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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI RAMIT KOCHAR
सुनवाई क� तार�ख /Date of Hearing : 04-10-2016 घोषणा क� तार�ख /Date of Pronouncement : 09-11-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the Revenue, being 25th June, 2014 passed by learned Commissioner of Income Tax (Appeals)- 14, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2011-12, the appellate proceedings before the learned CIT(A) arising from the order dated 18th March, 2013 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 201(1) & 201(1A) of the Income-tax Act,1961 (Hereinafter called “the Act”).
ITA 5196/Mum/2014 2
2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-
“(i) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in holding that the amount paid by the Lessee (M/s. Atul Agarwal & Sons) 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 in 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 in the circumstances of the case and in law, the Ld. CIT(A) has erred in not confirming the order 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 in the circumstances of the case and in law, the Ld.CIT(A) has erred in ignoring the definition of rent, as contained in section 194I and in resorting to interpretative reasoning whereas as per the settled principle 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) has erred in going 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."
The brief facts of the case are that during the course of survey action by the ACIT(TDS)-1(1), Mumbai in the case of M/s City Development Corporation (CIDCO) at Belapur, information was received by the AO that the assessee has made premium payments amounting to Rs. 11,43,36,405/- in respect to plot ITA 5196/Mum/2014 3 No. 05 in sector No. 2A at Koparkhairane, Taluka- Thane, on which tax at source(TDS) as applicable as per provisions of the Act has not been deducted. Notices were issued to the assessee show causing why the assessee should not be treated as an assessee in default u/s 201 and 201(1A) of the Act for non deduction of tax at source (TDS)on lease rent (premium) paid to CIDCO. The assessee submitted that the payments were made towards acquisition of plot/land for the purpose of development from CIDCO and the land was not taken on rent. It was submitted that the payment was made towards cost of land i.e. cost of acquiring leasehold rights in the land and not as rent for use of land, for which lease agreement is for a period of 60 years , no tax is to be deducted at source on payment of purchase consideration as it is not a case of payment of any rent which could attract tax deduction at source. It was observed by the AO from the submissions made by the assessee, that it is not clear who made the payments to CIDCO. Thus, the AO held that the lease premium of Rs. 11,43,36,405/- was paid by the assessee to CIDCO in respect of Plot No. 5, Sector 2A, Koparkhairane, Taluka-Thane. Thus, the AO by referring to provisions of Section 194-I of the Act held that the payment made by the assessee is on account of use of land and rights related thereto for a given period of time under the lease would attracts section 194-I of the Act and tax is deductible at source under Chapter XVII-B of the Act and the assessee was required to deduct tax at source on the lump sum payment made to CIDCO which the assessee failed to do so. The AO relied upon decision of Hon’ble Karnatka High Court in the case of CIT v. HMT Limited (1993) 203 ITR 820(Kar.) . It was observed by the AO that the TDS liability arises the moment the party’s account is credited or payment is made whichever is earlier. Thus, the A.O. treated the assessee as assessee in default in terms of section 201(1) and 201(1A) of the Act for non-deduction of tax at source and for non-payment of interest thereon. The A.O. accordingly worked out total liability of tax and interest as under, vide orders dated 18.03.2013 passed by the AO u/s 201 and 201(1A) of the Act:-
ITA 5196/Mum/2014 4 Lease premium paid by the assessee Rs. 11,43,36,405/- Tax @ 10.3% on the above Rs. 1,17,76,650/- Interest u/s 201(1A) @ 1% for the period 01.4.2010 to Rs. 42,39,594/- 31.03.2013 (36 months) Total liability of tax and interest payable by the assessee Rs. 1,60,16,244/- 4 Aggrieved by the orders dated 18.03.2013 passed by the A.O. u/s 201(1) and 201(1A) of the Act, the assessee preferred an appeal before the ld. CIT(A).
5. Before the ld. CIT(A), the assessee submitted that the payment of Rs.11,43,36,405/- was made towards acquisition of plot/land for the purpose of development for commercial and residential complex from CIDCO and has not taken land on rent. It was submitted that the amount of Rs.11.43 crores was paid towards cost of land i.e. cost of acquiring leasehold rights in the land and not as rent for use of the land. It was submitted that for purchase of land by way of lease agreement for a period of 60 years, no tax is deductible at source on payment of purchase consideration as it was not a case of payment of any rent which could attract the tax deduction at source. It was submitted that purchase consideration towards sale of land by CIDCO is technically called as lease premium but in fact it is a consideration towards buying the land. It is onetime payment to CIDCO. The payment of purchase consideration for buying the land is not subjected to any tax deduction at source and therefore the assessee was not required to deduct any tax on the amount paid to CIDCO for buying the land. It was submitted that the premium paid for acquiring the leasehold rights from CIDCO for a long period is not in the nature of rent and also is not in the nature of advance rent but it is for acquiring the capital asset being leasehold rights in the land and the rent payable is separately provided in the lease deed which is Rs.100/- per day, therefore, the assessee prayed that appeal may be allowed and the demand raised by the A.O. be deleted. The ld. CIT(A) after perusing the order ITA 5196/Mum/2014 5 u/s 201(1)/201(1A) of the Act held that the premium was not paid under any lease but payments were made for acquiring the land . No TDS was deducted by the assessee as it was considered as a payment for acquisition of land rights and not as payment of rent for the use of land. It was held that the amount charged as lease premium by CIDCO is equal to the rate prevalent as per stamp duty ready reckoner, hence, the premium paid to CIDCO is capital in nature and the same cannot be considered as rent liable for TDS u/s 194-I of the Act. It was also observed by the AO on perusal of the lease agreement between the assessee and the CIDCO, that the CIDCO has agreed to lease the said land to assessee under MRTP Act1966 including new Bombay Disposal of Land regulations, 1975. The ld. CIT(A) relied upon the decision of Mumbai Bench of the Tribunal in the case of M/s Shah Group Builders Ltd. in dated 14th August, 2013 for assessment year 2008-09 wherein , inter-alia, it has been held as under:-
“6. As the issue involved in the present case as well as all the material facts relevant thereto are similar to the case of Wadhwa & Associates Realtors Pvt. Ltd. (supra) as well as Shree Naman Hotels Pvt. Ltd. (supra) decided by the Tribunal, we respectfully follow the decisions rendered in the said cases by the co-ordinate Bench of this Tribunal and uphold the impugned order of the Ld. CIT(A) holding that the lessee premium paid by the assessee to CIDCO not being in the nature of rent as contemplated in section 194-I of the Act, the assessee was not liable to deduct tax at source from the said payment and hence could not be treated as the assessee in default u/s. 201(1)/201 (1A) of the Act. The appeal filed by the Revenue is accordingly dismissed.”
Following the above decision of the Tribunal, the ld. CIT(A) deleted the addition made by the A.O. on account of default u/s 201(1)/201(1A) of the ITA 5196/Mum/2014 6 Act and allowed the appeal of the assessee, vide appellate orders dated 25-06- 2014.
6. Aggrieved by the appellate orders dated 25-06-2014 of the ld. CIT(A), the Revenue is in appeal before the Tribunal.
The ld. D.R. submitted that the additions have been made for default by the assessee u/s 201(1)/201(1A) of the Act for non-deduction of tax at source u/s 194-I on lease premium paid for acquiring land from CIDCO , which demand was rightly raised by the A.O. and he relied on the orders of the AO.
At the time of hearing before us, none appeared on behalf of the assessee. Therefore, we proceed to dispose of the appeal after hearing the learned D.R. .
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. 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) , whereby the Board has accepted that no TDS is deductible u/s 194-I of the Act on payment made towards ITA 5196/Mum/2014 7 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. 35/2016 [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 LUMPSUM 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 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-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 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 ITA 5196/Mum/2014 8
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 accepted 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 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-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 decisions 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 ITA 5196/Mum/2014 9 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 payments 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 up-front 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 no default on the part of the assessee in not deducting tax at source u/s 194-I of the Act on one-time up-front 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 donot 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.
In the result, the appeal filed by the Revenue in 2011-12 is dismissed.
Order pronounced in the open court on 9th November, 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 9-11-2016 को क� गई ।