rent out the premises. The assesseedid not have exclusive use to the lounge for its customers. Thecustomers of the Airlines along with customers of other Airlinesof specified categories, would be allowed to use all suchfacilities. Section 194I of the Act governs the situation where aperson is responsible for paying any rent. In such a situationdeduction of tax at source while making such payment isobligated. We do not find that the revenue is correct in invokingsection 194I of the Act. 9. In the result Appeal is dismissed. (SARANG V. KOTWAL, J.) (AKIL KURESHI, J.)