2014 (4) TMI 548 - AT - Income Tax

Exigibility to deduction of tax at source u/s 194I of the Act Validity of demand u/s 201(1) and 201(1A) of the Act Held that - Rent , though a term of wide import, so that any payment, howsoever described, under any arrangement for seeking or securing enjoyment or possession of inter alia immovable property for any lawful purpose, would fall to be considered as rent - The term being specifically defined under a provision of the Act, recourse to its general meaning or to section 105 of the Transfer of Property Act, is not apposite Relying upon CIT vs. Raja Benoy Kumar Sahas Roy 1957 (5) TMI 6 - SUPREME Court -The limit to the scope of the said word, however, is implicit therein, and would not include transfer of a capital asset, i.e., where so, in terms of the defining provision of section 2(14). The assessment order states the annual rent at Rs.60,000 - Though there was no evidence to support the same on record, even so, the same would not, operate to disturb the finding of the same as representing only a nominal rent in view of the substantial rights/interest having been transferred - the arrangement is subject to the assessee-licensee constructing a building complying with the relevant and applicable guidelines within the prescribed time period (of four years), also providing infrastructure facilities as well as parking facilities qua the proposed residential complex - the premium amount has been worked out with reference to the ready reckoner rates for stamp duty purposes, besides being also accounted for as sales by the lessor (CIDCO) - though described as a licensee in the arrangement, the assessee is a lessee, and the arrangement, notwithstanding the restrictive convenants, confers substantial rights in the land, enabling the assessee to, as a developer, transfer the residential units to be constructed thereon to others the payment represents the transfer price of the land on lease hold basis, so that no part thereof qualifies to be a rent within the meaning of the term u/s.194-I of the Act so as to be exigible for deduction of tax at source there-under thus, the order of the CIT(A) is upheld Decided against Revenue.

Summary

Issues Involved:
Exigibility to deduction of tax at source u/s.194-I on lease premium paid by the assessee to CIDCO and validity of deletion of demand u/ss. 201(1) and 201(1A).

Analysis:

1. Exigibility to Deduction of Tax at Source:
The main issue in the appeal was whether the lease premium paid by the assessee to CIDCO was subject to deduction of tax at source under section 194-I of the Income Tax Act. The Revenue argued that the payment constituted 'rent' as defined under the Act and was therefore liable for TDS. On the other hand, the assessee contended that the payment represented the transfer price of the land on a leasehold basis and did not qualify as 'rent'. The tribunal analyzed various legal precedents and highlighted that the term 'rent' under section 194-I is broadly defined to include any payment for the use of land. However, the tribunal concluded that the lease premium in this case was for the transfer of leasehold rights and did not fall under the definition of 'rent'. The tribunal referred to specific court decisions and emphasized that the substance of the transaction must be considered to determine whether a payment is 'rent' or not.

2. Validity of Deletion of Demand:
Another issue was the validity of the deletion of the demand raised on the assessee under sections 201(1) and 201(1A) by the Assessing Officer. The Commissioner of Income Tax (Appeals) had allowed the assessee's appeal contesting the assessment. The tribunal examined the nature of the payment, the rights conferred on the assessee, and the overall transaction to determine that the payment was for the transfer of leasehold rights and not for the use of land as 'rent'. Consequently, the tribunal upheld the decision of the CIT(A) and dismissed the Revenue's appeal.

In conclusion, the tribunal found that the payment made by the assessee as a lease premium was not subject to deduction of tax at source under section 194-I. The tribunal confirmed the order of the CIT(A) and dismissed the Revenue's appeal. The judgment emphasized the importance of analyzing the substance of transactions to distinguish between payments constituting 'rent' and those representing transfer prices for capital assets like leasehold rights.