TMI Blog2016 (4) TMI 314X X X X Extracts X X X X X X X X Extracts X X X X ..... say 99 years could not be taken to constitute rental income at the hands of the lessor, obliging the lessor to deduct tax at source under Section 194-I. Hence, the first substantial question of law is answered in favour of the appellant/assessee. Once the first substantial question of law is answered in favour of the appellant/assessee, by holding that the assessee was not under an obligation to deduct tax at source, it follows as a corollary that the appellant cannot be termed as an assessee in default - Decided in favour of assessee - TAX CASE APPEAL NO.801 OF 2013 - - - Dated:- 4-4-2016 - MR. V.RAMASUBRAMANIAN AND MR. N.KIRUBAKARAN, JJ. For The Appellant : Mr.Arvind P.Datar, Sr.Cl. for Mr.R.Venkata Narayanan For The Respondent : Mr.J.Narayanaswamy, Standing Counsel JUDGMENT V.RAMASUBRAMANIAN,J This Tax Case Appeal filed under Section 260-A of the Income Tax Act, 1961, by the assessee, raises the following substantial questions of law: (i) Whether the upfront payment made by an assessee, under whatever name including premium, for the acquisition of leasehold rights over an immovable property for a long duration of time say 99 years, could be take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the first order of allotment, the assessee was required to pay an amount of ₹ 10.50 crores at the rate of ₹ 10.50 lakhs per acre towards upfront lease rent. Under the second order of allotment, the assessee was liable to pay ₹ 17,59,20,000/- at the rate of ₹ 32 lakhs per acre. (viii) The order of allotment stipulated that the amount indicated therein was to be paid as Non-refundable One Time Upfront charges and that a lease deed would be executed only after payment of 100% of the Upfront charges. (ix) Therefore, the assessee paid the upfront charges, as per the conditions stipulated in the order of allotment. After the payment was so made, the SIPCOT executed two lease deeds both dated 30.4.2008, granting a lease of the land of an extent of 100 acres and 51.85 acres respectively. (x) Under both the lease deeds, the assessee was entitled to enjoy the land for a period of 99 years, upon payment of annual lease rent of Re.1/- per year for 98 years and ₹ 2/- per year for the 99th year. (xi) Both the lease deeds contain two important indicators namely (a) that the payment of upfront charges as fixed under the orders of allotment were actually no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent is revenue in nature, even the Explanation under Section 194-I would not get attracted. 5. In support of the above contentions, the learned senior counsel for the appellant/assessee relied upon the following decisions: (1) Raja Shiva Prasad Singh v. King Emperor [AIR 1924 Patna 679] (2) Board of Agricultural Income-tax v. Sindhurani [AIR 1957 SC 729] (3) CIT v. Panbari Tea Co. Ltd. [(1965) 57 ITR 422 (SC)] (4) R.K.Palshikar v. CIT [(1988) 172 ITR 311 (SC)] (5) A.R.Krishnamurthy v. CIT [(1989) 176 ITR 417 (SC)] (6) Bharat Steel Tubes Ltd. v. CIT [(2001) 252 ITR 622 (Del) 6. Responding to the above submissions, Mr.J.Narayanaswamy, learned Standing Counsel for the Department submitted (i) that the Explanation under Section 194-I is so wide that it includes any and whatever payment; (ii) that the payment of upfront charges by the assessee was made under the lease agreement and hence it is not open to the assessee to describe the payment by any other term than what is stated in the lease deed; (iii) that as per the Halsbury's Laws of England, premium is nothing but capitalised rent and hence a payment made for the use of a land, will surely be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed in the first part of Section 105 as price . The second type of consideration is indicated by the use of the expressions money , share of crops , service or any other thing of value . In the first instance, the words in consideration appearing in the first part of Section 105 go along with the word price . In the second instance, the words in consideration go along with a series of expressions such as money , a share of crops , service or any other thing of value . If properly read, the relevant portion of Section 105 would read as follows: In consideration--- of a price paid or promised or of money, a share of crops, service or any other thing of value 12. The use of the disjunction or between the first part dealing with the words price paid or promised and the second part dealing with the series of other words, make it clear that Section 105 recognizes two different types of consideration. This is made clear by the second part of Section 105 which defines the expression price as the premium and the other expressions such as money, a share of crops, service or any other thing of value as rent . 13. Therefore, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as capitalised rent. Halsbury's Laws of England defines a premium as follows: Premium means a sum of money paid as consideration for grant of lease. It represents capitalized rent and is different from the actual rent which otherwise be obtained by the lessee. It also includes any like sum whether payable to the intermediate or a superior landlord and any sum (other than rent) paid on or in connection with the granting of a tenancy . 18. In the case of normal lease of a property, one can conceive of any number of situations, where premium paid at the inception of the lease, could be part of the rent. For instance, there may be cases where a premium is collected at the inception of the tenancy, as a refundable security deposit or as refundable rental advance. There may also be cases where such premium is collected as advance that could be adjusted towards the last few months of the lease. Many times, the amount of the premium collected, is equivalent to the rent for a fixed number of months. It is only then that the same becomes either adjustable or refundable upon the termination of the lease. 19. Therefore, a general proposition that premium collected as a lump s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Panbari Tea Estate and Barchola Tea Estate , along with machinery and buildings owned and held by it, in Darrang, in the State of Assam, to a firm named M/s Hiralal Ramdas for a period of 10 years commencing from 1st Jan., 1950. The lease was executed in consideration of a sum of ₹ 2,25,000 as and by way of premium and an annual rent of ₹ 54,000 to be paid by the lessee to the lessor. The premium was made payable as follows: ₹ 45,000 to be paid in one lump sum at the time of the execution of the lease deed and the balance of ₹ 1,80,000 in 16 half yearly instalments of ₹ 11,250 on or before 31st January and 31st July of each year. The annual rent of ₹ 54,000 was payable as follows: ₹ 1,000 per month to be paid on or before the last day of each month, making in all ₹ 12,000 per year, and the balance of ₹ 42,000 on or before 31st December of each year. 24. On the basis of the above facts, the Supreme Court pointed out the distinction between premium and rent, in paragraph 9 of its decision, to the following effect: Under s.105, of the Transfer of Property Act, a lease of immovable property is a transfer of a right to en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Taxation Laws (Amendment) Act, 2006 with effect from 13.7.2006. Therefore, the question on hand has to be decided on the basis of the statutory provision now available and not solely based upon the ratio in Panbari. 27. In R.K.Palshikar (HUF), the Supreme Court considered a lease for a period of 99 years to be the parting of an asset of an enduring nature. Therefore, the grant of lease was held to tantamount to transfer of capital asset. Interestingly, the Assessing Officer took a stand in Palshikar that the assessee was liable to pay capital gains tax on the amount of salami or premium received. In the facts and circumstances of the case, the Supreme Court held in Palshikar that the grant of those leases for 99 years amounted to transfer of capital assets in terms of Section 12-B of the 1922 Act. 28. Therefore, it is clear from Palshikar that at times, the grant of leasehold rights for 99 years could be taken to be equivalent to the transfer of capital assets. As a matter of fact, even the Indian Stamp Act and the Registration Act, at times treats such leases as tantamounting to conveyances. 29. The decision in Palshikar was reaffirmed in A.R.Krishnamurthy, where even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between both. For the purpose of determining what is apparent consideration in relation to the transfer of any immovable property, Clause (a) of Section 269-UA took into account (i) the entire amount of premium or (ii) the aggregate of the moneys payable by way of rent or (iii) the aggregate of the premium and the moneys payable by way of rent, according as whether the consideration consisted only of premium or only of rent or both premium and rent. In other words, even the rent was treated as part of the consideration. Therefore, the argument does not take us anywhere. Questions of law arising in the case: 35. Having seen (a) the legal contentions revolving around (i) Section 105 of the Transfer of Property Act, (ii) the Explanation under Section 194-I (iii) the decisions making a distinction between the salami and rent and (iv) the indicators available in Chapter XX-C, let us now turn our attention to the questions of law arising for consideration. 36. The first question of law that we have formulated in paragraph 1 of the decision is: Whether the upfront payment made by an assessee, under whatever name including premium, for the acquisition of leasehold rights over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction as deemed sale . This is one indicator for arriving at the answer to the substantial question of law. 41. There is also intrinsic evidence in the two deeds of lease themselves to suggest that the assessee was chosen not merely as a lessee of the land, but as a co-developer along with SIPCOT to establish a project in the Product Specific Special Economic Zone . The relevant portion of the preamble to the lease deeds is extracted as follows:- WHEREAS the Government of Tamil Nadu issued G.O.Ms.No.27 Industries (MIB.1) Department dated 01.03.2006 in relation to the party of the second part to establish the project in the Product-Specific Special Economic Zone named Sriperumbudur Hi Tech ZEZ and jointly develop with the party of the first part for the activities to be carried out with unfettered right of usage in the area earmarked by the party of the first part. WHEREAS the party of the second part has signed a Memorandum of Understanding with the Government of Tamil Nadu dated 03rd March 2006 [hereinafter referred to as TN MOU ] regarding the possibility of establishing several manufacturing bases with all infrastructure facilities to include electron ..... X X X X Extracts X X X X X X X X Extracts X X X X
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