Any amount paid as rent or consideration towards a contract, exceeding the prescribed limit is subject to Tax Deduction at Source (TDS) as per the provisions of the Income Tax Act 1961. Both these are covered under different sections of the act and have different implications. The issue was whether the nature of amount paid to the Airport Authority of India (AAI) for the use of airports, by airlines for landing and parking facilities was in the form of rent or contract agreement. This resulted in confusion with regard to TDS applicability on such an amount. 

This article will discuss the nature of such a payment and the implications of TDS on it, based on the Supreme Court’s verdict.

What Is Section 194I And 194C Of The Income Tax Act?

Section 194I lays down provisions for TDS deduction on rent paid by assessees (other than Individuals and HUFs) and Individuals/HUFs who are subject to a tax audit, to deduct 10% of the amount if it exceeds Rs. 2,40,000 in a year (This limit has been increased to Rs. 6,00,000 p.a from 01.04.2025 onwards).  

Section 194C requires the assessee, making payments to a contractor to deduct TDS at applicable rates if the amount paid exceeds Rs. 30,000 for a single payment or Rs. 1,00,000 aggregate during the year. The TDS rate is as follows:

Case Law

Case

Japan Airlines Co. Ltd. v. CIT / CIT v. Singapore Airlines Ltd.

Facts Of The Case

Both assessees are foreign airlines that operate planes to various destinations worldwide, including India. The Airport Authority of India (AAI) levies charges for using airport facilities for landing and parking airplanes. The airlines charged a TDS of 2% as per section 194C on the payments made to AAI. The tax authorities argued that the TDS applicable was 10% as per section 194I. 

Delhi High Court’s View

The Delhi High Court in the case of Japan Airlines Ltd. held that landing and parking charges constituted rent as they involved the use of airport land stating that the definition of rent as per 194I has a wider meaning. Thus upholding the tax authority's claim.

Madras High Court’s View

The Madras High Court in the case of Singapore Airlines Ltd. took a contrary view to that of the Delhi High Court. It held that landing and parking charges do not constitute rent under 194I. Since no specific land allotment or tenancy is involved, the payments are considered service fees and not rent.

The Supreme Court’s Verdict

The Supreme Court sided with the Madras High Court, ruling that landing and parking charges were payments for services and not rent. The charges included various technical and safety services, making land usage only incidental. The ruling overturned the Delhi High Court’s interpretation.

TDS On Parking And Landing Fees Of Airlines

With respect to the Supreme Court ruling in Japan Airlines Ltd./Singapore Airlines Ltd., Landing and parking charges paid by the airlines to the Airport Authority of India are not only for the use of land but also for other facilities. Thus disqualifying such charges as rent. 

Therefore, such charges are subject to TDS as per section 194C. 

Conclusion

The definition of “rent” as per section 194I is vast. However, the use of an airport by an airline for landing and parking does not constitute rent. It is a contract as it involves other facilities also. Such a payment is subject to TDS as per section 194C and not section 194I.