TRIL INFOPARK LIMITED,CHENNAI vs. ITO, CHENNAI

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER: This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-VII, Chennai, dated 28.02.2014 and pertains to assessment year 2009-10.

2 I.T.A. No.699/Mds/14

201(1A) of the Act. According to the Ld. counsel, the Assessing Officer passed the order on 3.10.2013 treating the assessee as assessee in default for the assessment year 2009-10. Referring to

Section 201(3) of the Act, the Ld.counsel pointed out that no order shall be made under Section 201(1) for failure to deduct the whole or any part of the tax at any time after expiry of two years from the

end of the financial year in which the statement is filed in a case where statement referred to in Section in Section 200 has been filed. Referring to Section 200 of the Act, the Ld.counsel submitted

that any person deducting any sum on or after 1.04.2005, shall, after paying the tax deducted to the credit of the Government within the prescribed time, prepare such statements quarterly for the year ending 30th June, 30th September, 31st December and 31st March in each financial year. According to the Ld. counsel, the assessee was filing its statements under Section 200 of the Act and also filed its TDS return in the first quarter of the financial year 2008-09.

According to the Ld.counsel, the due date for passing the impugned

3 I.T.A. No.699/Mds/14 order under Section 201(1) of the Act, for failure to deduct the tax was 31.03.2011. Therefore, According to the Ld. counsel, the order passed by the Assessing Officer on 3.10.2013 is barred by limitation. The Ld.counsel submitted that the time limit provided under the Act cannot be extended under any circumstances.

4 I.T.A. No.699/Mds/14 the statement under Section 200 of the Act was filed for the first quarter on 15th July, 2008. Therefore, the Assessing Officer ought to have passed the order on or before 31.03.2011. The fact remains that the assessee revised itself the statement filed under Section 200 of the Act by way of correction on 18th August, 2011. The Assessing Officer may not be in a position to consider the revised statement filed by the assessee on or before 18.08.2011. Therefore, the date of filing of the statement for all practical purposes has to be taken as 18th August, 2011. If the date of filing of statement is taken as 18.08.2011, then the impugned order is within the period of time limit as provided under Section 201(3) of the Act. Therefore, this Tribunal is of the considered opinion that the order passed by the Assessing Officer under Section 201(1) of the Act is not barred by limitation.

5 I.T.A. No.699/Mds/14 Government of Tamil Nadu, by an order dated 24.04.2007, allotted

25.27 acres of land on lease for a period of 99 years. The assessee paid `1412,79,68,017/- to Tamil Nadu Industrial Development

Corporation Ltd. The Ld.counsel clarified that in fact the

Government of Tamil Nadu authorized Tamil Nadu Industrial

Development Corporation Ltd. to lease 25.27 acres of land to the

assessee. The Ld.counsel further pointed out that out of `1412,79,68,017, TIDCO paid a sum of `1320 Crores to the

Government of Tamil Nadu. The Assessing Officer by the

impugned order found that the assessee has not deducted tax

under Section 194-I of the Act, on the payment made to Tamil Nadu Industrial Development Corporation Ltd. to the extent of `1412.79

Crores for the year under consideration. According to the Ld.

counsel, what was paid by the assessee is upfront fee for allotment

of the land for 99 years. The Ld.counsel pointed out that the lease

for 99 years is almost like a sale. Therefore, what was paid by the

assessee is a sale consideration, hence there is no question of

deduction of tax under Section 194-I of the Act. Referring to a

unreported judgment of Madras High Court in CIT v. Rane Brake

Linings Ltd. in Tax Case (Appeal) No.1031 of 2007 dated

07.04.2014, the Ld.counsel submitted that the upfront fee paid by

the assessee for getting the land on lease for 99 years amounts to

6 I.T.A. No.699/Mds/14 alienation as a sale or mortgage. Merely because it was referred in

the document as lease, that itself would not make the document as

lease deed. Therefore, According to the Ld. counsel, for all

practical purposes, the property taken by the assessee on lease has

to be treated as purchase of a capital asset, hence the provisions of

Section 194-I of the Act is not applicable to the facts of the case.

judgment of the Bombay High Court in Director of Income-tax v.

Mahindra & Mahindra Ltd. (2014) 48 taxmann.com 150 and

submitted that for the assessment year 1998-99, the Income-tax Act

does not prescribe any limitation for declaring the assessee as

assessee in default under Section 201(1) of the Act. Inspite of that,

the Bombay High Court found that the revenue authorities have to

exercise their power to declare the assessee as assessee in default

within a reasonable time. Since no limitation was prescribed, the

Bombay High Court found that the order passed by the Assessing

Officer beyond four years was barred by limitation. The Ld.counsel

has also referred to the decision of this Bench of the Tribunal in

Foxconn India Developer (P) Ltd. v. ITO [I.T.A. No.492/Mds/2010

dated 30.04.2012] and submitted that on identical circumstances,

this Tribunal found that the upfront fee paid by the assessee would

7 I.T.A. No.699/Mds/14 fall within the definition of “rent” as provided under Explanation to

Section 194-I of the Act. Therefore, this Tribunal found that the

assessee is liable to deduct tax at source. However, by placing

reliance on the judgment of Apex Court in Hindustan Coca Cola

Beverages Pvt. Ltd. v. CIT (2007) 293 ITR 226, the Ld.counsel

submitted that the recipient has already paid the tax. Therefore, at

the best, the Department could recover interest till the payment of

tax by the recipient.

that on identical circumstances, this Tribunal in Foxconn India

Developer (P) Ltd. (supra) found that the upfront fee paid by the

assessee would fall within the definition of “rent”. Therefore, the

assessee is liable to deduct tax under Section 194-I of the Act.

Referring to the judgment of Calcutta High Court in Braithwaite &

Co.(India) Ltd. v. CIT (1978) 111 ITR 542, the Ld. D.R. pointed out

that the assessee took on lease the entire industrial undertaking

along with land and building, plant and machinery, furniture and

fixtures and vehicles for 99 years. Under the lease agreement, the

assessee was required to pay the lessor annual payments for 99

years. The agreement provided that in the event of premises being

acquired by the Government, the lessor would entitle only to the

8 I.T.A. No.699/Mds/14 capitalized value of the rent accrued for the unexpired period of

lease and the remaining surplus would be paid to the lessee. The

lessee was given option to renew the lease at much lower rent. The

assessee claimed the annual rent paid under the lease as revenue

expenditure. However, the Assessing Officer found that the

arrangement contained in the deed was in effect a sale of property

to the assessee and the annual payment was a payment made

towards purchase consideration of the property. Therefore, the

Assessing Officer treated the same as capital expenditure. The

Appellate authority upheld the order of the ITO. On further appeal

before the Tribunal, it was found that the annual payments would be

in the nature of equated annuity payments consisting partly of price

of the asset and partly of either the hire charges or interest in

respect of unpaid purchase price. The Tribunal directed the Income

Tax Officer to work out the interest embedded in each annual

payment and allow the same as deduction and balance of the

annuity, was found to be attributable to the capital value of the

assets. Accordingly, the same was treated as capital expenditure.

On further reference, the Calcutta High Court found that under the

terms of agreement, the assessee was required to pay the lessor

annual payments for 99 years. The lease agreement provided in

the event of premises being rented by the Government, the lessor

9 I.T.A. No.699/Mds/14 would be entitled to capitalized value of rent accrued for unexpired

period of lease and remaining surplus would be paid to the lessee.

Therefore, the Calcutta High Court found that the document in

question was document of lease and annual payment made by the

assessee to the lessor was payment of rent, therefore, it was

allowable as revenue expenditure. In view of the Calcutta High

Court judgment in Braithwaite & Co.(India) Ltd. (supra), according to

the Ld. D.R., the assessee is liable to deduct tax while making

payment.

the contention of the assessee is that the transaction amounts to

sale of the property is not tenable. According to the Ld. D.R., the

so-called upfront fee paid by the assessee was duly escalated and additional sum of `1000 per acre per annum has to be paid during

the lease period. The upfront rent is nothing but an advance payment of lease rent. In addition to that, `25,000/- per acre per

annum was also collected towards the lease rent. Referring to

Section 2(14) of the Act, the Ld. D.R. pointed out that the definition

in Section 2(14) is inclusive one and not exhaustive. Section 2(45)

of the Act defines “total income” computed in the manner laid down

under the provisions of the Income-tax Act. Referring to Section

10 I.T.A. No.699/Mds/14 194-I of the Act, the Ld. D.R. submitted that the payment of rent for

land is subject to deduction of tax under Section 194-I of the Act. According to the Ld. D.R., Section 194-I provides for deduction of 20% of the rent payable for use of the land or building where the

payee is other than individual or HUF.

were alienated in favour of Tamil Nadu Industrial Development Corporation (TIDCO) on 24.08.2007. In a letter dated 11.03.2010, it was observed that TIDCO paid only a sum of `1320.95 Crores to

the Government of Tamil Nadu towards cost of the land. The balance of `91.85 Crores was retained by TIDCO. The Government

observed that TIDCO has to retain only `5.50 Crores. However, the

excess amount of `86.35 Crores was converted as term loan to

TIDCO on payment of interest @ 10.5% per annum. Since the provisions of Section 194-I provide for deduction of tax on payment of rent for the use of the land, according to the Ld. D.R., the

assessee is liable to deduct tax. Therefore, the CIT(Appeals) has rightly confirmed the order of the Assessing Officer.

perused the relevant material on record. We have also gone

11 I.T.A. No.699/Mds/14 through the orders of the Government of Tamil Nadu. The

Government order dated 11.03.2010 in G.O (Ms) No.28 issued by Industries (I.T) Department shows that the upfront land lease rent was escalated by 12% and Tamil Nadu Industrial Development Corporation received a sum of `1412.80 Crores from the assessee.

However, Tamil Nadu Industrial Development Corporation paid only a sum of `1320.95 Crores to the Government towards the cost of the land and retained the balance amount of `91.85 Crores and

utilized the same for discharging its own liability to Government and

bank overdraft dues. The Government further found that Tamil Nadu Industrial Development Corporation has to retain only `5.50

Crores out of `1412.80 Crores received from the assessee and should have paid the balance of ` 1407/- Crores to the Government.

On the request of the Chairman & Managing Director of Tamil Nadu Industrial Development Corporation, the above said balance amount of `88.22 Crores was treated as term loan for a period of three

years and repayable with interest @ 10.5% per annum. The

question now arises for consideration before the Tribunal is whether the payment of `1412.80 Crores made by the assessee to Tamil

Nadu Industrial Development Corporation is a capital payment for acquiring the land to the extent of 25.27 acres of land or it is a lease rent? The assessee claims that even though the lease period was

12 I.T.A. No.699/Mds/14 99 years, the payment made by the assessee is only for acquiring

the property. Accordingly, the assessee claims that it was a

purchase of property, hence, what was paid by the assessee is a

capital amount for acquiring the land. The contention of the

Revenue is that the amount paid by the assessee is only a lease

rent for using the land, therefore, tax has to be deducted under

Section 194-I of the Act. To appreciate the contentions made by the

parties before the Tribunal, it is necessary to go through the copies

of the lease agreement entered into between the parties. During

the course of hearing, it was pointed out to the Ld.counsel for the

assessee that the copies of the lease agreement said to be entered

into between the assessee and Tamil Nadu Industrial Development

Corporation is not available on record of this Tribunal. The

Ld.counsel submitted that a copy of the lease deed was already

filed before the Tribunal. After perusing the file once again during

the course of hearing, it was brought to the notice of the Ld.counsel

for the assessee that the lease agreement is not available on

record. Though the Ld.counsel submitted that he will file one more

copy of the lease deed before the Tribunal, in fact, no such copy

was filed till now. Therefore, this Tribunal is unable to appreciate

the exact nature of transaction between the assessee and Tamil

Nadu Industrial Development Corporation. Therefore, we have to

13 I.T.A. No.699/Mds/14 proceed only on the basis of the facts which were brought on record

by the Assessing Officer.

by the Ld.counsel for the assessee during the course of hearing. In

Rane Brake Linings Ltd. (supra), the Madras High Court found that

lease for 99 years is as much as alienation as a sale. The Madras

High Court placed reliance on the judgment of Apex Court in

Palshikar (HUF) v. CIT reported in 172 ITR 311 and judgment of

Madras High Court in Archaka Sundara Raju Dikshatulu v. Archaka

Seshadri Dikshatulu (1928) 54 MLJ 76. The assessment year

under consideration before the Madras High Court in Rane Brake

Linings Ltd. was 1994-95. We find that that “transfer” is defined in

Section 2(47) of the Act. In fact, Section 2(47) is an inclusive

definition and substituted by Taxation Laws (Amendment) Act, 1984

with effect from 1.04.1985. We also find that Parliament has

introduced Section 194-I of the Act by Finance Act, 1994 with effect

from 1.06.1994. Explanation to Section 194-I was substituted by

Taxation Laws (Amendment) Act, 2006 with effect from 13.07.2006.

For the first time in the Income-tax Act, the Parliament defined “rent”

by saying that any payment by whatever name called, under any

lease, sub-lease, tenancy or any other agreement or arrangement

14 I.T.A. No.699/Mds/14 for the use of either separately or together any land. Therefore, with

effect from 13.07.2006, any amount paid by the assessee, by

whatever name called, under any lease, sub-lease, tenancy or any

other agreement or arrangement for the use of the land has to be

treated as rent. The Madras High Court in Rane Brake Linings Ltd.

(supra) had no occasion to consider the Explanation (i) to Section

194-I which was introduced with effect from 13.07.2006. In fact, this

Bench of the Tribunal in Foxconn India Developer (P) Ltd. (supra)

considered this identical issue and found that the assessee is liable

to deduct tax on the lease rent in view of Explanation (i) to Section

194-I of the Act. However, after referring to judgment of Apex Court

in Hindustan Coca Cola Beverages P. Ltd. (sulpra), this Tribunal

found that since the payee has paid taxes, there cannot be any

doubt that TDS could not be recovered from the assessee.

However, the assessee is liable to pay interest under Section

201(1A) of the Act till the payment was made by the recipient.

and Tamil Nadu Industrial Development Corporation is not available

before us, we are unable to express our opinion on the nature of

transaction whether, it was an advance payment of rent or cost of

acquisition of the land could be decided after going through the so-

15 I.T.A. No.699/Mds/14 called lease deed executed by the assessee and TIDCO.

Moreover, the matter needs to be re-examined in the light of the

provisions of Section 2(47) read with Explanation (i) to Section 194-I

of the Act. This Tribunal is of the considered opinion that the nature

of the transaction could be ascertained only after going through the

lease agreement said to be executed by the assessee and Tamil

Nadu Industrial Development Corporation. Accordingly, the orders

of the lower authorities are set aside. The entire issue is remitted

back to the file of the Assessing Officer. The Assessing Officer

shall reconsider the issue afresh in the light of the lease deed and

thereafter decide the issue afresh in accordance with law. The

Assessing Officer shall also verify whether the recipient Tamil Nadu

Industrial Development Corporation has paid taxes or not on the

amount received by them. If the recipient has paid the taxes, then it

may not be necessary to recover the TDS amount from the

assessee and the Revenue can only recover interest under Section

201(1A) of the Act till the payment was made by the recipient as

held by Apex Court in the case of Hindustan Coca Cola Beverages

P. Ltd. (sulpra).

statistical purposes as indicated above.

16 I.T.A. No.699/Mds/14

Order pronounced on 19th June, 2015 at Chennai.

sd/- sd/- (A. Mohan Alankamony) (N.R.S. Ganesan) (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 19th June, 2015. Kri.

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A)-VII, Chennai-34 4. आयकर आयु�त/CIT(TDS), Chennai 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.