The charges applicable on Landing & Parking Charges by Airport Authority Of India cannot be treated as ‘Rent’ under Section 194-I of the Income Tax Act#indianlaws

The Supreme Court has held that the charges which are fixed by the AAI for landing and take-off services as well as for parking of aircrafts are not for the ‘use of the land’. These services include providing of air traffic services, ground safety services, aeronautical communication facilities, installation and maintenance of navigational aids and meteorological services at the airport. Further there are various international protocols which mandate all such authorities manning and managing these airports to construct the airports of desired standards which are stipulated in the protocols. The charges thus were not for use of land per se and therefore cannot be treated as ‘rent’ within the meaning of Section 194-I of the Act.

The present set of appeals raised the issue relating to the deduction of tax at source (‘TDS’). Assessees in the instant matters were foreign Airlines flying their aircrafts to various destinations across the world. Their services include inward and outbound air traffic to and from New Delhi as well. For landing the aircrafts and parking thereof at New Delhi Airport the Airports Authority of India (‘AAI’) was levying charges on them. For payment of landing and parking charges in respect of its aircrafts, both the Airlines were deducting TDS under Section 194-C of the Income Tax Act, 1961 (‘Act’) @ 2%.

The Income Tax Authorities viewed that the TDS should be deducted under the provisions of Section 194-I of the Act which calls for deduction @20%. Thus, the dispute was as to whether TDS to be deducted under Section 194-C or under Section 194-I of the Act.

Section 194-I of the Act, which was inserted by Finance Act, 1994 provides for deduction of tax at source in respect of payment of ‘rent’ by any person, other than an individual and a Hindu Undivided Family, at the time of payment or credit, whichever is earlier. The rate at which deduction of tax is to be made at source is 20%. After the amendments in this Section in the years 2002, 2007 and 2009 its scope was enlarged and the present matter was in relation to assessment year prior to 2002.

As per the provision TDS is to be made on the ‘rent’ which in the first place means any payment which is made under any lease, sub-lease, tenancy. Once the payment is made under lease, sub-lease or tenancy, the nomenclature which is given is inconsequential. Such payment under lease, sub-lease and/or tenancy would be treated as ‘rent’. In the second place, such a payment made even under any other ‘agreement or arrangement for the use of any land or any building’ would also be treated as ‘rent’. Whether or not such building is owned by the payee is not relevant. The expressions ‘any payment’, by whatever name called and ‘any other agreement or arrangement’ have the widest import. Likewise, payment made for the ‘use of any land or any building’ widens the scope of the proviso.

In the present case, Airlines were allowed to land and take-off their Aircrafts at IGIA for which landing fee is charged and they were allowed to park their Aircrafts at IGIA for which parking fee is charged. It is done under an agreement and/or arrangement with AAI.

The Supreme Court held that the charges which are fixed by the AAI for landing and take-off services as well as for parking of aircrafts are not for the ‘use of the land’. These services include providing of air traffic services, ground safety services, aeronautical communication facilities, installation and maintenance of navigational aids and meteorological services at the airport. Further there are various international protocols which mandate all such authorities manning and managing these airports to construct the airports of desired standards which are stipulated in the protocols. The services which are required to be provided by these authorities, like AAI, are aimed at passengers’ safety as well as on safe landing and parking of the aircrafts. Therefore, it is not a case of mere ‘use of the land’. On the contrary, it is the facilities that are to be compulsorily offered by the AAI in tune with the requirements of the protocol, which is the primary focus.  In fact, the charges which are taken from the aircrafts for landing and even for parking of the aircrafts are not dependent upon the use of the land. On the contrary, the protocol prescribes a detailed methodology of fixing these charges.

The charges thus were not for use of land per se and therefore cannot be treated as ‘rent’ within the meaning of Section 194-I of the Act.

[M/s Japan Airlines Co. Ltd. vs. CIT, New Delhi]

SC, 04.08.2015

Civil Appeal No. 9875 of 2013 with Civil Appeal Nos. 9876-9881 of 2013