Japan Airlines Co. Ltd. vs. CIT (Civil Appeal No.9875 of 2013) CIT vs. Singapore Airlines Ltd. (Civil Appeal No.9876 – 9881 of 2013) [2015] 377 ITR 372 (SC)
The International Civil Aviation Organization (“ICAO”) to which India is also a Contracting State has framed certain guidelines and rules which are contained in the Airports Economic Manual and ICAO’s Policies on Charges for Airports and Air Navigation Services. All member States abide by the guidelines and rules prescribed for various charges to be levied for facilities and services provided including landing/parking charges.
The Airports Authority of India (AAI) under the provisions of the Airport Authority of India Act, 1994, has been authorised to fix and collect charges for landing, parking of aircrafts and any other services and facilities offered in connection with aircraft operations at airport and for providing air traffic services such as ground safety services, aeronautical communications and navigational aides, meteorological services and others at the airport.
Japan Airlines Ltd. (JAL), a foreign company incorporated in Japan is engaged in the business of international air traffic. It transports passengers and cargo by air across the globe and provides other related services. JAL is a member of the International Air Transport Agreement (“IATA”) and during the financial year 1997- 98 (assessment year 1998-99) it serviced inward and outbound air traffic to and from New Delhi, India. The AAI levied certain charges on the JAL for landing and also for parking its aircrafts. JAL paid the charges after deducting tax at source u/s. 194C of the Act. The JAL received letter dated 2nd August, 1996, from the AAI informing it that the AAI had applied to the income-tax authorities for exemption from the tax deduction and were awaiting the clearance. It was further stated in the said letter that in the meanwhile JAL should deduct the tax on landing and parking charges at 2 % u/s. 194C. JAL, accordingly started making TDS at 2 %. In the relevant assessment year, it paid the AAI a sum of Rs.61,60,486 towards landing and parking charges. On this amount, TDS comes to Rs.1,57,082 when calculated at 2 % which was deducted from the payments made to the AAI and deposited with the Revenue. The JAL thereafter filed its annual return in Form 26C for the financial year 1997-98.
The Assessing Officer passed an order under section 201(1) of the Act on 4th June, 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 194C of the Act and, therefore, the JAL ought to have deducted tax at 20 % instead of at 2 %. The JAL filed the appeal against this order before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) accepted the contention of the JAL and allowed the appeal, vide order dated 31st January, 2001, holding that landing and parking charges were inclusive of number of services in compliance with the International Protocol of the ICAO. The Revenue challenged the order of the Commissioner of Income-tax (Appeals) by filing an appeal before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal dismissed this appeal on 25th October, 2004, confirming the order of the Commissioner of Income-tax (Appeals).
The Revenue persisted with its view that the matter was covered by section 194-I and therefore, it went to the High Court by way of further appeal u/s. 260A of the Act. Two questions were raised (i) whether the Tribunal was correct in holding that the landing/parking charges paid by the JAL to the AAI were payments for a contract of work u/s. 194C and not in the nature of “rent” as defined in section 194-I; and (ii) whether the Tribunal was correct in law in holding that the JAL was not an assessee-indefault. The High Court allowed the appeal by answering the questions in favour of the respondent following its earlier decision in the case of United Airlines vs. CIT. In that case, the High Court 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.
A Special Leave Petition was filed against the aforesaid judgment of the High Court in which leave was granted.
In another appeal which involved Singapore Airlines Ltd., the Commissioner of Income-tax/Revenue had filed the appeals before Supreme Court as the High Court of Madras in its judgment dated 13th July, 2012, had taken a contrary view holding that the case was covered u/s. 194C of the Act and not u/s. 194-I of the Act thereof. The Madras High Court had taken the note of the judgment of the Delhi High Court but had differed with its view.
The Supreme Court observed that the two judgements were in conflict with each other and it had to determine as to which judgment should be treated in consonance with the legal position and be allowed to hold the field. According to the Supreme Court since the main discussion in the impugned judgment rendered by the High Court of Delhi and also the High Court of Madras centered around the interpretation that is to be accorded to section 194-I of the Act, it would first discuss as to whether the case is covered by this provision or not.
The Supreme Court held that from the reading of section 194 I, it became 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 payments which are made under any lease, sub-lease, tenancy. Once the payment is made under lease, sublease 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.
The Supreme Court noted that in the present case, the airlines are allowed to land and take-off their aircrafts at IGIA for which landing fee is charged. Likewise, they are allowed to park their aircrafts at IGIA for which parking fee is charged. It is done under an agreement and/or arrangement with the AAI. The moot question therefore was as to whether landing and take-off facilities on the one hand and parking facility on the other hand, would mean “use of the land”.
The Supreme Court observed that in United Airlines’ case [287 ITR 281 (Del)], the High Court held that the word “rent” as defined in the provision has a wider meaning than “rent” in common parlance. It includes any agreement or arrangement for use of the land. In the opinion of the High Court, “when the wheels of an aircraft coming into an airport touch the surface of the airfield, use of the land of the airport immediately begins”. Similarly, for parking the aircraft in that airport, there is use of the land. This was the basic, nay, the only reason given by the High Court in support of its conclusion.
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 utilisation of the airport providing the facility of landing and take-off of the airplanes and also the parking facility. After taking 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 the 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 by the fixation of the charges. According to the Supreme Court, the aforesaid conclusion of the High Court of Madras was justified which was based on sound rationale and reasoning.
The Supreme Court after noting the technological aspects of the runways in some detail held that the charges which were fixed by the AAI for landing and take-off services as well as for parking of aircrafts were 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. 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.
The Supreme Court concluded that the charges were not for the use of land per se, and therefore, it would not be treated as “rent” within the meaning of section 194-I of the Act.
Note: The Supreme Court, however, disagreed with the interpretation of the expression “any other agreement or arrangement for the use of land or any building” made by the Madras High Court limiting the ambit of the words “any other agreement or arrangement” by reading it ejusdem generis from the expression “lease, sub-lease or tenancy”. According to the Supreme Court, the second part was independent of the first part which gives much wider scope to the term “rent” and to that extent it agreed with the Delhi High Court that the scope of the definition of rent is very wide and not limited to what is understood as rent in common parlance.
