ITO (TDS) 2(5), MUMBAI vs. ORIENTAL BANK OF COMMERCE, MUMBAI

Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned orders dated 04/12/2012 and 11/12/2013 of the ld. First Appellate Authority, Mumbai. The only ground raised in this appeal pertains to holding that the amount paid by the assessee bank (the lessee) to City Industrial Development Corporation

2 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 (MMRDA) (Lessor) was not in the nature of rent as defined u/s 194 I of the Act. .

2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 16/08/2013 in the case of M/s Navi Mumbai SEZ Pvt. Ltd. for ready reference and analysis:-

3 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 “ The department has filed these appeals for Assessment Years 2006-07 to 2009- 10 against separate orders of ld. CIT(A) all dated 24.11.2011. In all these appeals, the facts and the issue involved is common. Hence, we have heard these appeals together and dispose off the same by a common order for the sake of convenience.

i) The Government of Maharashtra through resolution dated 18.3.1970 decided that a subsidiary company of the State Industrial Investment Corporation of Maharashtra Ltd. Should be entrusted the task of development of trans-Thana and trans-harbour areas in Uran, Panvel and Thana with a view to decongest and provide relief to Mumbai City and also to ensure the integrated development of the region along with its industrial development. Later, City and Industrial Development Corporation of Maharashtra Ltd (CIDCO) was created and established under the Companies Act, 1956 and was designated as new town development authority for this task.

ii) That government decided that privately owned lands in the project area shall be acquired by the government and will be placed at the disposal of CIDCO. CIDCO was required to undertake all the development work, provide necessary infrastructure on behalf of the

4 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 government and dispose –off the land, residential, commercial and social structures and collect service charges etc. to the extent required.

iii) Later for promotion of above objective, by another resolution, passed by the government of Maharashtra on 15.09.2000, CIDCO was appointed as the nodal agency for setting up a Special Economic Zone at Navi Mumbai i.e. the NMSEZ. For this purpose, the assessee- company has been jointly promoted as a Special Purpose Vehicle (SPV) by CIDCO and Dronagiri Infrastructure Pvt Limited (DIPL) to develop and operate the Special Economic Zone at Navi Mumbai.

iv) As per Development Agreement between the assessee and CIDCO, the assessee is required to make payment of lease premium in respect of the land which is being acquired by CIDCO and being allotted to the assessee from time to time.

v) As per Development Agreement, the assessee is authorized to develop and market the NMSEZ. Accordingly, assessee-company paid lease premium of Rs.50 crores in assessment year 2006-07, Rs.946.06 crores in assessment year 2007-08, Rs.1033.61 crores in assessment year 2008-09 and Rs.146.82 crores in assessment year 2009-10, in respect of land allotted to it and the relevant lease deed(s) executed.

vi) By virtue of said lease deed(s), assessee has acquired lease hold rights in the land for the purpose of developing, designing, planning, financing, marketing, developing necessary infrastructure, providing necessary services, operating and maintaining infrastructure administrating and managing “SEZ”. Assessee has also acquired the rights to determine, levy, collect, retain, utilize user charges fee for provision of services and /or tariffs in accordance with terms and conditions provided in the Development Agreement and the lease deed (s)

vii) That lease deed(s) as well as Development Agreement assigned to the assessee rights to develop, construct and dispose off residential and commercial spaces as per terms and conditions provided therein.

5 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 viii) That assessee is also entitled to grant sub-lease in respect of the portions of the demised (leased ) land, in accordance with the applicable law, and as per the provisions of the lease deed(s)

ix) That the lease deed also grants the assessee power to assign its right, title or interest or create a security interest in respect of its right, either fully or in parts thereof in favour of the lenders including granting of step-in-rights in the event of default under the financing agreement for the purposes of obtaining fiancé.

x) That the assessee has also acquired sole rights for marketing of the NMSEZ and the industrial/commercial projects to potential tenants.

6 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 Property Act, 1882 and submitted that rent is defined to mean money paid periodically or onspecified occasion to the transferor of land. Relying on the decision of the Hon’ble Apex Court in the case of A.R.Krishnamurthy V/s CIT (176 ITR 417) it was submitted that there is a difference between rent and premium and if what is paid is the cost of acquisition of right in a property known as leasehold right, it is not rent but a premium which is a capital for the recipient. On behalf of the assessee it was also submitted that section 2(14) of the Act also recognizes leasehold interest as a separate, distinct and independent right in an immovable property capable of being transferred for a consideration. Thus the payment made by the lessee to the lessor to be construed as a capital payment for acquisition of leasehold rights in any immovable property. Hence the premium for transfer of land under lease will be taxable in the form of capital gain u/s 45 of the Act in the hands of the lessor. The assessee also placed reliance on the decision of Special Bench Mumbai of the Tribunal in the case of JCIT V/s Mukund Ltd (13 SOT 558) (Mum) (106 ITD 231 (SB) and submitted that the Tribunal has held that lump sum payment of Rs.2.04 crores paid by the assessee to Maharashtra Industrial Development Corporation (MIDC) on lease for 99 years of land by MIDC for the purpose of setting up factory/ plant was capital in nature as the said payment was made for obtaining leasehold rights. The assessee also stated that the basic motive for making payment of lease payment for the lease deed is towards transfer of larger interest/ and lease hold rights by CIDCO in the leasehold plots and not just for its use as envisaged u/s 194-I of the Act. Therefore, there was no default for not deducting TDS as question of deduction of TDS on the said payment does not arise. It was also stated before the AO that the lease premium paid are capital receipts in the hands of CIDCO and are completely distinguished from rent. Hence, applicability of section 194- I is not applicable.

7 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 restrictive clauses in the lease agreement which negates the assessee’s contention that it has acquired rights in the land and not merely the rights to use the land. AO has stated that had it being a case of acquisition of land rights, there was no need to put restrictive clauses in the agreement. AO after considering the decisions of the Hon’ble Delhi High Court in the case of United Airlines V/s CIT reported in 152 Taxmann 516(Delhi), the caseof CIT V/s Reebok Co. reported in 163 Taxmann 61 (Del), the decision of Hon’ble Karnataka High Court in the case of CIT V/s HMT Ltd 67 Taxmann 506 (Kar) and decision of the Hon’ble Andhra Pradesh High Court in the case of Krishna Oberoi V/s Union of India 123 Taxmann 709 has held that the lease premium paid by the assessee is in the character of rent as per extended definition contained under section 194-I of the Act. Therefore, the assessee has committed default within the meaning of section 201(1) of the Act by not deducting the tax at source u/s 194-I of the Act on payment of lease premium of Rs.50 crores in assessment year 2006-07, Rs.946.06 crores in assessment year 2007-08, Rs.1033.61 crores in assessment year 2008-09 and Rs.146.82 crores in assessment year 2009-10. AO has further stated that the assessee is also liable to pay interest u/s 201(1A) of the Act. Accordingly, AO has stated the tax and interest liability of the assessee for the assessment years under consideration as under :

Assessment Year Section 201(1) Section 201(1A) Total 2006-07 8,49,75,000 5,86,32,750 14,36,07,750 2007-08 212,29,50,187 1,01,90,16,048 3,14,19,66,235 2008-09 2,34,21,65,994 1,00,33,40,347 3,34,55,06,341 2009-10 33,26,96,202 10,37,80,071 43,64,76,273

8 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 executed the Development Agreement with the assessee which outlines and rights and obligations of the assessee with regard to designing, planning, financing, marketing, development of necessary infrastructure provisions of necessary services, operations and maintenance of infrastructure administration and management of the “NMSEZ” along-with the rights to determine, levy, collect, retain and utilize the user charges, fees for provision of services and/or tariffs in accordance with the terms therein. On behalf of the assessee it was contended that rent as defined in section 194-I of the Act is essentially a payment only for the use of any land or building. However, the predominant objective for payment of lease premium under the lease deed(s) isacquisition of leasehold rights in the said leasehold plots and not for the use of the plots. Lease premium are consideration for purchase of larger interest in the said leasehold plots which comprises of bundle of rights including but not limited to right of possession, right of long term enjoyment, right of development by way of construction of building thereon, right to sale constructed premises on ownership basis, right to collect and appropriate the sale proceeds, etc. That grant of lease by CIDCO in favour of assessee is a capital assets. Hence the consideration received by CIDCO is a capital receipt and not income by way of rent. The ld. CIT(A) has also stated that assessee further submitted before him as under :

“Rent” as defined in Section 194-I of the Income-tax Act, 1961 envisages such payments made under a lease only for use of land, without there being any corresponding acquisition of larger rights in the said leasehold plots. Hence the lease premium paid by us to CIDCO are clearly distinct from Rent.

Further to the above explanation, Section 105 of the Transfer of Property Act, 1882 defines a lease of an immovable property as transfer of right to enjoy the property, made a certain time in consideration of a price. The Section further distinguishes between Lease Premium and Rent. Rent is defined u/s 105 of the Transfer of Property Act, 1882 to mean money paid periodically or on specified occasion to the transferor of land. Premium on the other hand means a consideration of a price paid for transfer of a right to enjoy the

9 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 property. Thus, there is a difference between rent and premium. Premium is not paid for the use of land.

When the interest of the Lessor is parted with for a price, the price paid is called lease premium. But, the periodical payments made for the continuous enjoyment of the benefit under the lease is in the nature of rent. The aforesaid view has also been endorsed by the Supreme Court in its decision in the case of A.R. Krishnamurthy v/s CIT reported -176 ITR 417.

The Supreme Court in the case of A. R Krishnamurthy V/s OT (supra) has held that if what is paid is the cost of acquisition of right in a property known as leasehold rights it is not rent but a premium which is a capital receipt for the recipient.

Consequently, Section 2(14) of the Income-tax Act, 1961 also recognizes leasehold interest as a separate, distinct and independent right in an immovable property capable of being transferred for a consideration.

Based on the foregoing decision, the payment made by the Lessee to the Lessor will accordingly be construed as a capital payment for acquisition of leasehold rights in an immovable property and hence the premium for transfer of land under lease will be taxable in the form of Capital Gains u/s. 45 of the Act in the hands of the lessor.

It is submitted that under the provisions of the Income Tax Act, 1961, different treatment cannot be given to same payment under different sections of the Income- tax Act, 1961 i. e. in the hands of lessor as consideration taxable under the head Capital Gains u/s. 45, in the hands of lessee as Rentfor the purpose of deduction of tax u/s 194-I The above contention seems very absurd and authority cannot take separate stand for treating a payment made by appellant.

The basic motive for making payment of Lease Premium under the Lease Deed is towards transfer of larger interest/ right (leasehold right) by CIDCO to us in the said leasehold plots arid not just for its use as envisaged under section 194-I of the Income-tax Art. 1961.

10 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 Taking into account the above referred discussion, payments made towards lease premium for acquisition of land and hence are not rent for the purpose of TDS u/s 194-I of the Income Tax Act. Thus, question of deduction of TDS on above payment will not arise.”

8.1 It is also observed on perusal of order of ld. CIT(A) that assessee also referred clauses (v) and (vi) of sub-section (47) of section 2 and section 269UA(d) of the Income Tax Act and stated that lease of land is considered as an immovable property and the lease premium paid to CIDCO is consideration for transfer of immovable property which is taxable under section 45 as capital gains on sale of capital assets. Therefore, in the hands of purchaser consideration paid by way of lease premium is for acquisition of a capital asset. Thereafter, assessee referred the cases before ld. CIT(A) which are discussed by ld. CIT(A) at pages 20 to 23 of the impugned order(s) which we consider relevant to reproduce hereinbelow:

“1. When lease premium is paid in respect of lease hold land on lease for a period of 60 years the appellant cannot claim write-off of the lease premium on proportionate basis. In the case of JCIT Special Range 23 v/s National Stock Exchange of India, Hon’ble ITAT, Mumbai in ITA No. 1955/M/99, 2181/M/99, 4853/M/04, 4485/M/04, 4854/M/04, 356/M/01, 5850/M/00 upheld the AO’s contention that lease premium is capital in nature and cannot be allowed on proportionate basis over the period of lease.

11 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 of Bombay in the case of CIT V/s Khimline Pumps Ltd [258 ITR 459 (Bom)(2002).

In the aforesaid judgments various courts have confirmed the Dept's view that lease premium is a capital expenditure. Therefore, when it comes to a deductibility of TDS on such payment, the Department cannot take a stand that it is a revenue expenditure. Therefore, TDS is deductable u/ s.194-I.

Further in the following cases lease premium received has been held as a capital receipt and not in the nature of advance rent.”

12 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 lessee and a conferment of a right on lessee to use said estates by exploiting same, premium received by assessee and balance in specified number of half-yearly installments was a capital receipt - Held, yes.

Section 4 of the Income-tax Act, 1961 [Corresponding to section 3 of the lndian Income-tax Act, 1922) - Income – Chargeable as - Assessee received certain amount by way of salami or premium for grant of leases of mineral rights Oil portion of his estate - Besides, certain rent and royalties were also paid by lessees of mining leases upon coal raised - Whether in view of fact that a lump sum paid under name of salami for grant of lease, was more in nature of an out and out sale of property, sum so received by assessee was in nosense income within meaning of Act - Held, yes - Whether, however, annual rent and royalty received from lessees on quantity of coal extracted was income chargeable to tax - Held, yes.

13 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 payment was towards purchase of the leasehold right in the land and for the purchase ofthe additional built-up area. Therefore, the same cannot be construed as Income by way of Rent for the purposes of s.194-I. If at all, it is Income by way of Capital gains in the hands of MMRDA and accordingly it is not liable to deduction of tax at source”

8.2 L.d CIT(A) forwarded the written submissions of the assessee to the AO for his comments. Ld. CIT(A) has stated that the AO submitted his detailed parawise comments on the submissions of the assessee vide letter dated 19.10.2011. That AO in his submission reiterated the stand that the amended definition of “rent” contained in section 194-I of the Act w.e.f. 13.7.2007 is very wide and comprehensive and covers “any payment by whatever name called under any lease, sub-lease, tenancy or other agreement or arrangement” and leaves no scope for any interpretation. That all the payments under the lease by whatever name called are rent within the meaning of section 194-I of the Act. AO has stated that one has to look at substance and not the form of the transaction while considering the provision of law. The AO also placed reliance on the decision of the Hon’ble Calcutta High Court in the case of Braithwaite and Co. India Ltd, 111 ITR 542 and Karnataka High Court Judgment in the case of CIT V/s HMT Ltd (supra). Ld.CIT(A) has also stated that ld.Addl. CIT also contended in the personal hearing that TDS provisions are a separate code in themselves. That while applying these provisions, one has to look into the liability of the deductor only, irrespective of the tax liability of the deductee. It was submittedthat it is not necessary that capital expenditure in the hands of one party is also a capital receipt in the hands of other party. AO in the written submissions also submitted that the lease agreement signed by CIDCO with the assessee contains various restrictive covenants which do not give any absolute right to the land but reduced it to a rental arrangement for use of the land. Ld. CIT(A) has stated that the AO also cited the cases, the details of which he has mentioned in para 5.9 of the impugned order (s)

8.3 Ld. CIT(A) has further stated that AO vide letter dated 2.11.2011 furnished supplementary arguments for all the assessment years under consideration and stated that as the premium is nothing but advance lease rent and referred the decision of Hon’ble Apex Court in the case of Agarwal Chambers of Commerce V/s Ganpat Rai Hiralal,

14 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 reported in 33 ITR 245 wherein it has been held that persons who are responsible for deduction of tax at source are not concerned with the ultimate result of the assessment.

8.4 Ld. CIT(A) has stated in para 5.11 of the impugned order (s) that a copy of written submission filed by AO was provided to the assessee for their comments and the assessee filed its rejoinder common for all the assessment years under consideration on 25.10.2011, reiterating its stand that the lease premium paid constitutes capital payment for acquiring leasehold right in the property and does not represent rent for use of land as contemplated u/s 194-I of the Act. Ld. CIT(A) has stated that assessee relied upon the lease deed(s) and related documents which referred to the payment as premium for acquiring right in leasehold land. The assessee also stated that various clauses in the lease deed(s) referred by AO as restrictive covenants, are in fact regulatory clauses of planned development of the area and for providing common amenities and co-existence of the occupants. That these regulatory clauses are applicable even to freehold land when the corporation or development authorities undertakes to implement planned development. Though these clauses in lease deed(s) do not in any manner convert a premium for leasehold right into an advance rent for use of land. Ld. CIT(A) has stated that the assessee summarises the submissions and the same have been stated at pages 28 to 30 of the impugned order(s) of ld.CIT(A) as under :

“To summaries the submissions, the Appellant respectfully submits that :

i) The payment made by the Appellant (Lessee) to the CIDCO Lesser is foracquiring the right in the lease premises and not an advance rent for use of the lease premises over a period of 60 years;

ii) The lease premium has been paid for getting possession of the lease property before the lease agreement is entered into.

iii) The Appellant (Lessee) has a right to own and transfer the lease property for a consideration subject to compliance of conditions stipulated in the lease agreement.

15 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 iv) The lease property under the agreement can be inherited or succeeded by the legal heir or successor;

v) The clauses in the lease agreement refer to the payment made by the Appellant (Lessee) as a premium being consideration for acquiring the lease hold property. None of the clauses in the lease agreement refers to the premium paid by the appellant (lessee) as advance rent;

vi) The Appellant(Lessee) will have no right to get any refund of premium paid for acquiring the lease hold right on its surrender before the expiry date.

vii) The various clauses of the lease agreement which are referred by the AO in its submission before your Honour as restrictive clauses, are in fact regulatory clauses incorporated in the lease agreement for desired development of the leased area in a particular manner and a particular purpose as regulatory authority provides complete infrastructure and give effect to the intention of the government to develop the area.

viii) Karnataka High Court Judgement in the case of HMT Ltd. has been decided by the Hon'ble court on a finding of fact by the ITAT that the payment made by the Lessee constitutes an advance rent and hence the same shall be allowed as deduction u/s 37( 1) of the 1. T. Act. Moreover the various decisions of the Bombay High Court and the 1TAT have clearly distinguished the HMT's case and its applicability to the premium paid for acquiring lease hold right. The Hon'ble ITAT Mumbai Special Bench in the case of Mukund Ltd. has discussed in detail the judgement of HMT Ltd. and held that premium paid for acquiring the leasehold right does not constitute an advance rent. Hon'ble ITAT Mumbai, Special Bench has followed the jurisdictional High Court's view in the case of Khimlin Pipes Ltd. wherein the jurisdictional High Court has held that premium paid for acquiring the lease hold right constitutes a capital expenditure and not anadvance payment of rent for the lease period.

ix) Section 194-I of the IT Act clearly provides that payment made by a person should be in the nature of "an income by way of rent". This

16 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 expression expressly requires that the receipt in the hands of the lesser/ owner must constitute the income by way of rent in the hands of the recipient.

x) The definition of rent contained in explanation to section 194-I also clearly provide that the payment made must be "for the use of …. Land "nowhere the definition of rent ropes in the consideration paid for acquiring leasehold right. The Appellant (lessee) reiterates its contention that the premium paid for acquiring leasehold right is not "an income by way of rent" of the recipient for use of land.

xi) The various judgments relied upon by the Appellant(Lessee) in support of its contention clearly confirms the view that the premium paid for acquiring leasehold rights in land constitutes a consideration of capital nature and not an advance rent for use of the land over the lease period. On the plain reading of the lease agreement the prevailing facts of the case and taking a wholistic view of facts and circumstances of the case and the position in law, such lease premium paid cannot be considered to be a rent within the meaning of section 194-I. The Appellant once again submits that its submission concerning lease premium paid is fully supported by various judicial pronouncements which are discussed in detail by the Hon’ble ITAT special bench, Mumbai in the case of Mukund Ltd ...

xii) Recently the Hon’ble ITAT, Mumbai had an occasion to consider similar issue wherein the lease premium paid by National Stock Exchange of India Ltd. to MMRDA for acquiring leasehold right in land at Bandra Kurla Complex was claimed to be a deductible advance rent over the lease period. The Hon’ble ITAT following Mukund Ltd’s case and clearly held that such payment of lease premium constitutes a capital expenditure for acquiring lease hold right and not an advance rent for a lease period.

In View of the above submissions it is respectfully submitted that the lease premium paid by the Appellant (Lessee) cannot be considered to be an advance rent within the meaning of section 194-I of the I. T. Act and the order passed by the AO u/s 201/201(1A) shall be vacated”

17 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 9. Ld. CIT(A) has stated that he has considered AO’s order, submissions as well as the assessee’s submissions and rejoinder. He has stated that he has studied the Development Agreement and the Lease deed(s) executed between the assessee and the CIDCO as well. Ld. CIT(A) has stated in para 5.17 of the impugned order that from the analysis of Development Agreement and lease deed(s) entered into between the assessee and CIDCO, written submissions of the assessee and the assessing officer and the assessment order and various other related documents following facts emerge:

“i. The Government of Maharashtra through a resolution dated 18.03.1970 decided that a subsidiary company of the State industrial Investment Corporation of Maharashtra Ltd. should be entrusted the task of development of trans-Thana and trans-harbour areas in Uran, Panvel and Thana with a view to decongest and provide relief to Mumbai city and also to ensure the integrated development of the region along with its industrial development Later, City and Industrial Development Corporation of Maharashtra Ltd (CIDCO) which was created and established under the Companies Act, 1956, was designated asnew town development authority for this task ii. It was decided by the government that privately owned lands in the project area shall be acquired by the government and will be placed at the disposal of CIDCO. CIDCO was required to undertake all the development work, provide necessary infrastructure on behalf of the government and dispose-off the land, residential, commercial arid social structures and collect service charges etc to the extent required.

iii. Later, for promotion of the above objective. another resolution was passed by government of Maharashtra on 15.09.2000, wherein CIDCO was appointed the nodal agency for setting up a Special Economic Zone at Navi Mumbai i.e the NMSEZ. For this purpose. the appellant company has been jointly promoted as a Special Purpose Vehicle (SPV) by CIDCO and Dronaqiri 'Infrastructure Pvt Limited (DIPL) to develop and operate the Special Economic Zone at Navi Mumbai.

iv. As per Development Agreement between the appellant and CIDCO, the appellant is required to make payment of lease premium in

18 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 respect of the land which is being acquired by CIDCO and being allotted to the appellant from time to time.

v. As per this Development Agreement, the appellant is authorized to develop and market the NMSEZ.

vi. During the current year, the appellant was allotted 450 hectares of land as described in para 5.2 above for an aggregate amount of lease premium of Rs.285.87 crores, vide lease deed dated 16.3.2006. Out of this amount, an amount of Rs.50 crores has been paid by the appellant in the current year.

vii. By virtue of the said lease deed(s), the appellant has acquired leasehold right in the land for the purpose of developing, designing, planning, financing, marketing, developing necessary infrastructure, providing necessary services, operating and maintaining the infrastructure, administering and managing the SEZ. The appellant also has acquired the rights to determine, levy, collect. retain and utilize the user charges, fees for provision of services and / or tariffs in accordance with the terms land conditions provided in the Development Agreement and the lease deed(s).

viii. The lease deed(s) as well as the Development Agreement, assigned to the appellant rights to develop, construct and dispose off residential and commercial spaces as per terms and conditions provided therein.

ix. The appellant is also entitled to grant sub-leases in respect of the portions of the demised (leased) land, in accordance with the applicable law, and as per the provisions of the lease deed.

x. Similarly, the lease deed(s) also grant the appellant power to assign its rights, title or interest or create a security interest in respect of its rights, either fully or in parts thereof in favour of the lenders including granting of step-in rights in the event of default under the financing agreement for the purpose ofobtaining finance.

xi. The appellant has also acquired sole rights for marketing of the NMSEZ and the industrial/ commercial projects to potential tenants.”

19 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 10. In view of above, ld. CIT(A) has stated that the assessee has been allotted land for a period of 60 years on the payment of lease premium. That the lease deed(s) and the Development Agreement, assigns to the assessee lease hold rights which includes a bundle of rights, some of which are outlined above. Assessee made payment of lease premium to CIDCO without deducting TDS and the AO has held that the payment of lease premium is nothing but rent covered under the definition of rent provided u/s 194-I of the Act and hence the deduction of tax at source was required. Ld. CIT(A) has thereafter reproduced section 194-I of the Act which is as under :

“Rent.

194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to [a resident] any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of—

(a) two per cent for the use of any machinery or plant or equipment; and (b) ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings:

Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed [one hundred and eighty thousand rupees] :

[Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section.] Explanation.—For the purposes of this section,—

20 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 [(i) “rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,—

(a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings,

whether or not any or all of the above are owned by the payee;]

(ii) where any income is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

“5.20 This section thus requires that a person who is responsible for paying to a resident come by way of rent" "for the use of" land etc. shall at the time of credit or payment of such income deduct tax at source at required rate. Although this meaning is very wide so as to include all types of transactions which fall in this category, still the legislature has intentionally included the words "for the use of' so that the meaning of the rent" is not interpreted beyond its meaning in common parlance. In common parlance, rent is a consideration paid by a tenant to the land lord in respect of a property or asset taken on rent. The rent is paid obviously for the use of the said property as otherwise, if the property is not used, there would be no need to take the property on rent. The word "use" here is therefore of utmost

21 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 importance in any transaction where the consideration paid for the property would be termed as 'rent'. However, the meaning of word 'use' here has to be interpreted in the most simple and common manner, keeping in view the relationship between a landlord and a tenant.

5.21 This is so because, if the word 'use' was also meant to include exploitation of Property by changing its identity/ shape and then selling it off, there would be no difference between a sale transaction and a transaction akin to the transaction between a landlord and a tenant so far as above TDS provisions of section 194-I, are concerned. A transaction of lease may have stipulations which make it a transaction identical to the transaction between a landlord and a tenant ( refer to the decision of Calcutta High Court in the case of Braithwaite & Co India Ltd, 111 ITR 542). And that is why various terms like sub-lease, tenancy or any other agreement or arrangement have been used in the section so as to cover all such cases, where a consideration is paid for the use of building, machinery, etc. under an arrangement which is similar to a transaction between a landlord and a tenant. However in many cases, a lease transaction may not necessarily be similar or identical to the transaction between a landlord and a tenant; and instead it may indicate a sale transaction in the sense that certain more valuable rights in the property are transferred.

As per legal understanding of the terms, the transaction in which “licence” ' is granted to the transferee for use of the property is more often likely to be to the transaction between a landlord and a tenant whereas in a 'lease' transaction pertaining to an immovable property, it may not be so very often. Therefore, in my opinion, although the meaning of term 'rent' used in the above section isvery wide, still cannot be applied to all and any of the transactions out of context indiscriminately.

5.22 Therefore, if the tenant/ lessee/ licensee of the property uses the property for his own purpose or employs it for his own benefit, the consideration paid would be 'rent'. However, if the property is exploited in a manner that its identity does not remain the same and thereafter it is sold for a profit, I'm afraid, it would not be called 'use'

22 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 of property by the tenant; rather it would be exploitation of the property by virtue of certain rights, which would be over and above the rights of a tenant (which are for mere use of the property may be with certain modifications). In the case of the appellant, the rights are not mere use of the property (land) by the appellant itself; rather the rights are for exploitation of the property by developing and constructing residential/ commercial spaces as well as industrial projects and/or provide infrastructure for such projects and selling such spaces at a profit. This transaction therefore cannot be stretched beyond its meaning and it cannot be categorized as a transaction which is in-between a landlord and a tenant. This is so because the appellant is not bound to use the property itself and hence consideration paid is not rent within the meaning of explanation below section 194-I. The appellant has thus acquired a capital right to develop the land and exploit the same.

5.23 It is also seen that the amount charged by the CIDCO as lease premium has no connection with the rental value of land. Thus, the whole transaction towards grant of leasehold rights to the appellant is nothing but a transaction of transfer of property and the lease premium is the consideration for the purchase of the said leasehold rights, which comprises of a bundle of rights, including right of possession, right of exploitation of property and its long-term enjoyment.

5.24 In this context, the decision of Hon’ble Supreme Court in the caseof A.R.Krishnamurthy (supra) is very much relevant where the assessee, after purchasing two pieces of land, had granted a mining lease in favour of a company. When the AO assessed the income from the said transaction under the head 'capital gains' treating the transaction of lease as transfer of a capital asset in the form of a valuable right, the assessee challenged the same up to the Supreme Court. Honourable Supreme Court held that when the assessee purchased the land, he had not only acquired the land, but also had acquired a bundle of rights in the said land including the right to grant lease. Hence the AO was right in charging to capital gains tax under section 45 of the Act, the profits arising out of the said transaction of lease. In the case of the appellant also, the MMRDA being the owner of the land, has transferred its right of development

23 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 and exploitation of land to the appellant and these rights are therefore capital in nature.

5.25 I do agree with the Ld. Addl CIT and the AO that the TDS provisions are a separate code in themselves. I also agree that it is not desirable or permissible to pick out a word or sentence from the judgement of a Court divorced from the context of the question under consideration and treat it to be the complete law declared by the Court (refer CIT Vs. Sun Engineering (supra)]. However, everything would depend upon the facts of each case and the facts of the cases cited as well as the context in which the cited decisions have been delivered. - 198 ITR 297(SC)

5.26 Although the term 'rent' has been defined in the above section of the Act. other terms like 'lease', 'lease premium', 'lessor' and 'lessee' etc. have not been defined in the Act. It may be useful to refer to the meaning of these terms as provided in the Transfer of Property Act, 1882. Section 105 of the Transfer of Property Act defines the term lease as "A lease of immoveable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who , accepts the transfer on such terms. In the case of lease, price is called the premium, and the money, share, service or other thing to be rendered is called the rent; the transferors is called the lessor and the transferee is called the lessee”.

5.27 The section therefore brings out the distinction between a price paid for a transfer of right to enjoy the property and the rent to be paid periodically to the lessor When the interest of the lessor is parted with for a price, the price paid is premium or salami. But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. It would, therefore transpire that a premium is not paid under a lease, but is paid as a price for obtaining the lease; hence, it precedes the grant of lease Therefore, it cannot be equated with the rent. which is paid periodically.

24 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 5.28 Furthermore, if the lease premium was in the nature of advance rent, then, if for any reason the lease is terminated earlier than the prescribed period, the advance rent would have to ble refunded. However, in the case of appellant, the lease deed does not prove for any refund of lease premium. It is thus seen that there is no provision in the lease for termination of lease at the instance of the lessee and hence for refund of the lease premium. ”

5.30 to 5.45 of impugned order(s) the case laws as referred by AO as well as by the assessee in their written submissions and also pointed out at the time of hearing. We consider it prudent to reproduce said paras which are as under :

“5.30 While considering the treatment of rent and lease premium under the Income Tax Act, it is noted that the distinction between the lease premium and rent was first brought out by the Judicial Committee in the case of Raja Bahadur Kamakhya Narain Singh of Ramgarh Vs. Commissioner of Income Tax, 11 ITR 513 (PC) wherein it has been held that:

“The payments which under the lease were exigible by the lessor may be classed under three categories: (i) the salami or premium ; (ii) the minimum royalty ; (iii) the royalties per ton. The salami has been rightly treated as a capital receipt. It was a single payment made for the acquisition of the right of the lessees to enjoy the benefits granted to them by the lease. That general right may properly be regarded as a capital asset, and the money paid to purchase it may properly be held to be a payment on capital account. But the royalties were on a different footing.”

5.31 In the Member for the Board of Agricultural Income Tax Assam V/s Sindhurani Chaudhrani and ors, 32 ITR 169, the Hon’ble Supreme Characterized a lease premium (salami) as a lumpsum non-recurring payment. It has been held : “ Where salami is in the form of a lumpsum-non- recurring payment made by a prospective tenant to the landlord as a consideration for the settlement of agricultural land and parting with certain rights of the land in the land in favour of the

25 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 prospective tenants, and is paid anterior to the constitution of relationship of landlord and tenant, it is not ”rent” within the meaning of the word used in the definition of “agricultural income” in section 2(1)(a) of the Assam Agricultural Income Tax Act, 1939. It has all the characteristics of a capital payment and it is not revenue. It is, therefore, not “agricultural income” within the meaning of that Act.”

5.32 Similarly in the case of Chintamani Saran Nath Sah Deo V/s Commissioner of Income-tax [1961] 41 ITR 506 (SC) the Supreme Court held that :

“Held, on the facts, that the licence was not merely a grant for the use of the capital of the assessee but it was really a grant of a right to a portion of the capital in the shape of a general right to the capital asset. The amounts received by the assessee were capital receipts and were not assessable to income-tax”

5.33 The matter was again considered by the Hon’ble Supreme Court in the case of Commissioner of Income-tax V/s Panbari Tea Co. Ltd.(1965) 57 ITR 422 (SC). In this judgment, the Supreme Court has considered various decisions available on the issue and held that since there was a transfer of substantive interest of lessor in estates in favour of the lessee and there was a conferment of a right on the lessee to use the said estates by exploiting them, premium received by the assessee was a capital receipt in the hands of the lessor. It would be useful to consider the ratio of the said decision, which is as under :

“ the real test of a salami or premium is whether the amount paid, in a lumpsum or in instalments is the consideration paid by the tenant for being let into possession. When the interest of the lessor is parted with for a price, the price paid is premium or salami. But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. The former is a capital receipt, and the latter are revenue receipts. There may be circumstances where the parties may camouflage the real nature of the transaction by using clever phraseology.”

26 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 5.34. While deciding the issue the Hon'ble Supreme Court observed that :

"Under section 105 of the Transfer of Property Act, a lease of immovable property is a transfer of a right to enjoy the property made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a shareof crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent. This section, therefore, brings out the distinction between a price paid for a transfer of a right to enjoy the property and the rent to be paid periodically to the lessor. When the interest of the lessor is parted with for a price, the price paid is premium or salami. But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. The former is a capital income and the latter a revenue receipt.”

5.35 The Court further observed that :

"in some cases, the so-called premium is in fact advance rent and in others rent is deferred price. It is not the form but the substance of the transaction that matters. The nomenclature used may not be decisive or conclusive but it helps the court, having regard to the other circumstances, to ascertain the intention of the parties.”

After considering various facts and provisions of law, the Supreme Court, while approving the order of High Cout held that the receipt of premium is capital receipt and not revenue receipt.

5.36 Hon'ble Bombay High Court in the case of Khimline Pumps Ltd., 258 ITR 459 have on the basis of identical facts and circumstances held that, an amount of Rs.45 lakhs paid by the assessee to M/s APVE Ltd (which was being wound up) for acquisition of leasehold land was a capital expenditure and hence the same was not deductible. The appellate tribunal could not have directed the Department to apportion the amount over a period of 71 years. In this case, a plot of

27 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 land measuring 20,300 square metres in district Thane was leased out by MIDC to a company known as APV Equipments Ltd for a period of 95 years, commencing from August 1965 on a payment of rent of Rs.1 (per year) and in consideration of payment of Rs.1,62,400/- as premium. At the end of the lease, the lessee was to quietly deliver to the lessor the land. The lessee was also entitled to remove any buildings, erections or structures put up by the lessee on the land. Under the lease, it was further provided that without the permission of the lessor, the lessee shall not assign, under let or part with the possession of the premises. Later, since the said company M/s APVE Ltd went into liquidation, the assets of the company were sold to the assessee on a price of Rs.75 lakhs out of which Rs.45 lakhs related to acquisition of leasehold land. The assessee contended before the AO that Rs.45 lakhs was paid as advance rent towards the leasehold land and hence the same was deductible. In the light of above facts and circumstances, Hon'ble Bombay High Court as already stated above, held that the payment of Rs.45 lakhs by the assessee was a capital expenditure and hence the same was not deductible.

5.37 The Special Bench of Mumbai Tribunal in the case of JCIT vs. Mukund Ltd., (106 ITR 231] also had an occasion to consider the similar issue i.e. "whether the premium paid for acquiring leasehold right in land is revenue or capital". The Special Bench of the Jurisdictional Tribunal has similarly held asunder:

“21. In the case before us the lease is for a period of 99 years, which is as good as a perpetual lease in favour of the assessee. There is no material on record to suggest that the amount of Rs. 2.04 crores paid to the Government concern MIDC was an advance payment of rent for the period of lease paid in lump sum by the assessee-company. The terms of agreement dated 5- 3-1992 entered into between assessee- company and the Government body M/s. MIDC clearly mentions that a sum of Rs. 2.04 crores is the amount of deposit to be adjusted towards "Premium" payable by the licensee for the allotment of 50 acres of land in Kalva Industrial Area. The plea of the assessee that the lease agreement was not entered into till date and hence, the status of the assessee is that of a licensee only, makes no difference, since on page-2 of the agreement of the assesseecompany with MIDC dated 5-3-1992, it is specifically mentioned that the licensee shall be

28 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 deemed to be bare licensee only of the premises at the same rent and subject to same terms as if the lease had been actually executed. A reading of the agreement dated 5-3-1992 entered into with MIDC clearly shows that the amount of Rs. 2.04 crores were paid by the assessee-company to MIDC as "Premium" or "Salami" for the acquisition of the premises of lease for a period of 99 years. In reply to a specific query from the Bench, the Ld. Counsel for the assessee submitted that the cost of boundary walls on this 50 acres of land was capitalized in the account books of the assessee and depreciation was claimed by the assessee. The action of the Assessing Officer in allowing proportionate rent in the subsequent assessment years 1995-96 and 1996-97, shall not alter the character of the amount paid by the assessee to MIDC for acquisition of the premises. We are aware that mere use of the word "premium" in the agreement dated 5-3-1992 shall not make the character of the amount of Rs. 2.04 crores paid to MIDC as "premium", if the combine reading of the agreement leads to some other conclusion. In this case, not only the word "premium" has been used in all relevant terms of the agreement dated 5-3-1992 with Government concern MIDC, but also considering the terms of the agreement dated 5-3-1992 as a whole it is clear that the amount of Rs. 2.04 crores was paid as "premium" for acquisition of leasehold rights in the premises. The clause 5(b)( i) of the said agreement dated 5-3-1992 provides that in case of termination of lease, the "premium" is non-refundable. It provides that in case the licensee fails to complete the said factory building within the time aforesaid and in accordance with the stipulations provided therein, the MIDC without making any compensation or allowance to licensee for the same and without making any payment to the licensee forrefund or repayment of the premium aforesaid or any part thereof, can resume the land in question. Thus, in case of termination of lease, the "premium" is non-refundable and therefore, the same cannot be considered as advance payment of rent. There is no clause in this agreement to show that the amount of Rs. 2.04 crores was paid by the assessee as advance rent for all future years and the lump sum payment of future year’s rent has been paid to avail some concession for advance payment of rent or for some other business consideration. The land in question is inheritable also as per the terms and conditions of the agreement with MIDC. Therefore, considering the terms of agreement dated 5-3-1992 as a whole, we

29 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 hold that the consideration of Rs. 2.04 crores was paid to MIDC as a price for obtaining the leasehold rights for a period of 99 years from MIDC in favour of the assessee.”

5.38 In the above decision, the Special Bench has clearly held that the amount of Rs.2.04 crores paid by the assessee company to the Govt. concern MIDC cannot be considered as advance payment of rent for the period of lease The Special Bench strongly relied upon and followed the principles laid down by the Supreme Court in the case of Panbari Tea Co. Ltd (supra) and by the Bombay High Court in the case of Khimline Pumps Ltd (supra). Similarly, in the case of R.K.Palshikar, 172 ITR 311 Hon’ble Supreme Court held that the premium received for grant of lease of a plot of land for 99 years is chargeable as “capital gains” as the assessee had transferred an asset of enduring nature viz right of possession and enjoyment of the property. Thus various judgments delivered by the Courts and Tribunals brings out a distinction between the lease premium and rent under the Income tax laws which are also in line with the principles of general law laid down under Transfer of Property Act.

5.39 The AO has cited cases where the term ‘rent’ was given wide meaning as envisaged in section 194-I of the Act and in view of the facts and the circumstances of the case. In all these cases, the decision given is not at all in conflict with the discussion and the finding arrived at paras 5.20 to 5.22 above. In the case of Krishna Oberoi V/s Union of India (supra), the amount paid for use and occupation of hotel rooms was considered as rent within the meaning of section 194-I of the Act. It was held that there was no weighty or sound reason to limit the meaning of work “rent” occurring in explanation to section 194-I only to the payment made by a tenant or lessee for the use of land or buildings demised to him. Further in the case of United Airlines V/s CIT (supra), it was held that the term “rent” has a wider meaning and it includes agreement or arrangement for use of land. The AO has also referred to the decision in the case of CIT V/s Reebok India Co.(supra), wherein the security deposit was considered as rent in the facts of the given case. Similar is the case of Smt. Bisakha Sarkar (supra), where also, a bank (namely Bank of India) was the tenant of a property, which was jointly owned by 4 persons, the landlords made a claim that no tax is deductible because their

30 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 individual share of rent is belong the deductible limit. Hon’ble High Court held that it was a jointly owned property and hence the landlords were an amalgam of 4 persons. Therefore, the tax under section 194-I was to be deducted @20%. In none of these case, the issue of “lease premium” as in the case of the appellant vis-à-vis “rent “ has been considered. 5.40 Ld. Addl. CIT, in support of his arguments has also furnished a copy of the decision dated 02.02.2010 of Ld. CIT(A)-IV, Chennai in the case of Foxconn India Developers Pvt.Ltd wherein similar issue was involved and the decision of AO (TDS officer) has been upheld. I have considered this decision of ld.CIT(A)- IV, Chennai. However, I respectfully do not agree with the same. Firstly, it is seen that most of the decisions discussed above were neither cited by the AO/ assessee in that case, nor considered by the Ld. CIT(A). Furthermore, it is not known as to whether or not in that case, the assessee was granted deduction towards lease rent in assessment proceedings. The AO has also stated that for deduction of tax at source, it is not necessary that the payment should be of the revenue nature only. For this purpose, he has pointed out that in section 194-LA, although the payment of compensation for acquisition of immovable property is of capital nature, still the tax is liable to be deducted. I do not think that this argument has any relevance here because the provision under consideration is that of section 194-I, which is for the purpose of tax deduction at source in respect of payment of rent. The 'rent' is obviously in the nature of a revenue expenditure.

5.41 I have also considered the other cases relied upon by the AO. These cases lay down general principles of interpretation of Law. I find that in none of the above cases the court has held that the lease premium in similar circumstances is in the nature of advance rent and hence liable for deduction of TDS u/s 194-I of the Act. The cases relied upon by the AO are thus distinguishable on facts and in law and the same cannot be made applicable to the facts of the present case where the issue raised is completely different. I therefore do not find any merit in the submission of the AO so far as the case laws cited by him are concerned.

5.42 The AO has cited the decision of Calcutta High Court in the case of Braithwaite & Co India Ltd, 111 ITR 542 where the assessee had

31 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 taken on lease, a whole undertaking for 99 years on payment of rent of Rs.4 lakhs per annum from Angus Co Ltd The assessee claimed the same as the revenue expenditure in its income tax return which was not accepted by the AO, who held that the above arrangement was in effect a sale of the undertaking to the assessee. On these facts, Hon'ble High Court held that the assessee is entitled for deduction of rent, which was held to be revenue expenditure It is evident from the facts of this case that what was taken on lease by the assessee was not the land or leasehold right in land. The lease was for the whole undertaking which was to be used by the assessee itself. The facts of this case do not suggest that the assessee was also entitled to exploit the land through reconstruction and sale of the property thereafter. Hence the facts in this case are totally different from the facts of the case of the appellant where the lease is in respect of the land for exploitation of (he same through construction of buildings and sale thereof. Hence, this decision does not support the finding of the AO in the case of the appellant.

5.43 The AO has further relied upon Karnataka High Court Judgement in the case of CIT vs. HMT l.td. 203 ITR 820 wherein the said Hon'ble High Court has held that the amount paid by the lessee to the lessor for granting the lease is deductible revenue expenditure. On close scrutiny of this case of KarnatakaHigh Court relied upon by the AO and other judgements relied upon by the Appellant, I am of the considered opinion that HMT’s case is distinguishable on facts and in law. The Hon'ble High Court has proceeded on the finding of the fact recorded by the Tribunal that the payment made by the assessee is a rent and hence shall be allowed as business expenditure. Moreover with due respect the Karnataka High Court judgement in the HMTs case is inconsistent with the earlier decisions of the High Courts and the Supreme Court. In this judgement Hon’ble High Court has not considered these other decisions of High Courts and the Supreme Court which renders it 'per-incuriam' as it is delivered in ignorance of the decision of other High Courts and Supreme Court [This principle of 'perincuriam' has been illustrated by Hon'ble Supreme Court in the case of Punjab Land Development and Reclamation Corporation Ltd. V/s Presiding Officer (Labour Court), 3 SCC 682. It has to be understood that subsequent judgements of various Hign Courts including the judgement of the jurisdictional High Court are of a

32 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 binding nature and have to be followed. Also. this decision is contrary to at least 6 Supreme Court decisions and 5 High Court decisions, as pointed out by ld.AR of the appellant (refer to page-22 of this order where the appellant’s submissions have been quoted). Also it has to be kept in mind that the appellate authorities are bound to follow the judgement of the jurisdictional High Court where as the decision of non-jurisdictional High Courts is not binding.

5.44 Since the principles laid down in all the cases are similar, I have not discussed all the decisions cited by the two sides and have quoted only a few landmark judgments so as to avoid repetition (It may be noted that the decision of Calcutta High Court in the case of Purnendu Mulick 116 ITR 591 and Patna High Court in the case of Sri Sri Raja Shiva Prasad Singh of Jharia & Raja Jyoti Prasad Singh Deo of 1 ITC 384 (all supra) are also noteworthy]. However, it is worthwhile to note that similar issue came up very recently before the Hon’ble ITAT, Mumbai in the case of M/s National Stock Exchange of India Limited in ITA Nos. 1955/M/99, 2181/M/99, 4853/M/04, 4485/M/04, 4854/M/04, 356/M/01, 5850/M/00. The facts of this case are that The Bombay Metropolitan Region Development Authority (BMRDA) [Now known as Mumbai Regional Development Authority i.e MMRDA] had given on lease a plot of land in G-Block of the Bandra Kurla Complex to National Stock Exchange for a total lease premium of Rs.90.60 crores for a period of 80 years. The assessee in its computation of total income had given a note explaining that a claim for write off of lease hold land of Rs.7,75,736/- is made on account of lease premium paid in respect of lease hold land acquired from BMRDA amounting to Rs.90.60 crores which is amortized over a lease period of 80 years with effect from 07.03 1995. The claim for write off was for the period from 7.3.1995 to 31.3.1995 on proportionate basis. Thus, the assessee in is computation of total income claimed the lease premium paid to BMRDA as revenue expenditure i.e. “rent”. However the AO in that case did not accept the contention of the assessee and disallowed Rs.7,75,736/- treating the payment of lease premium as capital expenditure. On appeal by the assessee the CIT(A) confirmed the stand taken by the AO. On further appeal of the assessee the Hon’ble Mumbai Tribunal dismissed the appeal of the assessee relying upon the judgement of the special bench of the Tribunal in the case of

33 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 Mukund Ltd (supra) and decision of the Hon’ble Bombay High Court in the case of Khimline Pumps Ltd(supra).

5.45 In the present case the assessee has capitalized the lease premium in itsbooks of accounts and treated the same as capital expenditure for tax purposes and the same was accepted by the department in its regular income tax assessment. However, the AO (during TDS proceedings) came-up with the argument that lease premium paid to CIDCO is in the nature of “rent” liable for TDS u/s 194-I of the Act. This stand taken by the AO cannot be accepted as it is contrary to the decision of various High Courts, Supreme Court and the Tribunal and is against the basic principles of law”

34 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 that the assessee made the lump sum payment for use of land for a period of 60 years and therefore, it is a rent under section 194-I of the Act. He submitted that such lumpsum premium paid by the assessee is an advance rent and therefore, the assessee was required to deduct tax at source u/s 194-I of the Act. Ld. DR submitted that a similar issue was considered by the Chennai Bench of the Tribunal in the case of Foxconn India Developer (P) Ltd V/s ITO (2012)53 SOT 213( Chennai) wherein it is held that upfront charges paid by the assessee for lease of land for a period of 99 years to CIDCO Ltd. under the lease agreement was covered u/s 194-I of the Act. Hence, assessee was obliged to deduct tax at source. Since assessee having notdeducted such tax at source, it was held that rigors of section 201(1) and 201(1A) are attracted.

35 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 the Special Bench of the Tribunal in the case of Mukund Ltd (supra). Ld. AR submitted that Tribunal in the case of M/s National Stock Exchange of India, Hon’ble ITAT, Mumbai in ITA No. 1955/M/99, 2181/M/99, 4853/M/04, 4485/M/04, 4854/M/04, 356/M/01, 5850/M/00 also considered the similar issue on identical facts and held that consideration paid for acquiring leasehold rights in land is a capital expenditure and not rent. Ld. AR submitted that the said decision of M/s National Stock Exchange of India (supra) and of Mumbai Bench of the Tribunal are considered by ld. CIT(A) in paragraph 5.44 of the impugned order(s) and also by the Tribunal in its decision in the case of M/s Wadhwa and Associates Realtors Pvt Ltd. (supra) to hold that provisions of section 194-I do not apply to the payment for acquiring leasehold land as it is a capital expenditure. Ld. AR submitted that issue is squarely covered in favour of the assessee by aforesaid decisions of the Tribunal which have been decided by following the decisions of the Hon’ble Apex Court and the decisions of jurisdictional High Court as well as other High Courts(supra). Therefore, the decision of the ld. CIT(A) is right and the same may be confirmed.

“[Rent. 194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to [a resident] any

36 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, [deduct income-tax thereon at the rate of—

[(a) two per cent for the use of any machinery or plant or equipment; and (b) ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings:]] Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed [one hundred and eighty thousand rupees] :

[Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section.] Explanation.—For the purposes of this section,—

[(i) "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,—

(a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings,

whether or not any or all of the above are owned by the payee;] (ii) where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of

37 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.]”

38 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 assessee from time to time. As per Development Agreement, the assessee is to develop and market “NMSEZ”. There is no dispute to the fact that the assessee has acquired leasehold right in the land for the purpose of developing, designing, planning, financing, marketing, developing necessary infrastructure, providing necessary services, operating and maintaining infrastructure administrating and managing “SEZ”. By virtue of said lease deed(s), the assessee has acquired the rights to determine, levy, collect, retain, utilize user charges fee for provision of services and /or tariffs in accordance with terms and conditions provided in the Development Agreement and the lease deed (s) entered into. Therefore, we agree with ld. CIT(A) that lease deed(s) and the Development Agreement have assigned to the assessee leasehold right which includes bundle of rights. The Assessee has paid the premium for lease deed(s) for the demised land to acquire entire rights of the land for a period of 60 years. Therefore, we are of the considered view that the said payment of lease premium is a payment for acquisition of leasehold land and not merely for use of land. The assessee has made payment for entering into lease agreements to acquire lease hold rights in the land for a period of 60 years and not under a lease. Similar issue came up before the Special Bench ITAT Mumbai in the case of Mukund Ltd. (supra). The assessee acquired a land on lease for a period of 99 years from the Maharashtra Industrial Development Corporation (MIDC) and paid Rs.2.04 crores as premium of leasehold land and apart from fixing annual rent at Rs.1 per annum. The assessee claimed that the said premium on leasehold land is a revenue expenditure, which was disallowed by the AO holding it as a capital in nature. Ld. CIT(A) held that the premium cannot be treated as capital expenditure as the assessee did not acquire ownership of land. It was held that it was an expenditure relatable to 99 years and should be allowed on proportionate basis. However, on further appeal to the Tribunal, the Tribunal held that the benefit conferred on the assessee on lease hold rights in 99 years against lump sum payment of the premium was of an enduring nature. It was held that there was no material on record to suggest that the sum of Rs.2.04 crores had been paid by way of advance rent nor there was any provision for its adjustment towards rent or for its re-payment to the assessee. It was held that the consideration paid by the assessee was

39 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 capital expenditure and accordingly the issue was decided against the assessee.

In the case of lease price is called the premium, and the money, share, service or any other thing to be rendered is called the rent; the transferor is called lessor and the transferee is called lessee.

21.1 Therefore, the above section brings out the distinction between price paid for a transfer of right to enjoy the property and the rent to be paid periodically to the lessor. When the interest of the Lessor is parted with for a price, the price paid is called lease premium or salami. But the periodical payments made for the continuous enjoyment of the benefit under the lease are in the nature of rent. The Hon’ble Apex Court has held in the case of A.R. Krishnamurthy (supra) that lease of land is transferred of interest in the land and creates a right in rem : and there is a transfer of title in favour of the lessee though the lessor has the right of reversion after the period of lease terminates. It was held that grant of mining lease at a premium is a capital asset. The Hon’ble Delhi High Court also brought out the difference between the amount payable for acquiring lease hold rights as premium and the amount which would be payable for use of

40 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 assets as rent in Bharat Steel Tubes Ltd V/s CIT (2001) 252 ITR 622(Del). Their Lordships have held that when the premium is paid at the beginning of the mining lease for a long period, ordinarily represents the purchase of an out and out sale of the property and the sum received is capital and not income, but rent or royalty paid periodically is income. It was held that the principle is the same, whether the premium is for a simple lease of land or for a lease of mineral rights. Therefore, when the interest of the lessee is parted with for a price, the price paid is premium or salami. But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. That the former is capital and the later is revenue in nature. Their Lordships of the Hon’ble Delhi High Court stated that rent is allowable as deduction u/s 30 of the Act. It is stated that section 105 of the Transfer of Property Act, 1882 also make a distinction between the rent and premium payable under lease. When the interest of the lessor is charged with for a price, the price paid is premium or salami but the periodical payment made for the continuous enjoyment of the benefits under lease are in the nature of rent. Their Lordships held that formal is capital and later is revenue in nature. A similar issue also came up before the Hon’ble Jurisdictional High Court in the case of Khimline Pumps Ltd (supra). In the said case open plot of land was leased out to APVE Ltd, a company for a period of 95 years on payment of a premium of Rs.1,62,400/- and yearly rent of Rs.1. In the lease, the company had, at the end of 95 years to deliver a vacant possession of the land. The company was entitled to remove any building, erections or structures put up by it on the land. The company had erected building, plant and machinery thereon. APVE Ltd. were to be wound up and its assets were sold under direction of Hon’ble High Court. The assessee company offered Rs. 75 lakhs of which the AO held that Rs.45 lakhs related to acquisition of lease hold land. But that amount could not be deducted as it was capital expenditure. The Tribunal held it was capital expenditure, but without giving reasons, held that since benefit of the expenditure would be existed in 71 years, a proportionate amount relatable to each year viz Rs.63,380/- might be allowed as deduction on account of payment of rent. On appeal to the Hon’ble High Court the Hon’ble Jurisdictional High Court agreed with the AO that Rs.45 lakhs was a capital expenditure. Therefore the Tribunal could not direct the

41 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 department to apportion the amount over a period of 71 years. Their Lordships held that in order to ascertain true character and purport of the payment the court has to go by the substance of transaction and not by manner in which the assessee allocates the items for accounting purposes.

21.2 We observe that in the case before us, there is a transfer of substantive interest of lessor for the leasehold land in favour of the assessee. That there is a conferment of right on the lessee by acquiring leasehold land and the premium has been paid in lieu thereof and not for the purpose of use of land. The case cited by the ld. CIT(A) of Raja Bahadur Kamakhya Narain Singh of Ramgarh (supra) and the case of the Hon’ble Apex Court in the case of Panbari Tea Co. Ltd. OF INDIA (supra) squarely apply to the facts of the case before us that the lease premium paid by the assessee to CIDCO for acquiring leasehold land is capital expenditure to acquire capital asset and not for the use of land. Therefore, we agree with ld. AR that the lease premium paid by the assessee for acquiring leasehold land with a right to develop and market, NMSEZ, cannot be said to be an advance payment of rent. Accordingly, premium paid by the assessee for acquiring leasehold land under the lease deed(s) entered into, although with restrictive covenants is a capital expenditure, and it does not fall within the ambit of rent under section 194-I of the Act.

21.3 We observe that similar issue has also been considered recently by the Mumbai Bench of Tribunal vide order dated 3.7.2013 (supra) in the case of M/s Wadhwa and Associates Realtors Pvt Ltd.(supra) and the Tribunal vide para 5 of the said order has held that the ld. CIT(A) is justified to hold that the whole transaction towards grant of leasehold transaction right to the assessee is nothing but a transaction of transfer of property and the lease premium is the consideration for the purchase of said leasehold rights. It is relevant to state that the Tribunal in the above order has also considered the decision of the Hon’ble Calcutta High Court, and the decision of Karnataka High Court (supra) on which the AO has placed reliance . We consider it prudent to state para 5 of the said order of the Tribunal which reads as under :

42 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 “5. After considering the facts and the submissions and the nature of transaction, the Ld. CIT(A) observed that the amount charged by MMRD as lease premium is equal to the rate prevalent as per Stamp Duty recovery for acquisition of the commercial premises. These rates are prescribed for transfer of property and not for the use as let out tenanted property. The Ld. CIT(A) further observed that even the additional FSI given for additional charges as per Ready Reckoner rates only. It is the finding of the Ld. CIT(A) that the whole transaction towards grant of leasehold transaction rights to the assessee is nothing but a transaction of transfer of property and the lease premium is the consideration for the purchase of the said leasehold rights.

The ld. CIT(A) went on to discuss the judicial decisions relied upon by the AO of Hon’ble Calcutta and Karnataka High Court and observed that both the decisions pertain to the same issue i.e. whether lease premium was a revenue or a capital expenditure. The ld. CIT(A) also discussed the decision in the case of Raja Bahadur Kamakshya Narain Singh of Ramgarh v. Commissioner of Income-tax 11 ITR 513 PC wherein it has been held that the payment which under the lease is exigible by the lesser may be classed under 3 categories (1) Premium or salary (2) the minimum royalty and (3) the royalty per ton . The salami have been rightly treated as capital receipt. It is a single payment made for the acquisition of the right of the lessees to enjoy the benefits granted both by the lease. The Ld. CIT(A) has also considered the decision of the Hon’ble Supreme Court in the case of Member for the Board of Agricultural Income Tax, Assam Vs Sindhurani Chaudhrani & Ors 32 ITR 169 wherein it has been held that Salami is in the form of a lump sum non recurring payment made by a prospective tenant to the landlord as a consideration and is paid anterior to the constitution of relationship of landlord and tenant, it is not “rent” within the meaning of the word used in the definition of “agricultural income” in section 2(1)(a) of the I.T. Act. It has all the characteristics of a capital payment and it is not revenue. The Ld. CIT(A) further discussed certain other judicial decisions and in particular the decision of the Hon’ble Jurisdictional High Court in the case of CIT Vs Khimline Pumps Ltd., 258 ITR 459 wherein the Hon’ble Jurisdictional High Court has held that an amount of Rs. 45 lakhs paid by the assessee to M/s. APVE Ltd., for acquisition of

43 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 leasehold land was a capital expenditure and hence the same was not deductible. The Ld. CIT(A) has further considered the decision of the Special Bench of Mumbai Tribunal in the case of JCIT Vs Mukund Ltd. 106 ITD 231 wherein the issue was whether the premium paid for acquiring leasehold right in land is revenue or capital . The Special Bench has held that the same is capital expenditure.

5.2. The Ld. CIT(A) has distinguished the facts of the cases relied upon by the AO at page-53 para 5.39 of his order and after distinguishing the cases came to the conclusion that in none of these cases, the issue of ‘lease premium as in the case of the assessee vis-à-vis ‘rent’ has been considered. At para 5.41 of his order at page-54, the Ld. CIT(A) says that “I have also considered the other cases relied upon the AO. These cases lay down general principles of interpretation of Law. I find that none of the above cases the court has held that the lease premium in similar circumstances is in the nature of advance rent and hence liable for deduction of TDS u/s. 194-I of the Act. The cases relied upon by the AO are thus distinguishable on facts and in law and the same cannot be made applicable to the facts of the present case where the issue raised is completely different.”

5.3. The Ld. CIT(A) finally considered the decision of the Tribunal in the case of M/s. National Stock Exchange of India Ltd. in ITA Nos. 1955/M/99, 2181/M/99, 4853/M/04, 4485/M/04, 4854/M/04, 356/M/01and 5850/M/00. At para 5.45 of his order on page 57, the Ld. CIT(A) has given a comparative chart of the facts in the case of the assessee and that in the case of NSE and after comparing the facts finally concluded that the facts of the case of the NSE are identical to the facts of the case of the assessee and observed that in the case of NSE, the stand of the department as well as the decision of the Tribunal was that the consideration paid for acquiring leasehold rights in land is a capital expenditure and not ‘rent’.

5.4. The Ld. CIT(A) finally concluded that the amount paid by the assessee is lease premium for acquiring leasehold rights and additional FSI in respect of the leased plot and the same is not in the nature of rent as contemplated u/s. 194-1 of the Act.

44 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 Accordingly, the assessee was not required to deduct tax at source u/s. 194-1 of the Act and deleted the demand raised by the assessee.”

21.4 Similar issue has come up before the Delhi Bench of the Tribunal in the case of The Indian News Papers Society (supra) and the Tribunal has held that the lease premium paid by the assessee to MMRDA does not fall under section 194-I of the Act and therefore the provisions of section 201(1) of the Act does not apply because the said lease premium was capital expenditure to acquire land on lease with substantial right to construct and cover the building complex.

45 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 (2007) 293 ITR 437 (SC) that the assessee which had taken a quarry on lease, the lease rent paid was capital expenditure and the Hon’ble High Court also affirmed the decision of the Tribunal. The Hon’ble Apex Court while confirming the decision of the Hon’ble High Court held that premium for lease or any lumpsum payment for obtaining a lease for a long period is a payment for enduring advantage, so that it is a capital expenditure which is not deductible . The Hon’ble Apex Court also confirmed the decision of Hon’ble Madras High Court that even the alternate claim for proportionate deduction of the amount, paid during the period of lease is not admissible. Therefore, considering the reasons as mentioned hereinabove and the decisions of ITAT, Mumbai Bench (supra) wherein it has been held that single payment made for acquisition of right of lease to enjoy leasehold rights in the land granted to the assessee is a capital expenditure. Similarly, ITAT Delhi Bench (supra) has held that the lease premium paid by assessee to CIDCO is not in the nature of rent as contemplated u/s 194-I of the Act. Hence, we agree with ld. CIT(A) that the provisions of section 194-I of the Act to deduct TDS on the lease premium paid by the assessee is not attracted. In view of above, we uphold the order (s) of ld. CIT(A) to delete the demand raised by the AO u/s 201(1) and 201(1A) of the Act by rejecting the grounds of appeal taken by the department. Hence, the grounds of appeal taken by the department are rejected in all the appeals for the assessment years under consideration.

2.2. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, conclusion drawn in the aforesaid order of the Tribunal dated 16/08/2013, assertions made by the ld. respective counsels, if kept in juxtaposition and analyzed, we note that in the aforesaid order an elaborate discussion has been made by the Tribunal along with citing various judicial

46 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 pronouncements on identical issue/facts and concluded that the provisions of section 194-I are not applicable to the facts of the present appeal to deduct TDS on the lease premium paid by the assessee. The ld. Commissioner of Income Tax (Appeals) in the impugned orders has also followed one of the aforesaid decisions, relied upon by the assessee and more specifically M/s Wadhwa Associates realtors Pvt. Ltd. (supra) along with various other decisions and found that the payment to MMRDA is for additional built up area and also for granting fee of FSI and such payments cannot be equated to rent, thus, we find no infirmity in the impugned orders, wherein, the decision of the Tribunal in the case of National Stock Exchange and M/s Mukund Ltd. were discussed along with the decision from Hon’ble jurisdictional High Court in the case of M/s Khim Line Pumps Ltd. which is identical on facts, thus, the addition made u/s 201(1) and 201(1A) of the Act was rightly deleted. We affirm the stand of the ld. Commissioner of Income Tax (Appeals) as no infirmity is found therein.

Finally, both the appeals of the Revenue are dismissed.

This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 23/11/2015.

Sd/- Sd/- (Jason P. Boaz) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER

47 Oriental Bank of Commerce ITA No.1300 & 1301/Mum/2014 मुंबई Mumbai; �दनांक Dated : 23/11/2015 f{x~{tÜ? P.S/.�न.स. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai.