Guidelines on Internal Audit, Information Systems Audit & Concurrent Audit Systems

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F. No. 7/124/2012-BOA

Government of India

Ministry of Finance

Department of Financial Services

Subject : Master Circular on Audit Systems.

The Government of India has issued guidelines / instructions to banks on Audit Systems. In order to have these guidelines / instructions at one place for ready reference, a Master Circular incorporating the existing guidelines / instructions issued by the Government on the subject has been prepared.

2. All CEOs are requested to acknowledge receipt and ensure compliance of the above guidelines in their PSBs and Regional Rural Banks (RRBs) sponsored by their banks.

3. This issues with the approval of Secretary (FS).

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Guidelines on Internal Audit, Information Systems Audit and Concurrent Audit Systems.

Introduction

It has been observed that there is a multiplicity of overlapping audits in the Public Sector Banks (PSBs). While the audit is essential for the health of the PSBs, it has been observed that multiple overlapping audits throughout the year engage a lot of attention, resources and time of the PSBs. It has also been observed that there is a need to revamp the audit system in PSBs in the wake of increasing computerization and shifting of operations on I.T. based system. The present audit system is lagging behind the technological advancement achieved by PSBs.

Area of concern

In the above background the Government of India has constituted a Committee under the Chairmanship of Shri Basant Seth, ex-CMD of Syndicate Bank which has submitted its report. The Committee has identified certain areas of concern in the PSBs namely:

i. Effective Internal Audit (IA) should work as a strong deterrent and preventive mechanism for frauds.

ii. A strong audit system should be well supported by the Offsite Monitoring Unit (OMU) through System generated reports/ MIS.

iii. Multiplicity of Audits is resulting in Audit fatigue. There is a need to stream line the number of Audits by strengthening the Internal Audit and Concurrent Audits.

iv. Strengthening the IA by converting it into a stronger Risk Based Internal Audit (RBIA) function and also strengthening the Concurrent Audit by bringing Risk focus into the CA could reduce some of the other Audits in the Branches wherein RBIA, CA are conducted.

v. Banks should give adequate attention to IS Audit as many of the frauds are IT related which have shown substantial increase in the recent times.

vi. Currently 70% of business of banks is covered under Concurrent Audit System and yet the irregularities / frauds could not be controlled. The basic reason for the poor quality of work done by the Concurrent Auditors is on account of low fees structures and lopsided empanelment and appointment procedure followed by Banks. The Committee feels that there is urgent need to rectify the position in order to make the Concurrent Audit System effective.

vii. Statutory Branch Audit has become routine and not much effective post implementation of CBS in PSBs.

viii. In many Banks all the Inspection Reports are put to ACB directly, which is diluting the focus of ACB on High Risk Areas / Branches.

In the light of the above areas of concern identified by the committee, it was felt that the following guiding principles on Internal, I.S., Concurrent and Branch Statutory Audit should be followed by all the PSBs after suitably adapting them to the need of their organization.

I. General Guiding Principles

1. Need to stream line the number of Audits by strengthening the Internal Audit and Concurrent Audits and making them risk based.

2. The model policies contained in the draft manual attached may be adapted by the PSBs.

3. All the PSBs should form Audit Committee of Executives (ACE) headed by the Head of Audit (IA&A), GM (Risk) and other two GMs as Members. Zonal Audit Committee of Executives (ZACE) with similar composition at lower level be constituted by large banks.

4. ACE/ ZACE should meet minimum six times in a year. The ACE & ZACE will work under the guidance of ACB and all the minutes of ACE & ZACE should be put up to ACB

5. High Risk Audit Reports should be put up to ACB and in case of large banks Very High Risk Audit Reports- Critical Findings (Below 40% marks) may be put up to ACB. (Banks having Local Board may consider forming local ACB for reviewing High Risk Audit Reports- Critical Findings at Zonal Level, the minutes be put up to ACB at Central Level. However, closure of such reports can be done by CGM- Inspection/ Audit Department.

6. Banks should set-up proper off-site monitoring cell in the Audit Department or put in place suitable similar structure. Such cell/ structure to review the MIS on critical items and sensitise the Controlling Offices and Branches / Departments for corrective action on a daily basis. The OSM cell should also apprise Top Management of serious irregularities, if any, immediately

7. Banks while selecting the branches should consider, material changes that took place in overall risk profile/ its updation, risk involvement in new products/ processes at branch level, business growth.

8. Inspection/ Audit Department should critically analyse the high frequency low severity as well as low frequency high severity areas.

9. The Banks should move to Software based Audit process.

10. In order to attract good talent into Audit function, HR policies have to be properly modified making it mandatory a minimum two year term of working in Internal Audit Department for consideration to promotion DGM & above.

11. Inspection & Internal Audit department should be strengthened with adequate man power having requisite experience. – The team should consists of a proper mix of audit officers / Chartered Accountants / Cost Accountants/ CISA Qualified / Seniors having experience in all the Banking functions/ Juniors having basic knowledge of various banking functions

12. Bank should provide suitable training programs to all the auditors associated with Internal Audit and Concurrent Audit functions.

13. All the Audit team members should be made to sign Do’s & Don’ts given in the manual attached.

II. Guiding Principles on Risk Based Internal Audit (RBIA):

1. RBI team should also carry out IS compliance audit as part of their audit routine for small & low rated branches as well as follow up work for non compliance issues of the branch in IS audit areas.

2. Conflict of interest between Audit team member and Auditee should be avoided.

3. The frequency of Audits under Risk based system should be uniformly fixed at 9-12 months for Extremely High/ High Risk Branches, 12-15 months for medium Risk Branches and 15-18 months of low Risk Branches.

4. Risk Assessment matrix for Branches / Departments given in the manual under the suggested RBIA Policy may be adopted by banks.

5. Audit team should guide the branches on spot rectification of the deficiencies to the extent possible.

6. It is advised that all the Audit qualifications should be rectified within 90 days of submission of Audit Report and to be closed not later than 120 days.

III. Guiding Principles on Information Systems (IS)Audit:

1. The Banks should form separate IS Audit teams with persons having adequate IT experience and suitably CISA qualified Professionals. The IS Audit should be carried out on a continuous basis adopting Risk based Approach as per the IS Audit policy.

2. Continuous IS Audit should be introduced in critical areas in a phased manner.

3. Assessment of Internal Audit resource involvement at appropriate levels should be done.

4. I S Audit should become essential part of Internal Audit in the post CBS scenario.

5. Branch managers should submit compliance of Do’s and Don’ts regarding IS Audit Key Areas, on monthly basis.

IV. Guiding Principles on Concurrent Audit:

1. For Concurrent Audit Chartered Accountant Firms should be appointed from the RBI panel as per the gradation based on the size of the Branch. The remuneration of Concurrent Auditors may be enhanced suitably based on the coverage of audit, quality of the audit, skill sets required, number of staff required etc. The focus should be on substantive checking of the High Risk areas like

• Credit Risk

• Regulatory/Statutory Compliance Risk

• Fraud Risk

• Revenue Risk

2. Some of the High Risk Branches, specialized branches viz., Agri, SME, Mid Corporate, Infrastructure, Large Corporate, CPU, retail assets, portfolio management, forex, back office etc. should also be covered under the Concurrent Audit

3. BanksInternal Audit Department should interact with the Concurrent Auditors at least once in a quarter

4. The Banks should make it mandatory giving feedback to Concurrent Auditors on the frauds involving the Branch audited by them.

5. The performance of Concurrent Auditor should be reviewed on Annual basis

6. To avoid conflict of interest, an undertaking should be taken from the Concurrent Auditors that they will not have any professional or commercial relationship with the borrowers of the Branch / Department which they are auditing.

7. The Auditor should sign on the Do’s & Don’ts statemen n order to have proper arms length relationship with the Branch / Department which they are conducting Audit

8. Suitable deterring provisions should be incorporated in the Concurrent Auditors engagement for delayed submission of Reports and unsatisfactory performance

9. The functions performed by the statutory auditor should be transferred to Concurrent Auditors. Concurrent Auditors should be advised to provide various Certifications done presently by Branch Statutory Auditors, covering NPA provisioning, Insurance coverage, P & L Account, ALM, CRAR, DICGC, LFAR etc., similarly, Certification regarding Tax Audit may also be taken from the Concurrent Auditors.

10. With regard to other Branches not covered under Concurrent Audit but is covered under the Branch Statutory Audit the threshold limit of advances should be enhanced suitably, ensuring adequate coverage of Urban, Semi-Urban and Rural branches keeping in view the inflation over time, on the following lines:

11. All the branches not subjected to concurrent audit but covered under the Branch Statutory Audit, with the enhanced threshold limit of advances and 1/5th of remaining branches should be subjected to certification by external Chartered Accountants under Branch Statutory Audit System in the banks, where the CBS is not stabilized, for a maximum period of two years.

12. However, in case of banks where the CBS is stabilized and running well, the certification as per the above norms should be done at central level by the Central Statutory Auditor.

13. The above aspect of Annual Certifications should be kept in view while revising Fees of Concurrent Auditors as suggested earlier. This is expected to result in reduction in overall cost to the Banks and improvement in quality of CA on adopting this suggestion

14. Thus, going forward the existing Branch Statutory Auditor appointment system gets phased out, in view of the above suggested guiding principles.

Service Tax on Railway Passengers Travelling in AC Classes/First Class from 01.10.2012

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Levy of Service Tax on Railway Passengers Travelling in AC Classes/First Class from tomorrow i.e. 1st October 2012

No Service Tax to be Levied on Tickets Issued Prior to 1st October 2012

In Case of Cancellation of Tickets Issued on or after 1st October 2012, the Applicable Amount Including Service Tax to be Refunded by Railways

In compliance of the provisions contained in Finance Bill 2012 and subsequent notifications issued by Ministry of Finance, the Service Tax in case of railway travel will be levied on the fare of passenger services in the following classes from tomorrow i.e. 1^st October 2012:-
(i) AC First Class, (ii) Executive Class, (iii) AC-2 tier Class, (iv) AC-3 tier class, (v) AC Chair Car class, (vi) AC Economy class and (vii) First Class.
Since an abatement of 70% has been permitted on passenger services by Ministry of Finance, the Service Tax will be charged on 30% of total fare including reservation charge, development charge, superfast surcharge which would be calculated as follows:-

1. Service Tax of 12% will be charged on 30% of fare (equivalent to 3.6% on the total fare)

2. Education Cess of 2% on Service Tax will be added (equivalent to 0.072% on total fare) and

3. Higher Education Cess of 1% on Service Tax will also be added (equivalent to 0.036% on total fare)

4. Total Service Tax implication will be (i)+(ii)+(iii)=3.708% on the total fare.

On Concessional value tickets, service charge will be levied @ 3.708% of the total fare actually being paid by the passengers.
Through a subsequent corrigendum issued by M/o Railways, it has been clarified that the Service Tax would be collected on the tickets issued/bookings made on or after 01.10.2012. Service Tax is not livable on tickets issued prior to 01.10.2012 and hence will not be collected on board the trains.
In case of cancellation of tickets booked by the passengers on or after 01.10.2012, the applicable amount including refundable Service Tax amount will be refunded by Railways as per Railwayrefund rules and Finance Ministry guidelines.
The amount of Service Tax collected from passengers will be deposited with the Ministry of Finance as per prescribed procedure. Finance Departments of Zonal Railways have been instructed for proper accountal and remittance of Service Tax amount to the Government.

Inclusion of ‘closing amount of Modvat’ in closing stock without modifying figures of purchases, sales & opening stock not justified

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IN THE ITAT MUMBAI BENCH ‘D’

R.R. Kabel Ltd.

v.

Additional Commissioner of Income-tax, 7(2), Mumbai

IT APPEAL NOS. 1292 & 2106 (MUM.) OF 2011

[ASSESSMENT YEAR 2007-08]

MAY 2, 2012

 

AO observed that the assessee has not included the excise duty in the valuation of closing stock. Under the provisions of section 145A of the Act, the assessee should include the excise duty component of purchase price of raw material while valuing closing stock of raw material, Work-in-Progress (WIP) and finished goods. The assessee claimed that non-inclusion of the same will have no effect on its profits. The AO while rejecting the claim of the assessee applied the provisions of section 145A of the Act and discussed the issue at length at pages 2 to 13 of the assessment order and added Rs. 1,13,19,681/-, Rs. 283,50,504/-, Rs. 4,48,190/-, and Rs. 2,00,000/- to the total income of the assessee.

We have carefully considered the submissions of the rival parties and perused the material available on record. We find that there is no dispute that the A.O. while making the addition of Rs. 1,13,19,681/-, interalia, observed that the similar addition was made in A.Y. 2006-07 and the ld. CIT(A) has granted relief against which the Department has filed appeal before the Tribunal. We further find that it is also not in dispute that the Tribunal on the appeal filed by the Revenue has upheld the order of the ld. CIT(A) in deleting the addition made by the A.O. vide finding recorded in paragraph 22 of its order dated 11.01.2012 (supra) wherein it has been held as under:-

“22. In the absence of any distinguishing feature brought on record by the Revenue, we respectfully following the consistent view of the Tribunal and keeping in view that the assessee is following consistent method of accounting and there is no change in accounting system followed by the assessee in the year under consideration, we hold that the ld. CIT(A) was fully justified in deleting the addition of Rs. 11,08,904/- made by the AO u/s 145A of the Act. The grounds taken by the Revenue are therefore rejected.”

In the absence of any contrary material placed on record by the Revenue, we respectfully following the order of the Tribunal (supra) and the consistent view of the Tribunal and also keeping in view that the assessee is following consistent method of accounting and there is no change in system of accounting followed by the assessee in the year under consideration, we hold that the Ld. CIT(A) was fully justified in deleting the addition of Rs. 1,13,19,681/-.

Withdrawal from Provident Fund before Completion of 5 years taxable?

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Withdrawal from Provident Fund (PF) Account before Completion of Five years taxable?

Withdrawal of Provident Fund may attract Income Tax. The Income Tax Department recently told EPFO (Employees Provident Fund Organisation) to deduct Tax (TDS) from the withdrawal amount, if the withdrawal happened before completing five years of subscription. Tax officials have cited a rule in the 1961 Income-Tax Act that taxes PF withdrawals by employees before completing five years of contributions into the EPF is taxable.

In most cases, the accumulated PF balance is withdrawn at the time of retirement, and therefore, not taxable in the hands of the individual. However, in certain cases like change in employment, an individual may even withdraw the PF balance earlier. The point one needs to remember is that the amount received from such PF is not exempt from tax in all cases. Only under the circumstances listed below will the amount withdrawn from PF be eligible for such exemption from tax.

• If the employee has rendered continuous service with the employer for five years or more. Again, if the balance includes amount transferred from the individual’s PF account maintained by previous employer(s), then the years of continuous service rendered to the former employer(s) would be included for the purpose of computing the five-year period.

• If the employee has not rendered continuous service of five years, but the service is terminated by reason of the employee’s ill health or discontinuance of the employer’s business or reasons beyond the control of the employee, the amount will be tax-exempt.

• Another tax-exempt case is when, on the cessation of the employment, the employee finds another job and the the accumulated PF balance is transferred to his individual PF account maintained by the new employer.

In short, where the PF amount is withdrawn before five years of continuous service, it may be taxable in the hands of the individual as if the fund was not recognised from the start of the contributions. In such a case, payment received by the individual in respect of the employer’s contribution along with the interest accrual thereon is taxed as “salary”. Interest on the employee’s contribution is taxable as “other income”. Payment received in respect of the employee’s own contribution is exempt from tax (to the extent not claimed as a deduction earlier).

I-T provisions provide that the trustees of a recognised PF or any person authorised by the regulations of the fund to make the payment of the accumulated balance to the employee should deduct tax at source while paying the amount. Further, the person liable to deduct tax has to issue the certificate of tax deducted at source (Form 16) within the specified time frame to the employee depicting the details of taxes withheld from the accumulated PF balance and also comply with other salary-related compliance necessities. So the next time you think of withdrawing your PF, you must as an individual also assess whether the same is taxable or exempt.

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I worked with a private company for four and years and nine months. I have given a provident fund (PF) withdrawal request to my ex-employer. Will the PF amount be taxable?
We understand that the PF maintained by your former employer was a recognized PF. As per the provisions in the Income-tax Act, if the employee has rendered continuous service with his employer for five years or more, then the withdrawal of accumulated balance from such PF is not taxable at the time of termination.
Since the period of your services with the ex-employer is four and a half years which is less than five years, you shall be liable to tax on the amount withdrawn from your PF. In addition to the normal tax payable by you, you will be required to pay all the tax concessions availed by you so far on account of contribution to such recognized PF. Further, the total employer’s contribution plus interest thereon, which was not taxed earlier, shall be taxable as profits in lieu of salary.
However, if the accumulated balance in your PF account is transferred to your recognized PF account maintained by the new employer, no tax liability shall arise due to such transfer.

SEBI requires all DPs to make available basic services Demat Account

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Facility for a Basic Services Demat Account (BSDA)

1. SEBI has received several suggestions and representations with respect to cost of demat accounts especially from small individual investors. Since holding of demat account is beneficial to individual investors, SEBI initiated extensive consultations with all the stakeholders to address the concerns and suggestions.

2. Further, the SEBI Board had taken decisions to extend the reach of IPOs for the benefit of retail investors. With a view to achieve wider financial inclusion, encourage holding of demat accounts and to reduce the cost of maintaining securities in demat accounts for retail individual investors, it has been decided that all depository participants (DPs) shall make available a “Basic Services Demat Account” (BSDA) with limited services and reduced costs. The details are provided in the circular dated August 27, 2012.

3. The salient features of the BSDA are as follows:

a. Eligibility Criteria:

All the individuals who have or propose to have only one demat account where they are the sole or first holder shall be eligible to have a BSDA provided that the value of securities held in the demat account does not exceed Rupees Two Lakhs at any point of time. An individual can have only one BSDA in his/her name across all depositories.

 

Facility for a Basic Services Demat Account (BSDA)

CIRCULAR no. MRD/DP/22/2012, dated 27-8-2012

1. The SEBI Board had taken decisions to extend the reach of IPOs for the benefit of retail investors. With a view to achieve wider financial inclusion, encourage holding of demat accounts and to reduce the cost of maintaining securities in demat accounts for retail individual investors, it has been decided that all depository participants (DPs) shall make available a “Basic Services Demat Account” (BSDA) with limited services as per terms specified herein.

2. Eligibility : Individuals shall be eligible to opt for BSDA subject to the following conditions-

a. All the individuals who have or propose to have only one demat account where they are the sole or first holder.

b. Individuals having any other demat account/s where they are not the first holder shall be eligible for BSDA in respect of the single demat account where they are sole or first holder.

c. The individual shall have only one BSDA in his/her name across all depositories.

d. Value of securities held in the demat account shall not exceed Rupees Two Lakhs at any point of time.

3. Option to open BSDA : The DP shall give option:

a. To open BSDA to all eligible individuals who open a demat account after the date of applicability of this circular;

b. To all the existing eligible individuals to convert their demat account into BSDA on the date of the next billing cycle based on value of holding of securities in the account as on the last day of previous billing cycle.

4. Charges :

a. The charge structure may be on a slab basis as indicated below:

i. No Annual Maintenance Charges (AMC) shall be levied, if the value of holding is upto Rs. 50,000.

ii. For the value of holding from Rs. 50,001 to Rs. 200,000, AMC not exceeding Rs 100 may be charged.

b. The value of holding shall be determined by the DPs on the basis of the daily closing price or NAV of the securities or units of mutual funds, as the case may be. Where such price is not available the last traded price may be taken into account and for unlisted securities other than units of mutual funds, face value may be taken in to account.

c. If the value of holding in such BSDA exceeds the prescribed criteria at any date, the DPs may levy charges as applicable to regular accounts (non- BSDA) from that date onwards.

d. The DPs shall reassess the eligibility of the BOs at the end of every billing cycle and give option to the BOs who are eligible to opt for BSDA.

5. Services for Basic Services Demat Accounts :

a. Transaction statements :

i. Transaction statements shall be sent to the BO at the end of each quarter. If there are no transactions in any quarter, no transaction statement may be sent for that quarter.

ii. If there are no transactions and no security balance in an account, then no further transaction statement needs to be provided.

iii. Transaction statement shall be required to be provided for the quarter in which the account became a zero balance account.

b. Holding Statement :

i. One annual physical statement of holding shall be sent to the stated address of the BO in respect of accounts with no transaction and nil balance.

ii. One annual statement of holding shall be sent in respect of remaining accounts in physical or electronic form as opted for by the BO.

c. Charges for statements : Electronic statements shall be provided free of cost. In case of physical statements, the DP shall provide at least two statements free of cost during the billing cycle. Additional physical statement may be charged at a fee not exceeding Rs. 25/- per statement.

d. All BOs opting for the facility of BSDA, shall register their mobile number for availing the SMS alert facility for debit transactions.

e. At least Two Delivery Instruction Slips (DIS) shall be issued at the time of account opening.

f. All other conditions as applicable to regular demat accounts, other than the ones mentioned in this circular shall continue to apply to basic services demat account.

6. Rationalisation of services with respect to regular accounts.

In partial modification of the earlier directions, the following rationalisation measures shall be available for regular demat accounts:

a. Accounts with zero balance and nil transactions during the year : The DPs shall send one physical statement of holding annually to such BOs and shall resume sending the transaction statement as and when there is a transaction in the account.

b. Accounts which become zero balance during the year : For such accounts, no transaction statement may be sent for the duration when the balance remains nil. However, an annual statement of holding shall be sent to the BO.

c. Accounts with credit balance : For accounts with credit balance but no transactions during the year, one statement of holding for the year shall be sent to the BO.

7. The circular shall be applicable with effect from October 01, 2012.

8. The Depositories are advised to:-

(a) make amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision immediately, as may be applicable/necessary ;

(b) bring the provisions of this circular to the notice of their DPs and also to disseminate the same on their website; and

(c) communicate to SEBI, the status of implementation of the provisions of this circular in the Monthly Development Report.

9. This circular is being issued in exercise of the powers conferred by Section 11 (1) of Securities and Exchange Board of India Act, 1992 and section 19 of the Depositories Act, 1996 to protect the interest of investors in securities and to promote the development of, and to regulate, the securities market.

Companies need Central Govt approval to pay over 10% of net profit to directors

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Registered companies in India can’t pay more than 10% of net profit as remuneration to board-level directors overall without the government’s approval, the Ministry of Corporate Affairs said today.

The total remuneration to be paid to all the board level directors including the CEO of a company, having more than one whole time director or manager, is up to 10% of the net profit, Minister of State for Corporate Affairs R P N Singh said in a reply to the Rajya Sabha.

The Companies Act prescribes ceilings on the remuneration of CEOs (Chief Executive Officers), subject to various conditions, he said.

On whether some companies are paying more than the prescribed ceiling to their CEOs and to provide details of such companies and the action taken against them, he said companies may pay more than the prescribed ceiling to their CEOs holding board-level positions with the approval of the central government.
According to the relevant section of the Companies Act, the total remuneration paid to a board-level CEO of a company having only one whole-time director or a manager is up to five% of the net profit, the minister said.
He further said that in case of companies having inadequate profit or making losses, the remuneration is determined as per the relevant schedule of the Companies Act.

TDS U/s.194I not applicable on parking & landing charges paid by airlines

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HIGH COURT OF MADRAS

Commissioner of Income-tax

v.

Singapore Airlines Ltd.

TAX CASE APPEAL NOS. 15 TO 20 OF 2006

JULY 13, 2012

 

Given the definition of ‘lease or tenancy’ and the definition of ‘rent’ as appearing in Section 194 I Explanation, unless the payment is with reference to the use of any specified land or a building, payment made for availing of the services as in the nature landing or parking, as available in the present case before us, cannot be construed as ‘rent’. It is difficult to accept the case of the Revenue that a mere touchdown on the land surface would bring the case of the assessee that there is a lease or an agreement or arrangement answering the character of lease that the charges would fall within the meaning of ‘rent’, as appearing in Section 194-I Explanation. It is no doubt true that in the decision reported in [2006] 287 ITR 281 (United Airlines v. CIT), the Delhi High Court pointed out that an aircraft on coming into an airport and on touching the surface of the airfield, the use of the land immediately beings. So too, on parking of the aircraft, there is a use of the land. But by this alone, one cannot come to the conclusion that the use of the land leads to an inference of the existence of a lease or an arrangement in the nature of lease. By the very nature of things, as a means of transport, an aircraft has to touch down for disembarking the passengers and the goods before it takes off; for this facility to be offered, the Airport Authority charges a price. Given the complexity in landing and take-off, unlike in the case of vehicles on road, the Airport Authority has to provide navigational facilities and the charges thus made are calculated based on certain criteria like the weight of the aircraft. Thus in so charging for the facility, we do not find, there is any scope of importing the concept of ‘rent’ as defined under Section 194-I Explanation.

With great respect we find it difficult to accept the view of the Delhi High Court holding that the payment would fit in with the definition of ‘rent’ and the use of the land on a touchdown of the air field would amount to a use of land for the purpose of treating the charges as rent under Section 194-I Explanation of the Income Tax Act.

As rightly pointed out by the learned Senior Counsel appearing for the assessee, the payment contemplated under the Explanation is for the use of the land under a lease, sub-lease or tenancy. This means, what is contemplated under the said definition is a systematic use of land specified for a consideration under an arrangement which carries the characteristics of lease or tenancy. Going by the logic of the said provisions, we feel that a mere use of the land for landing and payment charged, which is not for the use of the land, but for maintenance of the various services, including the technical services involving navigation, would not automatically bring the transaction and the charges within the meaning of either lease or sub-lease or tenancy or any other agreement or arrangement of a nature of lease or tenancy and rent. As far as the runway usage by an aircraft is concerned, it could be no different from the analogy of a road used by any vehicle or any other form of transport. If the use of tarmac could be characterised as use of land, so too the use of a road would be a use of land. We do not think that for the purpose of treating the payment as rent, such use would fall under the expression “use of land”. Thus, going by the nature of services offered by the Airport Authority of India for landing and parking charges thus collected from the assessee herein, we do not find any ground to accept that the payment would fit in with the definition of ‘rent’ as given under Section 194-I of the Income Tax Act.