Mumbai
The Bombay High Court recently ruled that the payment made by airlines so that its premier customers can avail to lounge services is not rent as per the Income Tax (IT) Act.
A Division Bench of Justices Akil Kureshi and Sarang Kotwal was hearing an appeal filed by the Commission of Income Tax to challenge the judgment of Income Tax Appellate Tribunal (ITAT).
In 2009-10, while scrutinizing the income tax returns of Jet Airways, the assessing officer noticed that the company had not deducted the tax at source in relation to the commission paid to the banks on processing of credit card transactions. The assessing officer disallowed the expenditure of over ₹1 crore by invoking section 40 (amounts not deductible) of ITA. In appeal, the Commissioner of IT deleted the disallowance, revenue approached the Tribunal and dismissed the revenue’s appeal.
The ITAT held that the use of lounge premises paid by the assessee were payments for contract of work done under the Act and not in the nature of rent as per the Act.
The airline company would pay the intermediary agency for use of such lounge space by its customers as per pre-agreed terms. While making such a payment, the company used to deduct tax at source under 194C (payments to contractors) treating it as a payment to a contract for performance of a worker .
The revenue contends that the company had paid rent to the agency and therefore while paying such rental charges tax at source under 191I (rent) Act should be deducted.
Section 194I of the Act governs the situation where a person is responsible for paying any rent. In such a situation deduction of tax at source while making such payment is obligated. We do not find that revenue is correct in invoking 194I of the Act.
