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

Civil Appeal No. 9875 of 2013 & Ors. Page 1 of 18

Page 2

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

Civil Appeal No. 9875 of 2013 & Ors. Page 2 of 18

Page 3

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

Civil Appeal No. 9875 of 2013 & Ors. Page 3 of 18

Page 4

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

Civil Appeal No. 9875 of 2013 & Ors. Page 4 of 18

Page 5

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

Civil Appeal No. 9875 of 2013 & Ors. Page 5 of 18

Page 6

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

Civil Appeal No. 9875 of 2013 & Ors. Page 6 of 18

Page 7

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

Civil Appeal No. 9875 of 2013 & Ors. Page 7 of 18

Page 8

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

Civil Appeal No. 9875 of 2013 & Ors. Page 8 of 18

Page 9

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

Civil Appeal No. 9875 of 2013 & Ors. Page 9 of 18

Page 10

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

Civil Appeal No. 9875 of 2013 & Ors. Page 10 of 18

Page 11

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

Civil Appeal No. 9875 of 2013 & Ors. Page 11 of 18

Page 12

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,

Civil Appeal No. 9875 of 2013 & Ors. Page 12 of 18

Page 13

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

Civil Appeal No. 9875 of 2013 & Ors. Page 13 of 18

Page 14

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

Civil Appeal No. 9875 of 2013 & Ors. Page 14 of 18

Page 15

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

Civil Appeal No. 9875 of 2013 & Ors. Page 15 of 18

Page 16

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

Civil Appeal No. 9875 of 2013 & Ors. Page 16 of 18

Page 17

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

Civil Appeal No. 9875 of 2013 & Ors. Page 17 of 18

Page 18

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.

Civil Appeal No. 9875 of 2013 & Ors. Page 18 of 18