Thursday, July 20, 2017

Sum paid to AAI to operate executive lounge at IGI Airport treated as rent under Sec. 194-I

Facts :

a) Assessee entered into a Licence Agreement (LA) with Airport Authority of India (AAI) in terms of which the premises at the first floor of the IGI Airport was given on license basis to the assessee for the purpose of operating an executive lounge.

b) Assessee was paying monthly royalty and licence fee for space allotted for operating the Lounge Premises.

The issue before the High Court was "Whether amount paid to AAI for use of lounge premises would be deemed as rent within the meaning of Section 194-I?"

The High Court held in favour of revenue as under :

1) Assessee relied on a certificate issued by the AAI wherein it was clarified that the royalty charged was not for the use of building but only for the right to operate the lounge and accordingly it couldn’t be regarded as rent.

2) Assessee was permitted to operate an executive lounge. The payment made to AAI although in two parts, was for operating an executive lounge. 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.

3) The payment for the use of space was inseparable from the payment of royalty. The question of being able to operate the lounge without the actual use of the space simply did not arise.

4) Thus, sum paid to the AAI under the LA fell within the definition of 'rent' under section 194-I. - [2017] 83 taxmann.com 167 (Delhi)
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