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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI & SHRI SANDEEP SINGH KARHAIL
The present cross appeal for the assessment year 2008-09 and Revenue‟s appeal for the assessment years 2010-11 and 2011-12 have been filed challenging the separate orders passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), Mumbai [“learned CIT(A)”]. These appeals are listed before us pursuant to the order dated 18/11/2016, passed by the Hon‟ble Third Member.
2. In its appeals for the assessment years 2008-09, 2010-11, and 2011-12, the Revenue is aggrieved against treating the assessee not to be „assessee in default‟ for non-deducting TDS under section 194-I of the Act on the additional premium paid by the assessee. While the assessee in its appeal for the assessment year 2008-09 is aggrieved against the findings of the learned CIT(A) treating the assessee to be „assessee in default‟ for non-deducting tax under section 194-A of the Act on the amount of interest paid by the assessee.
The brief facts of the case are that the assessee is a nationalised bank, being a body corporate constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, having its head office in New Delhi and Circle office in Mumbai. In terms of the agreement to lease dated 04/07/2000 entered into between the assessee and the Mumbai Metropolitan Region Development Authority (“MMRDA”), MMRDA allotted the plot of land bearing Plot No. C-9, in G Block of Bandra-Kurla Complex, to the assessee on 80 years lease for a lease premium of Rs.45,62,20,060 on the terms and Page | 2
Punjab National Bank ITA no.1348/Mum./2014 ITA no.1742/Mum./2014 ITA no.1743/Mum./2014 ITA no.2057/Mum./2014 conditions stipulated in the said agreement. As per clause 7 of the aforesaid agreement, the annual ground rent payable to MMRDA is as under:-
(i) First 3 years of lease – Nil From 4th year to 20th year of lease - 1% of the Lease Premium (ii) From 21st year to 50th year of lease - 2% of the Lease Premium (iii) From 51st year to the end of the lease - 3% of the Lease Premium (iv)
4. As per clause 3(B) of the Agreement, the assessee was required to complete the construction of the building on this plot within a period of 4 years. However, due to certain difficulties, the assessee could not comply with this time limit, and therefore, sought an extension of time from MMRDA. After a lot of correspondence and representations made by the assessee, MMRDA granted an extension of time on charging an additional premium at 10% of the total lease premium per year for the first 3 years, and thereafter at 15% of the total lease premium per year. Accordingly, on 15/03/2008, the assessee paid an additional premium of Rs.20,52,99,027 to MMRDA for the extension of 4 years from 04/07/2004 to 03/07/2008, along with interest of Rs.6,57,73,942 for delayed payments.
Vide order dated 30/03/2011, passed under section 201 (1) and section 201 (1A) of the Act for the assessment year 2008-09, the Assessing Officer- TDS (“AO-TDS”) held the lease premium paid by the assessee to be covered under the provisions of section 194-I of the Act. Accordingly, the AO-TDS held the assessee to be „assessee in default‟ for non-deducting tax under section 194-I on payment of additional premium of Rs.20,52,99,027 and held the assessee to be liable to pay tax of Rs.4,65,20,760. The AO-TDS also held the Page | 3
Punjab National Bank ITA no.1348/Mum./2014 ITA no.1742/Mum./2014 ITA no.1743/Mum./2014 ITA no.2057/Mum./2014 assessee to be „assessee in default‟ for non-deducting tax under section 194-A of the Act on interest paid on delayed payment of the additional premium and held the assessee to be liable to pay tax of Rs.74,52,188. Accordingly, the AO- TDS also levied interest under the provisions of section 201(1A) of the Act. Similarly, for the assessment years 2010-11 and 2011-12, the AO-TDS raised a demand for non-deduction of tax under section 194-I and also levied interest under section 201(1A) of the Act.
6. The learned CIT(A), vide impugned orders, accepted the contention of the assessee and held that on the amount of lease premium paid to MMRDA, the assessee is not liable to deduct tax under section 194-I of the Act. While the learned CIT(A), for A.Y. 2008-09, upheld the action of the AO in treating the assessee as „assessee in default‟ for not deducting tax under section 194-A of the Act on the amount of interest paid on delayed payment of the additional premium. Being aggrieved, the assessee and the Revenue are in appeal by way of cross-appeal for the assessment year 2008-09, while the Revenue is in appeal for the assessment years 2010-11 and 2011-12.
We find that these appeals were earlier heard on 28/03/2016. Vide separate order, the Hon‟ble Judicial Member held that neither the additional premium paid is in the nature of rent nor the amount paid in addition to the additional premium is in the nature of interest as defined under the Act and therefore the assessee is not liable to deduct TDS on the said payments. However, the Hon‟ble Accountant Member, vide separate order, decided both the issues in favour of the Revenue. Accordingly, reference on the point of Page | 4
Punjab National Bank ITA no.1348/Mum./2014 ITA no.1742/Mum./2014 ITA no.1743/Mum./2014 ITA no.2057/Mum./2014 difference was made to the Hon‟ble President under section 255(4) of the Act. Vide order dated 18/11/2016 the Hon‟ble Third Member decided the said reference, by observing as under:-
“3. During the course of arguments learned Counsel submitted that irrespective of the controversy raised, the assessee being fully covered by the provisions of section 194A(3)(iii)(f) is not liable to deduct tax at source as it is exempt under the provisions aforesaid. I find from the record that this submission has not been made before the bench and obviously could not be considered by the Hon'ble Members, who decided the case. However, it is an important question of law that has been raised by the learned Counsel for the assessee. The facts entitling the assessee for exemption can be established by the assessee before the Tribunal on the material on record. In the circumstances, the case is sent back to the division Bench with the direction that the submission of the assessee with respect to the exemption claimed u/s 194A(3)(iii)(f) be considered. Needless to say, both the parties will be given dequate opportunity to establish their respective case. The case be put up before Division Bench for further proceedings.”
Accordingly, these appeals are listed before us in view of directions of the Hon‟ble Third Member vide aforesaid order. We also find that the assessee filed miscellaneous applications seeking modification of the order dated 18/11/2016 passed by the Hon‟ble Third Member on the basis that the Hon‟ble Third Member did not express any opinion on one of the issues. The said miscellaneous applications were dismissed vide order dated 25/07/2017, by observing as under:-
“4. I have carefully considered the arguments of both the sides and perused the material placed before me. From the order of the Third Member, it is not apparent that he set aside the matter to the Division Bench only with reference to question no.2; on the other hand, he has sent the entire case back to the Division Bench, which would be evident from the following observations: "...In the circumstances, the case is sent back to the division Bench with the direction that the submission of the assessee with respect to exemption claimed u/s. 194A(3)(iii)(f) be considered. Needless to say, both the parties will be given adequate opportunity to establish their respective case. The case be put up before Division Bench for further proceedings."
Punjab National Bank ITA no.1348/Mum./2014 ITA no.1742/Mum./2014 ITA no.1743/Mum./2014 ITA no.2057/Mum./2014
From the above, it cannot be inferred that the Third Member answered only question no.2 and the other questions remained unanswered. Therefore, the contention of the assessee that there is apparent mistake in the order of the Third Member on account of not answering of question nos. 1 and 3 cannot be accepted. In my opinion the Third Member has sent back the entire case to the Division Bench and now it is for the Division Bench to give effect to the order of the Third Member and do the needful at their end. With these observations, I dismiss the Miscellaneous Applications filed by the assessee.”
Thereafter, the assessee again filed miscellaneous applications, however, the same were disposed of as withdrawn vide order dated 30/12/2022.
During the hearing before us, the learned Authorised Representative (“learned AR”) submitted that as per the CBDT Circular dated 13/10/2016 lease premiums are not payments in the nature of rent within the meaning of section 194-I of the Act, and therefore such payments are not liable for TDS under the aforesaid section. As regards the liability to deduct TDS under section 194-A of the Act, the learned AR by placing reliance upon Notification No.S.O. 3489 dated 22/10/1970 submitted that the assessee‟s case is covered under the provisions of section 194A(3)(iii)(f) of the Act.
On the other hand, the learned Departmental Representative (“learned DR”) vehemently relied upon the orders passed by the AO.
We have considered the submissions of both sides and perused the material available on record. In the present case, there is no dispute among the parties regarding the basic facts as noted above. The only dispute is whether the additional premium paid by the assessee to MMRDA is in the nature of rent within the meaning of section 194-I of the Act. Further, whether the interest paid by the assessee on delayed payment of additional premium is Page | 6
Punjab National Bank ITA no.1348/Mum./2014 ITA no.1742/Mum./2014 ITA no.1743/Mum./2014 ITA no.2057/Mum./2014 liable to TDS under section 194-A of the Act. On the first issue, the Revenue is in appeal before us. While, on the second issue, the assessee has filed the appeal for the assessment year 2000-09.
At the outset, we find that CBDT vide Circular No. 35/2016 dated 13/10/2016, observed as under:-
CIRCULAR NO.35/2016 [F.NO.275/29/2015-IT (B)], DATED 13-10-2016 Section 194-1 of the Income-tax Act, 1961 (the Act) requires that tax be deducted at source at the prescribed rates from payment of any income by way of rent. For the purposes of this section, rent" has been defined as any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or machinery or plant or equipment or furniture or fittings.
The issue of whether or not TDS under section 194-1 of the Act is applicable on 'lump sum lease premium' or "one-time upfront lease charges" paid by an assessee for acquiring long-term leasehold rights for land or any other property has been examined by CBDT in view of representations received in this regard.
3. The Board has taken note of the fact that in the case of The Indian Newspaper Society (ITA Nos. 918 & 920/2015), the Hon'ble Delhi High Court has ruled that lease premium paid by the assessee for acquiring a plot of land on an 80 years lease was in the nature of capital expense not falling within the ambit of section 194-1 of the Act. In this case, the court reasoned that since all the rights easements and appurtenances in respect of the said land were in effect transferred to the lessee for 80 years and since there was no provision in lease agreement for adjustment of premium amount paid against annual rent payable, the payment of lease premium was a capital expense not requiring deduction of tax at source under section 194-1 of the Act.
Further, in the case Foxconn India Developer Limited (Tax Case Appeal No. 801/2013), the Hon'ble Chennai High Court held that the one-time non- refundable upfront charges paid by the assessee for the acquisition of leasehold rights over an immovable property for 99 years could not be taken to constitute rental income in the hands of the lessor, obliging the lessee to deduct tax at source under section 194-1 of the Act and that in such a situation the lease assumes the character of "deemed sale". The Hon'ble Chennai High Court has also in the cases of Tril Infopark Limited (Tax Case Appeal No. 882/2015) ruled that TDS was not deductible on payments of lump sum lease premium by the company for acquiring a long-term lease of 99 years.
5. In all the aforesaid cases, the Department has accepted the decisions of the High Courts and has not filed an SLP. Therefore, the issue of whether or not TDS under section 194-1 of the Act is to be made on lump sum lease premium Page | 7
Punjab National Bank ITA no.1348/Mum./2014 ITA no.1742/Mum./2014 ITA no.1743/Mum./2014 ITA no.2057/Mum./2014 or one-time upfront lease charges paid for allotment of land or any other property on long-term lease basis is now settled in favour of the assessee.
In view of the above, it is clarified that lump sum lease premium or one-time upfront lease charges, which are not adjustable against periodic rent, paid or payable for acquisition of long-term leasehold rights over land or any other property-are-not-payments in the nature of rent within the meaning of section 194-1 of the Act. Therefore, such payments are not liable for TDS under section 194-1 of the Act.”
Thus, in terms of the aforesaid circular, the lump sum lease premium or one-time upfront lease charges, which are not adjustable against periodic rent, paid or payable for acquisition of long-term leasehold rights over land or any of the property were considered to be not in the nature of rent within the meaning of section 194-I of the Act. We find that in the present case, it is undisputed that the assessee agreed to pay a lease premium of Rs.45,62,20,060 for the 80 years lease as per the agreement to lease dated 04/07/2000 entered into with MMRDA. Further, for the grant of extension of time for construction of the building, the assessee was liable to pay an additional premium. Since the aforesaid Circular has been issued by CBDT after the orders passed under section 201(1) and 201(1A) of the Act in the present appeals and the conditions laid down in the Circular have not been examined in any of the cases before us, therefore we deem it appropriate to remand this issue of deduction of tax under section 194-I of the Act on the additional premium paid by the assessee to the file of AO for de novo adjudication in light of the CBDT Circular No. 35/2016 dated 13/10/2016. Accordingly, the order passed by the learned CIT(A) for the assessment years 2008-09, 2010-11, and 2011-12 to this extent is set aside. As a result, the Punjab National Bank ITA no.1348/Mum./2014 ITA no.1742/Mum./2014 ITA no.1743/Mum./2014 ITA no.2057/Mum./2014 appeals by the Revenue for the assessment years 2008-09, 2010-11, and 2011-12 are allowed for statistical purposes.
As regards the deduction of tax at source under section 194-A of the Act on the interest paid by the assessee on delayed payment of additional premium, we find that section 194A(3)(iii)(f) of the Act reads as under:-
“(f) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette: Provided that no notification under this sub-clause shall be issued on or after the 1st day of April, 2020;”
We further find that in the exercise of the power conferred by the aforesaid provision, the Central Government vide Notification No. S.O.3489 dated 22/10/1970, inter-alia, notified any corporation established by a Central, State, or Provincial Act for the purpose of section 194A(3)(iii)(f) of the Act. Since MMRDA has been established under the Mumbai Metropolitan Region Development Authority Act, 1974, therefore we are of the considered view that the payment made to MMRDA will fall under the exclusion provided under sub- section (3) of section 194-A of the Act. Thus, the assessee cannot be held to be „assessee in default‟ for non-deduction of tax on the payment of interest on delayed payment of additional premium. Accordingly, the demand raised by the AO under section 201(1) for non-deduction of tax under section 194-A of the Act and interest levied under section 201(1A) of the Act for the assessment year 2008-09 is deleted. As a result, the appeal by the assessee for the assessment year 2008-09 is allowed.
Punjab National Bank ITA no.1348/Mum./2014 ITA no.1742/Mum./2014 ITA no.1743/Mum./2014 ITA no.2057/Mum./2014
To sum up, the appeal by the assessee for the assessment year 2008-09 is allowed, while the appeals by the Revenue for the assessment years 2008- 09, 2010-11, and 2011-12 are allowed for statistical purposes. Order pronounced in the open Court on 28/06/2023