Payments made by AAI to FAA for assistance and technical cooperation not subject to TDS: ITAT

In a major relief to the Airport Authority of India (AAI), the Income Tax Appellate Authority of India (ITAT), Delhi bench has held that the provisions of Tax Deduction at Source (TDS) would not be applicable to the payments made by the Company to the Federal Aviation Administration, USA (FAA), for providing technical assistance to AAI by way of providing its personnel and meeting on ATFM requirements and assisting AAI in connection with ATFM by development of detailed quantitative requirements, detailed ATFM system architecture and draft ATFM implementation plan.

The Airport Authority of India (AAI) has entered into Memorandum of Agreement with Federal Aviation Administration, USA (FAA), for providing technical assistance to AAI by way of providing its personnel and meeting on ATFM requirements and assisting AAI in connection with ATFM by development of detailed quantitative requirements, detailed ATFM system architecture and draft ATFM implementation plan.

The AO treated these amounts paid as fees for technical services (FTS), chargeable to tax at the rate of 10%, surcharge and cess on the gross amount as per Section 115A of the Income Tax Act, 1961. The CIT(A) held that entire payments made by the appellant to FAA are in the nature of FTS and hence chargeable to tax in India under DTAA. Accordingly, it was held that the appellant is under obligation to deduct tax from these payments under section 195 of the Act.

The appellant, Airport Authority of India contended that the provision of TDS shall not apply in case payment is to be made to a Government. In the instant case, the assessee is making payment to the Government. Therefore, the provisions of section 196 shall apply. Provisions of 196 override the provisions contained in section 195.

The coram of K. N. Chary and Dr. B. R. R. Kumar noted thatthe agreement between AAI and FAA is of a commercial character (acta jure gestionis) and state is not liable for the actions or contracts entered between the parties which is different from acts of state and its sovereign capacity (acta jure imperii). Hence, the payments are not excluded from the purview of Section 196 on this ground. FAA per se cannot be treated as a foreign sovereign Government.

08/05/21 Rasheela Basheer/Taxscan

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Categories: Airports May 2021, Foreign May 2021