The survey team has raised the matter regarding non-deduction of tax at source on lease rent paid to PQR Fleet Services IFSC Limited and lease rent…

8 (i) Non deduction of tax at source on lease rent paid to PQR Fleet Services IFSC Ltd. No tax was deductible on lease rent paid to PQR Fleet Services IFSC Limited, being a unit located in IFSC, GIFT City, engaged in aircraft leasing business and eligible for deduction under section 80LA in view of the CBDT Notification No. 65/2022 dated 16.06.2022 issued under section 197A(1F). The said Notification specifically provides that no tax is required to be deducted under section 194-I on such lease rentals subject to prescribed conditions. Since the prescribed declaration/ documents were obtained from the PQR Fleet Services IFSC Ltd, the Company bona fide did not deduct tax at source. However, since these transactions have not been reported in the TDS returns filed during the P.Y. 2025-26, the company should file revised TDS returns and report the transactions specifying the reasons for non-deduction. (ii) Short deduction of tax at source on lease rent of engine paid to foreign company The Company deducted tax at source @10% on engine lease rental paid to German company in accordance with the India-Germany DTAA. The non-resident payee does not have any Permanent Establishment in India and the applicable DTAA rate being more beneficial, the same is applicable by virtue of section 90 (2) . Further, with respect to deducting tax at source at the rate specified in DTAA though tax has to be deducted at higher rates in the absence of furnishing of PAN, the company had relied on the Supreme Court ruling in case of CIT (International Taxation) v. Air India Ltd. [2023] 456 ITR 139 wherein the Apex Court noted that section 90 (2) provides that the provisions of the DTAAs would override the provisions of the Act in cases where the provisions of DTAAs are more beneficial to the assessee. Even the charging sections 4 and 5 of the Act, which deal with the principle of ascertainment of total income under the Act, are also subordinate to the principle enshrined in section 90 (2) . The provisions of tax withholding, i.e., section 195 of the Act, would apply only to sums that are otherwise chargeable to tax under the Act. Accordingly, the Apex Court held that where the tax has been deducted on the strength of the beneficial provisions of DTAAs, the provisions of section 206AA cannot be invoked to insist on the tax deduction @ 20%, having regard to the overriding nature of the provisions of section 90 (2) . (iii) Short deduction of tax at source on landing and parking charges With respect to short deduction of tax at source on landing and parking charges, the company had relied on Supreme Court ruling in case of Japan Airlines Co. Ltd. v. CIT / CIT v. Singapore Airlines Ltd. (2015) 377 ITR 372, wherein the Apex Court held that the landing and parking charges which are fixed by the Airports Authority of India and private airport operators are not merely for the "use of the land". These charges are also for services and facilities offered in connection with the aircraft operation at the airport, which include providing of air traffic services, ground safety services, aeronautical communication facilities, installation and maintenance of navigational aids and meteorological services at the airport [(SC)]. Thus, tax is not deductible under section 194-I, which provides deduction of tax for payment in the nature of rent. Accordingly, the company had deducted tax at source @2% under section 194C on payment of 12crores and 8crores made towards landing and parking charges to the Airports Authority of India and private airport operators, respectively.