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TMI Blog2017 (2) TMI 1109X X X X Extracts X X X X X X X X Extracts X X X X ..... uparna Srivastava, Advocate, for UOI. Sh. Ashwani Malhotra, Sr. Advocate with Sh. Rajnish Singh, Advocate. Sh. Dileep Shivpuri, Sr. Standing Counsel with Sh. Sanjay Kumar, Jr. Standing Counsel and Sh. Vikrant. A.Maheshwari, Advocate, for Revenue. MR. JUSTICE S. RAVINDRA BHAT 1. This common judgment will dispose of a batch of writ petitions. They were heard together as they involve identical questions of fact and law as to the correct interpretation of Section 194-I of the Income Tax Act [hereafter "the Act"]. 2. The petitioners are engaged in developing, constructing and selling residential units, plots and flats. Each of them entered into a long-term 90 years lease with the Greater Noida Industrial Development Authority (GNOIDA) [hereafter referred to as "the authority" or "the lessor"], as the case may be, i.e. one of the respondents in all these writ proceedings, for development and sale of land in various housing colonies. In terms of the lease deed entered into with the lessor, the petitioner paid upfront consideration and the balance was payable in terms of annual installments according to the terms and conditions of the lease deed. Along with the lease premium, each lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner company as assessee-in-default for non-deduction and deposit of TDS in respect of the payments made to NOIDA Authority and has also levied the interest thereon. The demand for various periods was quantified. The assessee/petitioners preferred appeals to the Commissioner (Appeals) in some cases. Later, the AO issued further notice of demands for other periods under Section 221(1), which were duly replied to. In these circumstances, they have approached this court for appropriate relief, contending that the GNOIDA's position on this issue is that amounts payable to it cannot be subjected to tax deduction, since it is a "local authority". 5. The Petitioners submit that the demands made in pursuance of the passing of the assessment order under Sections 201/201 (A) of the Act is arbitrary and fictitious. It is not the case of the income tax authorities that the Petitioners made a short payment of tax and / or not deposited the same in the government treasury after deducting the amount. On the contrary, the Petitioners made the full payment to the payee and cannot be forced to again make the payment. The income tax authorities have all the rights and powers to charge and recover t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion or for the purpose of planning/ development or improvement of cities/ towns and villages/ is exempt from income-tax under section 10 (20A). Similarly the income of a local authority which is chargeable under the head 'Income from house property/ or 'Income from other sources; is exempt from income-tax under section 10(20). There is no other condition specified in these two clauses of section 10, which is necessary to be satisfied in order to avail of the income-tax exemption. In view of the aforestated, there is no requirement to deduct income-tax at source on income by way of rent if the payee is the Government. In the case of the local authorities and the statutory authorities referred to in para 3 of this circular, there will be no requirement to deduct income-tax at source from income by way of rent if the person responsible for paying it is satisfied about their tax-exempt status under clause (20) or (20A) of section 10 on the basis of a certificate to this effect given by the said authorities." 7. The GNOIDA further argues that in the explanation to Section 10(20) of the Income Tax Act, 1961, a "Municipality as referred to in clause (e) of Article 243P of the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e functions of municipality are performed by the authority. It is submitted that the lease rent is levied in terms of provisions of the Act. 9. The income tax authorities argue that they are following the mandate of law. Since Section 194-I is decisive and forthright that all amounts constituting rent and other payments towards the use of the land and property are to be subjected to tax deduction, there can be no exception save what is provided by law. The Revenue contrasts this provision with section 194A which contains exceptions. The Revenue also disputes that GNOIDA performs any sovereign functions and reiterates that the amounts paid by the petitioners are rent, no more, no less and therefore, subjected to tax deduction. The Revenue also relies on the judgment of the Allahabad High Court in New Okhla Industrial Development Authority v. Chief Commissioner of Income Tax, Meerut Camp & Ors., decided on 28.02.2011 (in Writ- Tax No. 1338 of 2005) which states how NOIDA is not a local authority and is therefore not exempt from TDS provisions of the Act. 10. Section 194-I reads as follows: "Rent. 194-I. Any person, not being an individual or a Hindu undivided family, who is respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iption "rent" in view of the explanation to section 194-I i.e "any payment by whatever name called"? The second is whether the interest amounts paid towards overdue lease amounts are also liable to TDS. As to both GNOIDA asserts that since it is a municipality, it stands covered by Section 10 (20A) of the Income Tax Act and amounts payable to it are exempt from the description of "income". It follows up this with the submission that GNOIDA is constituted under the UPIDA and was declared an industrial township under a notification issued for the purpose in 1976; that establishes that it is a municipality and that amounts collected are towards services by way of "sovereign" functions. 12. Section 10 (20A) reads as follows: "10. Incomes not included in total income in computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included: (1) agricultural income; ********* ******* & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mportance or such other factors as he may deem fit, specify by public notification for the purposes of this Part." 13. In the present case, the Governor of Uttar Pradesh notified the respondent GNOIDA as an industrial township by notification dated 24.12.2001. The notification pertinently stated as follows: "In exercise of the powers under the proviso to clause (l) of Article 243-Q of the Constitution of India, the Governor, having regard to the size of the Greater New Okhla Industrial Development Area, which has been declared as an industrial development area by Government notification No. 7436 Bha.U.IXVIII-II-107Bha/85, dated January 28, 1991 and the municipal services being provided by the Greater New Okhla Industrial Development Authority in that area, is pleased to specify the said Greater New Okhla Industrial Development Area to be an "Industrial township" with effect from the date of publication of this notification in the official Gazette." This notification supports the Revenue's contention that the GNOIDA is not a municipality and therefore, did not fall within the description of a municipality under Section 10 (20) to exempt it from the provisions of Section 194-I. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have the right to vote in the meetings of the Municipality; (b) the manner of election of the Chairperson of a Municipality." Thus, the prerequisite for characterization of a unit or body as a municipality is that it should be self-governing and its members "shall be filled by persons chosen by direct election from the territorial constituencies in the Municipal area" and for such purpose (i.e. election) "each Municipal area shall be divided into territorial constituencies to be known as ward." In the case of GNOIDA, this essential characteristic is absent. Section 3, which constitutes it, lists 6 officials and specifies the ranks and departments (of the UP Government) who are to man the body; 5 are to be nominated by the State Government. Therefore, the possibility of a reasonable argument that GNOIDA is a municipality, notwithstanding its constitution as an industrial township, is ruled out. 16. As to the other submissions of GNOIDA that its collections - towards lease deed are by way of tax and other payments are extractions by use of sovereign power, are equally untenable. Article 243P specifies that municipalities - as defined by Article 243Q are to be treated as such. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecisions, such as Assam Bengal Cement Co. Ltd. v Commissioner of Income Tax, West Bengal [1955] 27 ITR 34 (SC) and Madras Industrial Investment Corporation Ltd. vs. CIT (1997) 225 ITR 802 (SC). However, in respect of amounts clearly reserved as rent (generally 1% of the total consideration, payable annually) the payments are clearly rent and not capital. In respect of such amounts too, the petitioners were liable to deduct TDS from the payments made to GNOIDA. This view is also reinforced by the Income Tax Circular No. 35/2016 dated 13 October, 2016 issued by the Central Board of Direct Taxes (CBDT) which clarified that "lump sum lease payments or one time lease charges, which are not adjustable against long term lease hold charges, which are not adjustable against periodic rent, paid or paid or payable for acquisition of long term leasehold rights over land or any other property are not payments in the nature of rent within the meaning of Section 194-I of the Act." 18. As far as interest on overdue payments or other such amounts are concerned, however, they cannot be called "capital" payments. In the present case, the court holds that since the GNOIDA insisted that its payments n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.1359/Del/2014 decided on 07.08.2015) the ITAT held as follows: "11. Adverting to the facts of the instant case, we find that the assessee is a statutory corporation established by means of the UP Industrial Area Development Act, 1976. It has been noticed above from the preamble of this Act that it has been made for development of certain areas in the State into industrial and urban township. Instead of enacting area-wise Industrial Area Development Acts, the UP Government enacted a common UP Industrial Area Development Act, 1976 to cover Authorities under different areas with its distinct name. But, for the creation of various area-wise authorities such as NOIDA and Ghaziabad Authorities, there is no other purpose of the UP Industrial Area Development Act, 1976. In other words, we can also say that this Act is nothing but a culmination of several area-wise Industrial Area Development Acts. Since NOIDA has been notified under the UP Industrial Area Development Act, we are of the considered opinion that the expression 'any corporation established by a State Act' shall include New Okhla Industrial Development Authority in the given circumstances. 12. We find that identical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng up of development authorities like GNOIDA. Consequently, payments made by banks towards interest accruing on deposits, etc. are not deductible. 20. In view of the above analysis, the court hereby concludes as follows: (1) Amounts paid as part of the lease premium in terms of the time schedule(s) to the Lease Deeds executed between the petitioners and GNOIDA, or bi-annual or annual payments for a limited/specific period towards acquisition of lease hold rights are not subject to TDS, being capital payments; (2) Amounts constituting annual lease rent, expressed in terms of percentage (e.g. 1%) of the total premium for the duration of the lease, are rent, and therefore subject to TDS. Since the petitioners could not make the deductions due to the insistence of GNOIDA, a direction is issued to the said authority (GNOIDA) to comply with the provisions of law and make all payments, which would have been otherwise part of the deductions, for the periods, in question, till end of the date of this judgment. All payments to be made to it, henceforth, shall be subject to TDS. (3) Amounts which are payable towards interest on the payment of lump sum lease premium, in terms of the Lease w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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