REPORTABLE IN 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 JUDGMENT A.K. SIKRI, J. In these appeals, issue involved relates to deduction of tax at source ('TDS'). In both cases, assessees are foreign Airlines. One is Japan Airlines Company Limited (hereinafter referred to as 'JAL') and other is Singapore Airlines Limited (hereinafter referred to as 'SAL'). As both are international Airlines, they are flying their aircrafts to various destinations across 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 1 aircrafts and parking thereof at New Delhi Airport i.e. Indira Gandhi International Airport ('IGIA'), New Delhi, 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, two Airlines are deducting TDS under Section 194-C of Income Tax Act, 1961 (hereinafter referred to as 'Act'). TDS under Section 194-C of Act is deductible @ 2%. After deducting this TDS while making payment to AAI, same is deposited with Income Tax Authorities. Income Tax Authorities, however, are of view that TDS is to be deducted under provisions of Section 194-I of Act which calls for deduction @20%. Thus, dispute is as to whether TDS to be deducted under Section 194-C or under Section 194-I of Act. 2. We may point out at this stage itself that in appeal pertaining to JAL, it is JAL which is appellant as High Court of Delhi by impugned judgment dated 23.10.2008 has taken view that TDS is to be deducted under Section 194-I of Act. In other appeal which involves SAL, it is Commissioner of Income Tax/Revenue which has filed appeals as High Court of Madras in its judgment dated Civil Appeal No. 9875 of 2013 & Ors. Page 2 of 18 Page 2 13.07.2012 has taken contrary view holding that case is covered under Section 194-C of Act and not under Section 194-I of Act thereof. Madras High Court has taken note of judgment of Delhi High Court but has differed with its view. Thus, two judgments are in conflict with each other and we have to determine as to which judgment should be treated in consonance with legal position and be allowed to hold field. 3. For sake of convenience, we are mentioning facts of JAL's case, with reiteration that operations of two Airlines on basis of which case is to be decided is identical. 4. JAL is foreign company incorporated in Japan and is engaged in business of international air traffic. It transports passengers and cargo by air across globe and provides other related services. assessement year involved in this appeal is assessement year 1998-1999, corresponding to financial year ending on 31.03.1998. International Civil Aviation Organization ('ICAO') to which India is also contracting state has framed certain guidelines and rules which are contained in Airports Economic Manual and ICAO's Policies on Charges Civil Appeal No. 9875 of 2013 & Ors. Page 3 of 18 Page 3 for Airports and Air Navigation Services. All member States abide by guidelines and rules prescribed for various charges to be levied for facilities and services provided including landing/parking charges. 5. AAI under provisions of 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 airport and for providing air traffic services such as ground safety services, aeronautical communications and navigational aids, meteorological services and others at airport. 6. JAL is member of International Air Transport Agreement ('IATA') and during relevant year it serviced inward and oubound air traffic to and from New Delhi, India. AAI levied certain charges on JAL for landing and also for parking its aircrafts. JAL paid charges after deducting tax at source under Section 194-C of Act. JAL received letter dated 02.08.1996 from AAI informing it that AAI had applied to Income Tax Authorities for exemption from tax deduction and were awaiting clearance. It was further stated in said letter that in meanwhile JAL should deduct tax on landing Civil Appeal No. 9875 of 2013 & Ors. Page 4 of 18 Page 4 and parking charges @2% under Section 194-C. JAL, accordingly, starting making TDS @2%. In relevant assessement year, it paid AAI 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 payments made to AAI and deposited with Revenue. JAL thereafter filed its annual return in Form 26-C for financial year 1997-1998. 7. Assessing Officer passed order under Section 201(1) of Act on 04.06.1999 holding JAL as assessee-in-default for short deduction of tax of Rs.11,59,695/- at source. He took view that payments during landing and parking charges were covered by provisions of Section 194-I and not under Section 194-C of Act and, therefore, JAL ought to have deducted tax @20% instead of @2%. JAL filed appeal against this order before Commissioner of Income Tax (Appeals). CIT(A) accepted contention of JAL and allowed appeal vide order dated 31.01.2001, holding that landing and parking charges were inclusive of number of services in compliance with International Protocol of ICAO. Revenue challenged order of CIT(Appeals) by filing appeal Civil Appeal No. 9875 of 2013 & Ors. Page 5 of 18 Page 5 before Income Tax Tribunal. ITAT dismissed this appeal on 25.10.2004 confirming order of CIT(Appeals). 8. Revenue persisted with its view that matter was covered by Section 194-I and, therefore, dissatisfied with orders of ITAT, it went to High Court by way of further appeal under Section 260A of Act. Two questions were raised - (i) whether Tribunal was correct in holding that landing/parking charges paid by JAL to AAI were payments for contract of work under Section 194-C and not in nature of 'rent' as defined in Section 194-I; and (ii) whether Tribunal was correct in law in holding that JAL was not assessee-in-default. High Court allowed appeal by answering questions in favour of respondent following its earlier decision in case of United Airlines v. CIT1. In that case, High Court had taken view that term 'rent' as defined in Section 194-I had wider meaning than 'rent' in common parlance as it included any agreement or arrangement for use of land. High Court further observed that use of land began when wheels of aircraft touched surface of airfield and similarly, there was use of land when aircraft was parked at airport. 1 287 ITR 281 Civil Appeal No. 9875 of 2013 & Ors. Page 6 of 18 Page 6 9. Special leave petition was filed against aforesaid judgment of High Court in which leave was granted and that is how present appeal arises for consideration of issue at hand. 10. Before proceeding further, it would be apposite to take note of provisions of Section 194-C as well as 194-I of Act. Insofar as Section 194-C is concerned, our purpose would be served by reproducing sub-section (1) which deals that 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 contractor) for carrying out any work (including supply of labour for carrying out any work) in pursuance of contract between contractor and specified person shall, at time of credit of such sum to account of contractor or at time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct amount equal to- (i) one per cent. where payment is being made or credit is being given to individual or Hindu Undivided family; (ii) two per cent. where payment is being made or credit is being given to person other than individual or Hindu undivided family, of such sum as income-tax on income comprised therein. 11. Section 194-I, on other hand, which was in force at relevant time, reads as under: Section 194-I Any person, not being Civil Appeal No. 9875 of 2013 & Ors. Page 7 of 18 Page 7 individual or Hindu undivided family, who is responsible for paying to any person any income by way of rent, shall, at time of credit of such income to account of payee or at time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at rate of- (a) fifteen per cent. if payee is individual or 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 use of any land or any building (including factory building), together with furniture, fittings and land appurtenant thereto, whether or not such building is owned by payee. 12. Since main discussion in impugned judgment rendered by High Court of Delhi and also High Court of Madras centres around interpretation that is to be accorded to Section 194-I of Act, we would first discuss as to whether case is covered by this provison or not. In fact, even before us main focus of counsel for assessees as well as counsel for Revenue was on this very issue. Otherwise also, fate of these appeals would depend on answer to question as to whether case is covered by provisions of Section 194-I of Act or not. 13. Section 194-I of 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 8 respect of payment of 'rent' by any person, other than individual and hindu undivided family, at time of payment or credit, whichever is earlier. rate at which deduction of tax is to be made at source is 20%. There have been amendments in this Section in years 2002, 2007 and 2009 and with these amendments, scope of this Section has been enlarged. However, as assessement year in question is prior to 2002 and otherwise also, later amendments have no bearing insofar as assessees are concerned, it is not necessary to spell out amendments made to this Section. 14. From reading of this Section, it becomes clear that TDS is to be made on 'rent'. expression 'rent' is given much wider meaning under this provision than what is normally known in common parlance. In first instance, it means any payment which is made under any lease, sub-lease, tenancy. Once payment is made under lease, sub-lease or tenancy, nomenclature which is given is inconsequential. Such payment under lease, sub-lease and/or tenancy would be treated as 'rent'. In second place, such payment made even under any other 'agreement or arrangement for 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 9 building is owned by payee is not relevant. expressions 'any payment', by whatever name called and 'any other agreement or arrangement' have widest import. Likewise, payment made for 'use of any land or any building' widens scope of proviso. 15. In 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 agreement and/or arrangement with AAI. moot question is as to whether landing and take-off facilities on one hand and parking facility on other hand, would mean to 'use of land'. 16. As pointed out above, impugned judgment of Delhi High Court refers to its earlier judgment in case of United Airlines. Therefore, in order to ascertain reasons that persuaded High Court to take view that it amounted to use of land, one has to scan through reasons given in United Airlines case. In this case, High Court held that word 'rent' as defined in provision has wider meaning than 'rent' in common parlance. It includes any agreement or arrangement for use of land. In opinion of High Court, when wheels of Civil Appeal No. 9875 of 2013 & Ors. Page 10 of 18 Page 10 aircraft coming into airport touch surface of airfield, use of land of airport immediately begins. Similarly, for parking aircraft in that airport, there is use of land. This is basic, nay, only reason given by High Court in support of its conclusion. 17. Madras High Court, on other hand, had much bigger canvass before it needed to paint clearer picture with all necessary hues and colours. Instead of taking myopic view taken by Delhi High Court by only considering use of land per se, Madras High Court examined matter keeping wider perspective in mind thereby encompassing utilization of airport providing facility of landing and take-off of airplanes and also parking facility. After taken into consideration these aspects, Madras High Court came to conclusion that facility was not of 'use of land' per se but charges on landing and take-off by AAI from these airlines were in respect of number of facilities provided by AAI which was to be necessarily provided in compliance with various international protocol. charges, therefore, were not for land usage or area allotted simpliciter. These were charges for various services provided. substance of these charges was ingrained in Civil Appeal No. 9875 of 2013 & Ors. Page 11 of 18 Page 11 various facilities offered to meet requirement of passengers' safety and on safe landing and parking of aircraft and these were consideration that, in reality, governed fixation of charges. To our mind, aforesaid conclusion of High Court of Madras is justified which is based on sound rationale and reasoning. 18. We are convinced that charges which are fixed by AAI for landing and take-off services as well as for parking of aircrafts are not for 'use of land'. That would be too simplistic approach, ignoring other relevant details which would amply demonstrate that these charges are for services and facilites offered in connection with aircraft operation at airport. To point out at 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 airport. 19. Before High Court of Madras, assessee had filed material in form of Airport Economics Manual, International Airports Transport Agreement (IATA) to 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 12 would candidly show that there are various international protocols which mandate all such authorities manning and managing these airports to construct airports of desired standards which are stipulated in protocols. 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 aircrafts. Therefore, it is not mere 'use of land'. On contrary, it is facilities, that are to be compulsarily offered by AAI in tune with requirements of protocol, which is primary focus. 20. For example, runways are not constructed like any ordinary roads. Special technology of different type is required for construction of these runways for smooth landing and take-off of aircrafts. According to ICAO, runway is defined rectangular area on land aerodrome prepared for landing and takeoff of aircraft. Runways may be man-made surface (often asphalt, concrete, or mixture of both) or 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 13 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 basic fact, namely, on landing aircraft is light on fuel and usually less than 5% of weight of aircraft touches runway in one go. On take-off aircraft is heavy but as aircraft accelerates weight gradually moves from wheels to wings. It is while aircraft is being loaded and taxiing prior to departure, that apron experience significant loads from aircraft weight. We have emphasised technological aspects of these runways Civil Appeal No. 9875 of 2013 & Ors. Page 14 of 18 Page 14 in some detail to highlight precision with which designing and engineering goes into making these runways to be fool proof for safety purposes. purpose is to show that AAI is providing all these facilities for landing and take-off of aircraft and in this whole process, 'use of land' pails into insignificance. What is important is that charges payable are for providing of these facilities. 21. In fact, charges which are taken from aircrafts for landing and even for parking of aircrafts are not dependent upon use of land. On contrary, protocol prescribes detailed methodology of fixing these charges. Chapter 4 of Airport Economics Manual issued by International Civil Aviation Organization deals with 'Determine cost basis for charging purposes'. 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 formulae stated therein. reading thereof would clearly point out cost analysis which is to be done for fixing these charges. Thus, when airlines pay for these charges, treating such charges as charges for 'use of land' would be adopting totally na ve and simplistic approach which is far Civil Appeal No. 9875 of 2013 & Ors. Page 15 of 18 Page 15 away from reality. We have to keep in mind substance behind such charges. When matter is looked into from this angle, keeping in view full and larger picture in mind, it becomes very clear that charges are not for use of land per se and, therefore, it cannot be treated as 'rent' within meaning of Section 194-I of Act. 22. We, therefore, are of considered opinion that view taken by Madras High Court is correct and we are unable to subscribe to view taken by Delhi High Court in United Airlines case. judgment in United Airlines case as well as impugned judgment of Delhi High Court are accordingly over-ruled. 23. At this stage, we would like to make one comment about judgment of Madras High Court. Madras High Court has given one more reason in support of its view that charges paid by Airlines to AAI do not come within definition of 'rent' as defined under Section 194-I. High Court has held that words 'any other agreement or arrangement for use of any land or any building' have to be read ejusdem generis and it should take it colour from earlier portion of definition namely lease, sub-lease and tenancy . Thereby, it has tried to Civil Appeal No. 9875 of 2013 & Ors. Page 16 of 18 Page 16 limit ambit of words 'any other agreement or arrangement'. This reasoning is clearly fallacious. bare reading of definition of 'rent' contained in explanation to Section 194-I would make it clear that in first place, 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 first part which gives much wider scope to 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 payment is made for use of land or building under any other agreement or arrangement, such agreement or arrangement gives definition of rent of very wide connotation. To that extent, High Court of Delhi appears to be correct that 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 different matter that High Court of Delhi did not apply this definition correctly to present case as it failed to notice that in substance charges paid by these airlines are not for 'use of land' but for other facilities and services wherein use of land was only minor and insignificant aspect. Thus it did not correctly appreciate nature of charges that are paid by airlines for Civil Appeal No. 9875 of 2013 & Ors. Page 17 of 18 Page 17 landing and parking charges which is not, in substance, for use of land but for various other facilities extended by AAI to airlines. Use of land, in process, become incidental. Once it is held that these charges are not covered by Section 194-I of Act, it is not necessary to go into scope of Section 194-C of Act. 24. As result of aforesaid discussion, Civil Appeal No.9875 of 2013 filed by JAL against judgment of Delhi High Court is allowed and Civil Appeal Nos.9876-9881 of 2013 filed by Revenue against 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 Page 18 M/s Japan Airlines Co. Ltd. v. Commissioner of Income-tax, New Delhi