Facts of the Case

The assessee, M/s Trans Bharat Aviation (P) Ltd., was engaged in the business of operating air taxis. During verification proceedings, the Revenue discovered that the assessee made payments to the Airport Authority of India (AAI) toward space rent, office space rent, and aircraft parking charges across various Indian airports without deducting Tax Deducted at Source (TDS).

The Assessing Officer (AO) held that the assessee was mandated to deduct TDS. Consequently, the AO treated the assessee as an "assessee-in-default" under Section 201(1) and levied consequential interest under Section 201(1A) of the Income Tax Act. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's order. On subsequent appeal, the Income Tax Appellate Tribunal (ITAT) partly allowed the assessee's plea, relieving them from the primary TDS liability but holding them liable for interest under Section 201(1A) only up to the due date of filing the return of income by the deductee (AAI). The Revenue appealed this ITAT decision to the High Court.


Issues Involved

1.      Whether the assessee could be held liable to pay the TDS amount under Section 201(1) when the payee/deductee is a Government of India undertaking (AAI), raising a presumption that the recipient has already filed its returns and discharged its tax liabilities.

2.      Whether the interest liability under Section 201(1A) on the non-deducted TDS amount terminates on the due date of the filing of the income tax return by the Government undertaking, or whether it should continue until the actual date of payment of tax by the deductee.


Petitioner’s (Revenue's) Arguments

·         The Revenue contended that there is no absolute legal presumption that just because the Airport Authority of India (AAI) is a Government undertaking, it would have fully paid its taxes.

·         It was vehemently argued that the onus lies heavily on the assessee to prove actual tax payment by the deductee before seeking relief from the TDS demand.

·         The Revenue further argued that interest under Section 201(1A) is compensatory and must run strictly from the date on which tax was deductible until the actual date of payment of tax by the deductee, rather than stopping arbitrarily at the due date for filing the deductee's return.


Respondent’s (Assessee's) Arguments

·         The respondent relied upon the settled legal position that the Revenue cannot collect the same tax twice. Since the payments were made to a premier Government of India undertaking (AAI), it is legally and factually sound to presume that the income was included in its books and taxes were paid.

·         The respondent relied on the precedent set by the Delhi High Court in CIT vs. Adidas Marketing P. Ltd., which established that a deductor who failed to deduct tax cannot be forced to pay the tax amount if the deductee has already discharged its tax liability on that specific income.


Court Order / Findings

The Hon’ble High Court of Delhi, comprising Justice A.K. Sikri and Justice Valmiki J. Mehta, dismissed the Revenue's appeals, holding that no substantial question of law arose.

1.      On TDS Recovery [Section 201(1)]: The Court upheld the ITAT’s reliance on CIT Vs. Adidas Marketing P. Ltd. It observed that the Revenue could not show that any notice had been issued to AAI or that any proceedings were initiated against AAI for non-payment of taxes. Because AAI is a Government of India undertaking, a legitimate presumption can be drawn that it has declared its income and paid its taxes, thereby preventing double taxation on the same revenue.

2.      On Interest Cessation [Section 201(1A)]: The Court affirmed the ITAT's view that for a Government undertaking, taxes are legally presumed to have been discharged at the latest by the statutory due date of filing the return of income. Thus, the assessee’s liability to pay interest under Section 201(1A) strictly terminates on the due date of the filing of the return of income by the deductee (AAI), rather than extending indefinitely.


Important Clarification

This decision reinforces the principles laid down in:

·         CIT vs. Adidas Marketing P. Ltd. (Delhi HC): Assessee cannot be asked to pay TDS if the deductee has already accounted for that amount as income and paid the tax.

·         Hindustan Coca Cola Beverage Pvt. Ltd. vs. CIT (2007) 293 ITR 226 (SC): The Supreme Court famously ruled that where the examinee/payee has paid the tax on the income received, the department cannot recover the tax once again from the payer/deductor, though interest under Section 201(1A) remains payable for the period of delay.

·         Presumption of Regularity for Government Undertakings: This case establishes a vital operational presumption—that statutory or government bodies like the Airport Authority of India routinely comply with tax filing demands, shifting the practical burden of proof to the Revenue to show otherwise before alleging non-payment.


Sections Involved

·         Section 194I / 194C: Provisions relating to deduction of Tax Deducted at Source (TDS) on rent and miscellaneous contracts.

·         Section 201(1): Consequence of failure to deduct or pay tax (Assessee-in-default).

·         Section 201(1A): Liability to pay interest on the failure to deduct or pay tax.

·         Section 260A: Appeals to the High Court.


Link to download the order - https://delhihighcourt.nic.in/app/case_number_pdf/2009:DHC:7228-DB/AKS16072009ITA632009_152029.pdf 

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