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2015 (11) TMI 1377 - ITAT MUMBAI

2015 (11) TMI 1377 - ITAT MUMBAI - TMI - TDS u/s 194I - amount paid by the assessee bank (the lessee) to City Industrial Development Corporation (MMRDA) (Lessor) - whether not in the nature of rent ? - Held 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 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 fin .....

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e 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 (MMRDA) (Lessor) was not in the nature of rent as defined u/s 194 I of the Act. 2. During hearing of this appeal, the ld. DR, Shri O.P. Meena defended the conclusion arrived at in the assessment order by contending that .....

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vered by the decision of the Tribunal in the case of Navi Mumbai SEZ Pvt. Ltd. vs Income Tax (ITA No.738 to 741/Mum/2012), ITO(TDS) vs Wadhwa and Associates Realtors (P) Ltd. (2013) 36 taxman.com 526 (Mumbai Trib.) and ITO vs Indian Newspaper Society (2013) 144 ITD 668 (Del.). This factual matrix wax not controverted by the Revenue. 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 f .....

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l taken by department are elaborative in all these appeals but the only issue involved in the appeals is as to whether the lease premium paid by assessee to The City and Industrial Development Corporation of Maharashtra Ltd. (CIDCO) for acquiring development and lease-hold rights for a period of 60 years under the Lease Deed(s) is rent within the meaning of section 194-I of the Income Tax Act, 1961 (the Act) and hence liable for deduction of tax at source or not. 3. The relevant facts are that a .....

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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 L .....

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vice 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 assesseecompany 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) .....

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ssment year 2008-09 and ₹ 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 deter .....

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d (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 fo .....

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cting tax u/s 194-I of the Act of lease premium paid by it to CIDCO for all the assessment years under consideration i.e. A.Ys.2006-07 to 2009-10. 5. On behalf of the assessee it was submitted that pre- dominant objective for the payment of lease premium under lease deed(s) is acquisition of leasehold rights in the said leasehold land and not for the use of the land. That lease premium are consideration for purchase of larger interest in the said leasehold land which comprises of bundle of right .....

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corresponding acquisition of larger rights in the said leasehold plots. Hence, the lease premium paid to CIDCO Ltd. for acquisition of leasehold land is clearly distinct from rent. On behalf of assessee, a reference was made to section 105 of the Transfer of 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 .....

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see 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 ₹ 2.04 .....

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e 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. 6. AO did not agree with the submissions of assessee and after considering the definition of rent under section 194-I of the Act in the light of Explanation(i) there .....

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ed 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 Krishn .....

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essment year 2008-09 and ₹ 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 3,34,55,06,3 .....

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ments with CIDCO. CIDCO has also 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 .....

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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 .....

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e 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 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 .....

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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 .....

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thority 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. 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 T .....

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le 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 ba .....

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lments where lease agreement provided for lessor to take back possession in certain contingencies was not advance rent and was capital expenditure which was confirmed by the Hon ble Bombay High Court in the case of Commissioner of Income-tax v. Project Automobiles (1983) 15 Taxman 227 (Bom.). 3. When the assessee claimed that cost of land paid to the liquidator for the lease land from MIDC should be allowed to be considered for 71 years of lease period on a proportionate basis; the Dept rejected .....

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essee towards premium represented capital expenditure and not revenue expenditure. This view of the Dept. was upheld by the Hon'ble Madhyapradesh High Court in the case of CIT V/s Project Automobiles Ltd [35 Taxman 181 (MP) 5. The revenue disallowed the claim of the assessee that expenditure of ₹ 1,25,OOO paid to MIDC for premium on leasehold land is in the nature of advance rent. The period of lease in this case was for 99 years and the lease was also from MIDC as in the case of the a .....

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. Further in the following cases lease premium received has been held as a capital receipt and not in the nature of advance rent. 1. Decision of Supreme Court in the case of Commissioner of Incometax V/s Panbari Tea Co. Ltd. OF INDIA (1965) 57 ITR 422 (SC) Section 4 of the Income-tax Act, 1961 [Corresponding to section 3 of the Indian Income-tax Act, 1922J - Income - Chargeable as - Assessment year 1952-53- Assessee company leased out tea estates along with machinery and buildings and received p .....

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Crown SIR DAWSON MILLER KT, K.C., CJ. AND FOSTER. J. (1924) 1 ITC 384 (Pat). 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 fo .....

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65 - Assessee, on executing a lease deed in respect of certain premises in favour of a company, received a lump sum amount besides monthly rent - Assessee claimed that said sum received as salami or premium constituted capital receipt and therefore,was not taxable as income - Tribunal accepted assessee's claim - On instant reference, it was seen that lump sum amount paid was described as salami or premium and not rent - There was no clause for repayment of said amount or adjustment of said a .....

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urchase 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. .....

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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 th .....

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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, reported in 33 ITR 245 wherein it has been held that persons who ar .....

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d 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 the .....

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ctfully 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 leas .....

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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 .....

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und 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 I .....

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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 perio .....

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d. 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. .....

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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 Corporati .....

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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 .....

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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 ₹ 285.87 crores, vide lease deed dated 16.3.2006. Out of this amount, an amount of ₹ 50 crores has been paid by the appellant in .....

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ccordance 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 l .....

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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 .....

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t 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 th .....

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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) fitting .....

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ing the lease and it cannot be equated with the rent. We consider it necessary to reproduce paras 5.20 to 5.28 of the impugned order(s) of ld. CIT(A) which are as under : 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 .....

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ot;use" here is therefore of utmost 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 .....

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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. A .....

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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' of property by the tenant; rather it would be exploitation of the property by virtue of certain rights, which w .....

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retched 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. .....

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ter 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 .....

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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 .....

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petuity, 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 .....

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rant of lease Therefore, it cannot be equated with the rent. which is paid periodically. 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 .....

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ht 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 enj .....

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rm 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 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 characte .....

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nts 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 t .....

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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. 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 m .....

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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 .....

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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 ₹ 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 .....

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s 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 ₹ 75 lakhs out of which ₹ 45 lakhs related to acquisition of leasehold land. The assessee contended before the AO that ₹ 45 lakhs was paid as advance rent towards the leasehold land and hence the same was .....

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ch 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 ₹ 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 assesseecompany and the Government .....

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d that the licensee shall be 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 ₹ 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 .....

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992 shall not make the character of the amount of ₹ 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 ₹ 2.04 crores was paid as "premium" for acquisitio .....

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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 ₹ 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 .....

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he 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 .....

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iew 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 .....

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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 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 .....

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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, stil .....

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s 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 Cal .....

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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 .....

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diture. 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 inco .....

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icer (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 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 ar .....

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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 .....

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ars 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 ₹ 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. O .....

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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 13. Thus, ld. CIT(A) has stated that various clauses of lease agreement are standard regulatory clauses which do not affect leasehold rig .....

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t assessee was not required to deduct tax at source u/s 194-I of the Act. Thus, demand raised by the AO by invoking the provisions of sections 201(1) /201(1A) of the Act in respect of all the assessment years under consideration are deleted by him. Hence these appeals by the department before the Tribunal. 14. Ld. DR while supporting the order(s) of the AO submitted that assessee acquired right to use land for a period of 60 years under lease deed(s) entered into between the assessee and the CID .....

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ade 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 char .....

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s paid for acquiring leasehold rights and not for use of land. That said premium paid does not fall under the definition of rent u/s 194-I of the Act. Ld. AR submitted that Delhi Bench of the Tribunal while considering the similar issue in the case of ITO V/s The Indian News Papers Society in its order dated 20.6.2013 in ITA No.5207/Del/2012 (AY-2007-08) confirmed the order of the ld. CIT(A) that lease premium paid by assessee to MMRDA cannot be subjected to tax deduction at source u/s 194-I of .....

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e Tribunal in the case of ITO V/s M/s Wadhwa and Associates Realtors Pvt Ltd. In ITA No.695/Mum/2012 (AY-2008-09)dated 3.7.2013 in which it has been held that the lease premium paid by the assessee to MMRDA for grant of leasehold rights is nothing but a transaction of transfer of property and the lease premium is the consideration for the purchase of the said leasehold right, after considering the decision of the Hon ble Jurisdictional High Court in the case of Khimline Pumps Ltd (supra) and the .....

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xchange 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 .....

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aid decisions are not applicable to consider the question as to whether lease premium paid by the assessee to acquire lease land could be considered as rent u/s 194-I of the Act or not. 17. We have carefully considered the submissions of the ld. Representatives of the parties, orders of the authorities below and the cases relied upon (supra). We have also carefully considered the provisions of section 194-I which deal with the provisions for deduction of income Tax at source from income by way o .....

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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 credit .....

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ar 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; .....

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gree with the ld. DR that the word rent as defined u/s 194-I has a wide meaning than the rent in common parlance. 19. 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 premium paid by the assessee to CIDCO to acquire leasehold rights for 60 years und .....

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r 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-I 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 the lease deed(s), hence provisions of section 194-I of the Act is attracted. 20. On .....

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t 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 necessary services, operating and maintaining infrastructure administrating and managing SEZ . By virtue of said l .....

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d 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 .....

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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 ₹ 2.04 crores had been paid by way of advance rent nor there was any provision for its adjustment towards re .....

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ough has been defined in section 194-I of the Act, but other terms like, lease, lease premium, lessor and lessee etc have not been defined under the Income Tax Act. The ld. CIT(A) has rightly stated in the impugned order that the meaning of these terms as provided in the Transfer of Property Act, 1882 have to be considered. The term lease is defined under section 105 of Transfer of Property Act, 1882 as "A lease of immoveable property is a transfer of a right to enjoy such property, made fo .....

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ssee. 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 o .....

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bes 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 pa .....

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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 .....

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t ₹ 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 ₹ 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 t .....

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d 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 leasehol .....

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der 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 co .....

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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 transac .....

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ome-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 Memb .....

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l 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 ₹ 45 lakhs paid by the assessee to M/s. APVE Ltd., for acquisition of leasehold land was a capital expenditure and hence the same was not deductible. The Ld. CIT(A) has further considered the dec .....

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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 di .....

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at 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 righ .....

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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. 22. During the course of hearing ld. 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 consi .....

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s and the said payment was made to SIPCOT Ltd under lease agreement. Therefore, 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/s 194-I of the Act. Therefore, we are of the considered view that the above decision of ITAT Chennai Bench (supra) relied upon by ld. DR is not applicable to the ca .....

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the Income Tax Act. The Hon ble Apex Court has held in the case 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 lumpsum payment for obtaining a lease for a long period is a payment for enduring advantage, .....

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nted 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 rejecti .....

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