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Income Tax Appellate Tribunal, MUMBAI BENCHES “E”, MUMBAI
Before: SHRI SHAMIM YAHYA (AM) & SHRI RAM LAL NEGI (JM)
आदेश / O R D E R
PER RAM LAL NEGI, JM
The present appeal has been filed by the Revenue against order dated 15/04/2015 passed by the Ld. CIT (Appeals) (for short ‘the CIT (A)’)-23, Mumbai pertaining to the assessment year 2010-11, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 201 (1)/201 (IA) of the Income Tax Act, 1961 (for short ‘the Act’).
2. In the present case, it was learnt that assessee had not deducted tax at source u/s 194 (1) of the Income Tax Act, 1961 in respect of payment of lease premium to City Development Corporation (CIDCO) to the tune of Rs. 17,39,28,754/-. Accordingly, notice was issued and the assessee was asked to show cause as to why it should not be treated as defaulter within the meaning of sec. 201 (1) of the Act for non deduction of tax at source. In response thereof, the authorized representative of the assessee submitted written reply and also furnished the details. It was submitted that payment of Rs. 17,39,28,754/- was made towards acquiring land in lease hold rights therein and not in rent for use of land on one-time payment of premium. Therefore, no tax was required to be deducted at source. However, the AO rejected the contention of the assessee concluded that the assessee has failed to deduct tax u/s 194 I of the Act on lease premium paid to CIDCO amounting to Rs. 17,45,63,025/- and further holding the assessee defaulter u/s 201(1) of the Act directed to pay Rs. 2,34,62,983/-.
3. The assessee challenged the order passed by the ITO(TDS) inter allia on the ground that the AO has erred in treating assessee as deemed to be in default u/s 201(1) of the Act in respect of tax deducted at source for the payments made to CIDCO for purchase of plot of land. The Ld. CIT(A) after hearing the assessee decided the said issue in favour of the assessee by following the decisions of the Mumbai Tribunal and deleted the addition. The revenue is in appeal against the said findings of the Ld. CIT(A)
4. The Revenue has challenged the impugned order on the following effective grounds:-. (i) “On the facts and the circumstances of the case and in law, the ld. CIT (A) has erred in holding that the amount paid by the Lessee (Sagarganga Developers LLP) to the Lessor (CIDCO) was not in the nature of rent, as defined in the Explanation (i) to section 194I of the Act for the purpose of deduction of tax at source”
(ii) On the facts and the circumstances of the case and in law, the ld. CIT (A) has erred in accepting the claim of the assessee that no tax was deductible under section 194I from the payment made by the assessee to CIDCO for acquisition of the plot of land on lease from CIDCO.
(iii) On the facts and the circumstances of the case and in law, the ld. CIT (A) was justified in not confirming the orders of the Assessing Officer treating the assessee as an assessee in default u/s. 201 (1) in respect of the amount of tax which has not been deducted under section 194I from the payment made to CIDCO and levying interest under section 201 (1A).” (iv) On the facts and the circumstances of the case and in law, the ld. CIT (A) was justified in ignoring the definition of rent, as contained in section 194I and in resorting to interpretative reasoning whereas as per the settled principles of jurisprudence, this exercise is required only when the law is unclear.” (v) On the facts and in the circumstances of the case and in law, the Ld. CIT (A) is competent to go into the question of taxability of the payment made by the assessee to CIDCO despite the decision of the Apex Court in the case of the Aggarwal Chambers of Commerce V. Ganpat Rai Hiralal, 33 ITR 245, where it has been held that the persons who are responsible for deduction of tax at source are not concerned with the ultimate result of assessment.”
5. Before us, the Ld. departmental representative relying on the order passed by the ITO (TDS) submitted that the Ld. CIT(A) has deleted the addition wrongly holding that the amount paid by the assessee to CIDCO is not in the nature of rent defined in Explanation (i) to section 194I of the Act for the purposes of deducting tax at source. The AO has rightly held that payment of so called premium is nothing but advance rent paid by the assessee by the strength of which the assessee has secured the right to use the land for a period of 60 years. Since the payments in connection with lease deed are in the nature of the rent, the assessee was required to deduct the tax at source u/s 194I of the Act. Moreover, the definition of rent for the purposes of TDS is unambiguous and clear, the Ld. CIT(A) ought to have confirmed the order of the AO. The Ld. DR further contended that the order passed by the AO is based on the principles of law laid down by the decisions of the various Benches of the Tribunal.
On the other hand, the Ld. counsel for the assessee submitted that the Ld. CIT (A) has decided the issue involved in this appeal by following the various decisions rendered by the ITAT Benches including the decision in the case of M/s Trent Limited, dated 21.08.2013 for the A.Y. 2011-12, M/s Shah Group Builders Ltd, in ITA No. 4523/Mum/2012 dated 14.08.2013 for the A.Y. 2008-09 and in the case of M/s Shree Naman Developers Ltd. ITA No. 686 and 687/Mum/2012 dated 14.08.2013 for the A.Ys 2008-09 and 2009-10, there is no infirmity in the order passed by the Ld.CIT (A) to interfere with. The Ld. counsel further relying on the recent decision of the ITAT, Mumbai rendered in the case of ITO –TDS-I (2) vs. Atul Agarwal and Sons ITA No. 5196/M/2014 for the A.Y. 2011-12 dated 09.11.2016 submitted that in the said case, the identical issue has been decided in favour of the assessee. Since, the findings of the Ld. CIT (A) are based on the decisions of the cases referred above, there is no merit in the appeal of the revenue. 7. We have heard the rival submissions and also gone through the material placed on record including the orders of the authorities below and the cases relied upon by the authorities below and the assessee. We notice that the Mumbai Bench of the Tribunal in the case of ITO-TDS-1(2) vs. Atul Agarwal (supra). The Coordinate Bench has decided the identical issue in favour of the assessee by holding that no tax is deductible at source u/s 194-I of the Act on 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 lease or rights over land or any other property are not payments in the nature of rent within the meaning of section 194-I of the Act. The relevant paras of the order passed by the coordinate Bench read as under:-
“9. We have heard the ld. D.R. and we have also perused the material available on record including judicial decisions. We have observed that the issue with respect to deduction of tax at source u/s 194-I of the Act on lease premium paid for acquiring land from CIDCO is squarely covered by the decision of the Tribunal in the case of Shah Group Builders Limited in order dated 14.08.2013 (supra) wherein it is held that the same is not in the nature of rent as contemplated u/s 194-I of the Act and hence there is no requirement of deduction of tax at source on the same. We have also gone through the recent CBDT Circular No. 35/2016 [F No. 275/29/2015-IT (B)] dated 13th October, 2016 wherein the Board has accepted the decision of the Hon’ble High Courts viz. Honbole Delhi High Court decision in the case of The Indian Newspaper Society (ITA No. 918 and 920/2015) and Hon’ble Chennai High Court decision in Foxconn Developer Limited (Tax case Appeal NO. 801/2013), whereby the Board has accepted that no TDS is deductible u/s 1945-I of the Act on payment made towards lease premium or one-time upfront lease charges, which are not adjustable against periodic rent, paid or payable for the acquisition of long-term leasehold rights over land or any other property. The CBDT Circular No. 356/2016[F No. 275/29/2015-IT (B)] dated 13th October, 2016 is reproduced below:-
“Circular 0.35/2016[F.0.27S/29/2015-IT (B)] Section 194-I of the Income Tax Act, 1961- deduction of tax at source rent-applicability of TDS provisions of section 194-I on lump sum lease premium paid for acquisition of long term lease. Circular No. 35/2016 [ F. No. 275/2S/2015-IT (8)], dated 13-10-2016 Section 194-I 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 purpose 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 arraignment of the use of any land or building or machinery or plant or equipment or furniture or fittings.
The issue of whatever or not TDS under section 194-I 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 representatives received in this regard.
The Board has taken note of the fact that in the case of The Indian Newspaper Society (ITA No.s 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-I 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-I of the Act.
Further, in the case Foxconn India Developer Limited (Tax Case Appeal No. 80112013), 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-I 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.
In all the aforesaid cases, the Department has accept4ed the decisions of the High Courts and has not filed an SLP. Therefore, the issue of whether or not TDS under section 194-I of the Act is to be made on lump sum lease premium or one-time upfront lease charges paid for allotment of land or any other property on long-term lease basis is no settled in favour of the assessee.
6. 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-I of the Act. Therefore, such payments are not liable for TDS under section 194-I of the Act.” Thus, in view of the afore-stated circular of the CBDT following decision of Hon’ble High Courts holding that no tax is deductible at source u/s 194-I of the Act on 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-I of the Act. Therefore as held by CBDT in its recent Circular that such payment are not liable for tax deduction at source under section 194-I of the Act, whereby the CBDT accepted the decisions of Hon’ble Delhi High Court decision in the case of The Indian Newspaper Society (ITA No. 918 and 920/2015) and Hon’ble Chennai High Court decision in Foxconn Developer Limited (Tax case Appeal No. 801/2013). The assessee has also made one-time upfront payment being lease premium of Rs. 11,43,36,405/- which was paid by the assessee to CIDCO in respect of Plot No. 5, Sector 2A, Koparkhairane, Taluka- Thane,. We hold that there is not default on the part of the assessee in not deducting tax at source u/s 194-I of the Act on one-time upfront payment being lease premium of Rs. 11,43,36,405/- which was paid by the assessee to CIDCO in respect of Plot No. 5, Sector 2A, Koparkhairane, Taluka-Thane and we do not find any infirmity in the order of learned CIT (A) in ordering to delete the demand raised by the Revenue against the assessee u/s 201 (1) and 201 (1A) of the Act, which order of learned CIT (A), we affirm/sustain. We order accordingly.”
We notice that the findings of the Ld. CIT (A) are based on the decisions of the Mumbai Benches of the Tribunal including the decision rendered in the case of Atul Agarwal and Sons (supra). Since, the coordinate Bench has decided the identical issue in favour of the assessee in the said case, we do not find any infirmity in the findings of the Ld. CIT (A) to interfere with the same. Accordingly, we respectfully following the decision of the coordinate Bench rendered in the case of Atul Agarwal and Sons (supra), uphold the findings of the Ld. CIT (A) and dismiss the sole ground of appeal of the revenue.
In the result, appeal filed by the revenue for assessment year 2010-2011 is dismissed.
Order pronounced in the open court on 30th July, 2018.