ITAT Quashes Order Holding Air India An Assesssee In Default For Shortfall In Deduction Of TDS On Payments Made To Its Subsidiary

The Bench, consisting of Kavitha Rajagopal (Judicial Member) and Baskaran B.R. (Accountant Member), remitted the matter back to the Assessing Officer for examining the claim of Air India for availing the benefit of the Proviso to Section 201 (1), as per which an assessee shall not be treated as an assessee in default, if the conditions specified therein are complied with.

The assessee M/s Air India Ltd. owns and operates different types of aircrafts. Air India Engineering Services Ltd. (AIESL) is a wholly owned subsidiary of the assessee company, which is approved by DGCA for repair and maintenance of the assessee's aircraft.

During the survey action taken under Section 133A (2A) of the Income Tax Act, 1961, it was observed that the assessee Air India had paid certain sum to Air India Engineering Services Ltd. (AIESL) for repair and maintenance, on which a TDS of 2% was made. The Assessing Officer (AO) opined that the said services rendered by AIESL were in the nature of fees for technical services, which attracted a TDS of 10%. The AO passed an order determining the shortfall of TDS along with interest.

Against this, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) (CIT(A)), who confirmed the order passed by the AO. The assessee filed an appeal before the ITAT against the order of the CIT(A).

The assessee Air India submitted before the ITAT that it was liable to deduct TDS under the provisions of Section 194C of the Income Tax Act, and not under the provisions of Section 194J, since the services rendered by AIESL were in the nature of 'fees for works contract' and not in the nature of 'fees for technical services'.

The assessee added that the benefit of the Proviso to Section 201(1) of the Income Tax Act should be given to the assessee since the recipient of the payment, i.e., M/s AIESL, had duly offered the said payments as its income. The assessee averred that it did not claim the said benefit before the AO and the CIT(A).

Section 201 (1) of the Income Tax Act provides that where any person who is required to deduct any sum under the Income Tax Act does not deduct the said sum, or does not pay, or after so deducting fails to pay, the whole or any part of the tax, such person shall be deemed to be an assessee in default in respect of such tax.

The first Proviso to Section 201 (1) provides that any person who fails to deduct the whole or any part of the tax on the sum paid to a resident, shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished its income tax return under Section 139, has included the said sum in its income tax return, and has paid the tax due on the income declared by it in the said return. Also, to avail the benefit of the first Proviso, the person making the payment must furnish a certificate to this effect from an accountant in the prescribed form.

The ITAT ruled that in the interest of natural justice, the assessee Air India must be given the benefit of the Proviso to Section 201(1).

The ITAT observed that Air India is required to furnish and submit a certificate from an accountant before the AO, in order to avail the benefit of the Proviso to Section 201(1). Hence, the ITAT ruled that the claim of Air India was required to be verified by the AO.

Thus, the ITAT set aside the order of the CIT(A) and remitted the matter back to the AO for examination and verification of the assessee's claim for availing benefit under the Proviso to Section 201(1).

Hence, the ITAT allowed the appeal.

Case Title: Air India Ltd. versus Commissioner of Income-tax (Appeals), NFAC, Delhi

Dated: 15.07.2022 (ITAT Mumbai)

Representative for the Assessee/Appellant: Mr. Rajnish Aggarwal

Representative for the Revenue Department/Respondent: Mr. Manoj Sinha

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