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Friday, August 7, 2015

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 High Court. Madras High Court has given one more reason in support Madrasof 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. It is a different matter that the High Court of Delhi did not apply this definition correctly to the present case as it failed to notice that in substance the charges paid by these airlines are not for 'use of land' but for other facilities and services wherein use of the land was only minor and insignificant aspect. Thus it did not correctly appreciate the nature of charges that are paid by the airlines for landing and parking charges which is not, in substance, for use of land but for various other facilities extended by the AAI to the airlines. Use of land, in the process, become incidental. Once it is held that these charges are not covered by Section 194-I of the Act, it is not necessary to go into the scope of Section 194-C of the Act. = As a result of the aforesaid discussion, Civil Appeal No.9875 of 2013 filed by the JAL against the judgment of Delhi High Court is allowed and Civil Appeal Nos.9876-9881 of 2013 filed by the Revenue against the judgment of Madras High Court are hereby dismissed. There shall be no order as to cost.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 9875 OF 2013


|M/S JAPAN AIRLINES CO. LTD.                |.....APPELLANT(S)           |
|VERSUS                                     |                            |
|COMMISSIONER OF INCOME TAX,                |.....RESPONDENT(S)          |
|NEW DELHI                                  |                            |

                                    WITH

                     CIVIL APPEAL NOS. 9876-9881 OF 2013


                               J U D G M E N T


A.K. SIKRI, J.

      In these appeals, the issue involved relates to the deduction  of  tax
at source ('TDS').  In both the cases, assessees are foreign Airlines.   One
is Japan Airlines Company Limited (hereinafter referred  to  as  the  'JAL')
and the other is Singapore Airlines Limited (hereinafter referred to as  the
'SAL').   As  both  are  international  Airlines,  they  are  flying   their
aircrafts to various destinations across the world.  Their services  include
inward and outbound air traffic to and from New Delhi as well.  For  landing
the aircrafts and parking thereof at New Delhi Airport  i.e.  Indira  Gandhi
International Airport ('IGIA'), New Delhi, the Airports Authority  of  India
('AAI') which manages IGIA  levies  charges  on  these  two  Airlines.   For
payment of landing and parking charges in respect of its aircrafts, the  two
Airlines are deducting TDS under Section 194-C of the Income Tax  Act,  1961
(hereinafter referred to as the 'Act').  The TDS under Section 194-C of  the
Act is deductible @ 2%.  After deducting this TDS while  making  payment  to
AAI, the same is deposited with the Income Tax Authorities.  The Income  Tax
Authorities, however, are of the view that the TDS is to be  deducted  under
the provisions of Section 194-I of the Act which calls for  deduction  @20%.
Thus, the dispute is as to whether TDS to be deducted under Section     194-
C or under Section 194-I of the Act.

We may point out at this stage itself that in the appeal pertaining to  JAL,
it is the JAL which is the appellant as the  High  Court  of  Delhi  by  the
impugned judgment dated 23.10.2008 has taken the view that the TDS is to  be
deducted under Section  194-I  of  the  Act.   In  the  other  appeal  which
involves SAL, it is the Commissioner of Income Tax/Revenue which  has  filed
the appeals as the High Court of Madras in  its  judgment  dated  13.07.2012
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.   The  Madras
High Court has taken the note of the judgment of the Delhi  High  Court  but
has differed with its view.  Thus, the two judgments are  in  conflict  with
each other and we have to determine as to which judgment should  be  treated
in consonance with the legal position and be allowed to hold the field.

For the sake of convenience, we are mentioning  the  facts  of  JAL's  case,
with the reiteration that the operations of the two Airlines  on  the  basis
of which the case is to be decided is identical.

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  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 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.

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.

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).

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[1].
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.

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.

Before proceeding further,  it  would  be  apposite  to  take  note  of  the
provisions of Section 194-C as  well  as  194-I  of  the  Act.   Insofar  as
Section 194-C is concerned, our purpose would be served by reproducing  sub-
section (1) which deals that the nature of payments on which tax  at  source
is to be deducted.  It reads as under:
“Section 194C. (1)   Any person  responsible  for  paying  any  sum  to  any
resident (hereafter in this section  referred  to  as  the  contractor)  for
carrying out any work (including supply  of  labour  for  carrying  out  any
work) in pursuance of a contract between  the  contractor  and  a  specified
person shall, at the time of credit of  such  sum  to  the  account  of  the
contractor or at the time of payment thereof  in  cash  or  by  issue  of  a
cheque or draft or by any  other  mode,  whichever  is  earlier,  deduct  an
amount equal to-
(i)  one per cent.  where the payment is  being  made  or  credit  is  being
given to an individual or a Hindu Undivided family;
(ii)  two per cent. where the payment is  being  made  or  credit  is  being
given to a person other than an individual or a Hindu undivided family,
of such sum as income-tax on income comprised therein.”


Section 194-I, on the other hand, which was in force at the  relevant  time,
reads as under:
“Section 194-I  Any person, not being an individual  or  a  Hindu  undivided
family, who is responsible for paying to any person any  income  by  way  of
rent, shall, at the time of credit of such income  to  the  account  of  the
payee or at the time of payment thereof in cash or by the issue of a  cheque
or draft or by any other  mode,  whichever  is  earlier,  deduct  income-tax
thereon at the rate of-
(a) fifteen per cent. if the payee is an individual  or  a  Hindu  undivided
family; and
(b) twenty per cent. in other cases.
“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.”


Since the main discussion in the impugned  judgment  rendered  by  the  High
Court of Delhi and  also  the  High  Court  of  Madras  centres  around  the
interpretation that is to be accorded to Section 194-I of the Act, we  would
first discuss as to whether the case is covered by  this  provison  or  not.
In fact, even before us the main focus of the counsel for the  assessees  as
well as counsel for the Revenue was on this  very  issue.   Otherwise  also,
the fate of these appeals would depend on the answer to the question  as  to
whether the  case is covered by the provisions of Section 194-I of  the  Act
or not.

Section 194-I 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  and
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.

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,  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'.  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.

In the present case, we find that these 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 AAI.   The  moot  question  is  as  to  whether  landing  and  take-off
facilities on the one hand and parking facility on  the  other  hand,  would
mean to 'use of the land'.

As pointed out above, the impugned judgment of the Delhi High  Court  refers
to its earlier judgment in the  case  of  United  Airlines.   Therefore,  in
order to ascertain the reasons that persuaded the High  Court  to  take  the
view that it amounted to use of land, one has to scan  through  the  reasons
given in United Airlines case.  In this case, 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  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 is 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
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  facilites  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.

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.

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.
      All these technical  specifications  keep  in  mind  the  basic  fact,
namely, on landing the aircraft is light on fuel and usually  less  than  5%
of the weight of the aircraft touches the runway in  one  go.   On  take-off
the aircraft is heavy but as the aircraft accelerates the  weight  gradually
moves from the wheels to the wings.  It  is  while  the  aircraft  is  being
loaded  and  taxiing  prior  to  departure,  that   the   apron   experience
significant loads from aircraft weight.
      We have emphasised the technological aspects of these runways in  some
detail to highlight the precision with which 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
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.

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
 High Court.  Madras High Court has given one more reason  in  support
Madrasof 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.  It  is  a  different  matter
that the High Court of Delhi did not apply this definition correctly to  the
present case as it failed to notice that in substance the  charges  paid  by
these airlines are not for 'use  of  land'  but  for  other  facilities  and
services wherein use of the land was only minor  and  insignificant  aspect.
Thus it did not correctly appreciate the nature of charges that are paid  by
the airlines for landing and parking charges which  is  not,  in  substance,
for use of land but for various other facilities extended by the AAI to  the
airlines.  Use of land, in the process, become incidental.  Once it is  held
that these charges are not covered by Section 194-I of the Act,  it  is  not
necessary to go into the scope of Section 194-C of the Act.

As a result of the aforesaid discussion, Civil Appeal No.9875 of 2013  filed
by the JAL against the judgment of Delhi High Court  is  allowed  and  Civil
Appeal Nos.9876-9881 of 2013 filed by the Revenue against  the  judgment  of
Madras High Court are hereby dismissed.  There  shall  be  no  order  as  to
cost.


                             .............................................J.
                                                                (A.K. SIKRI)



                             .............................................J.
                                                     (ROHINTON FALI NARIMAN)


NEW DELHI;
AUGUST 04, 2015.

-----------------------
[1]   287 ITR 281

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