2015 (1) TMI 315 - AT - Income Tax

TDS u/s.194-I - lease premium and additional Floor Space Index (FSI) charges, paid by the assessee-company to Mumbai Metropolitan Regional Development Authority (MMRDA) toward leasehold land during the relevant year - Held that - as found by the ld. CIT(A), the amount charged by MMRDA as lease premium is equal to the rate prevailing as per the stamp duty ready reckoner for the acquisition of commercial premises. There is no provision in the lease agreement for termination of the lease at the instance of the lessee and, hence, for refund of lease premium under regular circumstances. Even the additional floor space index (FSI), given for additional space, is as per the ready reckoner rate only. The whole transaction is thus for grant of leasehold rights, and only a transfer of property; the lease premium being the consideration for the leasehold rights, which comprise a bundle of rights, including the right of possession, exploitation and its long term enjoyment. The charges for FSI also partake the character of a capital asset in the form of Transferable Development Rights (TDRs), so that the owner (of land) had transferred the rights of development and exploitation of land, which are again capital in nature. The restrictive convents toward excavation seek to retain the right of the State to any minerals from land. Excavation is permitted for the purpose of construction of the foundation of the building, or for executing any work in pursuance of the terms of lease. Similarly, restriction with regard to erection beyond building line was only in conformity with DC Rules, civil aviation rules, BMC and coastal regulations, etc., i.e., are regulatory, and do not define the character of the transaction per se . The same in fact would apply, i.e., be imposed by a local authority while granting permission for construction on free-hold land. The payment is not in the nature of rent - not liable for TDS - Decided against Revenue.

Summary

Issues:
Exigibility to tax deduction at source (TDS) u/s.194-I of the Act for lease premium and additional Floor Space Index (FSI) charges paid by the assessee to MMRDA.

Analysis:
The single issue raised in this appeal concerns the applicability of tax deduction at source (TDS) under section 194-I of the Income Tax Act for the sum paid by the assessee-company to MMRDA as lease premium and additional FSI charges. The Revenue argues that the term 'rent' under section 194-I is broadly defined to include any payment for the use of land, regardless of whether it is on revenue or capital account. The restrictive clauses in the lease agreement are interpreted as indicative of the payment being for the use of land over an extended period, thus falling within the scope of 'rent'. Several legal precedents are cited to support this interpretation.

On the other hand, the assessee contends that the lease premium was solely for acquiring leasehold rights and additional FSI, not constituting 'rent'. The restrictive clauses are viewed as regulatory and not restrictive of the rights acquired by the lessee. Legal authorities are cited to demonstrate that the lease premium represents a transfer of substantial interest in favor of the lessee, akin to a transfer of property rights. The real nature of the transaction is emphasized over the terminology used, in line with judicial guidance.

The Tribunal, concurring with the CIT(A), finds that the amount charged by MMRDA as lease premium aligns with the stamp duty ready reckoner for commercial premises acquisition. The absence of provisions for lease termination or refund of premium indicates a transaction for granting leasehold rights, including possession and long-term enjoyment. The FSI charges are deemed capital assets akin to Transferable Development Rights (TDRs). Regulatory clauses in the agreement are seen as standard for development control and not determinative of the transaction's character. Consistent views have been taken for similar transactions with MMRDA, CIDCO Ltd., and legal decisions are cited to support the Tribunal's stance.

Ultimately, the Tribunal upholds the CIT(A)'s order, dismissing the Revenue's appeal. The decisions relied upon by the Assessing Officer are distinguished, and the Tribunal's decision is based on the transaction's substance and legal precedents, affirming the nature of the payment as not constituting 'rent' under section 194-I of the Act.