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2016 (1) TMI 664 - ITAT JAIPUR

2016 (1) TMI 664 - ITAT JAIPUR - TMI - TDS u/s 194-I - development charges paid by the assessee to Rajasthan State Industrial Development and Investment Corporation Limited (RIICO) towards allotment of land on lease of 99 years - whether payment of development charges paid was for acquisition of leasehold rights or for use of land? - Held that:- Lease document has used the "Development charges" and "Economic rent" to be payable by the assessee. As the document has used two different phrases to c .....

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& 648/JP/2013 - Dated:- 16-12-2015 - T R MEENA, AM & LALIET KUMAR, JM For the Petitioner : Shri P C Parwal (CA) For the Respondent : Shri O P Bhateja (Addl.CIT) ORDER PER: LALIET KUMAR: These are two appeals filed by the assessee against the order of ld. CIT (A)-III, Jaipur dated 30th May, 2013. The common grounds raised in these appeals are as under :- 1. The ld. CIT (A) has erred on facts and in law in holding that development charges paid by the assessee to Rajasthan State Industrial Deve .....

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e of deductibility to the date of furnishing of return of income by the payee. 2. Brief facts of the case are that the assessee is engaged in manufacturing of readymade garments of various brands like Bombay Dyeing, Life Style etc. The Rajasthan State Industrial Development and Investment Corporation Ltd. (RIICO) had allotted a plot for establishment of an Industry at Ramchandra Pura Industrial Area, Sitapura Extension, Jaipur, vide allotment letter dated 07.10.2010 pursuant to the application o .....

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ssessee for 99 years and the assessee was required to pay the amount of ₹ 6,05,70,034/-. The bifurcation of the said amount was as under :- Development charges ₹ 4,87,96,830/- Interest on development charges ₹ 1,12,73,566/- Security Money ₹ 4,87,968/- Economic Rent ₹ 11,670/- 2.1. The assessee paid 25% of the development charges as per the terms and conditions of the letter and opted for paying the balance amount in 19 equal quarterly installments along with interes .....

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of ₹ 1,15,11,743/- to the RIICO, the details of the said amount is as under :- Four installments of ₹ 19,23,296/- each Towards development charges ₹ 76,93,184/- Interest on development charges (1035734+988943+930770+863112) ₹ 38,18,559/- Amount paid to RIICO Rs.1,15,11,743/- 2.3. The spot verification was carried on 15.03.2012 for the purpose of TDS verification by the Revenue. During the course of such verification, some alleged discrepancies were found and in respect th .....

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een defined in explanation to section 194-I as 'rent means any payment by whatever name called, under any lease, sub lease, tenancy or any other agreement or arrangement for the use of………………. Form the above definition of rent it is clear that section 194-I cover the renting transaction of use of land building, plant and machinery etc. Section 194-I cover the transaction of use of property in the capacity as tenant not as owner. 2. In the present case .....

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ale of land for a fixed number of years. Section 1941 of the Act covers only the lease/sublease agreement which are in the nature of renting agreement not transfer of ownership. Section 194-I covers the transaction which property is given for periodical payment for use in the capacity as tenant. Section 194-I does not cover the transaction of lease where ownership of property is transferred and property is used in the capacity of owner. 3. There are two system of sale of land one is on lease hol .....

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s wealth tax provision. Section 269(h) [under chapter XXA i.e. Acquisition of Immovable Properties in certain cases of Transfer to Counteract Evasion of tax] of Income Tax Act, 1961 which defines 'transfer' in relation to any immovable properties means transfer of such property by way of sale, exchanger lease for a term not less than twelve years. Thus lease of more than 12 years is treated as transfer of immovable property. Similarly under the Wealth tax provision urban land is treated .....

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as taxable wealth. Similarly under the provision of Rajasthan Stamp Duty Act, leases more than twelve year are treated as sale of immovable property for the purpose of levy of stamp duty. Thus from all these it is clear that leases more than specified period are treated as transfer of ownership. 4. Finance Bill 2012 proposed to insert new section 194LAA which provides deduction of tax at source in respect of purchase of immovable property other than agriculture land. Thus from the above it is a .....

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RIICO i.e. development charges, interest on development charges, economic rent & other charges. Payment of development charges is towards allotment of land i.e. purchase price of land on which none of the provision of chapter XVIIB apply. RIICO being public financial institution not subject to TDS under section 194A of the Act, hence payment of interest on development charges is also not liable for deduction of tax at source. Payment of economic rent is very minor and below the minimum limit .....

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ecurity money, economic rent etc. However, if we go into the nature of these charges, they are just bifurcation of 'lease rent' to be paid by the allottee to the RIICO. Mere giving different names to various heads of 'rent' or bifurcating them, does not qualify it to be out of the definition of 'lease rent'. The responsibility to deduct TDS lies on the assessee deductor & the onus cannot be transferred to other party. The allottee was required to deduct TDS on whole a .....

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ent Amount paid/credited TDS Deducted TDS to be deducted u/s 201(1) Amount of short deduction/Non -deduction Section Delay of month Interest u/s 201(1A) Total F.Y.2010-11 21.09.2010 12742178 0 1274218 1274218 194-I 24 305812 1580030 31.03.2011 3316921 0 331692 331692 194-I 18 59705 391397 31.03.2011 1393625 0 139363 139363 194-I 18 25085 164448 Total 17452724 1745273 1745273 390602 2135875 F.Y.2011- 12 29.08.2011 1923296 0 192330 192330 194-I 13 25003 217333 28.09.2011 1923296 0 192330 192330 19 .....

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he interest paid on the installments of development charges are liable for tax under section 194-I, the reasoning given by ld. CIT (A) is as under :- "It is evident from the perusal of the aforesaid clauses of the lease agreement that the land was given to the assessee on lease and not transferred by way of sale. Under this lease agreement, appellant only acquired a right to use the land for a specific purpose and for a specified time. Assessee did not acquire any ownership rights on the sa .....

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o RIICO will fall within the definition of "rent" as provided in Explanation to Sec. 194-I of the Act, which is reproduced as under :- "Explanation - For the purpose 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 fa .....

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t is evident from the above definition of rent that Sec. 194-I does not make any differentiation between capital outgo and revenue outgo. It is an exhaustive definition which covers any and every payment made for the use of land. It does not specify the period of use of the land for which rent was paid. In view of the clear statutory definition of "rent" specifically provided in Sec. 194-I, the definition of "transfer" in other provisions of Act or the normal meaning of " .....

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al areas as mentioned in Rule-2 and 11-A of "the Rajasthan Industrial Areas Allotment Rule - 1959". Clause (iv) of Rule 11-A further provided that RIICO may sub-lease the leased land or part thereof for industrial purposes. RIICO subleased the land to the appellant in terms and conditions laid down in the aforesaid rules. It is thus evident that when RIICO itself is not the owner of the land, it can not transfer the ownership rights of the land to the appellant. It is a settled positio .....

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rent of ₹ 1 per year. AO held that upfront fees falls within the definition of "rent" u/s 194-I and therefore assessee was liable to deduct tax at source therefrom. Assessee claimed that the upfront fees was in the nature of sale consideration. On these facts Hon'ble Tribunal has held as under :- "9. What the assessee had paid to M/s. SIPCOT Ltd. was under a lease agreement. One of the arguments taken by learned A.R. was that the lease agreement was dated after the end .....

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between the parties. This being so, the payment made by the assessee to M/s. SIPCOT Ltd., by whatever name called, was under a lease agreement. Definition of "rent" given above will definitely include payments of any type under any agreement or arrangement for use of land. On the face of such a clear statutory definition, we cannot say that normal meaning of "rent" has to be given while interpreting Section 194-I of the Act. While interpreting "rent" as mentioned in .....

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acted." The facts of the appellant's case are exactly similar to the facts of the case decided by Hon'ble ITAT, Chennai. The case laws relied upon by ld. AR on the different facts and issues. The main contention in the cases relied upon by the appellant is whether the payment made under a lease agreement for longer period was a revenue expenditure or capital expenditure. Hence, these case laws are not relevant for the interpretation of Sec. 194-I of the Act. In view of the above dis .....

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alongwith interest @ 12% pa. Appellant opted for the payment in quarterly installments along with interest. The interest paid by the appellant was compensatory in nature and was therefore only in the nature of lease rent. Such interest paid is analogous to the interest paid by assessee on the deferred/delayed payment of income tax. It was held by the Courts that such interest on deferred/delayed payment of tax was compensatory and hence was in the nature of tax only and can not be allowed as rev .....

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s for use of land then assessee was required to deduct tax u/s 194-I of the Act, otherwise not. The relevant terms of the lease deed are extracted herein below :- "In consideration of the 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 unt .....

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premises or any part of there or any interest therein the demised with the previous consent of RIICO. 5.3. The aforesaid terms of the lease deed leaves no manner of doubt that the Development charges of ₹ 4.8796830/- along with interest was paid 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 purvie .....

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urview exploitation of any kind with reference to the property by changing its identity for its own benefit and thereafter selling it for profit. If that be so and the word 'use' is given an extended meaning, there would be no difference between 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 .....

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pports the case of the assessee that the payment made was for the acquisition of rights in the land along with the right of possession, right of exploitation of property, its long term enjoyment, to mortgage the property, to sell the property etc. Also the entire development charges of ₹ 4,87,96,830/- along with interest has been paid in terms of the lease deed. 5.6. The distinction between the lease premium and the rent has been a subject matter of discussion in various judicial pronounce .....

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ndered 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. 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 intere .....

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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." 5.7. The Hon'ble Calcutta High Court in the case of CIT vs. Purnendu Mullick 116 ITR 0591 observed that in case where the leases is for a long period, the lump sum payment cannot be treated as rent. The relevant portion of the Judgment is extracted herein below :- .....

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advance rent. (c) It was clearly stated in the lease that the money was being paid for completion of the building required for running as a cinema house. (d) The payment of the rent under the lease was to commence not from the date of the sublease which was February 23, 1946, but w.e.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 rea .....

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e old structures and construction of a new building after substantial expenditure. The lump sum paid is described as salami or premium and not rent. There is no clause for repayment of the lump sum paid or adjustment of the said lump sum against rent. There is thing on record to show that the premium or salami paid had any characteristic of rent." 5.8. 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 distincti .....

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Board of Agrl. IT vs. Sindhurani Chaudharani (1957) 32 ITR 169 (SC) : TC 31R.278 and Chintamani Saran Nath Sah Deo vs. CIT (1961) 41 ITR 506 (SC) : TC 38R.1046. Indicia of Salami are : (i) its simple non-recurring character, and (ii) payment prior to creation of tenancy. It is the consideration paid 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 .....

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r part of the price of the land or the sale price of the leasehold interest is not income but capital. (3) Salami to be income should be a periodical monetary return coming in which some sort of regularity or expected regularity from definite sources. (4) Salami or premium paid at the beginning of 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 .....

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all at the outset the period of tenancy being uncertain and the changes of the resettlement of the same land to some other tenant being remote, is capital. (7) Premium (Salami) is a single payment made for the acquisition by the lessee of the right to enjoy the benefits granted to him by the lease. 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 .....

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Court in Promode Ch. Roy Chowdhury vs. CIT (1962) 46 ITR 1064 (Cal) : TC 38R.1092. Question whether a particular receipt like Salami can be regarded as revenue or capital cannot be decided in the abstract and each case has to be decided on its facts. 5. Rent is allowable as deduction under s. 30 of 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. Ac .....

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ch 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 the assessee through the lease deed dt. 22nd November, 2004. It is the say of the Revenue that this lease premium was .....

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g 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 for granting free of FSI area, such payment cannot be equated to rent. It is also seen that the MMRD in exercise of power .....

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d 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. Thequestion before us is as to whether the said lease premium paid by the assessee to CIDCO to acquire leasehold rights for 60 years under the lease deed(s) is liable for deduction of tax at source being rent withi .....

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rve 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 the lease deed(s), hence provisions of section 194-1 of the Act is attracted. 20. On the other hand, we observe that Government of Maharashtra appointed CIDCO as t .....

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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 lease deed(s), the assessee has acquired the .....

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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 fro .....

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le 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 rent or for its re-payment to the assessee. It .....

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produced herein below :- "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 considered and be followed. We observe that the said decision of ITAT has been considered by held. CIT(A) in para 5.40 of the impugned order. On perusal of the said order of ITAT, Chennai Bench, we observe that .....

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d 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 case before us. On the other hand, the Special Bench Decision of ITAT, Mumbai in the case of Mukund Ltd. (supra)squarely apply wherein it has been held that the premium paid for acquiring leasehold right in land i .....

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