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Commissioner of Income Tax Versus I.T.C. Limited

TDS u/s 194I - TDS on rent to AAI - Held that:- The Court is satisfied that in the present case, the payment made by the Assessee to AAI under the LA is ‘rent’ within the meaning of Section 194-I of the Act. Question (i) in the quantum appeals is, therefore, answered in the negative, i.e., in favour of the Revenue and against the Assessee. - Penalty under Section 271C - non tds deduction - Held that:- The question whether in the present case the payment of royalty for the right to operate th .....

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the payment made to AAI under the LA. This was not a case where the Assessee could be said to have deliberately avoided making payment of tax so as to attract penalty under Section 271 C of the Act. - Decided in favour of assessee. - ITA 73, 75, 77, 78, 79, 80, 81, 82, 86, 100, 113, 123. 200, 561/2005, & CM APPL. Nos. 10469/2005 & 10470/2005, ITA 633/2005, ITA 688/2005 & CM APPL. 11621/2005 - Dated:- 4-7-2017 - S. Muralidhar And Prathiba M. Singh, JJ. For the Appellant : Through: Mr. Zoheb Hoss .....

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cerned, these are ITA Nos. 73, 75, 77, 78, 82, 86, 113 and 123 of 2005 which are directed against the common order dated 16th March, 2004 passed by the Income Tax Appellate Tribunal ( ITAT ) in ITA (T.D.S.) Nos. 31 to 38/Del/2002 for the Financial Years (FYs) 1994-95 to 2001-2002. While admitting these appeals on 24th November, 2005, this Court framed the following questions of law for consideration: i. Whether the ITAT was correct in law in holding that the amount paid by the Assessee to the Ai .....

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he ITAT in ITA Nos. 548 to 555/Del/2004 for the Assessment Years ( AYs ) 1994-95 to 2001-2002. While admitting these appeals the following question of law was framed by this Court: Whether the ITAT was correct in law in deleting the penalty under Section 271C of the Income Tax Act, 1961? 3. The facts in brief are that the Respondent/Assessee was awarded the contract for running an Executive Lounge at the Indira Gandhi International Airport, New Delhi ( IGI ) by the Airports Authority of India ( .....

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see in terms of which the premises at the first floor of the IGI Airport, referred to as the 'lounge premises', was given on license basis to the Assessee for the purpose of operating an Executive Lounge to all operating airlines for the benefit of their Transit Passengers in the International Terminal. The period of license was from 1st October, 1998 to 30th September, 2003. 5. As far as the license fee was concerned, Clauses 2(a) and 2(b) of the LA provided as under: 2. (a) That the li .....

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emises at the rates as may be fixed from time to time. The licencee fee payable in respect of the Lounge premises shall be AAI and the licensee shall pay such revised licence fee. The area of the lounge premises is 230 sq. meters and the present licence fee is ₹ 402.62 per sq. meter per month. 6. A controversy arose regarding the failure on the Assessee s part to deduct tax at source in terms of Section 194-I of the Act read with Section 201(1) thereof from the payments made by it to AAI u .....

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an Assessee in default to the extent of non-deduction or short deduction of tax under Section 201(1) of the Act. The total short deduction for the aforesaid FYs worked out to ₹ 1,17,39,448. The interest thereon under Section 201(1A) of the Act worked out to ₹ 61,80,971. Thus, the total demand worked out to ₹ 1,79,20,419. It was held that the mere fact that one part of the payment under Clause 2(a) of the LA was termed as royalty cannot take away the character of payments being .....

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hat it required to be verified from the AO who exercised jurisdiction over AAI whether, in fact, taxes in respect of the payments made to it by the Assessee were already remitted by it. In other words, it had to be seen whether the payments had been included in the gross receipts of AAI on which tax had been paid by AAI. The demand to that extent was deleted by the CIT(A) subject to verification. It was held that the interest under Section 201(1A) of the Act had to be worked out with reference t .....

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on the Assessee to deduct tax at source therefrom under Section 194-I of the Act. 10. As regards interest levied under Section 201(1A) of the Act was concerned, the Assessee submitted before the ITAT that with AAI having paid taxes on the income by way of royalty, there was no question for levy of interest for the alleged default of non-deduction of tax at source. 11. The Assessee s appeals were allowed by the ITAT by the impugned order for the following reasons: 1. Under the Airports Authority .....

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in the tender documents is in addition to the royalty. The successful bidder is one who quotes the highest fixed royalty. 3. The licence fee is determined by AAI having regard to the area made available to the successful bidder and can be unilaterally revised by AAI, whereas the royalty is quoted by the bidder and accepted by AAI and is not open for revision. 4. The royalty is payable 30 days after the area is handed over to the successful bidder while the payment of licence fee commences immed .....

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ted v. Union of India (2016) 383 ITR 697 (Del) where, the Court emphasized the expanded definition of the word rent under Section 194-I of the Act. It is submitted that in the present case when the LA is read as a whole, it is plain that the payment made, although in two parts, is for operating an executive lounge. The non-payment of even one component, as either of royalty or of the fee for the space, would entail the Assessee losing the right to operate the executive lounge. The payment theref .....

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cision in Japan Airlines Co. Limited v. CIT (2013) 377 ITR 372 (SC) to draw a distinction between the payment of royalty which was for the right to operate the executive lounge, and which amount was quoted by the Assessee itself, and the amount paid to use the space where lounge was operated which alone could be characterized rent . It was submitted that the intention of the parties had to be gathered from the LA which for that purpose had to be read as a whole. In the present case, in the conte .....

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ts were granted under the same LA, the payments for each of them had to be treated as two distinct payments. He referred to the certificate issued by the AAI to the effect that both payments were distinct. Reliance was also placed on the decisions in CIT v. NIIT Limited (2009) 318 ITR 289 (Del) and TRIL Infopark Limited v. ITO (2016) 385 ITR 465 (Mad). In support of the proposition that the payment of royalty is essentially a payment for the right to do business , reliance was placed on the deci .....

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irport is split into two distinct parts viz., , royalty and the fees for the space, it is in effect a payment for the use of the lounge for the purposes of operating it. If there is a default in payment either of the components of the licence fee the inevitable consequence is that the Assessee loses the right to operate the executive lounge. This position is not even disputed by the Assessee. 18. Clause (i) (b) of the Explanation to Section 194 I of the Act states that the word "rent" .....

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nfined to payments received towards a lease, sub-lease or tenancy or transactions of such like nature. (ii) given the context of the said provision which is intended to cover a wide range of transactions as is evident from the words "any other agreement or arrangement" it is evident that the principles of ejusdem generis or noscitur a sociis cannot be invoked to narrow the scope of those words. The words "any payment" occurring in definition of 'rent' in the Explanati .....

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xt in which the word has been used, the particular statute in which it occurs and the legislative intent has to be taken into consideration in examining a narrower or a wider meaning has to be given to the word. (iv) Even where the room charges collected by a hotel from its customer is not confined to the use of the space but to a host of facilities and amenities such payment would still fall within the ambit of 'rent' under Section 194-I of the Act. 19.1 In Japan Airlines Co. Limited v. .....

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'rent' is given much wider meaning under this provision than what is normally known in common parlance. In the first instance, it means any payment which is made under any lease, sub-lease, tenancy. Once the payment is made under lease, sub-lease or tenancy, the nomenclature which is given is inconsequential. Such payment under lease, sub-lease and/or tenancy would be treated as rent . In the second place, such a payment made even under any other 'agreement or arrangement for the use .....

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hich landing fee is charged. Likewise, they are allowed to park their Aircrafts at IGIA for which parking fee is charged. It is done under an agreement and/or arrangement with AAI. The moot question is as to whether landing and take-off facilities on the one hand and parking facility on the other hand, would mean to 'use of the land'. 19.2 Thereafter in para 18, the Supreme Court observed as under: 18. We are convinced that the charges which are fixed by the AAI for landing and take-off .....

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al aids and meteorological services at the airport. 19.3. After discussing the various types of facilities that were offered for the payment made, the Court in Japan Airlines Co. Limited v. CIT (supra) held as under: We have emphasised the technological aspects of these runways in some detail to highlight the precision with which designing and engineering goes into making these runways to be fool proof for safety purposes. The purpose is to show that the AAI is providing all these facilities for .....

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n the statute. In para 23 it is observed as under: "23. At this stage, we would like to make one comment about the judgment of the Madras High Court. Madras High Court has given one more reason in support of its view that the charges paid by the Airlines to the AAI do not come within the definition of the 'rent' as defined under Section 194-I. The High Court has held that the words 'any other agreement or arrangement for the use of any land or any building' have to be read e .....

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9;rent'. That is rent in traditional sense. However, second part is independent of the first part which gives much wider scope to the term 'rent'. As per this whenever payment is made for use of any land or any building by any other agreement or arrangement, that is also to be treated as 'rent'. Once such a payment is made for use of land or building under any other agreement or arrangement, such agreement or arrangement gives the definition of rent of very wide connotation. .....

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insignificant aspect. Thus it did not correctly appreciate the nature of charges that are paid by the airlines for landing and parking charges which is not, in substance, for use of land but for various other facilities extended by the AAI to the airlines. Use of land, in the process, become incidental. Once it is held that these charges are not covered by Section 194-I of the Act, it is not necessary to go into the scope of Section 194-C of the Act. 20. The upshot of the above observation is t .....

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(supra) the only conclusion that can be drawn is that the payment of the sum by the Assessee to the AAI under the LA falls within the expanded definition of rent under Section 194-I of the Act. The certificate issued by the AAI stating that the payment of licence fee for the space is different from the payment of royalty will not make a difference to the legal position as regards Section 194 I of the Act. 21. The decisions in CIT v. NIIT Limited (supra) and TRIL Infopark Limited v. ITO (supra) .....

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ideration paid to the Government, the question of deducting tax at source does not arise. The said decision is, therefore, of no of assistance to the Assessee in the present case. 22. In CIT v. NIIT Limited (supra) the question that arose was whether the Assessee was liable to deduct tax at source under Section 194-I of the Act in respect of the payments made to the franchisee under the head Infrastructural claims . It was held on fact that the relationship between the parties was not of a lesso .....

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o AAI under the LA is rent within the meaning of Section 194-I of the Act. Question (i) in the quantum appeals is, therefore, answered in the negative, i.e., in favour of the Revenue and against the Assessee. 24. Turning to the question (ii) both the parties have placed reliance on the decision of the Supreme Court in Hindustan Coca Cola Beverage (P) Limited v. Commissioner of Income Tax (supra). The Supreme Court in that case referred to Circular dated 29th January 1997 issued by the CBDT which .....

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