In deciding whether a payment is for “use of land”, the substance of the transaction has to be seen. If the payment is for a variety of services and the use of land is minor, the payment cannot be treated as “rent” – Section 194-I
Brief Facts of the Case and Question of Law
There are two foreign companies involved namely Japan Airlines Company Limited (“JAL”) and Singapore Airlines Limited (“SAL”). The issue involved relates to the deduction of tax at source (“TDS”) in both the cases. TDS is deducted at 2% under section 194C of the Income Tax Act (“Act”) on payment of landing and parking charges in respect of its aircrafts. In the case of JAL, the Delhi High Court has taken a view that the TDS is to be deducted under Section 194-I of the Act. Whereas, in the case of SAL, Madras High Court has taken contrary view holding that the case is covered under Section 194-C of the Act and not under Section 194-I of the Act thereof.
As the issue involved in both the cases is identical, the facts of JAL’s case are considered as under to arrive at a conclusion.
The Appellant-assessee JAL is foreign company incorporated in Japan and is engaged in the business of international air traffic. It transports passengers and cargo by air across the globe and provides other related services. During the relevant year it serviced inward and outbound air traffic to and from New Delhi, India.
The member states to International Civil Aviation Organization (‘ICAO’) to which India is also a member, levy various charges for facilities and services provided including landing/parking charges. The Airport Authority of India (“AAI”) levied certain charges on the JAL for landing and also for parking its aircrafts. The JAL paid the charges after deducting tax at source under Section 194-C of the Act. In the relevant assessment year, it paid AAI a sum of Rs.61,60,486/- towards landing and parking charges on which TDS @ 2% was withheld and deposited to the credit of Central Government.
The Assessing Officer passed an order under Section 201(1) of the Act on 04.06.1999 holding the JAL as an assessee-in-default for short deduction of tax of Rs.11,59,695/- at source. He took the view that payments during landing and parking charges were covered by the provisions of Section 194-I and not under Section 194-C of the Act and, therefore, the JAL ought to have deducted tax @20% instead of @2%.
Question of Law:
Whether the landing/parking charges paid by the JAL to the AAI were payments for a contract of work under Section 194-or in the nature of ‘rent’ as defined in Section 194-I?
Whether it correct in law to hold that the JAL was not an assessee-in-default?
Contention of the Assessee:
The Assessee contended that the facility provided by AAI was not of ‘use of land’ per se, but the charges on landing and take-off received from these airlines were in respect of number of facilities provided by the AAI. The charges, therefore, were not for land usage or area allotted simpliciter.
These were the charges for various services provided. The substance of these charges was ingrained in the various facilities offered to meet the requirement of passengers’ safety and on safe landing and parking of the aircraft and these were the consideration that, in reality, governed the fixation of the charges. – upheld by Madras High Court in the case of SAL.
Contention of the Revenue:
The Revenue was of the view that as per Section 194-I, it becomes clear that TDS is to be made on the ‘rent’. The expression ‘rent’ is given much wider meaning under this provision than what is normally known in common parlance. In the first instance, it 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’.
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. – upheld by Delhi High Court.
It also contended that as soon as an aircraft is landed, there is a use of land when the aircraft is parked at the airport. Hence, the TDS should be withheld as per Section 194-I and not 194-C as the charges are paid towards use of land.
Held by the Apex Court:
The Apex Court explained that AAI charges the airlines for various charges aimed at passengers’ safety as well as on safe landing and parking of the aircrafts. These facilities are to be compulsorily offered by the AAI in tune with the requirements of the protocol set by International Airports Transport Agreement (IATA), which is the primary focus. Also the protocol defined by IATA prescribes a detailed methodology of fixing these charges. To emphasize more on the technical requirements set by IATA, an example of runways is taken herewith.
Runways are not constructed like any ordinary roads. Special technology of different type is required for the construction of these runways for smooth landing and take-off of the aircrafts. Further, there has to be proper runway lighting, runway safety area, runway markings etc. Runway markings and signs on most large runways include Threshold, Touch Down Zone, Fixed Distance Marks, Center Line etc. and all these have specific purpose. The designing and engineering goes into making these runways to be fool proof for safety purposes.
The purpose is to show that the AAI is providing all these facilities for safe landing and take-off of an aircraft and in this whole process, ‘use of the land’ pails into insignificance. What is important is that the charges payable are for providing of these facilities. The charges such as Landing Charges, Lighting Charges, Approach and Aerodrome Control Charges, Aircraft Parking Charges, Aerobridge Charges, Hangar Charges, Passenger Service Charges, Cargo Charges etc. which are taken from the aircrafts for landing and even for parking of the aircrafts are not dependent upon the use of the land but on the special technology used. The use of land in the process thus becomes incidental.
When the airlines pay for these charges, treating such charges as charges for ‘use of land’ would be adopting a totally naïve and simplistic approach which is far away from the reality. When the substance behind such charges is considered, it becomes very clear that the charges are not for use of land per se and, therefore, it cannot be treated as ‘rent’ within the meaning of Section 194-I of the Act. Hence the first question of law stays explained and because of which the assessee cannot be treated as an assessee-in-default.
As a result of the aforesaid discussion, Civil Appeal No.9875 of 2013 filed by the JAL against the judgment of Delhi High Court was allowed and Civil Appeal Nos.9876-9881 of 2013 filed by the Revenue against the judgment of Madras High Court was dismissed.