M/S JAPAN AIRLINES CO.LTD. Vs COMMR.OF INCOME TAX,NEW DELHI
Bench: A.K. SIKRI,ROHINTON FALI NARIMAN
Case number: C.A. No.-009875-009875 / 2013
Diary number: 4411 / 2009
Advocates: MEERA MATHUR Vs
ANIL KATIYAR
Page 1
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, NEW DELHI
.....RESPONDENT(S)
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
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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.
2. 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
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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.
3. 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.
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 ICAO's Policies on Charges
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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
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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
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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. CIT1. 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.
1 287 ITR 281
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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.
10. 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.”
11. 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
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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.”
12. 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.
13. 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
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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.
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, 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
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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
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'.
16. 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
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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.
17. 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
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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.
18. 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.
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,
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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.
20. 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
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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
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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.
21. 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
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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.
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.
23. 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
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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
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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.
24. 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.
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