Karnataka High Court

The Pr. Commissioner Of Income Tax vs M/S. Delhi International Airport ... on 14 December, 2021

Bench: S.Sujatha, S Vishwajith Shetty

     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

      DATED THIS THE 14TH DAY OF DECEMBER, 2021

                         PRESENT

           THE HON'BLE MRS.JUSTICE S.SUJATHA

                           AND

      THE HON'BLE MR. JUSTICE S.VISHWAJITH SHETTY

         I.T.A.No.513/2018 c/w I.T.A.No.514/2018,
            I.T.A.No.515/2018, I.T.A.No.701/2018,
           I.T.A.No.702/2018 & I.T.A.No.703/2018

IN I.T.A.No.513/2018:

BETWEEN :

M/s DELHI INTERNATIONAL AIRPORT LTD.,
(FORMERLY KNOWN AS DELHI
INTERNATIONAL AIRPORT PVT. LTD.)
HAVINAG ITS REGD. OFFICE AT
NEW UDAAN BHAVAN, OPP. TERMINAL-3,
INDIRA GANDHI INTERNATIONAL AIRPORT,
NEW DELHI-110037
COMMUNICATION ADDRESS:
NO.25/1, SKIP HOUSE,
MUSEUM ROAD, BANGALORE-560025.
REP BY ITS DIRECTOR,
SRI NARAYANA RAO KADA,
AGED ABOUT 63 YEARS                            ...APPELLANT

                (BY SRI BALRAM R. RAO, ADV.)

AND :

1.      THE PRINCIPAL COMMISSIONER
        OF INCOME TAX, CENTRAL CIRCLE,
        C.R.BUILDING, QUEENS ROAD,
        BANGALORE-560001
                             -2-



2.      THE DEPUTY COMMISSIONER
        OF INCOME TAX, CENTRAL CIRCLE-2(2),
        C.R.BUILDING, QUEENS ROAD,
        BANGALORE-560001                    ...RESPONDENTS

                 (BY SRI K.V.ARAVIND, ADV.)

      THIS INCOME TAX APPEAL IS FILED UNDER SECTION
260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER
DATED 19.04.2018 PASSED IN ITA NO.596/BANG/2017, FOR
THE ASSESSMENT YEAR 2013-2014. PRAYING TO 1.
FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED
ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDER OF
THE INCOME TAX APPELLATE TRIBUNAL DATED 19.04.2018
BEARING IN ITA NO.596/BANG/2017 FOR ASSEESSMENT YEAR
2013-2014 MARKED AS ANNEXURE-A.


IN I.T.A.No.514/2018:

BETWEEN :

M/s DELHI INTERNATIONAL AIRPORT LTD.,
(FORMERLY KNOWN AS DELHI
INTERNATIONAL AIRPORT PVT. LTD.)
HAVINAG ITS REGD. OFFICE AT
NEW UDAAN BHAVAN, OPP. TERMINAL-3,
INDIRA GANDHI INTERNATIONAL AIRPORT,
NEW DELHI-110037
COMMUNICATION ADDRESS:
NO.25/1, SKIP HOUSE,
MUSEUM ROAD, BANGALORE-560025.
REP BY ITS DIRECTOR,
SRI NARAYANA RAO KADA,
AGED ABOUT 63 YEARS                            ...APPELLANT

                (BY SRI BALRAM R. RAO, ADV.)

AND :

1.      THE PRINCIPAL COMMISSIONER
        OF INCOME TAX, CENTRAL CIRCLE,
        C.R.BUILDING, QUEENS ROAD,
        BANGALORE-560001
                             -3-




2.      THE DEPUTY COMMISSIONER
        OF INCOME TAX, CENTRAL CIRCLE-2(2),
        C.R.BUILDING, QUEENS ROAD,
        BANGALORE-560001                    ...RESPONDENTS

                 (BY SRI K.V.ARAVIND, ADV.)

      THIS INCOME TAX APPEAL IS FILED UNDER SECTION
260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER
DATED 19.04.2018 PASSED IN ITA NO.622/BANG/2017, FOR
THE ASSESSMENT YEAR 2012-2013. PRAYING TO 1.
FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED
ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDER OF
THE INCOME TAX APPELLATE TRIBUNAL DATED 19.04.2018
BEARING IN ITA NO.622/BANG/2017 FOR ASSEESSMENT YEAR
2012-2013 MARKED AS ANNEXURE-A.


IN I.T.A.No.515/2018:

BETWEEN :

M/s DELHI INTERNATIONAL AIRPORT LTD.,
(FORMERLY KNOWN AS DELHI
INTERNATIONAL AIRPORT PVT. LTD.)
HAVINAG ITS REGD. OFFICE AT
NEW UDAAN BHAVAN, OPP. TERMINAL-3,
INDIRA GANDHI INTERNATIONAL AIRPORT,
NEW DELHI-110037
COMMUNICATION ADDRESS:
NO.25/1, SKIP HOUSE,
MUSEUM ROAD, BANGALORE-560025.
REP BY ITS DIRECTOR,
SRI NARAYANA RAO KADA,
AGED ABOUT 63 YEARS                            ...APPELLANT

                (BY SRI BALRAM R. RAO, ADV.)

AND :

1.      THE PRINCIPAL COMMISSIONER
        OF INCOME TAX, CENTRAL CIRCLE,
        C.R.BUILDING, QUEENS ROAD,
                              -4-



        BANGALORE-560001

2.      THE DEPUTY COMMISSIONER
        OF INCOME TAX, CENTRAL CIRCLE-2(2),
        C.R.BUILDING, QUEENS ROAD,
        BANGALORE-560001                    ...RESPONDENTS

                  (BY SRI K.V.ARAVIND, ADV.)

      THIS INCOME TAX APPEAL IS FILED UNDER SECTION
260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER
DATED 19.04.2018 PASSED IN ITA NO.636/BANG/2017, FOR
THE ASSESSMENT YEAR 2011-2012 PRAYING TO 1.
FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED
ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDER OF
THE INCOME TAX APPELLATE TRIBUNAL DATED 19.04.2018
BEARING IN ITA NO.636/BANG/2017 FOR ASSEESSMENT YEAR
2011-2012 MARKED AS ANNEXURE-A.


IN I.T.A.No.701/2018:

BETWEEN :

1.      THE PR. COMMISSIONER OF INCOME TAX,
        CENTRAL CIRCLE, C.R.BUILDING,
        QUEENS ROAD, BENGALURU-560001

2.      THE DEPUTY COMMISSIONER
        OF INCOME TAX, CENTRAL CIRCLE-2(2),
        C.R.BUILDING, QUEENS ROAD,
        BENGALURU-560001                       ...APPELLANTS

                  (BY SRI K.V.ARAVIND, ADV.)


AND :

M/s DELHI INTERNATIONAL AIRPORT PVT. LTD.,
NO.25/1, SKIP HOUSE,
MUSEUM ROAD,
BENGALURU-560025.
PAN: AACCD 3570F.                         ...RESPONDENT
                              -5-



                (BY SRI BALRAM R. RAO, ADV.)

      THIS INCOME TAX APPEAL IS FILED UNDER SECTION
260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER
DATED 19.04.2018 PASSED IN ITA NO.596/BANG/2017, FOR
THE ASSESSMENT YEAR 2011-2012 PRAYING TO 1.
FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED
ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDER OF
THE INCOME TAX APPELLATE TRIBUNAL DATED 19.04.2018
BEARING IN ITA NO.596/BANG/2017 FOR ASSEESSMENT YEAR
2011-2012 MARKED AS ANNEXURE-C AND CONFIRM THE
ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE
ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME
TAX, CENTRAL CIRCLE-2(2), BENGALURU.


IN I.T.A.No.702/2018:

BETWEEN :

1.      THE PR. COMMISSIONER OF INCOME TAX,
        CENTRAL CIRCLE, C.R.BUILDING,
        QUEENS ROAD, BENGALURU-560001

2.      THE DEPUTY COMMISSIONER
        OF INCOME TAX, CENTRAL CIRCLE-2(2),
        C.R.BUILDING, QUEENS ROAD,
        BENGALURU-560001                       ...APPELLANTS

                  (BY SRI K.V.ARAVIND, ADV.)


AND :

M/s DELHI INTERNATIONAL AIRPORT PVT. LTD.,
NO.25/1, SKIP HOUSE,
MUSEUM ROAD,
BENGALURU-560025.
PAN: AACCD 3570F.                         ...RESPONDENT

                (BY SRI BALRAM R. RAO, ADV.)

      THIS INCOME TAX APPEAL IS FILED UNDER SECTION
260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER
                              -6-



DATED 19.04.2018 PASSED IN ITA NO.622/BANG/2017, FOR
THE ASSESSMENT YEAR 2012-2013 PRAYING TO 1.
FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED
ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDER OF
THE INCOME TAX APPELLATE TRIBUNAL DATED 19.04.2018
BEARING IN ITA NO.622/BANG/2017 FOR ASSEESSMENT YEAR
2012-2013 ANNEXURE-C AND CONFIRM THE ORDER OF THE
APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED
BY THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL
CIRCLE-2(2), BENGALURU.


IN I.T.A.No.703/2018:

BETWEEN :

1.      THE PR. COMMISSIONER OF INCOME TAX,
        CENTRAL CIRCLE, C.R.BUILDING,
        QUEENS ROAD, BENGALURU-560001

2.      THE DEPUTY COMMISSIONER
        OF INCOME TAX, CENTRAL CIRCLE-2(2),
        C.R.BUILDING, QUEENS ROAD,
        BENGALURU-560001                       ...APPELLANTS

                  (BY SRI K.V.ARAVIND, ADV.)


AND :

M/s DELHI INTERNATIONAL AIRPORT PVT. LTD.,
NO.25/1, SKIP HOUSE,
MUSEUM ROAD,
BENGALURU-560025.
PAN: AACCD 3570F.                         ...RESPONDENT

                (BY SRI BALRAM R. RAO, ADV.)

      THIS INCOME TAX APPEAL IS FILED UNDER SECTION
260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER
DATED 19.04.2018 PASSED IN ITA NO.636/BANG/2017, FOR
THE ASSESSMENT YEAR 2013-2014 PRAYING TO 1.
FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED
ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDER OF
                              -7-



THE INCOME TAX APPELLATE TRIBUNAL DATED 19.04.2018
BEARING IN ITA NO.636/BANG/2017 FOR ASSEESSMENT YEAR
2013-2014 ANNEXURE-C AND CONFIRM THE ORDER OF THE
APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED
BY THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL
CIRCLE-2(2), BENGALURU.

      THESE APPEALS COMING ON FOR HEARING, THIS DAY,
S. SUJATHA, J., DELIVERED THE FOLLOWING:

                   JUDGMENT

The appeals in ITA Nos.513 to 515/2018 are filed

by the assessee under Section 260A of the Income Tax

Act, 1961 ('Act' for short) challenging the common order

dated 19.04.2018 passed by the Income Tax Appellate

Tribunal, Bangalore Bench "C", Bengaluru ('Tribunal'

for short) in ITA NOs.596, 622 and 636/Bang/2017

relating to the Assessment Years 2013-2014, 2012-13

and 2011-12, respectively.

2. The appellant - assessee is a company

registered under the Companies Act, 1956. The

appellant is engaged in the business of operating,

maintaining, developing, designing, constructing,

upgrading, modernizing, financing and managing the

airport and related infrastructure. The appellant has

entered into an agreement titled "Operation

Management and Development Agreement" (OMDA) with

Airport Authority of India on 4.4.2006, under which

exclusive rights and authority is said to have been given

to the appellant with respect to operation, maintenance,

development, construction, modernization etc., of the

Indira Gandhi International Airport, New Delhi (IGIA for

short) and to perform certain aeronautical and non-

aeronautical services at the IGIA.

3. The appellant filed its return of income for

the assessment year under consideration which was

taken up for scrutiny assessment. The assessing officer

passed assessment order under Section 143(3) r/w

153A of the Act for the assessment year under

consideration disallowing the claim of the assessee

under Section 40(a)(ia) of the Act being the amount of

collection charges retained by the airlines on collection

of passenger service fees amongst other disallowance.

Being aggrieved, the appellant preferred an appeal

before the Commissioner of Income Tax (Appeals)-11,

Bengaluru, wherein the order of the assessing officer

came to be confirmed. On further appeal before the

Tribunal on the issue of disallowance of collection

charges under Section 40(a)(ia) of the Act, the Tribunal

restored the matter to the assessing officer to

readjudicate the issue in the light of the proviso to

Section 40(a)(iv) of the Act and if it is established that

the recipient has paid the tax and filed the return

thereon, the assessee should not be held in default.

Being aggrieved, the assessee has preferred this appeal.

4. These appeals have been admitted to

consider the following substantial common questions of

law;

Common substantial questions of law in all the appeals;

- 10 -

"[i] Whether on the facts and in the circumstances of the case and in law the Tribunal was justified in restoring the issue of addition on account of disallowance of collection charges retained by the airlines under Section 40(a)(ia) with respect to PSF(SC) when the said amount was not claimed by the appellant and when all the facts were already on record?

[ii] Whether on the facts and in the circumstance of the case and in law the Tribunal was justified in confirming the order of Commission of Income Tax (Appeals) in not allowing the deduction for 1/30th of upfront fee and repairs and maintenance of Assessment Year 2007-08?

Additional substantial question of law in ITA

No.513/2018;

(iii) Whether on the facts and in the circumstance of the case and in law the Tribunal was justified in confirming the order of Commissioner of Income Tax (Appeals) in not allowing depreciation under section 32 on repairs and maintenance for AY 2008-09, AY 2009-10 and AY 2010-11?"

- 11 -

5. Learned counsel appearing for the appellant

- assessee submitted that the Tribunal erred in setting

aside and restoring the issue of disallowance of

collection charges under Section 40(a)(ia) of the Act

pertaining to Passenger Service Fee (Security

Component) which was held by the appellant in

fiduciary capacity and no deduction was claimed by the

assessee in the return of income on the security

component. On the other hand, it was established that

the appellant has paid the tax and filed the return in

time as far as the Passenger Service Fees (Facility

Component). As such, the assessee should not be held

in default for the purpose of disallowing the claim under

section 40(a)(ia) of the Act.

6. Learned counsel appearing for the Revenue,

justifying the impugned order of the Tribunal submitted

that, the Airlines Operators while paying Passenger

Service Fees [PSF (SC & FC) were retaining the amount

- 12 -

of 2.5% of the invoice value on account of prompt

payment by them to the assessee before due date which

would part take the characteristic of commission,

thereby attracting the provisions of Section 194H of the

Act. The appellant - assessee was required to deduct

TDS on the amount retained by the Airlines while

making payment to the assessee, for not complying with

the mandate of Section 194H, no claim made by the

assessee under Section 40(a)(ia) of the Act is allowable.

7. Learned counsel appearing for both the

parties have referred to host of judgments which are

discussed infra.

8. We have bestowed our anxious consideration

to the arguments advanced by the learned counsel

appearing for the parties and perused the material on

record.

- 13 -

9. Passenger Service Fee (PSF) chargeable at

the Airport is inclusive of the cost of the security

expenditure on the designated security agency (65%) of

the PSF per embarking passenger (Security Component)

(PSF-(SC)) and the facilitation component payable to the

assessee company being 35% of the PSF per embarking

passenger (Facilitation Component)(PSF-(FC)). The

assessee is maintaining the PSF-(FC) account separately

in accordance with the procedure prescribed in SOP

issued by the Ministry of Civil Aviation (MoCA), dated

19.1.2009. In terms of the said SOP, clause 1.4 would

stipulate that PSF is subject to applicable Service Tax

and airlines have been authorized, presently, to deduct

collection charges at 2.5% from PSF.

10. As per clause 2, nature of security

component of PSF, is described as under;

"2. Nature of security component of PSF:

2.1. Aviation security is an activity reserved for the Government of India. Force

- 14 -

deployment at the airports, security requirements including the requirement of capital items and specifications thereof are laid down by the Government/Bureau of Civil Aviation Security (BCAS). As stated above, PSF is levied under Rule 88 of the Aircraft Rules, 1937 and covers security component as well as facilitation. While the fee is collected by the licensee of the airports, i.e., the airport operator, through the airlines, the security component thereof, which constitutes 65% of the total amount, can be used only in terms of directions issued by the Government/BCAS, from time to time. The amount collected by the airport operator, which is kept separately in an escrow account, is thus held in fiduciary capacity.

2.2. Since the amount is held by the airport operator in fiduciary for the Government, the accounts thereof would have to be maintained separately in accordance with the procedure laid down by the Government and have to be offered for audit by the Comptroller & Auditor General of India (CAG)."

11. The appellant has received Rs.2,01,27,480/-

as PSF-(SC) and Rs.3,20,77,196/- as PSF-(FC) through

Airline Operators, for which invoices were raised by the

- 15 -

assessee and Airlines Operators were paying the PSF-

(FC) after retaining 2.5% of the invoices value as per

clause 1.4 of the SPO.

12. The controversy boils down to the nature of

deduction at the rate of 2.5% of the invoices value by

the Airlines Operators.

13. Section 194H of the Act reads thus;

"194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent :

xxxxx

Explanation.--For the purposes of this section,--

- 16 -

(i) "commission or brokerage" includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities;

xxxx

Section 40(a)(ia) of the Act during the relevant

period reads thus;

"any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub- contractor, being resident, for carrying out any work (including supply of labour for carrying out any work)."

The second proviso to Section 40(a)(ia) of the Act

reads thus;

Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B

- 17 -

on any such sum but is not deemed to be an assessee in default under the first proviso to sub- section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee referred to in the said proviso.

14. Considering these provisions in the light of

the judgment of the Hon'ble Delhi High Court in the

case of CIT v. Ansal Landmark Township (P) Ltd.

Reported in (2015) (61 taxmann.com 45) (Del), the

Tribunal has set aside the order of the Commissioner of

Income Tax (Appeals) and restored the matter on the file

of the assessing officer to re-adjudicate the issue in the

light of Section 40(a)(ia) of the Act, after providing an

opportunity of hearing to the assessee and if it is

established that the recipient 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.

- 18 -

15. The arguments advanced by the learned

counsel for the appellant that this order of the Tribunal

suffers from infirmity, for the reason, that the net

proceeds of PSF-(SC) was held by it in fiduciary capacity

and collected the same on behalf of Government of India

which is not exigible to levy of tax under Article 289(1)

of the Constitution of India, as such, no tax liability

could be fixed on the appellant - assessee since the tax

to the extent of PSF-(FC) was discharged, cannot be

countenanced for the reason that the collection of PSF

charges withheld by the Airlines Operators to the extent

of 2.5% amounts to commission as held by the Hon'ble

Apex Court in the case of Director, Prasar Bharati v.

Commissioner            of          Income            Tax,

Thiruvananthapuram,          reported   in   (2018)    92

taxmann.com 11 (SC).

16. The factual aspects of the said case are

identical to the case on hand. The appellant therein

- 19 -

functioning under the Ministry of Information and

Broadcasting, Government of India, was running the TV

channel called "Doordarshan Kendra" was regularly

broadcasting advertisements of several consumer

companies. In that context, it had entered into an

agreement with several advertising agencies. In terms

of the agreement, advertising agency was required to

make an application to the appellant therein to get the

"accredited status". In that scenario, the appellant

therein and Prasar Bharati - Doordarshan Kendra

would get 15% by way of commission from the Agency.

The argument advanced therein was that the

relationship between Prasar Bharati - Doordarshan

Kendra and the Accredited Agencies was not that of

Principal and Agent, but was in the nature of Principal

to Principal. Secondly, the amount withheld by the

advertising agency is not commission or brokerage to

attract the provisions of Section 194H of the Act.

Adverting to the said arguments, the Hon'ble Apex

- 20 -

Court held that the said transaction in question was in

the nature of commission which would attract Section

194H of the Act. The relevant paragraphs are extracted

hereunder for ready reference;

"26. The aforementioned Section was inserted in the Act with effect from 01.06.2001 by replacing the earlier Section 194H. This Section deals with the payment of "commission or brokerage".

27. It provides that any person other than individual or HUF, responsible for paying any income by way of "commission" (not being insurance commission as specified in Section 194D) or "brokerage" to any person shall at the time of credit of such income to the account of payee or at the time of payment of such income in cash or by cheque or draft or any other mode will deduct income tax thereon at the rate of five percent. The first proviso specifies the limit. The second proviso makes the individual or HUF liable to deduct the income tax, if they exceed the limit specified therein. The third proviso exempts payment of commission or brokerage when made to BSNL and MTNL to their public call office franchisees."

- 21 -

17. The explanation appended to Section 194H

of the Act which defines the expression 'commission or

brokerage', was declared to be an inclusive definition in

view of the payment receivable, directly or indirectly by

a person acting on behalf of another person for services

rendered not being professional services or for any

services in the course of buying or selling of goods or in

relation to any transaction relating to assets, valuable

article or thing not being securities, the said amount of

2.5% was in the nature of payment made by way of

commission, the appellant was under a statutory

obligation to deduct the income tax notwithstanding

that there was no agreement between the appellant and

the Airlines Operators.

18. The judgment relied upon by the learned

counsel for the appellant in the case of Commissioner

of Income Tax, Mumbai v. Jet Airways (India) Ltd.,

reported in (2017) 88 taxmann.com 493(Bombay),

- 22 -

deals with Passenger Service Fee handed over to Airport

Operators, whether was rent falling within the scope of

Section 194-I of the Act and the assessee was liable to

deduct any amount of tax at source (TDS). In that

context, the Hon'ble Court of Bombay held that as the

substance of the PSF is not for use of land or building,

but for providing security services and facilities to the

embarking passengers, the decision of the Madras High

Court in CIT v. Singapore Airlines Ltd., reported in

(2012) 24 taxmann.com 200 would cover the issue in

favour of the assessee. This judgment would be of little

assistance to the appellant in the present set of facts as

the issue herein deals with the commission and not

rent.

19. In the case of Additional Commissioner of

Income Tax, Mumbai v. Mumbai International

Airport (P) Ltd., reported in (2017) 88 taxmann.com

663 (Mumbai) , on which heavy reliance was placed by

- 23 -

the learned counsel appearing for the appellant, the

question that fell for consideration was with regard to

PSF-(SC) which could not be characterized as income

under Section 2(24) of the Act as the assessee merely

acted in a fiduciary capacity for collection and disposal

of the amount of PSF-(SC).

20. As aforesaid, the dispute herein is in a

narrow compass with reference to 2.5% of PSF withheld

by the Airlines Operators in terms of clause 1.4 of SOP.

It is trite that no denial of allowance claimed under

Section 40(a)(ia) of the Act could be made by the

department, in the event, the Airlines Operators have

offered the said 2.5% of commission, which is nothing

but income to tax. In order to verify this factual aspect,

the matter has been restored to the file of the assessing

officer, which cannot be faulted with. Hence, the

common substantial question of law No.1 is answered in

favour of the Revenue and against the assessee.

- 24 -

21. Common substantial question of law No.2

and additional substantial question of law in ITA

No.513/2018 are not pressed.

22. Resultantly, the appeals filed by the assessee

stand disposed of.

23. The appeals in ITA Nos.701 to 703/2018 are

filed by the Revenue under Section 260A of the Act

challenging the common order dated 19.04.2018 passed

by the Tribunal, in ITA NOs.596, 622 and

636/Bang/2017 relating to the Assessment Years 2013-

2014, 2012-13 and 2011-12, respectively.

24. These appeals have been admitted to

consider the following substantial questions of law;

Common substantial question of law in all the

appeals filed by the Revenue;

"1. Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in law in remanding back the issue to assessing authority with a direction to

- 25 -

allow the relief as the assessee do not have exempt income and as such no disallowance can be made under section 14A read with rule 8D of the Act contrary to provisions of section 14A and Rule 8D and Circular No.5 of 2014 dated 11.02.2014 which has clarified that Rule 8D read with section 14A provides for disallowance of the expenditure even when the taxpayer in a particular year has not earned any exempt income?.

Common substantial question of law in

ITA.Nos.702/2018 and 701/2018;

" Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in law in setting aside the issue pertaining to disallowance made by assessing authority under section 40(a)(ia) by relying on Delhi High Court decision in case of Ansal Landmark Township Pvt. Ltd which has been challenged by Revenue before Hon'ble Supreme Court in SLP No.1248 of 2016 and even when the assessing authority has rightly made disallowance under said section has conditions set out in said provisions are fully satisfied to make such disallowance?"

Additional substantial question of law in ITA

No.702/2018;

- 26 -

"Whether on the facts and in the circumstances of the case and in law, the Tribunal is right in law in deleting addition of income of Rs.69,04,00,000/- by directing the assessing authority to allow it on cash basis which was made by assessing authority on accrual basis thereby recognizing mixed system of accounting for assessee-company which is not permissible as per the provisions of section 145 of the Act?.

25. Re: common substantial question of law

No.1:

The issue involved herein is squarely covered by

the decision of the Coordinate Bench of this Court in

the case of Commissioner of Income Tax v. M/s Quest

Global Engineering Services Pvt. Ltd., (ITA

No.133/2015, D.D. 15.2.2021). Concurring with the

same, we answer the said substantial question of law in

favour of the assessee and against the Revenue.

26. Re: Additional substantial question of law in

ITA.No.702/2018; [substantial question of law No.2]

- 27 -

In the case of Commissioner of Income Tax v.

Excel Industries Ltd., reported in (2013) 38

taxmann.com 100 (SC) it has been held that if the rate

of tax remained the same for the assessment year under

consideration as well as in the subsequent year, the

dispute raised by the Revenue would entirely be

academic or at best would have a minor tax effect. This

judgment was rendered in the background that the

Tribunal applying the three tests laid down by various

decisions, namely, whether the income accrued to the

assessee is real or hypothetical; whether there is a

corresponding liability of the other party to pass on the

benefits of duty free import to the assessee even without

any imports having been made; and the probability or

improbability of realization of the benefits by the

assessee considered from a realistic and practical point

of view, coupled with the consistent view taken in favour

of the assessee and the questions raised for several

years, held that there was no reason to take a different

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view suddenly by the Revenue without there being any

convincing reasons. This judgment relied upon by the

learned counsel for the assessee would be of little

assistance in the facts and circumstances of the case.

27. The assessee has recognized only the

expenditure on mercantile method. The assessing officer

has held that the assessee has to follow consistent

method of accounting as per the accounting standards

and the expenditure has to be brought to tax. As per

the Accounting Standard of Accountancy, expenditure

has to be matched with the income offered. The

assessee has claimed the expenditure for offering

services to M/s National Aviation Company of India

Limited (NACIL) but failed to offer the corresponding

income for the period from October 2011 to March 2012

amounting to Rs.69.04 crores and accordingly, the said

amount has been brought to tax as income from

business. However, the assessing officer has noticed

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the contentions of the assessee that the said income has

been offered to tax on receipt basis for the assessment

year 2013-14, as such, it has been considered and

observed that if this income is brought to tax for the

assessment year 2012-13, the same has to be excluded

for the assessment year 2013-14.

28. On appeal before the Commissioner of

Income Tax (Appeals) and on further appeal before the

Tribunal, the assessee has failed. The reasoning of the

authorities as well as the Tribunal is in conformity with

the settled Accounting Standard and principles of

taxation in the method of accounting.

29. Though the learned counsel for the assessee

has referred to the Account Standard (AS9) and

contended that the effect of uncertainties of revenue

recognition requires to be considered, when recognition

of revenue is postponed due to the effect of

uncertainties, it has to be considered as revenue of the

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period in which it is properly recognized. This argument

cannot be countenanced as no hybrid system of

mercantile method and cash accounting method is

permissible in one assessment year as per the settled

principles of accounting system.

30. The Hon'ble Apex Court in the case of

Commissioner of Income Tax v. A.Gajapathy Naidu,

reported in (1964) 53 ITR 114 (SC) has explained the

two principal methods of accounting for the income.

The same is quoted hereunder for ready reference;

"Under this definition accepted by this Court, an income accrues or arises when the assessee acquires a right to receive the same. It is common place that there are two principal methods of accounting for the income, profits and gains of a business; one is the cash basis and the other, the mercantile basis. The latter system of accountancy "brings into credit what is due immediately it becomes legally due and before it is actually received; and it brings

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into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed. The book profits are taken for the purpose of assessment of tax, though the credit amount is not realized or the debit amount is not actually disbursed. "

31. Thus, it is clear that the assessee being a

company has adopted the mercantile system of

accounting only for the expenses relating to M/s NACIL

without offering the corresponding income to tax in one

year, the hybrid method of accounting in one

Assessment Year is not permissible. Hence, we answer

this question i.e., substantial question of law No.2 in

favour of the Revenue and against the assessee.

However, we confirm the order of the assessing officer

inasmuch as the tax offered on receipt basis for the

assessment year 2013-14 would be excluded and the

same shall be given effect to in the proceedings for the