TDS on repairs and maintenance of aircrafts u/s 194C

Facts and Issues of the case

The assessee company, M/s Air India Ltd is in the business of transportation of passengers and cargo by air, mail, parcel, etc. The assessee being a Public Sector Unit as national carrier owns and operates aircrafts of different types. Air India Engineering Services Ltd (AIESL) is a wholly owned subsidiary of the assessee which is approved by DGCA for repairs and maintenance of aircraft placed in various cities, like Mumbai, Delhi, Kolkata, Chennai, Hyderabad, etc.

A survey action under section 133(2A) of the I.T. Act, 1961 was conducted in the finance department of the assessee for the purpose of verifying compliance of TDS provisions. It was submitted that the assessee has paid Rs.8, 58, 12,303/- to M/s Air India Engineering Services Ltd (AIESL) for repairs / maintenance on which TDS @ 2% was made.

The Assessing Officer concluded that the services were in the nature of fees for technical services which are liable for TDS @10% under section and determined Rs. 68,64,984/- as shortfall of TDS along with interest of Rs.41,18,990/- under section 201(1A) was computed. Aggrieved by the order, the assessee was in appeal before the CIT (A), who confirmed the order of the Assessing Officer.

Observations by the court

Having heard rival submissions, we are of the view that, in the interest of natural justice, the alternative contention of the assessee that the assessee was liable to deduct TDS under the provisions of section 194C instead of section 194J as, according to the assessee, the services rendered by AIESL was in the nature of ‘fees for works contract’ and not in the nature of ‘fees for technical services’ may be accepted. However, the claim of the assessee requires verification at the end of the AO. Accordingly, we set aside the order passed by CIT (A) and restore the alternative contention in all the years under consideration to the file of the AO for examining it in accordance with law.