In a breather to foreign airlines, the Supreme Court has held that charges paid for cargo service, rout navigational facility (RNLC) and termination navigational landing (TNLC) and hotel stay to Airport Authority of India (AAI) do not amount to ?rent? and, therefore, no tax was to be deducted at source (TDS).
Dismissing the Income Tax Department?s plea against Gulf Air Company, a Bench headed by Chief Justice SH Kapadia has upheld the Delhi High Court?s judgement that held that payments for such services cannot be termed as ?rent.? The high court had held that TDS on hotel accommodation would be deducted only if taken on regular basis.
It further ruled that airlines didn?t have any written arrangement with hotels and the oral arrangements with hotels was not for stay of their crew members but for passengers who were to be accommodated till the availability of next flight.
Besides, the hotels provided the rooms only when they were available and not on regular basis to Gulf Air, which operates flights from Bahrain to Mumbai and Delhi.
Attorney general GE Vahanvati argued that payments made to hotels even under an oral arrangement will qualify as rent and TDS was being deducted by other airlines like Indian Airlines and Jordanian Airlines.
While Gulf Air had deducted TDS in respect of cargo service charges and RNNL and TNLC at 2% and 5%, respectively, under the Income Tax Act 1961, it had not deducted TDS on hotel stay charges paid to Hotel Ashoka and Hyatt Regency on the grounds that the same was outside the purview of TDS.
However, the tax authorities in January 2002 had held that all these payments made to AAI were in the nature of rent and so the assessee was liable to deduct TDS at 20% on all the payments. The assessing officer had also asked the assessee to pay interest.