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Income Tax Appellate Tribunal, MUMBAI BENCHES “B” MUMBAI
Before: SHRI JOGINDER SINGH & SHRI N.K. PRADHAN
ORDER PER N.K.PRADHAN, AM:
This is an appeal filed by the Revenue. The relevant assessment year is 2011-12. It is directed against the order of Commissioner of Income Tax (Appeals)-1, Thane and arises out of the order u/s. 201(1) and 201(1A) of the Income Tax Act, 1961 (‘the Act’).
2. Shorn of unnecessary details, the facts which are essential to be stated for adjudication in this appeal are that the assessee acquired a plot of land from CIDCO for a period of 60 years to construct residential and commercial complex. As per the ‘Lease Agreement’, premium of Rs.9,54,44,831/- was paid before the execution of said agreement for grant of lease rights for a period of 60 years.
Thereafter, the assessee was required to pay yearly rent of Rs. 100/- only. The Assessing Officer (AO) raised a demand of Rs. 99,39,528/- u/s 201(1) and u/s 201(1A) by treating the ‘lease premium’ paid to CIDCO as ‘lease rent’ liable to TDS u/s 194-I of the Act. The ld. CIT(A) held that the lease premium paid by the assessee for acquiring lease rights from CIDCO was in the nature of capital expenditure and the same was not liable for TDS u/s 201 & 201(IA) of the Act. He directed the AO to delete the TDS liability. Hence, the Revenue is on appeal before us.
3. The ld DR supports the order passes by the AO.
4. The ld. counsel of the assessee refers to the decisions relied on by him before the ld. CIT(A) . The same has been extracted at para 5.2 of the order of the ld. CIT(A). Then he relied on the recent “Circular No 35 of 2016” issued by CBDT on “APPLICABILITY OF TDS PROVISIONS OF SECTION 194-I ON LUMPSUM LEASE PREMIUM PAID FOR ACQUISITION OF LONG TERM LEASE.”
We have considered the rival submissions and perused the relevant material on record. We find the aforesaid Circular resolves the dispute in the instant case. We extract the Circular at length below :
“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.275/29/2015-IT (B)], 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.
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-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. 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-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.
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-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.”
6. As is discernible from the above Circular, payments made by the assessee in the instant case are not liable for TDS u/s 194-I of the Act.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 27 /10/2016