Synopsis
The controversy is in regard to deductibility of tax on payments made by Airlines to Airports for use of parking and incidental. The authors analyse two deci- sions of the Delhi High court and one of the Madras High Court. The former held that the Tax should be deducted u/s. 194I considering parking and landing fees as rent. Whereas, Madras High Court held that services of landing and parking included many services in the nature of work done under the contract and covered u/s. 194C. In Authors’ view, the Madras HC decision seems to be more detailed and reasoned.
Airlines pay to airports different types of charges for use of airports and its facilities. Charges are paid for landing and take off facilities, taxiways, parking bay with necessary air traffic control, ground safety services, aeronautical communication services, navi- gation services and meteorological services besides the rent or charges for use of hangars. Landing and parking charges are paid for use of the facility of landing and parking aircrafts at airports. The land- ing charges are based on the weight of the aircraft, using the maximum permissible take-off weight of the aircraft, while parking charges are linked to the size of the aircraft and the period of parking.
Tax is deductible at source u/s. 194-C or 194-I on various types of payments made to the airport au- thorities for use of the airports or the facilities made available there at. The issue has arisen before the courts as to the categorisation of these payments for landing and parking charges for the purposes of TDS – whether it is rent falling u/s. 194-I or Pay- ments to Contractors falling u/s. 194C. Conflicting views have been taken by the Delhi and the Madras High Courts, with the Delhi High Court holding that payment of such landing and parking charges is in the nature of rent, tax being deductible u/s.194-I, and the Madras High Court holding that tax is deductible at source from such payments u/s. 194C.
United Airlines’ Case
The issue first came up before the Delhi High Court in the case of United Airlines vs. CIT 287 ITR 281.
The Delhi High Court noted that the term “rent” as defined in section 194-I read as under:
“ ‘rent’ means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee;”
According to the court, a perusal of the above provi- sion showed that the word “rent” defined therein had a wider meaning than ‘rent’ as is understood in common parlance. It included any agreement or arrangement for use of land.
The court observed that when the wheels of an aircraft touch the surface of the airfield, use of the land of the airport immediately begins. Similarly, for parking the aircraft in that airport, again, there is use of the land. Hence, the court was of the opinion that landing and parking fee was definitely ‘rent’ within the meaning of the definition in section 194-I as they were payments made for use of the land of the airport.
The Delhi High Court dismissed the arguments of the assessee based on the intention of the provision and its background, holding that considerations of equity were wholly out of place in a taxing statute, and that a strict interpretation was called for.
In the opinion of the Delhi High Court, the definition of the word “rent” in Expln. (i) of section 194-I was very clear and the plain meaning of that provision showed that even the landing of aircraft or parking aircraft amounted to user of the land of the airport.
Hence, according to the court, the landing fee and parking fee would amount to ‘rent’ within the meaning of aforesaid provision, even if it could not be assigned such a meaning in common parlance.
This decision of the Delhi High Court was followed by it in a subsequent decision in the case of CIT vs. Japan Airlines Co. Ltd. 325 ITR 298. In this case, the court also held that a letter from Airports Authority of India stating that payment of such charges at- tract TDS u/s. 194C, was not an argument available to the assessee while deciding the issue before it, though it may be relevant in proving the bona fides of the assessee in penalty proceedings.
Singapore Airlines Case
The issue again recently came up before the Madras High Court in the case of CIT vs. Singapore Airlines 358 ITR 237.
In this case, the assessee claimed that the payments made to the International Airport Authority towards landing and parking charges would not come within the definition of “rent” under the explanation to section 194-I. The assessing officer took the view that the charges paid by the assessee towards landing and parking to the International Airport Authority of India for the use of runway for landing and takeoff and also the space in the tarmac of the airport for parking of the aircraft represented rent.
The Commissioner (Appeals) upheld the order of the assessing officer. The tribunal followed the decision of the Delhi bench of the tribunal in the case of DCIT vs. Japan Airlines 92 TTJ 687, taking the view that the payment made by the airline could not be construed as payment of rent. The tribunal took the view that the provisions of section 194C would apply to such payments (while holding that the provisions of section 194J would apply to pay- ment for navigation facilities).
Before the Madras High Court, on behalf of the revenue, reliance was placed on the definition of ‘rent’ in the explanation to section 194-I and the decision of the Delhi High Court in Japan Airlines case (supra).
On behalf of the assessee, it was argued that the Delhi High Court had considered the definition of “rent” without considering the nature of services offered by the International Airports Authority of India on the landing and parking of the aircraft. It was pointed out that the definition of rent was an exhaustive definition and that considering the preceding enumeration, namely lease, sub-lease or tenancy, the term ‘any other agreement or ar- rangement’ as appearing in the definition had to be understood by applying the principle of ejusdem generis. Therefore, the said arrangement or agree- ment had to be in respect of use of any land or any building as under a tenancy or lease for the payment to qualify as rent. It was pointed out that the Delhi High Court had not taken note of the facts that there was no use of any land as in the case of tenancy or lease and that all that the airlines had paid for was only for the services rendered by the Airport Authority in providing of facilities for landing, including the navigational facility and the payment was measured with reference to various parameters, which were given by the International Airport Authority in its various circulars.
The attention of the court was drawn, in response to the question raised as to whether the various facilities offered and the charges fixed for the same on the basis of weight for the use of the facility would amount to “use of the land” and the charges would fit in within the definition of “rent”, to the Delhi tribunal’s decision in the case of Japan Air- lines, which had considered the various aspects of the services rendered to the airlines, and to the fact that the Delhi High Court in United Airlines’ case (which was followed in Japan Airlines’ case by the Delhi High Court) had not considered any of these aspects while dealing with the issue as to whether the charges would fit in within the definition of “rent”. It was claimed that the Delhi High Court had merely interpreted the provision of law to come to a conclusion that when the wheels of an aircraft coming into an airport touches the surface of the airfield, there was a use of the land immediately, so too on the parking of the aircraft in the airport there was use of the land, and hence the parking and landing fee should be treated as rent. It was argued that the issue should be decided in the light of the various facilities offered by the Airport Authority of India.
The Madras High Court observed that the definition of ‘rent’ began with the phrase “rent to mean”, which indicated an exhaustive definition. It agreed that an arrangement or agreement must necessarily be of the same nature of character of lease, sub- lease and tenancy for it to fall within the definition of rent, following the principle of ejusdem generis. The Madras High Court observed that in United Airlines case, neither the revenue nor the assessee produced any materials on the nature of services rendered. No material was produced to show the true nature of the arrangement or agreement and show whether it was in the nature of a lease or a license for the use of the land for it being char- acterised as rent.
The Madras high court observed that the Delhi tribunal’s case of Japan Airlines was the only case where the various details regarding the nature of services rendered and the payment charged as per the guidelines and principles laid down by the Council of International Civil Aviation Organisation were considered to come to the conclusion that the charges paid did not fall within the definition of ‘rent’. The court noted that the services provided as analysed by the tribunal included charges for landing and takeoff facilities, taxiways with neces- sary draining and fencing of airport, parking route, navigation and terminal navigation. These charges were based on weight formula and maximum per- missible takeoff weight and length of stay.
The Madras High Court noted that the Delhi tribunal had held that the Airports Authority of India never intended to give exclusive possession of any specific area to the airlines in relation to the landing and parking area. Since a tenancy was created only when the tenant was granted the right to enjoyment of the property by having exclusive possession, the tribunal had held that the payment could not be called a ‘rent’.
Before the High Court, various materials, such as Airport Economic Manual of ICAO and Airports Authority of India Act, 1994, were produced to demonstrate the nature of services provided by the airports. The High Court noted that the principles guiding the levy of charges for landing and take- off showed that the charges were with reference to the number of facilities provided by the airport in compliance with various international protocols and were not for any specified land usage or area allotted. The charges were governed by various considerations on offering facilities to meet the requirements of passenger safety and for safe landing and parking of the aircraft. According to the Madras High Court, the charges were of the nature of fees for services offered, rather than in the nature of rent for use of land.
The Madras High Court observed that it was no doubt true that the Delhi High Court had pointed out that an aircraft, on coming into an airport and on touching the surface of the airfield, began the use of the land, and on parking of the aircraft, used the land however, that alone could not conclude that the use of the land led to a lease or an ar- rangement in the nature of a lease. By the very nature of things, as a means of transport, an aircraft had to touch down for disembarking passengers and goods before it took off. For this facility, the airport charged a price. Given the complexity of landing and takeoff, unlike in the case of vehicles on a road, the airport had to provide navigational facilities, and the charges were calculated based on certain criteria like the weight of the aircraft which charges could not be construed as rent.
The Madras High Court also noted that the runway usage by an aircraft was no different from the us- age of a road by a vehicle or any other means of transport. Just as the use of a road could not be regarded as a use of land, the use of the tarmac could also not be regarded as the use of land. For the purpose of considering whether the payment was rent, such use would not fall within the expres- sion “use of land”.
The Madras High Court therefore expressed its in- ability to accept the view of the Delhi High Court that the use of the land on a touchdown in the airfield would amount to a use of land for the purpose of treating the charges as rent u/s. 194-I. The Madras High Court confirmed the order of the tribunal, holding that tax was not deductible at source u/s. 194-I from such payments.
Observations
When one goes through the decisions of the Delhi High Courts and that of the Madras High Court, it is evident that the decision of the Madras High Court is a more detailed and reasoned one. The Madras High Court has considered not just the law, but has applied the law to the facts of the case before it, by examining the nature of the services provided, unlike the Delhi High Court in whose decision the facts of the case in relation to services rendered, as found by the tribunal, do not seem to have been taken into account as is observed by the Madras High Court.
The definition of the term ‘rent’ contained in the Explanation 1 to section 194-I is an exhaustive definition as is clear by the use of the word ‘mean’ in contrast to ‘includes’, therein. The term “any another agreement or arrangement” should not be widely construed, but should be read by apply- ing the principle of ‘ejusdem generis’. So read , the payment for mere usage of land without any right to enjoy the land can not amount to rent for the purposes of section 194-I , more so, where the use of land is ancillary.
The services for landing and parking includes clear approach, taxiways, light, communication facilities, aerodrome control, air traffic control, meteorologi- cal information, fire and ambulance services, use of light and special radio aids for landing, etc. The landing and parking charges are based on the weight formulae and not on area of parking and hence the parking charges are for the work done under the contract and are covered by section 194C. The Airport Economic Manual lays down different criteria for rental charges for long term use of hangars, etc., where the market value of the land and buildings involved is the criteria, which is different from the criteria used for landing and parking charges. There is a clear distinction between the rent and landing and parking charges.
Looking at the substance of the transaction involving the payment of landing and parking charges, there is clearly no lease or tenancy in land is intended to be granted nor exclusive possession of land is desired to be given. Such an arrangement cannot be treated as rent.
The view taken by the Madras High Court therefore clearly seems to be the better view of the matter, that tax is not deductible u/s. 194-I from landing and parking charges paid to the authorites for use of the airports and the airports facilities of the kinds discussed here.
