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2016 (1) TMI 664

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..... al (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 Development and Investment Corporation Limited (RIICO) towards allotment of land on lease of 99 years is liable for deduction of tax at source u/s 194-I of the Income Tax Act, 1961. 1.1. The ld. CIT (A) has erred on facts and in law in holding that interest paid on installment payment of development charges is part of the rent and therefore liable for deduction of tax at source u/s 194-I. 1.2. The ld. CIT (A) has erred on facts and in law in holding that interest u/s 201(1A) is leviable from the date 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 Developm .....

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..... lopment 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 thereto a notice was issued to the assessee. In response to the notice given to the assessee, the assessee filed a detailed reply on 23.04.2012. The relevant para of the said reply is as under :- With reference to above and regarding applicability of section 194-I in respect of payment of made to RIICO for allotment of Industrial plot we are to submit as under:- 1. Section 194-I of Income Tax Act provides for deduction of tax at source on payment of income by way of rent. The word rent has been 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 build .....

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..... by multiplying net maintainable rent by 10 and where the lease period is more than 15 years but less than 50 year than value is to be determined by multiplying net maintainable rent by 8. Thus in Wealth Tax also leases consisting ownership right are treated 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 also clear that till now transaction relating to purchase/sale of immovable property is not subject to deduction of tax at source in any of the provision. 5. From the above discussion, it is clear that section 194-I cover only transaction relating to renting of property which is used otherwise than by owner. If property is used by owner in the capacity of owner, transaction does not fall in the preview of section 194-I of the Act. .....

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..... 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 .....

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..... red a benefit of enduring nature by getting the right to use the land on lease for 99 years, it has rightly capitalized the expenditure. Irrespective of the fact that the outgo was capital in nature, the issue is whether the development charges paid by assessee to 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 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 deemed to be credit of such inco .....

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..... 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 of the relevant previous year and hence the payments made ought not be considered as pursuant to the lease agreement. However, in our opinion, this is not relevant. Reason being that payments were effected during the relevant previous year and it is an accepted position that such payments were for the lease of the land. So, the date of the agreement does not matter since the lease was already in contemplation and assessee would not have given the money unless the lease was atleast orally agreed 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 Section 194-I, we have to apply the definition given to rent in the explanation thereto. .....

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..... se 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 unto the Lessee all that piece of land together with all Rights easements and appurtenances thereto belonging to the Lessor to hold the land and premises hereinbefore expressed to be hereby demised unto the Lessee for the term of 80 years 5.2. Further as per clause 2(1) of the Lease Deed, at page 17 of PB the assessee is further permitted to sell and mortgage, assign, underlet or sublet or part with the possession of the 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 o .....

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..... 05, of the Transfer of Property Act, a lease of immovable property is a transfer of a right to enjoy the property made for a certain time, express or implied, or in perpetuity, 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. 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 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 may be circumstances where the parties may camouflage the real nature of the transaction by using clever phraseology. In s .....

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..... nst 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 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 period of 80 years and there is no provision to treat the same as advance rent in the succeeding years. The relevant portion of the judgment is extracted herein below : 4. As was observed by apex Court in 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 .....

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..... characteristics of the payment should be decided without reference to the nature of the lease including the wasting nature of the assets under the lease. These broad principles were summarized by Calcutta High 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. 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 is capital and the latter is a revenue in nature. 5.9. Again in the case of ITO vs. Wadhwa Associates Realtors Pvt. Ltd. (2014) 146 ITD 0694 (Mum) similar issue arose before .....

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..... to acquire leasehold rights for 60 years under the lease deed(s) is liable for deduction of tax at source being rent within the meaning of section 194-I of the Act or not. AO has stated that the said payment made by assessee under lease agreements qualifies for rent for the purpose of section 194-I of the Act as it partakes all the characteristics of rent and whereas the assessee has contended that the assessee has obtained leasehold rights in the said leasehold 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 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 the nodal agency for setting up of Special Economic Zone at Navi Mumbai N .....

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..... 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 was held that the consideration paid by the assessee was capital expenditure and accordingly the issue was decided against the assessee. 5.11. In the aforesaid decision the ITAT has distinguished the decision in the case of Foxconn India Developers Pvt. Ltd. Vs ITO 492/2010 rendered by ITAT, Chennai Bench. The distinction is brought out 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 ld. DR submitted that the above decisions of ITAT, Delhi Bench and ITAT Mumbai Bench (supra) are distinguishable. Whereas the decision of ITA .....

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