Friday, 7 August 2015

Supreme Court rules aircraft landing and parking charges are not “rent” for withholding tax purposes

This Tax Alert summarizes a recent decision of the Supreme Court (SC) in the case of Japan Airlines Co. Ltd. v. CIT (Taxpayer)  on the issue of whether payments made by airlines to the Airports Authority of India (AAI) for landing and parking charges of aircrafts can be characterized as “rent” liable for withholding at a higher rate, instead of being treated as “work” under the Indian Tax Laws (ITL) for withholding at a lower rate.
Noticing  the conflict between the Delhi and Madras High Court (HC) rulings on the issue, the SC upheld the view taken by the Madras HC and held that such payments do not constitute “rent” despite the wide definition of the term “rent” for withholding purposes under the ITL. The SC acknowledged that “rent” is defined widely in the ITL, as compared to the common parlance meaning of the term, inasmuch as it not only covers payment made for the use of, inter alia, land under a lease, sub-lease or tenancy but also payment made under any agreement or arrangement for the ‘use’ of land.
Nevertheless, the SC held that landing and parking charges do not constitute “rent” since they are not paid merely for “use” of airport land but as a consideration for diverse services/facilities like ground safety services, runway lighting, runway maintenance, passenger handling etc., as per internationally accepted standards. The SC emphasized that characterizing such payment as “rent” merely because there is an incidental use of land would be a rather simplistic and naive approach divorced from the reality and substance of the arrangement.

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