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2016 (6) TMI 689 - ITAT MUMBAI

2016 (6) TMI 689 - ITAT MUMBAI - TMI - TDS u/s 194I - non deduction of tds on amount paid for lease - demand u/s 201(1) and 201(1A) - Held that:- We have observed that the assessee along with his wife Mrs. Kavita Vikram Shah purchased a plot of residential land whereby lease deed for a period of 60 years will be executed in favour of the assessee and his wife for which lease premium has been paid for a sum of ₹ 1,05,80,528/- to CIDCO. Initially , the assessee entered into an agreement to s .....

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[2013 (8) TMI 598 - ITAT MUMBAI ] wherein held lease premium paid by assessee is not in the nature of rent as contemplated u/s 194-I of the Act - Provisions of section 194-I of the Act to deduct TDS on the lease premium paid by the assessee is not attracted - Decided in favour of assessee - I.T.A. No. 3123/Mum/2014 - Dated:- 16-6-2016 - Shri C. N. Prasad, Judicial Member And Shri Ramit Kochar, Accountant Member For the Assessee : Shri Mukundraj M Chate For the Revenue : Shri Devendra Jain ORDER .....

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,1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) read as under:- (i) On the facts and in the circumstances of the case and in law, the Ld, CIT(A) has erred in holding that the amount paid by the Lessee (Mr. Vikram Singh Shah) to the lessor (CIDCO) was not in the nature of rent , as defined in the Explanation (i) to section 194I of the Act for the purpos .....

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efault u/s.201(1) in respect of the amount of tax which has not been deducted under section 194I from the payment made to CIDCO and levying interest under section 201(1A). (iv) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in ignoring the definition or rent, as contained in section 194I and in resorting to interpretative reasoning whereas as per the settled principle of jurisprudence , this exercise is required only when the law is unclear. (v) On the fact .....

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ved by the A.O. that the assessee has paid lease premium to the City and Industrial Development Corporation of Maharashtra Ltd. (CIDCO) but no tax was deducted at source u/s 194I of the Act on payment of lease premium to CIDCO by the assessee. The A.O. called the assessee to file copy of P & L A/c, Balance Sheet , copy of TDS returns and form no 24Q/26Q for the financial year. The assessee duly filed the required details. The A.O. observed from the books of accounts of the assessee that duri .....

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assessee has been given license and authority to enter upon the land for erecting a building for residential purposes and after completion of the construction of residential building within the time period, the agreement to lease provides that legal interest would be granted to the assessee whereby lease deed will be entered into by CIDCO with the assessee. The copy of the lease deed was also enclosed. It was submitted that the lease premium of ₹ 1,05,80,528/- is nothing but total consider .....

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ownership and legal interest in the land in favour of the assessee. It was submitted by the assessee that Section 194I of the Act stipulate payment of rent for use of land , while in the instant case payment of ₹ 1,05,80,528/- is made to CIDCO for acquiring legal interest in the land in favour of the assessee. The A.O. considered the definition of rent as defined in section 194-I of the Act which as per the A.O. is of wider scope and the definition of rent given under explanation creates .....

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the AO. The A.O. relied upon the decision of Hon ble Karnataka High Court in the case of CIT v. H.M.T. Ltd., 203 ITR 820 (Kar.) wherein it was held that premium on lease is in nature of advance rent and therefore is allowable as revenue expenditure. The A.O. observed that the assessee does not have the right to sublet the property. The plea of the assessee that CIDCO is a government body and there is no requirement to deduct tax at source was also rejected by the A.O. as provisions of section 19 .....

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94 I of the Act because rent means any payment by whatever name called under any lease etc. for the use of any land etc. . Since the payment on account of lease premium is included in definition of rent as defined in Explanation (i) to section 194 I of the Act there is no need to refer to any decision or case law, because as per decision of Supreme Court rules of interpretation/ construction come into play only where there is ambiguity in law and such rules of interpretation/ construction have n .....

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under Chapter XVII-B of the Act has occurred. On facts and circumstances it is clear that all payments made by the assessee to the CIDCO are for using the land and rights related to use of land. There is no right of ownership/title in the plot of land as per the AO . This is conclusively proved by restrictive clauses putting encumbrance on the assessee as held by the AO. Thus as per the AO vide orders dated 28.11.2011 , the assessee is in default u/s 201(1) /201(1A) of the Act. 4. Aggrieved by t .....

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Appellant 55,35,395 Mrs. Kavita Shah wife 50,10,394 The agreement to sell dated 24-11-2009 was entered into with CIDCO and registered with the Sub-Registrar, Thane on 25th November, 2009 as per Index No. II. A copy of the agreement to sell is also enclosed which clearly shows that the total consideration of ₹ 1,05,45,789/- is lease premium for a period of 60 years. It was submitted by the assessee that during the first 4 years , the assessee was given license and authority to enter upon th .....

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t premium and rent have separate and distinct connotation in law as per section 105 of the Transfer of Property Act, 1882 whereby rent specified as money paid periodically or on specified occasion to the transferor of land , and premium on the other hand means a consideration of a price paid for transfer of a right to enjoy the property. Thus, it was submitted that there is a difference between the rent and premium. Further rent as defined in section 194-I of the Act envisages payment made under .....

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onsideration paid for the plot of land which the assessee has purchased. The agreement to lease is only a temporary arrangement to enable the assessee to comply with the condition of completing the construction within the stipulated period and once the said condition is fulfilled , a lease deed for a period of 60 years with a yearly rent of ₹ 100/- will be executed. Thus, the agreement to lease is nothing but a sale consideration and TDS is not deductible as the payment made is for acquiri .....

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ted the contentions of the assessee and held that it is undisputed fact that out of the entire payment of ₹ 1,05,80,528/- the assessee paid an amount of ₹ 55,36,395/- and balance was paid by his wife as per the agreement to lease dated 24th November, 2009 for acquiring ownership rights in plot of land for a period of 60 years together with yearly rent of ₹ 100/-. The learned CIT(A) observed that this issue has been decided in favour of the assessee by the Tribunal-Mumbai & .....

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sideration was paid for 60 years acquisition of the title in the property. This issue is squarely covered in favour of the assesse by the decision of the ITAT in the cases of ITO (TDS) v. Navi Mumbai SEZ (P.) Ltd. [2014] 147 ITD 261(Mum.Trib.), decision of the Tribunal- Delhi bench in the case of ITO v. Indian Newspapers Society [2013] 37 taxmann.com 401 and in the case of the Tribunal-Mumbai in the case of ITO (TDS) v. Wadhwa & Associates Realtors (P.) Ltd. [2014] 146 ITD 694(Mum.Trib.). 9. .....

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ember, 2009 and the agreement to lease which was registered on 25th November, 2009. After completion of construction of residential building within four years, the lease deed will be executed in favour of the assesse and his wife whereby ownership title/rights shall be granted in favour of the assessee. It is observed that the lease deed will be entered into by the assessee for a period of 60 years for which the payment has been made. We have observed that similar issue came before the co-ordina .....

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f section 194-I which deal with the provisions for deduction of income Tax at source from income by way of rent. The Explanation (i) to section 194-I of the Act defines the expression "rent". It is worthwhile and relevant to state section 194-I which is a subject matter of dispute. It reads as under : '194-I Rent.- Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of s .....

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section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed one hundred and eighty thousand rupees : Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified .....

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ding 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 income to the account of th .....

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before us is as to whether the said lease premium paid by the assessee to CIDCO 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 .....

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for consideration for use of land under the lease deed(s), hence provisions of section 194-I 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 "NMSEZ". That the assessee has been jointly promoted as a Special Purpose Vehicle (SPV) by CIDCO and Dronagiri Infrastructure Pvt Limited (DIPL) to develop and operate the Special Economic Zone at Navi Mumbai. Pursua .....

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essary infrastructure, providing necessary services, operating and maintaining infrastructure administrating and managing "SEZ". By virtue of said lease deed(s), the assessee has acquired the rights to determine, levy, collect, retain, utilize user charges fee for provision of services and /or tariffs in accordance with terms and conditions provided in the Development Agreement and the lease deed (s) entered into. Therefore, we agree with ld. CIT(A) that lease deed(s) and the Developme .....

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eriod of 60 years and not under a lease. Similar issue came up before the Special Bench ITAT Mumbai in the case of Mukund Ltd. (supra). The assessee acquired a land on lease for a period of 99 years from the Maharashtra Industrial Development Corporation (MIDC) and paid ₹ 2.04 crores as premium of leasehold land and apart from fixing annual rent at ₹ 1 per annum. The assessee claimed that the said premium on leasehold land is a revenue expenditure, which was disallowed by the AO hold .....

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terial 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. 21. In the case before us also the assessee has paid lease premium to acquire the demised leasehold land and there is no material on record that the said lease .....

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term lease is defined under section 105 of Transfer of Property Act, 1882 as "A lease of immoveable 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 by the transferee, who , accepts the transfer on such terms. In the case of lease price .....

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the continuous enjoyment of the benefit under the lease are in the nature of rent. The Hon'ble Apex Court has held in the case of A.R. Krishnamurthy (supra) that lease of land is transferred of interest in the land and creates a right in rem : and there is a transfer of title in favour of the lessee though the lessor has the right of reversion after the period of lease terminates. It was held that grant of mining lease at a premium is a capital asset. The Hon'ble Delhi High Court also b .....

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ically is income. It was held that the principle is the same, whether the premium is for a simple lease of land or for a lease of mineral rights. Therefore, when the interest of the lessee 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. That the former is capital and the later is revenue in nature. Their Lordships of the Hon'ble Delhi High Court stated tha .....

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lso came up before the Hon'ble Jurisdictional High Court in the case of CIT v. Khimline Pumps Ltd. [2002] 258 ITR 459/125 Taxman 104 (Bom.). In the said case open plot of land was leased out to APVE Ltd, a company for a period of 95 years on payment of a premium of ₹ 1,62,400/- and yearly rent of ₹ 1. In the lease, the company had, at the end of 95 years to deliver a vacant possession of the land. The company was entitled to remove any building, erections or structures put up by .....

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be existed in 71 years, a proportionate amount relatable to each year viz ₹ 63,380/- might be allowed as deduction on account of payment of rent. On appeal to the Hon'ble High Court the Hon'ble Jurisdictional High Court agreed with the AO that ₹ 45 lakhs was a capital expenditure. Therefore the Tribunal could not direct the department to apportion the amount over a period of 71 years. Their Lordships held that in order to ascertain true character and purport of the payment t .....

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akshya Narain Singh of Ramgarh v. CIT [1943] 11 ITR 513 (PC) and the case of the Hon'ble Apex Court in the case of CIT v. Panbari Tea Co. Ltd. [1965] 57 ITR 422 (SC) squarely apply to the facts of the case before us that the lease premium paid by the assessee to CIDCO for acquiring leasehold land is capital expenditure to acquire capital asset and not for the use of land. Therefore, we agree with ld. AR that the lease premium paid by the assessee for acquiring leasehold land with a right to .....

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ltors (P.) Ltd. (supra) and the Tribunal vide para 5 of the said order has held that the ld. CIT(A) is justified to hold that the whole transaction towards grant of leasehold transaction right to the assessee is nothing but a transaction of transfer of property and the lease premium is the consideration for the purchase of said leasehold rights. It is relevant to state that the Tribunal in the above order has also considered the decision of the Hon'ble Calcutta High Court, and the decision o .....

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s let out tenanted property. The Ld. CIT(A) further observed that even the additional FSI given for additional charges as per Ready Reckoner rates only. It is the finding of the Ld. CIT(A) that the whole transaction towards grant of leasehold transaction rights to the assessee is nothing but a transaction of transfer of property and the lease premium is the consideration for the purchase of the said leasehold rights. The ld. CIT(A) went on to discuss the judicial decisions relied upon by the AO .....

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d (3) the royalty per ton . The salami have been rightly treated as capital receipt. It is a single payment made for the acquisition of the right of the lessees to enjoy the benefits granted both by the lease. The Ld. CIT(A) has also considered the decision of the Hon'ble Supreme Court in the case of Sindhurani Chaudhurani (supra) wherein it has been held that Salami is in the form of a lump sum non recurring payment made by a prospective tenant to the landlord as a consideration and is paid .....

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n the Hon'ble Jurisdictional High Court has held that an amount of ₹ 45 lakhs paid by the assessee to M/s. APVE Ltd., for acquisition of leasehold land was a capital expenditure and hence the same was not deductible. The Ld. CIT(A) has further considered the decision of the Special Bench of Mumbai Tribunal in the case of JCIT v. Mukund Ltd. 106 ITD 231 wherein the issue was whether the premium paid for acquiring leasehold right in land is revenue or capital . The Special Bench has held .....

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y down general principles of interpretation of Law. I find that none of the above cases the court has held that the lease premium in similar circumstances is in the nature of advance rent and hence liable for deduction of TDS u/s. 194-I of the Act. The cases relied upon by the AO are thus distinguishable on facts and in law and the same cannot be made applicable to the facts of the present case where the issue raised is completely different." 5.3 The Ld. CIT(A) finally considered the decisi .....

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e stand of the department as well as the decision of the Tribunal was that the consideration paid for acquiring leasehold rights in land is a capital expenditure and not 'rent'. 5.4. The Ld. CIT(A) finally concluded that the amount paid by the assessee is lease premium for acquiring leasehold rights and additional FSI in respect of the leased plot and the same is not in the nature of rent as contemplated u/s. 194-1 of the Act. Accordingly, the assessee was not required to deduct tax at s .....

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ght to construct and cover the building complex. 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 ITAT, Chennai Bench in the case of Foxconn India Developers (P.) Ltd (supra) should be considered and be followed . We observe that the said decision of ITAT has been considered by the ld. CIT(A) in para 5.40 of the impugned order. On perusal of the said order of ITAT, Chennai Be .....

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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/s 194-I of the Act. Therefore, we are of the considered view that the above decision of ITAT Chennai Bench (supra) relied upon by ld. DR is not applicable to the case before us. On the other hand, the Special Bench Decision of ITAT, Mumbai in the case of Mukund Ltd. (supra) squarely apply wherein it has been held that the premium paid for acquiring l .....

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arry on lease, the lease rent paid was capital expenditure and the Hon'ble High Court also affirmed the decision of the Tribunal. The Hon'ble Apex Court while confirming the decision of the Hon'ble High Court held that premium for lease or any lumpsum payment for obtaining a lease for a long period is a payment for enduring advantage, so that it is a capital expenditure which is not deductible . The Hon'ble Apex Court also confirmed the decision of Hon'ble Madras High Court t .....

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