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2017 (2) TMI 1109 - HC - Income TaxTDS u/s 194I - non-payment of TDS required to be deducted from the payments of lease rent/interest/other payments for acquisition of a plot of land on 90 years lease from GNOIDA - entitled to the benefit of Section 10 (20) - Held that:-Industrial townships per se need not be statutory bodies; they can be private entities as well. Jamshedpur in Bihar with a population of a million plus, is maintained by the Jamshedpur Utilities and Services Company Ltd, a private entity. It provides all the essential municipal services; yet the city has no “official” or statutory municipal corporation. Therefore, whenever the nature and characteristics of the services provided by an entity or corporation- irrespective of statutory grant by the state (or lack of profit motive, or even that it has attributes or trappings of state or its power), are such that it is essentially or mainly an industrial township, and its governing structure is not “self-governing”, the power under Article 243Q is exercised. GNOIDA cannot obviously challenge that exercise of power. It follows, therefore, that it is not a municipality. Therefore, its contentions that it is a municipality and entitled to the benefit of Section 10 (20) are without merit. The court is of opinion that clearly these payments are not “rent”. That they are annual payments cannot be doubted. Yet, part of the payment is clearly capital in nature. Clause 1 of the lease deeds entered into in each of the cases, clearly points to the fact that a small percentage of the agreed amounts were paid as part of the lease premium and were towards acquisition of the asset; they fell, consequently in the capital stream and were not “rents”. The balance of such premium payments were spread over a period of 8 to 10 years, in specified annual or bi-annual installments. Here, distinction between a single payment made at the time of the settlement of the demised property and recurring payments made during the period of its enjoyment by the lessee is to be made. This distinction is clearly recognized in Section 105 of the Transfer of Property Act, which defines both premium and rent. Such payments were held to constitute capital and not “rent” or advance rent, in Durga Das Khanna v CIT [1969 (1) TMI 1 - SUPREME Court ] This view is also reinforced by the Income Tax Circular No. 35/2016 dated 13 October, 2016 issued by the Central Board of Direct Taxes (CBDT) which clarified that “lump sum lease payments or one time lease charges, which are not adjustable against long term lease hold charges, which are not adjustable against periodic rent, paid or paid or payable for acquisition of long term leasehold rights over land or any other property are not payments in the nature of rent within the meaning of Section 194-I of the Act Interest on overdue payments or other such amounts are concerned, however, they cannot be called “capital” payments. In the present case, the court holds that since the GNOIDA insisted that its payments not be subjected to TDS, it should ensure that the appropriate amounts are credited, or credit to the extent applicable, is given to the Petitioner/ lessees. A direction to that effect is given to the second respondent, GNOIDA to ensure compliance; the Revenue is consequently directed not to pursue coercive and penal proceedings against the petitioners under Section 201/221 of the Income Tax Act. Whether GNOIDA is an institution of the kind covered by Section 194A (3) (f)? - Held that:- Amounts which are payable towards interest on the payment of lump sum lease premium, in terms of the Lease which are covered by Section 194A are covered by the exemption under Section 194A (3) (f) and therefore, not subjected to TDS - any payment of interest accrued in favour of GNOIDA by any petitioner who is a bank – to the GNOIDA, towards fixed deposits, are also exempt from TDS.
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