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2016 (12) TMI 240 - ITAT MUMBAI

2016 (12) TMI 240 - ITAT MUMBAI - TMI - TDS u/s 194I - TDS towards sublease of 5 Bigha land - Held that:- This payment of ₹ 3 lacs paid by the assessee to Suzlon Energy Limited towards sublease charges for 5 bigha land at Baramsar, Tehsil and District Jaisalmer, Rajasthan for setting up windmill project is not covered within the ambit and mandate of Section 194-I of the Act and no tax is deductible at source as the payment is made albeit as sublease charges for acquiring the rights in prop .....

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ivate Limited to the assessee and is covered u/s 194-C of the Act. - The assessee has claimed that the lower deduction certificate was issued by ACIT in favour of Suzlon Developers Private Limited to deduct tax at source @0.55% on contractual payments during the financial year 2003-04 which was produced by the payee (pb/page 19). In our considered view,this payment of ₹ 3 lacs was covered under the provisions of Section 194-C of the Act and the assessee has defaulted in not deducting .....

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e set aside and restore this issue to the file of the A.O. with a direction to verify the afore-stated contentions of the assessee that M/s Suzlon Developers P. Ltd. has produced TDS certificate issued u/s 197(1) of the Act in their favour for the impugned assessment year 2004-05 for lower deduction of tax at source @0.55% on contractual payments and also that they have duly paid the taxes to Revenue after including afore-stated receipts. - I .T.A. No. 6793/Mum/2014 - Dated:- 16-11-2016 - SHRI C .....

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CIT(A) arising from the order dated 28th March, 2011 passed by the learned Assessing Officer (hereinafter called the AO ) u/s 201(1)/201(1A) of the Income-tax Act,1961 (Hereinafter called the Act ). 2. The concise grounds of appeal filed by the assessee with the Income- Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) in lieu of grounds filed along with Memo of appeal filed with the tribunal read as under:- Ground 1 The Hon CIT (A)-14,Mumbai has erred in confirming short deduct .....

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Hon' CIT (A)-14,Mumbai has erred in confirming short deduction of TDS of ₹ 61,500 on payment of ₹ 300,000 to Suzlon Developers Pvt. Ltd, made for sharing infrastructure facility at village Baramsar,Jaisalmer, Rajasthan for wind turbine generator. The Appellant Company humbly submits that One-time payment of ₹ 3,00,000/- towards Sharing Infrastructure Facilities for Windmill for its lifetime is not covered by Explanation(i) to Section 194-I and hence the demand towards shor .....

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complete the assessment i.e. say 31-03-2008.. 3. The Brief facts of the case are that a survey u/s. 133A of the Act was conducted by the Revenue in the case of the assessee on 2nd March, 2007 in its office premises situated at 207/208, Bhaveshwar Arcade, Opp. Shreyas cinema, LBS Marg, Ghatkopar(West), Mumbai-400 086. The assessee is engaged in the business of power generation. It was observed during the course of survey and subsequent proceedings u/s 201 of the Act that the assessee had incurre .....

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um is paid for purchase of rights in immovable property. The A.O. rejected the contention of the assessee and relied upon the provisions of section 194-I of the Act whereby the AO held that the assessee in its submission had stated that this payment of ₹ 3 lacs had been made towards sublease of 5 Bigha land which was clearly covered in the definition of rent as stipulated u/s 194-I of the Act and hence the assessee was liable to deduct tax at source u/s 194-I of the Act. Since , the assess .....

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201(1) and 201(1A) of the Act. Similarly, no tax was deducted at source on payment of ₹ 3 lacs made to Suzlon Developers Pvt. Ltd. on account of sharing infrastructure facility at Village Baramsar, to run and maintain wind mill in the wind mill field developed by Suzlon Developers Private Limited. The assessee was issued show cause notice asking it to show cause as to why it should not be held as an assessee in default in respect of the above said defaults. In reply, the assessee submitte .....

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development of wind mill and to provide common facilities permanently for years, no tax was required to be deducted at source on such contribution. It was further submitted that M/s Suzlon Developer Private Limited is merely collection and disbursement facilitator whereas the actual development of infrastructure is carried out by various agencies for years together and in such circumstances contribution of ₹ 3 lacs amounts to acquiring common facility for life time of the wind mill and doe .....

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ssee company did not deduct tax at source u/s 194-I of the Act on the payments made to Suzlon Developers Private Limited on account of Rent called by the assessee as payment for sharing infrastructure facility , the assessee was deemed to be an assessee in default within the provisions of section 201 of the Act and the assessee s default was determined at ₹ 61,500/- (20.5% of ₹ 3,00,000/-) and as such , an amount of ₹ 61,500/- was short deducted u/s 201 of the Act, vide orders .....

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ear 2003-04, the assessee company entered into contract with Suzlon Energy Ltd. for turn-Key project of purchase, installation, commissioning and maintaining Windmill Turbine Generation J-38 (windmill) at village Baramsar, District Jaisalmer, Rajasthan for total consideration of ₹ 1,36,50,000/-. The assessee company paid ₹ 3 lacs by virtue of which it acquired sub-lease rights for a period of 19 years of the 5 Bigha land at village Baramsar vide sub-lease dated 12-08-2004 w.e.f. 19-0 .....

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se rights year after year, but the amount of ₹ 3 lacs is not covered by and cannot be held as rent for the purpose of section 194-I of the Act and hence prayer was made to learned CIT(A) to delete the TDS demand of ₹ 61,500/-. It was further submitted that payment of ₹ 3 lacs to M/s Suzlon Developers Pvt. Ltd. was made towards charges for sharing of infrastructure facility at village Baramsar, Jaisalmer (Rajastan] for Wind Turbine Generator. It was submitted that Suzlon Develop .....

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to the undivided common infrastructure facilities to be enjoyed throughout the life of the Windmill. Without prejudice , it was submitted that Suzlon Developers Pvt. Limited i.e. the payee has no tax dues payable as it had paid its entire tax liability for the assessment year 2004-05 hence no taxes can be determined/recovered from the assessee in view of the Hon ble Supreme court judgment in the case of CIT v. Hindustan Coco Cola Beverage Pvt Ltd., (2007)293ITR226(SC). The ld. CIT(A) after cons .....

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cific definition of rent has to be applied, hence, the payment made by the assessee to M/s Suzlon Developers Pvt. Ltd. is covered by the provisions of section 194-I of the Act and no tax was deducted at source by the assessee and hence the AO action of treating the assessee in default was upheld by learned CIT(A). The argument of the assessee that the deductee-payee has paid the taxes and hence the assessee could not be treated as assessee in default was rejected by learned CIT(A) as no evidence .....

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greived by the appellate orders dated 01-08-2014 passed by learned CIT(A), the assessee filed second appeal with the tribunal. 7. The ld. Counsel for the assessee submitted that payment of ₹ 3 lacs was paid to M/s Suzlon Energy Limited for acquiring sublease rights of 5 bigha of land for 19 years which is further extendable for 11 years . The ld. Counsel submitted that further payment of ₹ 3 lacs was paid to Suzlon Developers Private Limited towards common infrastructure facilities a .....

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se of land which could be brought within ambit of definition of Rent for the purposes of Section 194-I of the Act as per explanation(i) to Section 194-I of the Act defining Rent as was applicable for assessment year 2004-05.It was submitted that as part of the windmill Turn- Key project the company paid ₹ 3 lacs to Suzlon Developers Pvt. Ltd. as its share of the undivided common infrastructure facilities throughout the life of the Windmill which does not attract any provisions for tax dedu .....

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the land must be owned by the payee. It was submitted that the payment of rent for use of land is covered by the Explanation (i) of section 194-I of the Act only if the payee is the owner of the land as per pre-amended definition and payment made for acquiring land or capital assets cannot be brought within ambit of definition of Rent as per Section 194-I of the Act. It is submitted that in assessee s case the payee M/s Suzlon Energy Ltd. is not the owner of land but the lessee of the land gran .....

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paid rent of ₹ 225/- periodically towards the use of the land. The ld. Counsel invited our attention to the agreement placed on record vide paper book page 3 to 18 whereby the assessee is entitled to mortgage or assign land in favour of any financial institutions or banks and has only to notify within a period of three months of taking loan etc. to the sub-lessor and Government of Rajasthan, hence the payment is not covered by section 194-I of the Act as lease premium does not fall under .....

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2 v. M/s Navi Mumbai SEZ P. Ltd.. ITA no. 738 to 741/Mum/2012 16-08-2013 6 M/s Foxconn India Developer (P) Ltd. V. The Income Tax Officer, TDS Ward -II(3) (2016) 239 taxman 513(Mad. HC) 04-04-2016 It is submitted that decision of the tribunal in the case of Foxconn relied upon by the authorities below has been reversed by the Hon ble Madras High Court in 239 taxman 513(Mad.HC)(supra). With respect to ground No. 2, it is submitted that the definition of Rent has been amended by the Taxation Laws .....

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Section 194-I of the Act and at best ,without prejudice, it could be covered u/s 194-C of the Act being contractual payments. To this effect certificate u/s 197(1) of the Act was issued by the Revenue-ACIT in favour of Suzlon Developers Private Limited to deduct TDS @0.55% for which the assessee may be held as assessee in default to that extent, which certificate issued by the Revenue u/s 197(1) of the Act is placed at paper book page 19. It was submitted that the Chartered Accountant of Suzlon .....

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that the survey was conducted by the Revenue on 02-03-2007 and the assessee had made submission before the A.O. in the month of December 2007 with respect to alleged violations of Section 194-I of the Act for non deduction of tax at source by the assessee u/s 194-I of the Act, while the order u/s 201/201(1A) of the Act was passed in year 2011 i.e. after more than three years .It was submitted that there was inordinate delay of more than three years by the Revenue in passing orders u/s 201/201(1A .....

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f land is covered within definition of Rent and tax is to be deducted at source on such payments and the ld. CIT(A) is quite justified in passing his order. The learned DR submitted that it is not known whether the Revenue has accepted the decision of Hon ble Madras High Court in the case of Foxconn India Developers Private Limited(supra). Interest is mandatory for non-deduction of TDS and the Revenue has rightly imposed interest u/s 201(1A) of the Act. It was submitted that interest is compensa .....

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itted its replies to the queries raised by the AO. 9. We have considered the rival contentions and also perused the material available on record including case laws relied upon by both the parties. We have observed that the assessee is in the business of generation of power. The assessee had given contract to Suzlon Energy Limited to supply, install, commission and operate Wind Turbine Generation J38(Windmill) in Wind Farm situated at Village Baramsar , Tehsil and District Jaisalmer, Rajasthan f .....

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said land was sub-leased to the assessee by Suzlon Energy Private Limited for setting up windmill project. The Government of Rajasthan has allotted 307 Bigha 3 Biswa land on lease basis to Suzlon Eneregy Private Limited at Village Baramsar , Tehsil and District Jaisalmer, Rajasthan for a period of thirty years for the purpose of setting up Windmill projects vide lease deed dated 19-02-2004 which can be further extended beyond 30 years, and in turn Suzlon Energy Private Limited has sub-leased 5 .....

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jasthan(pb/page 3-18). The assessee is also in addition liable to pay yearly rent of ₹ 225/- to the Government of Rajasthan directly with respect to this sub-leased land situated at Village Baramsar , Tehsil and District Jaisalmer, Rajasthan (pb/page8) . As per the sub-lease agreement clause IV with Suzlon Energy Limited, the assessee is entitled and permitted by Government of Rajasthan and Suzlon Energy Private Limited to mortgage or assign the land in favour of any financial institutions .....

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period of 19 years with right to further extension for 11 years and further option to extend even beyond 30 years if Government of Rajasthan extends the lease of Suzlon Eneregy Private Limited and hence this payment of ₹ 3,00,000/- by the assessee to Suzlon Energy Private limited is not merely payment of Rent for use of land.. Further we have observed that there is no provision in the sublease deed dated 12-08-2004 that this payment of ₹ 3 lacs is adjustable against yearly rent . He .....

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High Court in the case of Foxconn India Deeveoper Private Limited (supra) as well other decisions relied upon by the assessee as detailed in preceding para s albeit in the said decisions the Court/tribunal were concerned with up-front lease premium paid for acquisition of land on long term lease basis while in the instant case land is acquired for setting up wind mill by entering into sublease deed where in the lessor has granted sub-lease in favour of the assessee with the approval of the owne .....

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n ble High Courts and has accepted that no TDS is deductible on payment of onetime up-front lease premium paid to acquire property on long-term lease. The CBDT Circular No. 35/2016 [F No. 275/29/2015-IT (B)] dated 13th October, 2016 is reproduced below:- CIRCULAR 0.35/2016 [F. 0.275/29/2015-IT (B)] SECTION 194-I OF THE INCOME-TAX ACT, 1961 - DEDUCTION OF TAX AT SOURCE - RENT - APPLICABILITY OF TDS PROVISIONS OF SECTION 194-I ON LUMPSUM LEASE PREMIUM PAID FOR ACQUISITION OF LONG TERM LEASE. CIRCU .....

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. The issue of whether or not TDS under section 194-I of the Act is applicable on 'lump sum lease premium' or 'one-time upfront lease charges" paid by an assessee for acquiring long-term leasehold rights for land or any other property has been examined by CBDT in view of representations received in this regard. 3. The Board has taken note of the fact that in the case of The Indian Newspaper Society (ITA Nos. 918 & 920/2015), the Hon'ble Delhi High Court has ruled that le .....

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capital expense not requiring deduction of tax at source under section 194-I of the Act. 4. Further, in the case Foxconn India Developer Limited (Tax Case Appeal No. 801/2013), the Hon'ble Chennai High Court held that the one-time non-refundable upfront charges paid by the assessee for the acquisition of leasehold rights over an immovable property for 99 years could not be taken to constitute rental income in the hands of the lessor, obliging the lessee to deduct tax at source under section .....

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r or not TDS under section 194-I of the Act is to be made on lump sum lease premium or one-time upfront lease charges paid for allotment of land or any other property on long-term lease basis is now settled in favour of the assessee. 6. In view of the above, it is clarified that lump sum lease premium or one-time upfront lease charges, which are not adjustable against periodic rent, paid or payable for acquisition of long-term leasehold rights over land or any other property are not payments in .....

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date of Section 194-I of the Act and no tax is deductible at source as the payment is made albeit as sublease charges for acquiring the rights in property which is akin to ownership rights.We order accordingly. The assessee had also made payment of ₹ 3 lacs as its contribution for availing and use of common infrastructure facility to M/s Suzlon Developers Limited which are constructed, developed and operated by Suzlon Developers Private Limited. The common infrastructure facilities are : a .....

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windmill Farm at Village Baramsar, Jaisalmer, Rajasthan . In the said wind mill farm, Suzlan Energy Ltd. Has installed thousands of windmill for its various customers as long term turn-key project. We have observed that the assessee company was one of the customers for whom Suzlon Energy Ltd. installed one windmill during financial year 2003-04. As a part of the windmill Turn-Key project the company paid ₹ 3 lacs to Suzlon Developers Pvt. Ltd. as its share to the undivided common infrastr .....

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Hindustan Coco Cola Beverage Pvt Ltd., (2007)293ITR226(SC). In our considered view, these common infrastructure facilities as detailed above require rendering of services associated with these infrastructure facilities for availing these infrastructure facilities which are in the nature of payment to contractor for carrying out the work associated with the utilization of these common infrastructure facilities. These are payments hich are contractual payment for provision of various common infra .....

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essee has defaulted in not deducting tax at source u/s 194-C of the Act on this payment of ₹ 3 lacs to Suzlon Developers Private Limited. The verification is required from the side of A.O. w.r.t. claims of the assessee that the said Suzlon Develoeprs Private Limited hold lower deduction certificate issued by Revenue u/s 197(1) of the Act as also the claim of the assessee that the said Suzlon Develoeprs Private Limited has duly paid taxes on these payment of ₹ 3 lacs paid by the asses .....

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