Facts of the Case

The assessee, Trans Bharat Aviation Pvt. Ltd., was engaged in the business of operating air taxi services. During assessment proceedings, the Revenue found that the assessee had made payments to the Airport Authority of India (AAI) towards space rent, office accommodation rent, parking charges and other airport-related facilities without deducting tax at source.

The Assessing Officer held that such payments were covered under Section 194-I and accordingly treated the assessee as an assessee in default under Section 201(1), besides levying interest under Section 201(1A).

The Commissioner (Appeals) upheld the Assessing Officer's order. However, the Income Tax Appellate Tribunal granted substantial relief to the assessee and held that tax demand could not survive where the recipient had already discharged its tax liability, though interest under Section 201(1A) remained payable. The Revenue challenged the Tribunal's decision before the Delhi High Court.

Issues Involved

  1. Whether airport charges, space rent and parking charges paid to AAI are liable for TDS deduction under Section 194-I?
  2. Whether the payer can be treated as an assessee in default under Section 201(1) when the recipient has already paid tax on the income?
  3. Up to what date can interest under Section 201(1A) be levied?

Petitioner's (Revenue's) Arguments

  • The assessee failed to deduct tax at source on payments made to AAI.
  • Such payments were in the nature of rent and therefore covered by Section 194-I.
  • Consequently, the assessee should be treated as an assessee in default under Section 201(1).
  • Interest under Section 201(1A) should continue until actual payment of tax by the recipient.

Respondent's (Assessee's) Arguments

  • Airport Authority of India is a Government undertaking and has duly disclosed its income.
  • Since taxes were already paid by AAI, no tax demand could be recovered again from the assessee.
  • The payer cannot be saddled with double recovery of tax where the Revenue has already received the tax from the recipient.
  • Interest liability, if any, should be restricted only up to the date when tax became available to the Revenue.

Court Findings

The Delhi High Court upheld the Tribunal's view and observed that once the recipient has paid tax on the income received, the Revenue cannot recover the same tax again from the payer.

The Court further held that the liability to pay interest under Section 201(1A) would survive because there was a delay in deduction and remittance of tax.

Since Airport Authority of India is a Government undertaking, the Court accepted the Tribunal's presumption that taxes would have been paid at least by the due date of filing its return of income. Therefore, interest under Section 201(1A) could be charged only up to that date and not beyond it.

Court Order

  • Revenue's appeal dismissed.
  • Assessee not liable for recovery of principal TDS amount where tax was already paid by AAI.
  • Interest under Section 201(1A) payable only up to the due date of filing of return by AAI.
  • No substantial question of law arose for consideration.

Important Clarification

This decision reinforces the principle that:

Once the deductee has paid tax on the income received, the Revenue cannot recover the same tax again from the deductor. However, interest for delayed deduction/payment of TDS under Section 201(1A) may still be leviable.

The judgment follows the settled principle against double recovery of tax by the Revenue.

Sections Involved

  • Section 194-I – TDS on Rent
  • Section 201(1) – Assessee in Default
  • Section 201(1A) – Interest for Failure to Deduct Tax
  • Section 260A – Appeal before High Court

Link to download the order - https://delhihighcourt.nic.in/app/case_number_pdf/2011:DHC:14473-DB/AKS11072011ITA12962009_142233.pdf

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