2014 (6) TMI 497 - AT - Income Tax

TDS u/s 194I - nature of payment - renting or acquiring of lease hold rights - Construction of the hotel beyond the specified period payment of additional lease premium due to extension of lease period for construction - distinction between payments on revenue or capital account - Held that - The payment made for an extension of time for the construction of the hotel beyond the period as originally specified in the lease deed - this does not lead to acquisition of any lease-hold rights, or any capital asset for that matter, by the assessee and would not qualify as additional lease premium - there could be no doubt that the sum is not in the nature of rent - also not covered by any other tax deduction provision, being only by way of modification in the terms of the original deed, so that it could be said to be in the nature of a charge or fee paid under the lease agreement for extension of time revenue could not controvert it in any manner thus, it cannot be said to be not in the nature of rent and not exigible to deduction of tax at source u/s 194I Decided against Revenue.

Summary

Issues involved:
Applicability of section 194-I of the Income Tax Act, 1961 to payments made under a lease agreement.

Analysis:
1. Common Issue for Two Assessment Years: The judgment pertains to two consecutive assessment years, 2009-10 and 2010-11, where the primary issue is the applicability of section 194-I of the Income Tax Act to payments made by the assessee to the Mumbai Metropolitan Regional Development Authority (MMRDA) under a lease agreement. The Revenue contends that the payments should be considered as lease rental or advance rent, thus subject to tax deduction at source under section 194-I. Conversely, the assessee argues that the payments are in the nature of lease premium for acquiring leasehold rights, making section 194-I inapplicable. The dispute arises from differing interpretations of the nature of the payments made.

2. Arguments and Tribunal's Analysis: The authorized representative for the assessee cited previous tribunal decisions to support their claim that the payments were capital in nature for acquiring additional built-up area and FSI. The tribunal examined the lease terms and found that the initial payment was indeed a lease premium for acquiring leasehold rights, exempt from tax deduction under section 194-I. However, for the subsequent year, a payment was made for an extension of time for construction, which the tribunal ruled did not confer any leasehold rights or qualify as additional lease premium. Despite this, the payment was not considered rent and was not covered by any other tax deduction provision.

3. Decision and Dismissal of Cross Objections: The tribunal ultimately dismissed the Revenue's appeal and the assessee's cross objections. It upheld that the initial payment was lease premium and not subject to tax deduction under section 194-I. Similarly, the payment for the extension of construction time was deemed not to be in the nature of rent and therefore not exigible to tax deduction under the same section. The cross objections raised by the assessee were deemed infructuous in light of the tribunal's decision and were dismissed for statistical purposes.

In conclusion, the judgment provides a detailed analysis of the applicability of tax deduction provisions under the Income Tax Act to payments made under a lease agreement, emphasizing the distinction between lease premium and rent in determining tax liability.