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TMI Blog2016 (4) TMI 314X X X X Extracts X X X X X X X X Extracts X X X X ..... for the appellant and Mr.J.Narayanaswamy, learned Standing Counsel appearing for the respondent. 3. The crucial facts that are necessary for the determination of the substantial questions of law arising in this appeal, can be briefly stated as follows: (i) The State Industries Promotion Corporation of Tamil Nadu Limited (SIPCOT), registered under the Companies Act, 1956, as a Government of Tamil Nadu Undertaking, acquired a vast extent of land measuring about 2469 acres, in various villages of Sriperumbudur Taluk, Kancheepuram District, for the purpose of developing the same as an Industrial Park. (ii) After developing the said land, SIPCOT laid out the said land into various plots, after setting apart the lands for the purpose of laying roads, drains and other common works for the benefit of the allottees of the plots. (iii) Thereafter, by G.O.Ms.No.27 Industries dated 1.3.2006, the Government of Tamil Nadu chose the assessee as a "Developer" to establish a project known as "Product-Specific Special Economic Zone" in the Sriperumbudur Hitech Special Economic Zone, in partnership with SIPCOT. (iv) Pursuant to the said Government Order, the assessee signed a Memorandum of Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nducted on 19.2.2006. Therefore, the Assessing Officer passed an order on 16.3.2009 holding that the upfront charges constituted rent on which tax should have been deducted at source under Section 194-I and that since the assessee did not do so, they were liable to pay Rs. 6,43,84,991/- together with interest of Rs. 1,73,86,623/-. The demand was made under Section 201(1) and Section 201(1-A). (xiv) As against the order of the Assessing Officer, the assessee filed a First Appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) held that the Assessing Officer was justified in treating the appellant as an assessee in default, due to their failure to deduct tax at source. However, taking note of the fact that SIPCOT had already included these upfront charges in their income and also paid the tax thereon, the Appellate Commissioner held that no TDS can be recovered from the assessee. But the demand for interest was sustained. The demand for interest was directed to be calculated from the date of payment of the upfront charges by the assessee to SIPCOT, up to the date of payment of advance tax by SIPCOT. Thus, the appeal of the assessee stood par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated as the cost of acquisition and the balance treated as lease rent. If this has to be done, the matter has to be remitted back to the Assessing Officer. 8. We have carefully considered the rival submissions. Section 105 of the Transfer of Property Act: 9. Let us first take for consideration, the argument revolving around Section 105 of the Transfer of Property Act. It reads as follows:- "105. Lease defined- A lease of immovable property is a transfer of a right to enjoy such 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 or by the transferee, who accepts the transfer on such terms. Lessor, lessee, premium and rent defined-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." 10. All that Section 105 does is just to define what a lease of immovable property is. To constitute a lease of immovable property, Section 105 lays down the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t source, primarily arises under Section 194-I, out of the responsibility of a person (not being an individual or a HUF) to pay "any income by way of rent" to a resident. Clause (i) of the Explanation under Section 194-I, defines rent, for the purpose of that Section as follows: " (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;]" 15. Thus, the definition of the expression "rent" appears to be quite exhaustive. It includes "any payment by whatever name called". But two conditions are to be satisfied. They are: (1) the payment should be under any lease, sub-lease, tenancy or any other agreement or arrangement and (2) the payment should be for the use of one or more of certain things such as land, building, machinery etc. Even if the person to whom the payment is ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Shiva Prasad Singh, the Division Bench of the Patna High Court was concerned with the payment of "salami" or premium for the grant of leases of mineral rights on a portion of the estate of the Raja. On facts, the court found that the salami paid was in the nature of a premium for the grant of the lease itself. The court pointed out that in that case salami represented the purchase price of a leasehold interest. Moreover, the leases were for a period of 999 years. Therefore, the court concluded that it was more in the nature of an out and out sale. 21. But we do not think that the above decision can be of any assistance to the assessee. A lease of a property such as land, building, plant, machinery etc. would stand on a different footing than the lease of mineral rights. When someone takes a land on lease, he merely uses the land. But when someone takes the lease of mineral rights, he excavates the land, carries out mining operations and takes away the minerals so mined. 22. The decision of the Supreme Court in Board of Agricultural Income Tax Act, has also to be understood in the context of the facts out of which the case arose. As seen from paragraph 12 of the said decision, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 some cases, the so-called premium is in fact advance rent and in others rent is deferred price. It is not 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". 25. Therefore, what could be deduced from Panbari is that we must actually go by the substance of the transaction and not its form. We cannot even go by the nomenclature. The contingencies that we have pointed out in paragraphs 17 and 18, are indicated, to some extent in paragraph 9 of the decision of the Supreme Court in Panbari. 26. Moreover, the decision of the Supreme Court in Panbari should not be applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ane Brake Linings Limited, a Bench of this Court construed permanent lease to be as much as an alienation as a sale. This is so in a manority of the cases and we have no doubt about the same. But unfortunately, different branches of law tend to treat the same kind of transfer differently. This is why one has to keep in mind the statutory provisions with respect to which the interpretation is sought to be given. 32. In Bharat Steel Tubes Limited, the Delhi High Court formulated the indicia of salami to be (i) simple non-recurring character; and (ii) payment prior to creation of tenancy. After extracting the broad principles summarised by the Calcutta High Court on the question of salami, the Delhi High Court made it clear that the question whether a particular receipt like salami can be regarded as revenue or capital, cannot be decided in the abstract and that each case is to be decided on its own facts. Argument based on Chapter XX-C 33. In support of his contention that premium stands apart from rent, Mr.Arvind P.Datar, learned senior counsel for the appellant/assessee also drew our attention to the definition of the expression "apparent consideration" appearing in Clause (b) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amely the SIPCOT thus became a developer. The assessee was chosen as the co-developer under G.O.Ms.No.27 (Industries) dated 1.3.2006 and the Memorandum of Understanding that they entered into with the Government of Tamil Nadu dated 3.3.2006, for establishing the Sriperumbudur Hi-Tech Special Economic Zone. After becoming a co-developer by virtue of the Government Order dated 1.3.2006 and the Memorandum of Understanding dated 3.3.2006, the assessee signed another Memorandum of Understanding with SIPCOT on 11.1.2007. Based upon these, two orders of allotment dated 11.1.2007 and 10.4.2007 were issued. The orders of allotment prescribed the payment of One Time Non-refundable Upfront Charges by the assessee to SIPCOT. It was only after these payments were made that two lease deeds were executed on 30.4.2008. 39. Keeping the above facts in mind, if we have a look at a letter dated 9.3.2009, issued by SIPCOT to the assessee, it can be seen as to how the parties wanted the payment of upfront charges to be treated. In paragraph 1 of the letter dated 9.3.2009, SIPCOT stated the following: "i. The upfront charges paid by your Company has been treated as 'Deemed Sale' and accounted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 007 for the proposal jointly made by the assessee and SIPCOT. The relevant portion of the letter of approval dated 13.2.2007 issued by the Government of India reads as follows:- "With reference to your above mentioned application, Government of India is pleased to approve your proposal as Co-Developer for providing infrastructure facilities in the SIPCOT Hi tech SEZ for electronics/telecom hardware and support services, including trading and logistics activities at Sriperumbudur, Tamil Nadu, as per the details given below: (1) Name of the Co-Developer - Foxconn India Developer Private Limited. (3) Details of facilities proposed to be provided: Providing following infrastructure facilities in the SEZ: A list of facilities to be provided in the SEZ is at Annexure-I." 43. Therefore, it is crystal clear that the One Time Non-refundable Upfront Charges paid by the assessee was not (i) under the agreement of lease and (ii) merely for the use of the land. The payment made for a variety of purposes such as (i) becoming a co-developer (ii) developing a Product Specific Special Economic Zone in the Sriperumbudur Hi-Tech Special Economic Zone (iii) for putting up an industry in the land. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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