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I.T.O., Ward-57 (3) Kolkata Versus Earnest Towers (P) Ltd.

2015 (5) TMI 864 - ITAT KOLKATA

TDS u/s 194I - Premium for acquiring leasehold rights for the leased plot - whether falls within the purview of sub clause (i) of explanation to sec. 194I which specifies the meaning of the term ‘rent’? - whether payment of premium was for acquisition of leasehold rights or for use of land? - Held that:- Commissioner of Income Tax(A) has also dealt with other cases pertaining to the land leased by MMRDA in the same or adjoining area and has held that the impugned deposit of lease premium does no .....

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fore, we are unable to see any perversity, infirmity or any other valid reason to interfere with the findings of the Commissioner of Income Tax(A). See CIT vs Vegetable products [1973 (1) TMI 1 - SUPREME Court]- Decided in favour of the assessee .

In the case of ITO vs Indian Newspaper Society (2013 (9) TMI 158 - ITAT DELHI) held that in case the lease premium paid by the assessee is held to be capital in nature and the assessee is not liable to deduct TDS on payment of lease premium .....

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not convert the lease premium into tenancy as per section 194 I of the Act. Accordingly the issue is decided against the revenue. - I.T.A No. 265/Kol/2012 - Dated:- 13-5-2015 - Sri Mahavir Singh & Sri B.P.Jain, JJ. For the Appellant : Shri Varinder Mehta, CIT For the Respondent : Shri R.N.Bajoria, Sr.Advocate & Shri Santosh Bajaj, Advocate ORDER Per Shri B.P.Jain, AM This appeal of the Revenue arises from the order of ld.CIT(A)-I, Kolkata dated 20.12.2011 for Financial year 2007-08 i.e. .....

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o appreciate that the issue in appeal was not capital vs. revenue expenditure, but whether the payment was made for use of the land or not as required u/s 194 I of the Act. 3. The Ld. CIT(A) has erred both on facts and in law to appreciate that restrictive clauses in the deed covering the transaction, governing use of the land, alteration etc. provision in the said deed for ref und of 75% of such premium on forfeiture of the lease as also for additional premium for additional built up area to be .....

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imited company and is engaged in the business of real estate investment. MMRDA, a body corporate constituted and established under provision of Mumbai Metropolitan Region Development Authority Act, 1974 who allotted a plot of land measuring 8076.38 sq.mts to the assessee on lease for a period of 80 years. The lease deed was executed on 23rd June, 2008 and the lease premium paid by the assessee for grant of lease was ₹ 1041.42 crores. It is worthwhile to note that the said payment has been .....

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MMRDA was not covered by the TDS provision u/s 194 I of the Act. 3.1. The AO after considering these submissions of the assessee and relying upon the definition of rent as per section 194 I of the Act held that the lease premium of ₹ 1041.42 crores was in fact an advance rent and therefore the assessee was required to deduct tax at source. The assessee was therefore treated as assessee in default in terms of section 201(1) and 201(1A) of the Act for non deduction of TDS and non payment of .....

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nction between the lease premium and the rent and came to the conclusion that premium is not paid under lease but is paid as a price for obtaining the lease. 4. We have heard the rival contentions of the parties and perused the facts of the case. As regards ground no.1 the main question is whether the provisions of section 194 I of the Act are applicable to the assessee. The case of the revenue is that payment of lease premium is in the nature of advance rent for 80 years and definition of the t .....

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r the assessee has refuted the submissions made by the revenue by submitting that the assessee had paid lease premium to MMRDA as consideration for the demise of the land in favour of the assessee and not for the use of land. The ld. Counsel for the assessee has further argued that there is a distinction between the lease premium and rent. It is the case of the assessee that substantial premium of ₹ 1041.42 crores having been paid, there is no question of camouflaging the same as advance r .....

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to the provision of section 194 I of the Act which is extracted as under :- 194-I Any person not being an individual or a Hindu undivided family, who is responsible for payment 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) Ten per cent for the use of any machine .....

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du undivided family:]] 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 twenty thousand rupees: Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the busi .....

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er 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 .....

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premises and of the sum of ₹ 1041,41,73,600 (Rupees One Thousand Forty-one Crore Forty-One Lacs Seventy-three Thousand Six Hundred Only) paid by the lessee to the lessor as a premium and of the covenants and agreements on the part of the Lessee hereinafter contained, the Lessor doth hereby demise unto the Lessee all that piece of land…………together with all Rights easements and appurtenances thereto belonging to the Lessor ………to hold the land .....

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er of doubt that the lease premium of ₹ 1041.42 crores was for acquisition of rights in the lease hold property rather than use of land. Therefore the provisions of section 194 I of the Act are not applicable in the case of the assessee. The purport of section 194 I of the Act is not to bring in its purview payments of any or every kind. Only those payments which are in the nature of use of land come within the ambit of section 194 I of the Act. The word use is therefore of prime importanc .....

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ween a sale transaction and a transaction between the landlord and the tenant. This would render the intention of the legislature in importing the word use in section 194 I of the Act otiose. Landlord-tenant relationship does not contemplate such right being given to the tenant. However, there may be transactions of lease that may be identical to the transactions between a landlord and tenant and that is why the definition of the rent includes lease, sub-lease etc. 4.6. It is further relevant to .....

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ase premium of ₹ 1041.42 crores has been paid before the execution of the lease deed and not after. 4.7. The distinction between the lease premium and the rent has been a subject matter of discussion in various judicial pronouncements. The Hon ble Supreme Court in the case or CIT vs Panbari Tea company Ltd. 57 ITR 422 has brought out the aforesaid distinction and the relevant part is reproduced as under :- Under s. 105, of the Transfer of Property Act, a lease of immovable property is a tr .....

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to be so rendered is called the rent. The 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. There m .....

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of CIT vs Purnendu Mullick 116 ITR 0591 observed that in case where the leases is for a long period, the lumpsum payment cannot be treated as rent. The relevant portion of the judgement is extracted herein below :- 8. On further appeal, the Supreme Court held that the Tribunal and the High Court were both in 'error in treating the said sum of ₹ 55,200 as advance payment of rent for the following reasons: (a) Prima facie, premium or salami was not income and it would be for the IT autho .....

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.f. June 1, 1946. (e) The sub-lessees would enter in to possession after the cinema house was said to be completed. (f) The payment of the lump sum was of a non-recurring nature. 9. On the basis of the aforesaid reasons .the Supreme Court held that the said sum of ₹ 55,200 was a capital receipt and not income. 10. It appears to us that the facts of the present case are very similar to the facts which were considered by the Supreme Court in the above decision and that the present reference .....

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ow that the premium or salami paid had any characteristic of rent. 4.9. The Hon ble Delhi High Court in the case of Bharat Steel Tubes Ltd. Vs CIT reported in (2001) 252 ITR 0622 has brought out the distinction between the lease premium and the rent by laying down broad principles relating to the term lease premium/salami. The said principle are applicable in the case of the assessee in as much as the lease premium has been paid before the execution of the lease which is for a term of a long per .....

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id by the tenant for being let into possession and can be neither rent nor revenue but it is capital receipt in the hands of the landlord. In the former case it was observed that Salami is a payment by a tenant as a price for parting by the landlord with the rights under the lease of the holiday as a consideration for what the landlord transfers to the tenant. The broad principle relating to term Salami are as follows: (1) Prima facie Salami or premium is not income, it is for the taxing authori .....

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a mining lease for a long period ordinarily represents the purchase price of an out anti out sale of the property and the sum received is capital and not income but rent or royalty paid periodically is income. The principle is the same whether the premium is for a simple lease of land or for a lease of mineral rights. But royalty payable under the mining lease stands on a different footing from premium or Salami. (5) When a premium is received merely as an incident in the possession of property .....

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. Money paid to purchase the said general right is a payment on capital account. (8) Salami is the amount of money which a landlord insists on receiving as condition precedent for parting with the land in favour of the lessee and that it was received by the landlord not because of the use of the land, but before the land was put into use by the assessee. (9) The question of Salami should not be decided on the length of the period of the lease but on the nature of the right conveyed. The characte .....

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f the Act. What is allowable is the rent paid or payable for the period during which the premises are used for the purposes of business. Sec. 105 of the Transfer of Property Act, 1882 (in short, T.P. Act) makes a distinction between rent and premium payable under a lease 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 .....

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vour of the assessee. The relevant portion of the decision is extracted herein below:- . 10. Apropos these grounds, the DR submitted that the Commissioner of Income Tax(A) has grossly erred in not appreciating that the payment made by the assessee in the respective assessment years to MMRDA was covered under the definition of "Rent" as per provisions of Section 194-1 of the Act. The DR further submitted that the assessee has acquired land rights from MMRDA who provided land to the asse .....

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the case, even a security deposit under lease agreement can be tantamount to advance rent, hence TDS deduction is required to be made. 11. After careful consideration of the above submissions, contentions and legal propositions of both the parties in the light of factual matrix of present case, we observe that it is argued on behalf of the assessee that the MMRDA in its computation of income has not included the lease premium received in computing the total income because it was further payable .....

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and separate connotations in law as enshrined in Section 105 of the Transfer of Property Act, 1882. The essence of premium lies in that fact it is paid prior to the creation of the landlord and tenant relationship, that is, before the commencement of the tenancy and constitutes the very superstructure of the existence of that relationship. Its another vital characteristic is that it is a one time non-recurring payment for transferring and purchasing the right to enjoy the benefits granted by th .....

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nt of ₹ 88,52,75,000/- is before the initiation of the tenancy relationship between the Appellant and MMRDA and consequently, a cardinal ingredient of premium as advocated in the case laws cited supra is satisfied .. iii) Moreover, the payment ₹ 88,52,75,000/- is made only once for all by the Appellant since there is no other further payment apart from ₹ 88,52,75,000/- which can be attributed to bringing into existence the foregoing landlord and tenant relationship between the .....

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08 entered into by the Appellant with Orbit Enterprises transfers development rights to the latter on terms and conditions set out therein which would not have been possible, but for the substantive rights, interest and title enjoyed by the Appellant in the Bandra land in consideration of ₹ 88,52,75,OOO/- disbursed to MMRDA. vi) In addition, clause 1 of the operative portion of the lease agreement dated 09.04.2008 read with the recitals thereof unequivocally covenants that in consideration .....

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result, I hold that all the yardsticks as judicially held in the foregoing rulings relied upon by the l earned counsel for terming the sum of ₹ 88,52,75,000/- as lease premium are fulfilled in the Appellant's case. Moreover, in A. R. KRISHANAMURTHY v. CIT 176 ITR 417 (SC), the transfer of leasehold rights even for temporary period of 10 years has been held to give rise to chargeable capital gains where the Apex Court followed its earlier decision in R.K. PALSHIKAR v. CIT 172 ITR 311 ( .....

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lhi High Court in KRISHAK BHARA TI v. CIT DECIDED ON 12.07.2012 to which my attention was drawn by the learned counsel vide letter dated 23.07.2012 enclosing the copy of the same. Thus in conformity with the consistent stand of the judiciary including the latest pronouncement of the jurisdictional High Court, in my view, undoubtedly premium in relation to leased land is a payment on capital account not liable to be classified as revenue outgoing and I hold accordingly. On the facts and circumsta .....

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ged as advance rent and the Assessing Officer, in the instant case has not brought on record any material to indicate that the rent has been suppressed and the premium has been inflated. In my opinion, to prove such a factual case of measly rent and enlarged premium where an arm of the government is a party [MMRDA] to the lease agreement, the burden would very heavy and onerous. Such a state of affairs cannot be presumed without cogent evidence and the AO has made no attempt to lead any such evi .....

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tain to the land leased by MMRDA in the same or adjoining area which is fortified by the plan appearing at page no.-44 and 59 of the lease deed dated 09.04.2008 [G block-page 43 of the factual paper book.]" 12. In view of above observations, we clearly observe that the Commissioner of Income Tax(A) has also dealt with other cases pertaining to the land leased by MMRDA in the same or adjoining area and has held that the impugned deposit of lease premium does not constitute advance rent but i .....

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perversity, infirmity or any other valid reason to interfere with the findings of the Commissioner of Income Tax(A). Accordingly, this issue is decided in favour of the assessee by disposing ground no.2 of ITA 5207/D/12 and ground no.1 of ITA 5208/D/12. Ground no.3 of ITA No.5207/D/12 and ground no.2 of ITA 5208/0/12 13. Apropos these grounds, the DR submitted that the Commissioner of Income Tax(A) has erred in not treating the assessee as assessee in default within the meaning of section 201(1) .....

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to any other sections which he may incur, be deemed to be an assessee in default in respect of such taxes. 14. Replying to the above, the counsel of the assessee submitted that the payment of lease premium was payment of capital expenditure and the payment was not liable for tax deduction at source by the payee, therefore, the assessee had no occasion to deduct tax at source and in this situation, the Assessing Officer/TDS officer wrongly held that the assessee was liable to deduct tax at source .....

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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, shall deduct income-tax thereon at the rate prescribed therein. Since in the present case, we have held that the lease premium paid by the assessee was capital in nature and was not rent, therefore, we are unable to approve the findings of TDS Officer/Assessing Officer that the assessee was liable to deduct TDS on payment of lease .....

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sing Officer and we decline to hold that the Commissioner of Income Tax(A) has erred in not treating the assessee as assessee in default within the meaning of section 201(1)of the Income Tax Act for non-deduction of TDS on payment of lease premium to MMRDA. At the cost of repetition, it is worthwhile to mention that for invoking the provisions of section 201(1)of the Act, this is a precondition that the person should be required to deduct any sum in accordance with the provisions of this Act and .....

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e of ITO vs Wadhwa & Associates Realtors Pvt. Ltd. (2014) 146 ITD 0694 (Mum) similar issue arose before ITAT Mumbai Bench where it was held as under : 9. We have considered the rival submissions, perused the order of the lower authorities and the material evidence brought on record in the form of paper Book and the judicial decisions relied upon by the rival parties. The entire grievance revolves around the premium paid by the assessee to M/s. MMRDA Ltd. for the leasehold rights acquired by .....

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the Act. 10. We have carefully perused the lease deed as exhibited from page-l to 42 of the Paper Book. A careful reading of the said lease deed transpires that the 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, by any stretch of imagination, it cannot be equated with the rent which is paid periodically. A perusal of the records further show that the payment to MMRD is also for additional built up are and also fo .....

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FSI and has further acquired/purchased the additional built up area for construction of additional area on the aforesaid plot. Thus the assessee has made payment to MMRD under Development Control for acquiring leasehold land and additional built up area. The decisions of the Tribunal in the case of M/s. National Stock Exchange (supra) and Mukund Ltd (supra) have been well discussed by the Ld. CIT(A) is his order. The decision of the Hon'ble Jurisdictional High Court in the case of Khimline .....

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(TDS) vs Navi Mumbai SEZ Pvt. Ltd. 147 ITD 0261 (Mum) Similar issue is held in favour of the assesee in similar consideration and the relevant decision in paras 19 and 20 is reproduced herein below :- In the case before us, the assessee has entered in to lease agreements with CIDCO for acquisition of leasehold rights in the land to develop and operate the Special Economic Zone at Navi Mumbai. Assessee has paid premium for demised lease land. The-question before us is as to whether the said lease .....

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ehold lands on payment of lease premium and the said lease premium is not paid under a lease. Hence, it is a capital expenditure and not an advance rent. We observe that the main thrust of the AO to hold the premium paid by assessee to hold it as rent is on the definition of rent under section 194-1 of the Act that it creates a legal fiction and the lease deed(s) entered into contain various restrictive covenants. That the said payments in substance are for consideration for use of land under th .....

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o Development Agreement and the assessee is required to make payment of lease premium in respect of the land which was being acquired by CIDCO and being allotted to 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 necessar .....

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e 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. .....

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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 .....

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in the decision of ITAT Mumbai Bench in the case of ITO vs Navi Mumbai SEZ Pvt. Ltd (supra) in the following paras of the decisions at para 22 which is reproduced herein below :- 22. During the course of hearing Id. DR submitted that the above decisions of ITAT, Delhi Bench and ITAT Mumbai Bench (supra) are distinguishable. Whereas the decision of ITAT,Chennai Bench in the case of Foxconn India Developers Pvt.Ltd (supra) should be considered and be followed. We observe that the said decision of .....

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efore, the said payment is for lease or use of land and accordingly the payment could not be said to have been made for acquiring leasehold land and hence, it is observed that the Chennai Bench has held that the payment by the assessee company to CIDCO is rent u/s194-1 of the Act. Therefore, we are of the considered view that the above decision of ITAT Chennai Bench (supra) relied upon by Id. DR is not applicable to the case before us. On the other hand, the Special Bench Decision of ITAT, Mumba .....

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se of Enterprising Enterprises V/s DCIT (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 lump sum payment for obtaining a lease for a long period is payment for enduring advantage, so that it is a capital expenditure which is not d .....

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