In a recent judgment, Supreme Court has ruled that the payments made to Air Port Authorities for the landing/take-off and parking facilities of aircrafts are covered under section 194-C for the purpose of deduction of tax at source (TDS) and it is not under section 194-I of the Income tax Act, 1961

Question before the Court:
Whether landing and take-off facilities of aircrafts on the one hand and aircrafts parking facility on the other hand, would mean to 'use of the land' as envisaged in section 194-I of the Income tax Act, 1961

Case Details:
Civil Appeal No. 9875/2013 with Civil Appeal No. 9876-9881/2013
M/s Japan Airlines Co. Ltd (Appellant) vs Commissioner of Income Tax, Delhi  (Respondent)
Date of Order : 04-08-2015
Coram: Justice A. K. Sikri and Justice Rohinton Fali Nariman

Facts of the Case(s):
In both the cases, the issue involved was related to the deduction of tax at source (TDS). Assessees are foreign Airlines namely, Japan Airlines Company Limited (JAL) and the other is Singapore Airlines Limited (SAL). Both Airlines were deducting TDS under section 194C of the Income Tax Act, 1961 for payments made to Indira Gandhi International Airport (IGIA), New Delhi in respect of   landing and parking charges of its aircrafts. However Income Tax Department took the view that the charges paid partakes the colour of rent and are liable to a TDS at a higher rate of  20% under Section 194-I.

In the case of SAL, Delhi High Court had taken the view that the TDS is to be deducted under Section 194-I of the Act. On the other hand in the case of JAL, the Madras High Court has taken a contrary view holding that the case is covered under Section 194-C of the Act and not under Section 194-I. The Madras High Court took the note of the Delhi High Court but differed with its view.

The Deli High Court following its earlier decision in the case of United Airlines v. CIT. where the it had taken the view that the term 'rent' as defined in Section 194-I had a wider meaning than 'rent' in the common parlance as it included any agreement or arrangement for use of land. The High Court further observed that the use of land began when the wheels of an aircraft touched the surface of the airfield and similarly, there was use of land when the aircraft was parked at the airport.

Excerpts from the Judgment:
The Madras High Court, on the other hand, had a much bigger canvass before it needed to paint a clearer picture with all necessary hues and colours. Instead of taking a myopic view taken by the Delhi High Court by only considering use of the land per se, the Madras High Court examined the matter keeping wider perspective in mind thereby encompassing the utilization of the airport providing the facility of landing and take-off of the airplanes and also parking facility. After taken into consideration these aspects, the Madras High Court came to the conclusion that the facility was not of 'use of land' per se but the charges on landing and take-off by the AAI from these airlines were in respect of number of facilities provided by the AAI which was to be necessarily provided in compliance with the various international protocol. 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. To our mind, the aforesaid conclusion of the High Court of Madras is justified which is based on sound rationale and reasoning.

We are convinced 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'. That would be too simplistic an approach, ignoring other relevant details which would amply demonstrate that these charges are for services and facilities offered in connection with the aircraft operation at the airport. To point out at the outset, 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.

………..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 mere 'use of the land'. On the contrary, it is the facilities, that are to be compulsarily offered by the AAI in tune with the requirements of the protocol, which is the primary focus.

For example, 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. According to ICAO, a runway is a “defined rectangular area on a land aerodrome prepared for the landing and takeoff of aircraft.” Runways may be a man-made surface (often asphalt, concrete, or a mixture of both) or a natural surface (grass, dirt, gravel, ice, or salt). Specialised kind of orientation and dimensions are needed for these runways which are prescribed with precision and those standards are to be adhered to. Further, there has to be proper runway lighting, runway safety area, runway markings etc. Technical specifications for such lighting, safety area and markings are stipulated which have to be provided. Insofar as runway lighting is concerned which is essentially used at airports that allow night landings, requires that there has to be Runway End Identification Lights, Runway End Lights, Runway Edge Lights, Runway Centerline Lighting System, Touchdown Zone Lights, Taxiway Centerline Lead-Off Lights, Taxiway Centerline Lead-On Lights, Land and Hold Short Lights, Approach Lighting System etc. Technical specifications for all these lights have to be complied with. Same applies to runway markings. 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. So much so, designs and quality of pavement on these runways are also to be taken compliant.

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. Chapter 4 of Airport Economics Manual issued by International Civil Aviation Organization deals with 'Determine the cost basis for charging purposes'. The charges on air-traffic which includes Landing Charges, Lighting Charges, Approach and Aerodrome Control Charges, Aircraft Parking Charges, Aerobridge Charges, Hangar Charges, Passenger Service Charges, Cargo Charges etc. are to be fixed applying the formulae stated therein. A reading thereof would clearly point out the cost analysis which is to be done for fixing these charges. Thus, 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. We have to keep in mind the substance behind such charges. When matter is looked into from this angle, keeping in view the full and larger picture in mind, 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.

We, therefore, are of the considered opinion that the view taken by the Madras High Court is correct and we are unable to subscribe to the view taken by Delhi High Court in United Airlines case. The judgment in United Airlines case as well as the impugned judgment of the Delhi High Court are accordingly over-ruled.

At this stage, we would like to make one comment about the judgment of the Madras High Court. Madras High Court has given one more reason in support of its view that the charges paid by the Airlines to the AAI do not come within the definition of the 'rent' as defined under Section 194-I. The High Court has held that the words 'any other agreement or arrangement for the use of any land or any building' have to be read ejusdem generis and it should take it colour from the earlier portion of the definition namely “lease, sub-lease and tenancy”. Thereby, it has tried to limit the ambit of words 'any other agreement or arrangement'. This reasoning is clearly fallacious. A bare reading of the definition of 'rent' contained in explanation to Section 194-I would make it clear that in the first place, the payment, by whatever name called, under any lease, sub-lease, tenancy which is to be treated as 'rent'. That is rent in traditional sense. However, second part is independent of the first part which gives much wider scope to the term 'rent'. As per this whenever payment is made for use of any land or any building by any other agreement or arrangement, that is also to be treated as 'rent'. Once such a payment is made for use of land or building under any other agreement or arrangement, such agreement or arrangement gives the definition of rent of very wide connotation. To that extent, High Court of Delhi appears to be correct that the scope of definition of rent under this definition is very wide and not limited to what is understood as rent in common parlance.

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