M/S NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY vs. COMMISSIONER INCOME TAX APPEALS(41)

1 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.15613 OF 2017 M/S. NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY … APPELLANT(S) VERSUS COMMISSIONER OF INCOME TAX – APPEALS & ORS.              … RESPONDENT(S) WITH CIVIL APPEAL NO.9365 OF 2017 GREATER NOIDA INDUSTRIAL DEVELOPMENT AUTHORITY … APPELLANT(S) VERSUS ASSISTANT COMMISSIONER OF INCOME TAX (TDS) & ORS.                  … RESPONDENT(S) WITH CIVIL APPEAL NO.12750 OF 2017 NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY … APPELLANT(S) VERSUS UNION OF INDIA & ORS.                    … RESPONDENT(S) WITH CIVIL APPEAL NO.9199 OF 2017 NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY … APPELLANT(S) VERSUS COMMISSIONER OF INCOME TAX (APPEALS) 41 & ORS.           … RESPONDENT(S) WITH Digitally signed by ASHWANI KUMAR Date: 2018.07.07 11:52:31 IST Reason: Signature Not Verified

2 CIVIL APPEAL NO.15615 OF 2017 M/S. NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY … APPELLANT(S) VERSUS COMMISSIONER OF INCOME TAX – APPEALS & ORS.              … RESPONDENT(S) WITH CIVIL APPEAL NO.15614 OF 2017 NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY … APPELLANT(S) VERSUS INCOME TAX OFFICER & ORS.                … RESPONDENT(S) WITH CIVIL APPEAL NO.15130 OF 2017 COMMISSIONER OF INCOME TAX (TDS)­II & ORS.                      … APPELLANT(S) VERSUS RAJESH PROJECTS (INDIA) PVT. LTD. & Anr. … RESPONDENT(S) WITH CIVIL APPEAL NO.51 OF 2018 INCOME TAX OFFICER & ORS.                … APPELLANT(S) VERSUS UNITED BANK OF INDIA & ANR.              … RESPONDENT(S) WITH CIVIL APPEAL NO.6115  OF 2018 (Diary No. 29273/2017) COMMISSIONER OF INCOME TAX (TDS)­II & ORS.                      … APPELLANT(S)

3 VERSUS RAJESH PROJECTS (INDIA) PVT. LTD. & Anr. … RESPONDENT(S) AND CIVIL APPEAL NO. 6113  OF 2018 (@ SLP NO.16703 2018 @ DIARY NO(S). 9061/2018) COMMISSIONER OF INCOME TAX(TDS) ….APPELLANT (S) KANPUR AND ANR VERSUS HDFC BANK LTD., GREATER NOIDA …..RESPONDENT J U D G M E N T ASHOK BHUSHAN, J. Delay condoned. 2. These appeals have been filed against the common judgment of Delhi High Court dated 16.02.2017 by which the Delhi High Court   has   allowed   the   writ   petitions   filed   by   the   private respondents herein.  The appeals have been filed by New Okhla Industrial   Development   Authority,   Greater   Noida   Industrial Development Authority, Commissioner of Income Tax as well as Income Tax Officer and others.   The facts and issues in all the appeals being common, it shall be sufficient to refer the facts and pleadings in Civil Appeal No. ­ 15130 of 2017 – Commissioner   of   Income   Tax   (TDS)   –   II   &   Ors.   Vs.   Rajesh Projects (India) Pvt. Ltd. & Anr. for deciding this batch of appeals.

4 3. The   respondent   Rajesh   Projects   (India)   is   a   private limited   company   engaged   in   the   business   of   real   estate activities of constructing, selling residential units etc.  On 03.11.2010,   the   respondent­company   entered   into   a   long­term lease   for   90   years   with   the   Greater   Noida   Industrial Development Authority for Plot No. GH­07A for development and marketing of Group Flats.  As per terms of the lease deed, the company   partially   paid   the   consideration   amount   for   the acquisition   of   the   plot   to   Greater   Noida   at   the   time   of execution of the lease deed and is also paying the balance lease premium annually as per the terms and conditions of the lease deed.  Notice under Section 201/201(A) of the Income Tax Act, 1961 was issued by the Income Tax department inquiring regarding non­deduction of tax at source under Section 194­I of   the   Income   Tax   Act   from   the   annual   lease   rent   paid   to Greater Noida.   The respondent­company replied the notices. The respondents case was that it did not deduct tax at source as it was advised by Greater Noida that it is a Government authority, hence the tax deduction at source provisions are not applicable.  The Assessing Officer passed the order dated 31.03.2014 for the Financial Year 2010­2011 and 2011­2012, the respondent

was

held

“assessee­in­default”

for non­deduction/non­deposit   of   TDS   on   account   of   payment   of

5 lease rent and interest made to Greater Noida.   Consequent demand   was   raised   against   the   respondents.   Aggrieved   by assessment   order,   the   respondent­company   filed   an   appeal before the Commissioner of Income Tax­Appeals.   Respondents prayed   to   stay   the   demand   which   was   refused   and   recovery proceedings   were   initiated.     Aggrieved   by   assessment   and recovery

proceedings

emanating

therefrom,

the respondent­company   filed   a   Writ   Petition   No.   8085   of   2014 praying   for   various   reliefs   including   the   relief   that respondent­company   be   not   treated   as   “assessee­in­default” under the Income Tax Act for non­deduction/depositing the tax at source in respect of payment of rent on lease land and in respect of other charges paid to Greater Noida.    Different other entities also filed the writ petitions in the Delhi High Court praying for more or less the same reliefs relating to lease   rent   payment   and   for   payment   of   interest   to   Greater Noida.  All the writ petitions involving common questions of law   and   facts   were   heard   together   and   were   allowed   by   the Delhi High Court by its judgment dated 16.02.2017.     Before the   High   Court,   Greater   Noida   and   the   Noida   authorities contended that they are local authorities within the meaning of Section 10(20) of the Income Tax Act, 1961, hence their income   is   exempt   from   the   Income   Tax.     It   was   further

6 contended that the interest received by them is exempt under Section 194A(3)(iii)(f) of the Income Tax Act and they are exempted from payment of any tax on the interest. 4. The revenue refuted the contention of Greater Noida and Noida contending that w.e.f. 01.04.2003, the   Greater Noida and   Noida   is   not   a   local   authority   within   the   meaning   of Section 10(20) and further they are also not entitled for the benefit of notification issued under Section 194A(3)(iii)(f). It was further contended that with regard to payment of rent to   the   Noida   and   Greater   Noida,   the   respondent­company   was liable to deduct the tax on payment of interest, no income­tax was deducted by the respondent­company while paying rent to Noida and Greater Noida, hence they are “assessee­in­default”. The   revenue   also   relied   on   Division   Bench   judgment   of Allahabad High Court in Writ Petition Tax No. 1338 of 2005 decided on 28.02.2011 where the Allahabad High Court has held that   Noida   is   not   a   local   authority   within   the   meaning   of Section 10(20) as amended by Finance Act, 2002.   The Delhi High   Court   after   hearing   all   the   parties   allowed   the   writ petitions.  The Delhi High Court held that Noida and Greater Noida are not local authorities within the meaning of Section 10(20) as amended w.e.f. 01.04.2003.  Delhi High Court further

7 held that interest income of the Noida and Greater Noida is exempted under the notification dated 22.10.1970 issued under Section 194A(3)(iii)(f) of the Income Tax Act.  The High Court further held that as far as payment of rent to the Noida and Greater   Noida,   the   respondent­company   was   liable   to   deduct income tax at source.  The High Court recorded its conclusions in Para 20 of the judgment, which is to the following effect:­

8 “20. In view of the above analysis, the court hereby concludes as follows:(1) Amounts paid as part of the lease  premium  in  terms  of  the  time­schedule(s)   to the Lease Deeds executed between the petitioners and GNOIDA,   or   bi­annual   or   annual   payments   for   a limited/specific period towards acquisition of lease hold rights are not subject to TDS, being capital payments; (2) Amounts constituting annual lease rent, expressed in   terms   of   percentage   (e.g.   1%)   of   the   total premium for the duration of the lease, are rent, and therefore   subject   to   TDS.   Since   the   petitioners could not make the deductions due to the insistence of   GNOIDA,   a   direction   is   issued   to   the   said authority (GNOIDA) to comply with the provisions of law   and   make   all   payments,   which   would   have   been otherwise part of the deductions, for the periods, in question, till end of the date of this judgment. All payments to be made to it, henceforth, shall be subject to TDS. (3) Amounts which are payable towards interest on the payment of lump sum lease premium, in terms of the Lease which are covered by Section 194­A are covered by   the   exemption   under   Section   194A(3)(f)   and therefore, not subjected to TDS. (4) For the reason mentioned in (3) above, any payment of   interest   accrued   in   favour   of   GNOIDA   by   any petitioner who is a bank ­ to the GNOIDA, towards fixed deposits, are also exempt from TDS.” 5. Aggrieved by the aforesaid judgment of Delhi High Court, Greater   Noida,   Noida   as   well   as   Revenue   has   filed   these appeals. 6. Learned counsel appearing for the Noida and Greater Noida contended that Noida and Greater Noida have been constituted under   Section   3   of   the   Uttar   Pradesh   Industrial   Area

9 Development   Act,   1976   and   is   a   local   authority   within   the meaning   of   Section   10(20)   of   the   Income   Tax   Act,   1961. Reliance   on   notification   dated   24.12.2001   issued   by   the Governor of the State of Uttar Pradesh under the proviso to Article 243Q(1) has also been placed to contend that by virtue of   said   notification   both   Greater   Noida   and   Noida   are municipalities   and   are   covered   by   the   local   authorities   as explained   under   the   explanation   to   Section   10(20)   of   the Income Tax Act.  It is further contended that interest income of the authorities is exempted under the notification issued under   Section   194A(3)(iii)(f).   Further   reliance   has   been placed on Circular No. 35/2016 dated 13.10.2016 wherein it has been clarified that provision of Section 194­I of the Income Tax Act, 1961 on lump­sum lease premium paid for acquisition of long­term lands is not applicable. 7. It is further submitted that the question as to whether Noida/Greater Noida is local authority is engaging attention of this Court in Civil Appeal No. 792­793 of 2014, in which judgment   has   already   been   reserved.   On   tax   deduction   at source, it is further submitted that the said issue is also pending consideration of this Court in Special Leave Petition (Civil) No. 33260 of 2016, in which judgment has also been

10 reserved.     With   regard   to   tax   deduction   at   source   on   the payment of lease rent, reliance has been placed on Circular dated 30.01.1995. 8. Learned counsel for the revenue in support of its appeal submits that Noida and Greater Noida are not covered by the definition   of   local   authority   as   contained   under   Section 10(20) and their income is not exempted under Section 10(20). Judgment   of   Allahabad   High   Court   dated   28.02.2011   in   Writ Petition Tax No. 1338 of 2005 was also relied by the revenue against which appeal has already been filed by Noida and has been heard.   With regard to income tax deduction at source under Section 194A, the revenue has referred to its appeal in Special Leave Petition (C) No.34530 of 2016  Commissioner of Income Tax – TDS – Kanpur Vs. Central Bank of India, where the arguments has already been concluded and judgment is reserved. 9. Learned   counsel   for   the   revenue   submits   that Noida/Greater Noida is not entitled for the benefit of Section 194A(3)(iii)(f). 10. We have considered the submissions of the learned counsel for the parties and perused the records.

11 11. Insofar as the appeals filed by Noida/Greater Noida are concerned, the principal submission raised by the appellant is applicability   of   Section   10(20)   of   the   Income   Tax   Act. Learned   counsel   for   the   Noida   has   submitted   that   the   said issue has already been addressed in detail in Civil Appeal No. 792­793 of 2014.  By our judgment of the date in Civil Appeal No. 792­793 of 2014 New Okhla Industrial Development Authority Vs. Commissioner of Income Tax­ Appeals & Ors., we have held that Noida is not a “local authority” within the meaning of Section 10(20) of the Income Tax Act as amended by the Finance Act, 2002 w.e.f. 01.04.2003.   For the reasons given by our judgment of the date in the above appeals, this submission has to be rejected. 12. Now coming to the appeals filed by the revenue, insofar as the question   relating to exemption under Section 194A(3) (iii)(f) by virtue of notification dated 24.10.1970, i.e. the exemption of interest income of the Noida, we have already decided the said controversy in  CIVIL APPEAL NO._________ OF 2018 (arising out of SLP (C) No. 3168 of 2017) ­ Commissioner of Income Tax(TDS) Kanpur and Anr. Vs. Canara Bank.   Having held   that   Noida   is   covered   by   the   notification   dated 22.10.1970, the judgment of the Delhi High Court holding that

12 Noida/Greater   Noida   is   entitled   for   the   benefit   of   Section 194A(3)(iii)(f) has to be approved.

(b) ten per cent. for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings:] Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts   of   such   income   credited   or   paid   or likely   to   be   credited   or   paid   during   the financial year by the aforesaid person to the account of, or to, the payee, does not exceed 5[one hundred eighty thousand rupees] :

13 6[Provided   further   that   an   individual   or   a Hindu   undivided   family,   whose   total   sales, gross receipts or turnover from the business or   profession   carried   on   by   him   exceed   the monetary limits specified under clause (a) or clause   (b)   of   section   44AB   during   the financial   year   immediately   preceding   the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income­tax under this section.] 1[Provided   also   that   no   deduction   shall   be made under this section where the income by way of rent is credited or paid to a business trust, being a real estate investment trust, in respect of any real estate asset, referred to   in   clause   (23FCA)   of   section   10,   owned directly by such business trust.] Explanation   :   For   the   purposes   of   this section,­ 2[(i)   “rent”   means   any   payment,   by   whatever name   called,   under   any   lease,   sublease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,­ (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings, whether or not any or all of the above are owned by the payee;]

14 (ii)   where   any   income   is   credited   to   any account, whether called “Suspense account” or by any other name, in the books of account of the   person   liable   to   pay   such   income,   such crediting shall be deemed to be credit of such income   to   the   account   of   the   payee   and   the provisions   of   this   section   shall   apply accordingly.” 14. The definition of rent as contained in the explanation is a very wide definition.  Explanation states that “rent” means any   payment,   by   whatever   name   called,   under   any   lease, sublease, tenancy or any other agreement or arrangement for the use of any land. The High Court has read the relevant clauses   of   the   lease   deed   and   has   rightly   come   to   the conclusion that payment which is to be made as annual rent is rent within the meaning of Section 194­I, we do not find any infirmity in the aforesaid conclusion of the High Court.  The High Court has rightly held that TDS shall be deducted on the payment of the lease rent to the Greater Noida as per Section 194­I.  Reliance on circular dated 30.01.1995 has been placed by the Noida/Greater Noida.  A perusal of the circular dated 30.01.1995 indicate that the query which has been answered in the   above   circular   is   “Whether   requirement   of   deduction   of income­tax at source under Section 194­I applies in case of payment by way of rent to Government, statutory authorities referred   to   in   Section   10(20A)   and   local   authorities   whose

15 income under the head “Income from house property” or “Income from other sources” is exempt from income­tax.” 15. In Paragraph 3 of the circular, it was stated that income of   an   authority   constituted   in   India   by   or   under   any   law enacted either for the purpose of dealing with and satisfying the   need   for   housing   accommodation   or   for   the   purpose   of planning,   development   or   improvement   of   cities,   towns   and villages, is exempt from income­tax under Section 10(20A).  In view   of   the   aforesaid,   in   Paragraph   4   of   the   circular, following was stated:­ "In   view   of   the   aforesaid,   there   is   no requirement to deduct income­tax at source on income by way of 'rent' if the payee is the Government.     In   the   case   of   the   local authorities   and   the   statutory   authorities referred to in para 3 of this circular, there will be no requirement to deduct income­tax at source   from   income   by   way   of   rent   if   the person responsible for paying it is satisfied about their tax­exempt status under clause(20) or   (20A)   of   Section   10   on   the   basis   of   a certificate to this effect given by the said authorities.” 16. A perusal of the above circular indicate that circular was   issued   on   the   strength   of   Section   10(20A)   and   Section 10(20) as it existed at the relevant time. Section 10(20) has been amended by Finance Act, 2002 by adding an explanation and further Section 10(20A) has been omitted w.e.f. 01.04.2003.

16 The very basis of the circular has been knocked out by the amendments   made   by   Finance   Act,   2002.     Thus,   the   Circular cannot be relied by Noida/Greater Noida to contend that there is no requirement of deduction of tax at source under Section 194­I.  Thus, deduction at source is on payment of rent under Section 194­I, which is clearly the statutory liability of the respondent­company.  The High Court has adjusted the equities by   recording   its   conclusion   in   Paragraph   20   and   issuing   a direction in Paragraph 21. 17. In view of what has been stated above, we do not find any error in the judgment of the High Court dated 16.02.2017.  In result, all the appeals are dismissed. ..........................J. ( A.K. SIKRI ) ..........................J.

( ASHOK BHUSHAN ) NEW DELHI, JULY 02, 2018.