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Income Tax Appellate Tribunal, “D” BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN
आदेश /O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-13, Chennai in 13/2009-10 dated 28.02.2017.
:-2-: I.T.A. N0. 745/Mds/2017
M/s. Tamilnadu Industrial Development Corporation Limited, the assessee, is a promoter of industries in Tamilnadu. In its regular assessment made for assessment year 2009-10, the AO had given a finding that the assessee has entered into lease agreement with M/s. TRIL Info Park Ltd (TRIL) and TRIL has paid Rs. 1412.79 crores as upfront least rent. Out of that, the assessee has offered only Rs. 5.5 crores in the P & L a/c and claimed the balance as being paid to the Government as sale consideration.
Subsequently, it was found that the assessee has not sold the land and continued to be the owner. Though, the land has been received from Government of Tamilnadu on 24.08.2007, the issues whether the proceeds can be given to Government and more so, whether the proceeds can be treated as sale considerationwas not considered by the AO in the regular assessment proceedings and therefore, the CIT initiated proceedings u/s. 263 and after considering the materials furnished by the assesse and its reply etc, the CIT in the order u/s 263 in C.No. 3033(21)/CIT(A)-III/263/2013-14 dated 09.12.2013, directed the AO to make a fresh assessment after giving an opportunity of being heard to the assessee. Thereafter, in the assessment made u/s. 143(3) r.w.s. 263, the AO observed that the assessee has received Rs. 1412 crores from TRIL Info Park Ltd and offered Rs. 5.5 crores in the P&L a/c as commission received.
:-3-: I.T.A. N0. 745/Mds/2017 But, it did not show such land in its books of account nor mentioned in the balance sheet for assessment year 2008-09. In the facts and circumstances, the AO after analysing the transactions under the schedule of system of taxation, has concluded that the receipts are to be assessed under the head “income from other sources”. The AO found that the total lease amount obtained for 99 years was at Rs. 1412.8 crores and hence the lease amount for one year would be 14.27 crores. Since the agreement was signed on 13.08.2008, the proportionate lease amount for the assessment year 2009 would be 9.05 crores. However, the assessee has admitted Rs. 5.5 crores only. So, the AO held that remaining 3.5 crores should be brought to tax. But, the assessee has incurred Rs. 206,75,84,158/- as an expenditure for the lease of 99 yearsand hence the AO apportioned this sum for 99 years . Out of which , he arrived the proportionate expenditure for one year at Rs. 208,84,688/-. Since, the assessee has accounted income from 13.08.2008 onwards, the AO found out the correspondence expenditure for that period at Rs. 132,74,651/-, deducting it from Rs. 3.55 crores, he arrived the income from other sources at Rs. 2,22,25,349/- and added to the income. Aggrieved, the assessee filed an appeal before the CIT(A). The CIT(A) upheld this addition.
:-4-: I.T.A. N0. 745/Mds/2017
Aggrieved against that order, the assessee filed this appeal, inter alia, with the following grounds of appeal:
“2. The Commissioner of Income Tax (Appeals) erred in confirming that entire receipts from leasing of land should be assessed under the head “Income from Other Sources”. 2.1 The Commissioner of Income Tax (Appeals) erred in holding that proportionate lease amount for the period from 13.08.2008 to 31.03.2009 would be Rs. 9.5 crores and the balance amount of Rs. 3.55 crores after adjusting Rs. 5.5 crores admitted as service charge should be brought to tax as income from other source and the corresponding proportionate expenditure Rs. 1,32,74,651/- and upheld the difference of Rs. 2,22,25,349/- to tax in the hand of the appellant. 2.2 The Commissioner of Income Tax (Appeals) ought to have appreciated that the land under consideration were given by the Government of Tamil Nadu vide G.O. No. 103 dated 24.04.2007 to the assessee in order to develop a Special Economic Zone for Information Technology Enabled Services along with Integrated International Convention Centre through Joint Venture. The G.O. also specifies the amount to be given to Tamil Nadu Government for the land alienated to TIDCO. 2.3 The Commissioner of Income Tax (Appeals) ought to have appreciated that Para 5 of ProcRc. No. 12417/ABA/2010 dated 31.03.2010 makes it clear that TIDCO was to retain only Rs. 5.50 crores from out of the transaction and the balance of Rs. 1407.30 was to be transferred to Government of Tamil Nadu. 2.4 The Commissioner of Income Tax (Appeals) ought to have appreciated that assessee in turn leased the land to M/s. TRIL Inforpark Ltd for a lease rent of Rs. 1412.79 crores out of which assessee had paid Rs. 1320.95 crores to the Government of Tamil Nadu. Out of the balance of Rs. 91.84 crores, Rs. 86.34 crores was treated as term loan from Government of Tamil Nadu.
:-5-: I.T.A. N0. 745/Mds/2017
2.5 The Commissioner of Income Tax (Appeals) ought to have appreciated that in the hands of the TRIL Info Park, the department tried to demand the tax to be deducted at source. The Jurisdictional High Court (285 ITR 465(Mad) has held that this payment would constitute capital payment and hence cannot be considered as lease rent to tax u/s. 194I. 2.6 The Commissioner of Income Tax (Appeals) ought to have appreciated that as the amount of Rs. 1412.80 is not lease rent the decision of the CIT(A) holding it so contrary to the decision of the Jurisdictional High Court as well as the Circular issued by the CBDT in this regard. 2.7 The Commissioner of Income Tax (Appeals) that the amount of Rs. 1412.80 crores should be set off against the cost of acquisition of the land of Rs. 1407.30 crores payable to the TN Government and only the balance of Rs. 5.5 crores is taxable in the hands of the Appellant as their income. In the circumstances there is no basis for adding any further amount as income arising from a sum of Rs. 1412.80 received from TRIL Info Park Ltd.”
The AR submitted that during this assessment year, on the direction of the Government of Tamilnadu, the assessee had acquired 25.27 acres of land from Government and had entered into the lease agreement for 99 years with M/s. TRIL Info Park Limited. By this agreement, it had collected Rs. 1412.80 crores, a lumpsum upfront payment,which is now sought to be assessed in the hands of the assesse as lease rentals spread over the period of the lease.
4.1 The Tamilnadu Govt wanted to Develop SEZ in Chennai. TIDCO, the assessee, was selected to act as nodal agency in formation of SPV for development of SEZ. So, the assessee floated a tender for participants in the :-6-: I.T.A. N0. 745/Mds/2017 JV for developing the SEZ. TRIL was the successful bidder. Originally, Govt had acquired land for the SPV and intended to transfer it directly to the SPV.
Subsequently, it was routed through TIDCO. The lease was for a period of 99 years, but a lumpsum amount calculated on the basis of the market value, was to be paid upfront. As per the Government order, through various GOs , the assessee was required to pay Rs.1320.95 crores , which was arrived at by the Government on the understanding that the assessee would be collecting the sum from TRIL and should be passed on to it. The intention of the Tamilnadu Government was very clear that the entire amount collected from TRIL Info Park Ltd should be passed on to it .
4.2 Subsequently, the assessee collected an additional sum Rs.86.34 crores more from TRIL . The Government required the assessee to pay that additional sum also to the Government. The assessee explained to Government that it had expended this amount on various projects and hence the Government treated this amount as a term loan given to the assessee for interest @10.5% per annum. Thus, the assessee collected Rs.1412.89crores, in total, from M/s. Tril Info park Ltd and has passed on a sum of Rs.1407.30 crores to the State Government. The amount retained by it at Rs.5.5. crores, in connection with the service rendered by it, has been offered as income in its return of income for the AY 2009-10. This was accepted by the AO in the regular assessment made under Section 143(3)except to the extent of Rs.5.5
:-7-: I.T.A. N0. 745/Mds/2017 crores which is to be retained by the assesse. In this regard, the AR invited our attention to the copies of the Ms.No25 dt 27.2.2008 issued by the Secretary to Government, Industries (IT) department to the Chairman and MD of the assessee, G.O. (Ms) No 479 dt 24.8.2007 and GO (Ms) No 28 dt 11.3.2010 enclosed with his note and relied on it. However, the CIT in the order under Section 263 has required the A O to consider whether Rs.1412.80 crores can be treated as lease rental. The AO has accordingly treated the receipt of Rs.1412.89crores from TRIL as lease rent and arrived the total income.
4.3 The AR further submitted that the amount collected from Tril Info Park was upfront premium payment which is not to be adjusted against the lease rent that may be payable for the use of the land. Infact, the annual lease rent has been fixed at Rs.1000 per acre per year. Therefore, the lumpsum amount paid of Rs.1412.80 crores represents the premium for acquiring right over the land given to Tril Info Park Ltd for development. In the hands of Tril Info Park, the department tried to demand the tax to be deducted at source under Section 194-I treating the payment as lease rent. The matter went to the High Court wherein the High Court has held that this paymentwould constitute capital payment and hence cannot be subjected to tax u/s. 194I. Accepting this decision, the CBDT has issued a Circular 35 of 2016 dated 13.10.2016, stating that the lump sum upfront payments for transfer of land, which is not :-8-: I.T.A. N0. 745/Mds/2017 to be adjusted against the lease rent over the period of lease, would constitute capital payment not to be subjected to Section 194-I. In the following cases, it has been held that upfront lumpsum payment is not taxable in the hands of the recipient.
ITO Vs Navi Mumbai SEZ P Ltd - 147 ITD 0261 (Mum) ITO Vs Wadhwa& Associates Realtors - 36 Taxmann.com 526 (Mum) ITO Vs DhirendraRamjiVoraRanjiLakhanshi - ITA 3179 /Mum/20 12 dt 09.04.2014 ITO Vs Earnest Towers P Ltd - .
4.4 This being so, the AR submitted that Rs.1412.80 cannot be assessed as lease rent and the decision of the Assessing officer is contrary to the decision of the Jurisdictional High Court as well as the Instruction issued by the CBDT.
Rs.1412.80 crores should be set off against the cost of acquisition of the land of Rs. 1407.30 crores payable to the TN Government as per the GO (Ms) No 28 dt 11.3.2010 and the balance of Rs. 5.5 crores only is taxable in the hands of the assessee as its income which has already has been offered as its income and taxed so in the regular assessment. The AR submitted that the AO has committed an error by assuming the cost of land payable to Govt was at Rs. 206.75 crores by placing reliance on the GO(Ms).No. 479 dated 24.08.2007 which was subsequently modified in the GO(Ms) No. 28 dated 11.03.2010. He furnished the correct workings as under:
:-9-: I.T.A. N0. 745/Mds/2017 Correct working Total amount received from TRIL 1412.80 crores Amount already offered as income 5.50 crores Balance amount 1407.30 crores Prorata receipt per year 14.21 crores Cost of land: Payment to Govt 1407.30 crores Pro rata cost per year 14.21 crores
Additional income NIL.s 4.5 Thus, the AR submitted that in the above facts and circumstances, there is no basis for adding any further amount as income from Rs.1412.80 crores received from Tril Info Park Ltd and pleaded for deleting the addition.
Per contra, the DR relied on the order of the CIT(A).
We heard the rival submissions and gone through relevant orders/copies of GO and CBDT Circular No. 35/2016 dated 13.10.2016 instructions. From then, it is seen that the Tamilnadu Govt. acquired the land , selected the assessee, routed the lease through the assesse for a period of 99 years to TRIL Info Park Ltd for a lumpsum of Rs.1412.80 . Out of which, the assesse has paid Rs 1320.95 to Government of Tamilnadu. Later the Government has also treated a sum Rs.86.34 crores received from TRIL as a term loan given to the assessee for interest @10.5% per annum. In the :-10-: I.T.A. N0. 745/Mds/2017 facts and circumstances, we are of the view that this issue should go back to the AO for afresh re-examination. Accordingly, we set aside the order of the CIT(A) and remit the issue to the AO. The AO, after affording adequate opportunity to the assessee, shall pass a speaking order.
In the result, the assessee’s appeal is treated as allowed for statistical purpose.
Order pronounced on Monday, the 14th day of August, 2017 at Chennai.