Case: M/S Japan Airlines Co.Ltd Vs. Commr.Of Income Tax,New Delhi

3. For the sake of convenience, we are mentioning the facts of JALs case, with the reiteration that the operations of the two Airlines on the basis of which the case is to be decided is identical.4. JAL is a 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. The assessement year involved in this appeal is the assessement year 1998-1999, corresponding to the financial year ending on 31.03.1998. 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 ICAOs 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.5. The AAI under the provisions of the Airport Authority of India Act, 1994 has been authorized to fix and collect charges for landing, parking of aircrafts and any other services and facilities offered in connection with aircraft operations at the airport and for providing air traffic services such as ground safety services, aeronautical communications and navigational aids, meteorological services and others at the airport.6. JAL is a member of the International Air Transport Agreement (IATA) and during the relevant year it serviced inward and oubound air traffic to and from New Delhi, India. The 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. The JAL received letter dated 02.08.1996 from the AAI informing it that 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 @2% under Section 194-C. JAL, accordingly, starting making TDS @2%. In the relevant assessement year, it paid 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 @2% which was deducted from the payments made to AAI and deposited with the Revenue. The JAL thereafter filed its annual return in Form 26-C for the financial year 1997-1998.7. 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%. The JAL filed the appeal against this order before the Commissioner of Income Tax (Appeals). The CIT(A) accepted the contention of the JAL and allowed the appeal vide order dated 31.01.2001, 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 CIT(Appeals) by filing appeal before the Income Tax Tribunal. ITAT dismissed this appeal on 25.10.2004 confirming the order of the CIT(Appeals).8. The Revenue persisted with its view that the matter was covered by Section 194-I and, therefore, dissatisfied with the orders of the ITAT, it went to the High Court by way of further appeal under Section 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 under Section 194-C 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-in-default. 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 v. CIT (287 ITR 281) . 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.9. Special leave petition was filed against the aforesaid judgment of the High Court in which leave was granted and that is how the present appeal arises for consideration of the issue at hand.

Reasoning:
of the Act, which was inserted by Finance Act, 1994 w.e.f. June 01, 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%. There have been amendments in this Section in the years 2002, 2007 and 2009 with these amendments, the scope of this Section has been enlarged. However, as the assessement year in question is prior to 2002 and otherwise also, the later amendments have no bearing insofar as the assessees are concerned, it is not necessary to spell out the amendments made to this Section.14. From the reading of this Section, 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,tenancy. Once the payment is made under lease,or tenancy, the nomenclature which is given is inconsequential. Such payment under 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.15. In the present case, we find that these Airlines are allowed to land andtheir 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 AAI. The moot question is as to whether landing andWe are convinced that the charges which are fixed by the AAI for landing andservices 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.19. Before the High Court of Madras, the assessee had filed the material in the form of Airport Economics Manual, the International Airports Transport Agreement (IATA) to the contracting states on charges for airport and air navigation services. This material which was shown for our perusal as well, would candidly show that 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.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 onwhich 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 Sectionof the Act.22. 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.