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2016 (5) TMI 965 - ITAT JAIPUR

2016 (5) TMI 965 - ITAT JAIPUR - TMI - TDS u/s 194I - TDS liability on payment development charges, lease charges and other charges paid to RIICO - 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 connote different obligation therefore in our view development charges can'not be read as rent within the purview of the section 194 I. further lease document has provided the consequences .....

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v, AM For the Assessee : Shri Sharvan Kumar Gupta Advocate For the Revenue : Ms. Roshanta Meena, JCIT - DR ORDER Per Kul Bharat, JM This appeal of the assessee is directed against the order of the ld. ld. CIT(A)-III, Jaipur dated 24-10-2014 pertaining to assessment year 2012-13 wherein the grounds raised by the assessee are as under:- 1. That on facts and circumstances of the case, the ld. CIT(A) grossly erred in holding that the assessee is liable to deduct at source (TDS) on payment of develop .....

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- u/s 201(1A) of the I.T. Act, 1961. As such total tax and interest of ₹ 26,54,315/- has been imposed wrong, illegal and against the facts on record. 3. That during the year assessee has made total payment of ₹ 1,99,10,940/- to RIICO while ld. ACIT has grossly taken the said figure of payment to RIICO ₹ 2,09,10,940/-. As such TDS of ₹ 1,00,000/- + interest was imposed wrong and the same is a apparent mistake and addition deserves to be quashed. 4. The assessee is an educa .....

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finalization of said appeal. 2.1 During the course of hearing, the ld. AR of the assessee Shri Sharvan Kumar Gupta, Advocate through his written submission placed concise ground of appeal as under:- GOA 1-5: In holding that assessee liable to deduct the TDS u/s 194Ion payment development charges, lease charges and other charges paid to RIICO and confirming of demand raised u/s 101 and interest u/s 201(1A) 2.2 At the outset of the hearing, the ld. AR of the assessee prayed that similar issue has .....

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s. DCIT (TDS) has decided the issue in favour of the assessee by following observations. 4. Now the assessee is before us. 5. The important question to be determined from the terms of the lease deed is whether payment of development charges paid was for acquisition of leasehold rights or for use of land. 5.1. If the payment made was 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 c .....

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ip;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 .....

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ime importance for transactions where the consideration paid for the property would be termed as rent . The term use according to us has to be interpreted keeping in mind the relationship between the landlord and the tenant. The same cannot be extended to bring within its purview 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 d .....

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r relevant to mention that the amount paid by the assessee for development charges has no connection with the market rent of the property leased to the assessee. Furthermore the term of lease deed is for a considerable period of 99 years which further supports 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 .....

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ovable 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, .....

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evenue 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. 5.7. The Hon ble Calcutta .....

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uld be for the IT authorities to show that the facts existed which would make it a revenue receipt. (b) The sub-lease did not contain any condition or stipulation from which it could be inferred that the aforesaid amount was paid by way of 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 Fe .....

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the present reference is covered by the said decision. 11. In the instant case the lease is for a long period with provision for escalation of rent. The .rent fixed is higher than the previous rent. The lease provides for demolition of the 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 .....

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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 NathSah Deo vs. CIT (1961) 41 ITR 506 (SC) : TC 38R.l046. Indicia of Salami are : (i) its simple non-recurring character, and (ii) payment prior to creation of tenancy. It is .....

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r the taxing authorities to prove that the facts exist which would make the same as income, if they seek to tax it. (2) Where the premium represents payment of rent in advance it is income. But if it represents the whole or 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 .....

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ssession of property (even if leasehold) and there is no finding that the letting out of the property is the business of the assessee, the premium receipt is capital. (6) Salami or premium paid in advance of rent once for 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 .....

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nveyed. The 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 ded .....

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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 ITAT Mumbai Bench 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 aro .....

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emium does not come within the purview of the definition of rent as provided u/s,194- 1 of the Act. 10. We have carefully perused the lease deed as exhibited from page-l to 42 of the Paper Book. A careful reading 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 re .....

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e permissible FSI. 5.10. In the case of ITO (TDS) vs Navi Mumbai SEZ Pvt. Ltd. 147 ITD 0261 (Mum) Similar issue is held in favour of the assesee in similar consideration and the relevant decision in paras 19 and 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. The-questi .....

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s 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 ar .....

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uant thereto assessee and CID CO entered into Development Agreement and the assessee is required to make payment of lease premium in respect of the land which was being acquired by CIDCO and being allotted 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 .....

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pment Agreement have assigned to the assessee leasehold right which includes bundle of rights. The Assessee has paid the premium for lease deed(s) for the demised land to acquire entire rights of the land 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 .....

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olding it as a capital in nature. Ld. CIT(A) held that the premium cannot be treated as capital expenditure as the assessee did not acquire ownership of land. It was held that it was an expenditure relatable 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 .....

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hennai 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 Id. 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 fo .....

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de to SIPCOT Ltd under lease agreement. Therefore, the said payment is for lease or use of land and accordingly the payment could not be said to have been made for acquiring leasehold land and hence, it is observed that the Chennai Bench has held that the payment by the assessee company to CIDCO is rent u/s194-1 of the Act. Therefore, we are of the considered view that the above decision of ITAT Chennai Bench (supra) relied upon by Id. DR is not applicable to the case before us. On the other han .....

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