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Saturday, 08 August 2015 16:15

Charges paid by Airlines to AAI are liable to TDS u/s 194-C and not u/s 194-I - Supreme Court Featured

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Gist

  1. Charges which are taken from the aircrafts for takeoff, landing and parking of the aircrafts are not dependent upon the use of the land.
  2. TDS u/s 194-I is thus not applicable since the usage of the land does not come within the definition of the Rent.
  3. The judgment in United Airlines case United Airlines v. CIT, 287 ITR 281 as well as the impugned judgment of the Delhi High Court in the case of Japan Airlines are accordingly over-ruled. Supreme Court confirms the view taken by the Madras High Court in the case of Singapore Airlines Ltd.
  4. TDS rightly deducted @ 2% as per Section 194-C of the Act.

Facts

  1. Supreme Court disposed of two appeals of the High Courts on the same issue. One of Delhi High Court in the case of Japan Airlines Ltd. (JAL) and another of Madras High Court in the case of Singapore Airlines Ltd (SAL).
  2. JAL filed appeal against the order of Delhi High Court and Revenue filed appeal against the order of Madras High Court in the case of SAL.
  3. Japan Airlines is a foreign company and engaged in the business of international air traffic
  4. Airports Authority of India levied charges of landing, parking etc. and and JAL paid after deducting TDS of 2% u/s 194C.
  5. AO passed order u/s 201(1) holding JAL as assessee in default for short deduction of TDS on the ground that these payments are covered u/s 194-I (20%) and not u/s 194-C (2%).
  6. Assessee filed appeal to the CIT(A) and he reverses the order of AO and accepted JAL’s contention.
  7. Revenue filed appeal to the ITAT which is dismissed.
  8. Revenue went to the Delhi High Court and allowed the appeal in favour of Revenue holding that the TDS u/s 194-I @ 20% is applicable following its earlier decision in the case of United Airlines v. CIT, 287 ITR 281.
  9. Assessee filed SLP to the Supreme Court and leave was granted.
  10. In another judgement Madras High Court in the case of SAL took a different view and confirms the TDS applicability u/s 194-C @ 2%. Madras high court did consider the Delhi High Court’s case but gave different decision on the issue.
  11. Revenue went to the Supreme Court against the decision of Madras High Court in the case of SAL.
  12. Supreme Court decided both the appeals in favour of the assessee and confirms the view taken by the Madras High Court and thus rejected the appeal filed by the revenue in the case of SAL and allowed appeal filed by JAL.

Adjudication

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.

Cases referred to

United Airlines v. CIT, 287 ITR 281

Additional Info

Read 14956 times Last modified on Saturday, 13 February 2016 16:51
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2 comments

  • Comment Link sunil Sunday, 09 August 2015 09:25 posted by sunil

    CIT(A) in assessee's favour
    ITAT in assessee's favour
    Madras high court in assessee's favour
    Supreme Court in assessee's favour
    It was only delhi high which was against the assessee
    why ?

  • Comment Link deepakkumar Saturday, 08 August 2015 17:50 posted by deepakkumar

    The main reason of Delhi High Court in concluding that the payments is towards 194-I was on two main reasons as under -

    1. 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
    2. for parking the aircraft in that airport, there is use of the land.

    On these two reasons the delhi high court decided that the payment was towards rent. However, Madras High Court was of the view 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.
    The Supreme Court agreed to the finding of Madras High court and thus given the decision that there is not uses of land and thus section 194-I can not come into picture.
    This should bring an end to this and most of the Airline companies must have now relieved with the order of the Hon. Supreme Court of India.

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