INCOME TAX UPDATE

CASE: Japan Airlines Co. Ltd vs. CIT (Supreme Court)

TITLE: S. 194-I: In deciding whether a payment is for "use of land", the substance of the transaction has to be seen. If the payment is for a variety of services and the use of land is minor, the payment cannot be treated as "rent"

The Supreme Court had to consider the conflict of judicial opinion between the Delhi High Court in CIT vs. Japan Airlines Co 325 ITR 298 (Del) and that of the Madras High Court in CIT vs. Singapore Airlines Ltd 358 ITR 237 (Mad) on the question whether landing/ parking charges paid by an airline company 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.

The Delhi High Court decided the issue in favour of the department following its earlier decision in the case of United Airlines v. CIT 287 ITR 281. It took 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. However, the Madras High Court dissented from the view of the Delhi High Court. HELD by the Supreme Court reversing the Delhi High Court and affirming the Madras High Court.