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2016 (4) TMI 674 - MADRAS HIGH COURT

2016 (4) TMI 674 - MADRAS HIGH COURT - [2016] 385 ITR 465 - TDS u/s 194I - whether the amount of more than about ₹ 1400 Crores paid by the Joint Venture Company to TIDCO constituted rent or not? - Held that:- Though the amount of ₹ 1412 Crores was paid actually by the lessee to the lessor, it was not paid merely for the purpose of retaining the lease for a period of 99 years. The amount paid was actually determined in an open competitive bidding that took place even before the Joint .....

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h the amount was quantified and the method of selection of the Joint Venture Partner are the crucial determining factors in this case to understand that the said amount could never constitute rent. - To put it differently, a premium or rent irrespective of how they are treated, could be decided only after an agreement for lease is finalised. If an amount has to be determined even before an agreement for lease is finalised, the same would never form part of the rental income. It is this disti .....

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reed to paid to the Government. We have extracted paragraph 5 of G.O.Ms.No.103 earlier. The method of determination of the amount and the method of choosing the lessee alone were left to TIDCO. But, TIDCO was obliged to retain only a sum of ₹ 50/- per sq.ft. and pass on the balance amount to the Government. Therefore, the amount liable to be passed on to the Government cannot be a consideration paid to TIDCO, which is the lessor. It was a consideration paid to the Government. Once it is un .....

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) The above tax case appeal filed by the assessee was originally admitted on 16.9.2015, on two substantial questions of law. Subsequently, when the matter came up for hearing on 30.10.2015, a request was made to re-frame the questions already framed and also to consider one more question. Therefore, we framed the following three questions of law as arising for consideration in this appeal on 30.10.2015: "(i) Whether the period of limitation stipulated under Section 201(3) of the Act would .....

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reated as rent liable for TDS under Section 1941-I or not? and (iii) Whether on the facts and circumstances of the case and in law, the payment of ₹ 1,412 Crores representing market value of land collected by TIDCO at the behest of the Government and immediately paid to the Government on the basis of various orders of the Government instructing TIDCO to collect and pay even before the execution of the lease deed, was, in essence, a payment to the Government, being the real owner thereof an .....

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consideration. (a) Way back in the year 2001, the Government of Tamil Nadu identified a vast extent of land measuring about 40.19 acres, lying in Thiruvanmiyur as well as Kanagam villages of Mylapore-Triplicane and Mambalam-Guindy Taluks of the District of Chennai, for the development of Second Information Technology Park at Taramani, Chennai. This was done by a Government Order in G.O.Ms.No.455, Revenue dated 02.11.2001. (b) By another Government Order passed in G.O.Ms.No.165, Revenue dated 11 .....

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for the construction of a business Hotel complex and IT based Complex. After several round of negotiations, the Government issued G.O.Ms.No.103, Industries dated 24.4.2007, permitting TIDCO to implement the project through joint venture companies by selecting the joint venture partner through open competitive bidding process and also permitting TIDCO to hand over the lands to the joint venture company on 99 year lease. The operative portion of the order of the Government in G.O.Ms.No.103, dated .....

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e of payment of rent and for execution of lease deed by the appropriate authority in favour of the Joint Venture Company as proposed by TIDCO mentioned in Para 5 above is approved; (iv) TIDCO is permitted to hand over the lands to the Joint Venture Company on 99 years lease basis, subject to the conditions that the JVC can only sub-lease/rent the built up area." (d) As could be seen from the operative portion of G.O.Ms.No.103, TIDCO was required by the Government to implement the project th .....

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egal issues originated, it is necessary to extract paragraph 5 of G.O.Ms.No.103, as follows: "5. The Board of TIDCO, at its 419th meeting held on 16.10.2006, considered the above matter and resolved to send proposals to Government for approval of TIDCO's proposal to implement the IT Parks (IT/ITES-SEZ in an area of 25.19 acres at Taramani behind TICEL Bio Park and IT/ITES-SEZ comprising IT Park and an International Convention Centre cum Hotel in an area of 25 acres at Taramani in front .....

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alated at the rate of 12% (P.A or in proportion to the actual period) of the total bid amount through the JVC to TIDCO for the period from date of bid inviting expression or interest to date of payment of bid amount for the entire land. This amount is payable along with the bid amount. The lease deed in favour of the JVC will be executed only after full financial closure of within 60 days of payment of lease rent, whichever is later. In addition to the upfront payment which is non refundable and .....

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the extent of 26% of the paid up capital of the joint venture or an investment of ₹ 50 Crores in each of the joint venture companies whichever is lesser. It is proposed to make TIDCO's equity contribution out of the deposit of the non refundable upfront lease rent." (e) As could be seen from what is extracted above, TIDCO was obliged to select the successful bidder who quoted the higher rate. The amount so quoted, will have to be paid through the Joint Venture Company to TIDCO wit .....

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007 together with addendum issued on 22.11.2007, showed that qualified bidders were entitled to take the documents on or before 12.11.2007. The last date for receipt of written enquiries was fixed as 16.11.2007. The pre-bid meeting was scheduled to be held on 22.11.2007, the last date for submission of bids was fixed as 13.12.2007, the opening of the first cover was to be by 11.15 hours and the opening of the second cover was to be by 17.00 hours on 13.12.2007. (h) The RFP document issued by TID .....

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n favour of TIDCO, the highest commercial offer made by Tata Realty Infrastructure Limited had to be in fact accepted only by the Government and not by TIDCO as seen from letter Ms.No.25, Industries dated 27.02.2008. By this letter dated 27.02.2008, the approval of the Government was conveyed to TIDCO to accept the highest commercial offer of what was indicated as "Upfront land lease rent of ₹ 12,050/-". However, it was also indicated in the said letter that TIDCO was entitled to .....

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se Rent shall be non-refundable. (k) Pursuant to the above, a Joint Venture Agreement was entered into on 24.3.2008 by and between TIDCO and Tata Realty Infrastructure Limited and the Indian Hotels Company Limited. Simultaneously, the Joint Venture Company Tril Infopark Limited was incorporated on 20.3.2008. (l) Thereafter, TIDCO executed a deed of lease dated 13.8.2008 in favour of the Joint Venture Company, namely Tril Infopark Limited, granting a lease of the land of the extent of about 25.27 .....

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agreed to treat the excess amount retained by TIDCO as a loan by Government to TIDCO. (n) On 9th February 2012, an inspection by the Officers of the department was carried out at the premises of the Joint Venture Company, purportedly for ascertaining whether the company had complied with Chapter 17-B of the Act. Thereafter, the Assessing Officer passed an order under Section 201(1) and 201(1A) holding that the Joint Venture Company is an assessee in default, in the light of the fact that they ha .....

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ribunal was allowed and the matter remitted back to the Assessing Officer. The order of remand was passed by the Tribunal on the short ground that the copy of the lease agreement entered into between the assessee and TIDCO was not available before them and therefore, they were unable to arrive at a finding of fact as to whether it was an advance payment of rent or the cost of acquisition of land. The Tribunal took the view that the matter needed to be re-examined in the light of the provisions o .....

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lease deed was not available before the Tribunal, the substantial questions of law raised before us may not arise for consideration. But, as seen from the order of the Assessing Officer as well as the order of the Commissioner of Income Tax (Appeals), the lease deed was very much available. Even the learned Standing Counsel for the Department is unable to deny this fact. The lease deed formed part of the Annexure to the order of assessment. Therefore, the Tribunal was in error in thinking that .....

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efore us in TCA No.801 of 2013. Therefore, today, there is no point in remitting the matter back to the Tribunal for consideration of these issues. Therefore, we have taken up the three questions that we framed on 30.10.2015 for our consideration. 6. For the purpose of convenience, we would take the second question for consideration first. The second question revolves around the dispute as to whether the amount of more than about ₹ 1400 Crores paid by the Joint Venture Company to TIDCO con .....

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he expression "rent" and it reads as follows: "rent" means any payment, by whatever name called, under any lease, sub- lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee; " 9. It must be noted that the definition is an exhaustive definition and not an inclusive definition as seen fro .....

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extent of about 40.19 acres. Subsequently, the Government decided, as seen from G.O.Ms.No.103 dated 24.4.2007, the operative portion of which we have already extracted earlier,is to permit TIDCO to implement the project through Joint Venture Companies by selecting the Joint Venture Partner through open competitive bidding process. In other words, the sequence of events that have taken place from G.O.Ms.No.455, Revenue dated 02.11.2001 up to G.O.Ms.No.479, Revenue, dated 24.8.2007 shows that the .....

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at took place in November 2007 was the identification of a Joint Venture Partner. The selection of the Joint Venture Partner depended upon the quote that he was able to make. The amount of more than ₹ 1400 Crores, which was actually quoted in the form of per sq.ft., rate at ₹ 12,050/- per sq.ft. was not actually for taking the land on lease, but was a consideration paid to make TIDCO accept a company as its Joint Venture Partner. If this amount had not been offered by Tata Realty Inf .....

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int Venture Company itself was obliged to make payment of the entire amount of more than ₹ 1400 Crores. But, despite the fact that the lease deed was executed on 13.8.2008, the lease was deemed to have commenced from 29.02.2008. That was the date on which the joint venture agreement was entered into, but the company got incorporated only on 20.3.2008. The revised lease deed was later entered into on 03.02.2009. 13. The lease deed dated 13.8.2008 actually imposed an obligation upon the Join .....

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the lessee. If we treat, as contended by the Revenue, this amount as part of the rent, it would result in a proposition that on behalf of a company yet to be born, one of the spouses which was supposed to give birth had already agreed upon the commitment. 15. Therefore, in essence, what was offered by the joint venture partner, namely Tata Realty Infrastructure Limited, in the bidding that took place in February 2008 and what was paid on 27.5.2008 by the Joint Venture Company was actually a cons .....

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for the Department submitted that premium represents a capitalised rent and hence, it may be different from the actual rent, but would nevertheless continue to be rent. 17. As we have pointed out earlier, it is not even necessary for us to get into a question whether what was paid was premium or rent. In a case where two existing entities enter into an agreement for the lease of a property, the question as to what was paid as premium and what was agreed to be paid as rent would arise. In this ca .....

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Ramanatha Aiyar Law Lexicon defines "premium" as "either a reward, or a periodical payment for the insurance of life or property, or a lumpsum or fine paid for the grant of a house, a sum paid in excess of the nominal value of the share of stocks etc.. 19. In this case, as we have indicated earlier, the determination of the amount of ₹ 1400 Crores preceded even the birth of the Joint Venture Company and the creation of the lease deed. Therefore, it was actually a considerati .....

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perty to be a transfer of right to enjoy such property, either for a certain duration of time or in perpetuity, in consideration of a price paid or promised, the second part of Section 105 indicates that the price paid or promised for the lease could be called premium and the money, share, service or other thing to be tendered is to be called rent. 21. On the basis of the definition so made under Section 105 of the Transfer of Property Act, the learned senior counsel for the appellant/ assessee .....

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f Agricultural Income Tax v. Sindhurani [AIR 1957 SC 729], where the Supreme Court indicated that salami is not rent and it could not be called revenue within the meaning of the word used in the definition of agricultural income under Section 2(1)(a) of the Assam Agricultural Income Tax Act, 1939. 23. In Commissioner of Income Tax v. Panbari Tea Co. Ltd. [57 ITR 422 (SC)], the Supreme Court was concerned with the question as to whether the payment of premium fixed under a deed of lease, in insta .....

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ns and improvement to be effected on the premises by the lessees would fall within premium or for money advanced in addition to rent received. The Full Bench took the view that the distinction between a premium and rent lies in the fact that premium is one paid in consideration of the conveyance implied in the lease and is quantified in lump. 25. In V.Srinivasan v. Sub Registrar [AIR 1985 Kar. 56], a Full Bench of the Karnataka High Court was concerned with two questions, one of which was whethe .....

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come. 27. However, in response to the above contentions, Mr.J.Narayanasamy, learned Standing Counsel for the Department contended that the question as to how a particular item is to be treated at the hands of the person making payment, does not depend upon the manner in which the same is treated at the hands of the recipient. Therefore, he contended that the distinction between premium and rent sought to be made by the learned senior counsel for the assessee and the support sought to be drawn fr .....

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ived by them from the assessee. 30. As we have pointed out earlier, the question in this case arises at the very threshold, as to why was a payment of more than ₹ 1400 Crores made by the assessee and what was the method adopted by the parties to fix such an amount as payable to the lessor. 31. As we have indicated earlier, though the amount of ₹ 1412 Crores was paid actually by the lessee to the lessor, it was not paid merely for the purpose of retaining the lease for a period of 99 .....

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menced from the date of the lease, namely 13.8.2008. The date on which the amount was quantified, the manner in which the amount was quantified and the method of selection of the Joint Venture Partner are the crucial determining factors in this case to understand that the said amount could never constitute rent. 32. To put it differently, a premium or rent irrespective of how they are treated, could be decided only after an agreement for lease is finalised. If an amount has to be determined even .....

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. 34. On facts, there is no dispute that even at the time when the alienation was made by the Government, the amount determined by the parties was agreed to paid to the Government. We have extracted paragraph 5 of G.O.Ms.No.103 earlier. The method of determination of the amount and the method of choosing the lessee alone were left to TIDCO. But, TIDCO was obliged to retain only a sum of ₹ 50/- per sq.ft. and pass on the balance amount to the Government. Therefore, the amount liable to be p .....

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