194-I TDS on 'rent' attracted if rent is for specified area of land

IT : TDS under section 194-I on 'rent' attracted only when payment is for use of specified area of land under an agreement having the character of lease or tenancy

FACTS

The Assessing Officer held that the charges paid for landing and parking by the assessee-airlines to International Airport Authority of India for the use of runway for landing and take off and also the space in the tarmac of the airport for parking of the aircraft represented 'rent'.

Since the assessee had failed to deduct TDS, the assessee was liable to be treated as one in default. Consequently, an order under section 201(1) and 201(1A) was made.

The assessee went on appeal before the CIT(A) who confirmed the order of the Assessing Officer.

Aggrieved by this, the assessee went on appeal before the Income Tax Appellate Tribunal. The ITAT held that landing and parking charges would attract TDS under section 194C and not under section 194I and navigational charges would attract TDS under section 194J rather than section 194-I. In the light of the conclusion thus arrived at, ITAT remanded the matter back to AO for working out the interest payable till the date on which the International Airport Authority had paid the tax in respect of the amount received from the assessee, particularly with reference to the liability under section 194C of the Income-tax Act. Aggrieved by this, the present appeals have been filed by the revenue.

HELD

The definition of 'rent' in Explanation (i) to section 194-I begins with the phrase 'rent means' and is an exhaustive definition.

Being an exhaustive definition, payment made for the use of any land or building and the land appurtenant thereto under a lease or sub-lease or tenancy or under any agreement or arrangement with reference to the use of the land, , by whatever name called, would be "rent".

Going by the principle of ejusdem generis, when the exhaustive definition is associated with limited words having the limited operation, unless agreement or arrangement fall under the same clause or genus preceding the words "agreement or arrangement", that payment would not qualify as rent for the purpose of section 194-I.

Thus, only if and when the agreement or arrangement has the characteristics of lease or sub-lease or tenancy for use of the land, the charges levied would fall for consideration under the definition of 'rent' in the Explanation.

The nature of payments made by the assessee do not partake the character of 'rent' for the use of the land or any building. It is not denied by the Revenue that the services rendered are not with reference to any specified area or land nor it is contended by the Revenue that irrespective of this aspect, the agreement would nevertheless be treated as a rent agreement.

According to the definition of 'lease or tenancy' and the definition of 'rent' as appearing in explanation to section 194-I, unless the payment is with reference to the use of any specified land or a building, payment made for availing of the services as in the nature landing or parking cannot be construed as 'rent'.

It is no doubt true that in the decision reported in United Airlines v. CIT [2006] 287 ITR 281, the Delhi High Court pointed out that an aircraft on coming into an airport and on touching the surface of the airfield, the use of the land immediately begin, by this alone, one cannot come to the conclusion that the use of the land leads to an inference of the existence of a lease or an arrangement in the nature of lease.

It is difficult to accept the case of the Revenue that a mere touchdown on the land surface would bring the case of the assessee that there is a lease or an agreement or arrangement answering the character of lease that the charges would fall within the meaning of 'rent', as appearing in section 194-I Explanation.

The payment contemplated under the Explanation is for the use of the land under a lease, sub-lease or tenancy. This means, what is contemplated under the said definition is a systematic use of land specified for a consideration under an arrangement which carries the characteristics of lease or tenancy.

Going by the logic of the said provisions, a mere use of the land for landing and payment charged, which is not for the use of the land, but for maintenance of the various services, including the technical services involving navigation, would not automatically bring the transaction and the charges within the meaning of either lease or sub-lease or tenancy or any other agreement or arrangement of a nature of lease or tenancy and rent.

As far as the runway usage by an aircraft is concerned, it couldn't be different from the analogy of a road used by any vehicle or any other form of transport.

If the use of tarmac could be characterised as use of land, so too the use of a road would be a use of land. For the purpose of treating the payment as rent, such use would not fall under the expression "use of land".

Thus, going by the nature of services offered by the Airport Authority of India for landing and parking charges thus collected from the assessee, there is no ground to accept that the payment would fit in with the definition of 'rent' as given under section 194-I of the Income-tax Act.

RELATED CASES

1. United Airlines v. CIT [2006] 287 ITR 281 (Delhi).

2. CIT v. Japan Airlines Co. Ltd. [2010] 325 ITR 298 (Delhi). - [2012] 24 taxmann.com 200 (Madras)

3. Chattisgarh State Electricity Board vs. ITO (ITAT Mumbai)

4. composite arrangement under franchises agreement not liable for TDS as rent :Delhi High court.