2021 (1) TMI 562 - AT - Income Tax

TDS u/s 194I - lease premium paid to Mumbai Metropolitan Regional Development Authority ( MMRD ) - AO treated the assessee to be in default u/s 201(1)/201(1A) in respect of tax not deducted at source - HELD THAT - As decided in Central Board of Direct Taxes ( CBDT for short) vide Circular No. 35/2016 F. No. 275/29/2015-IT(B) Dated 13-10-2016 in which CBDT has taken note of order of Hon ble Delhi High Court in assessee s own case 2015 (12) TMI 984 - DELHI HIGH COURT lump sum lease premium or one-time upfront lease charges which are not adjustable against periodic rent paid or payable for acquisition of long-term leasehold rights over land or any other property are not payments in the nature of rent within the meaning of section 194-I of the Act. Therefore; such payments are not liable for TDS under section 194-1 of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of TDS under Section 194I of the Income Tax Act on lease premium payments.
2. Whether the lease premium payments constitute capital expenditure or rent.
3. Treatment of the assessee as an assessee in default under Section 201(1)/201(1A) for non-deduction of TDS.

Issue-wise Detailed Analysis:

1. Applicability of TDS under Section 194I of the Income Tax Act on lease premium payments:
The primary issue was whether the assessee was liable to deduct tax at source under Section 194I of the Income Tax Act on lease premium payments amounting to Rs. 13,81,17,243/- paid to Mumbai Metropolitan Regional Development Authority (MMRDA). The Assessing Officer (AO) had held that the assessee failed to deduct TDS on the lease premium, treating it as rent, and thus raised a demand under Sections 201(1) and 201(1A).

2. Whether the lease premium payments constitute capital expenditure or rent:
The CIT(A) reversed the AO's decision, holding that the lease premium was a capital expenditure and not rent, thus not attracting TDS under Section 194I. The CIT(A) relied on the decision of the Hon’ble Delhi High Court in the assessee's own case and CBDT Circular No. 35/2016 dated 13.10.2016, which clarified that lump sum lease premium for acquiring long-term leasehold rights is a capital expense and not rent.

3. Treatment of the assessee as an assessee in default under Section 201(1)/201(1A) for non-deduction of TDS:
The AO had treated the assessee as an assessee in default for non-deduction of TDS on the lease premium. However, the CIT(A) held that since the lease premium was capital expenditure, the assessee was not liable to deduct TDS, and thus could not be treated as an assessee in default.

Detailed Analysis:

(A) The appeal by Revenue and the Cross Objection by the Assessee were disposed of through a Consolidated Order. The grounds in the Appeal and Cross Objection were primarily related to the applicability of TDS under Section 194I on lease premium payments.

(B) The Assessee, a non-profit company, had paid a lease premium to MMRDA for acquiring long-term leasehold rights. The AO held that the assessee failed to deduct TDS on this lease premium, treating it as rent, and thus raised a demand under Sections 201(1) and 201(1A).

(B.1) The CIT(A) held that the lease premium was a capital expenditure and not rent, thus not attracting TDS under Section 194I. The CIT(A) relied on the decision of the Hon’ble Delhi High Court in the assessee's own case and CBDT Circular No. 35/2016 dated 13.10.2016.

(C) The present appeal before the Tribunal was filed by Revenue against the CIT(A)'s order. The Tribunal noted that the issue was already decided in favor of the assessee by the Co-ordinate Benches of ITAT, Delhi, in the assessee’s own case for previous assessment years.

(C.1) The Tribunal observed that the grounds in Revenue’s appeal and the Assessee’s Cross Objection were related to the liability of the assessee to deduct TDS under Section 194I on the lease premium paid to MMRDA.

(C.2) The Tribunal noted that the issue was already decided in favor of the assessee by the Co-ordinate Benches of ITAT, Delhi, in the assessee’s own case for previous assessment years, where it was held that the lease premium was a capital expenditure and not rent, thus not attracting TDS under Section 194I.

(C.3) The Tribunal also noted that the issue was settled in favor of the assessee by CBDT Circular No. 35/2016, which clarified that lump sum lease premium for acquiring long-term leasehold rights is a capital expense and not rent.

(D) The Tribunal found that the Revenue failed to show any distinguishing facts for the present assessment year compared to previous years. The Tribunal upheld the CIT(A)'s order, holding that the lease premium was a capital expenditure and not rent, thus not attracting TDS under Section 194I.

(E) The appeal filed by Revenue was dismissed, and the Cross Objection filed by the Assessee was allowed.

Conclusion:
The Tribunal upheld the CIT(A)'s decision that the lease premium paid by the assessee to MMRDA was a capital expenditure and not rent, thus not attracting TDS under Section 194I. The Revenue's appeal was dismissed, and the Assessee's Cross Objection was allowed.