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2016 (6) TMI 498 - AT - Income TaxTDS u/s 194I - non deduction of tax at source from the lease premium paid to PCNTDA for acquisition of Lease hold rights for 99 years - assessee in default - Held that - We find in appeal the Ld.CIT(A) following various decisions of the Mumbai Bench of the Tribunal deleted such demand raised by the AO u/s.201(1)/201(1A). We find identical issue had come up before the Coordinate Bench of the Tribunal in the case of Shri Ajay N. Yerwadekar (2015 (11) TMI 1382 - ITAT PUNE) wherein held Where the lease premium paid to PCNTDA was a pre-condition for entering into the lease agreement, the same not being paid consequent to the execution of the lease agreement, cannot be said to be payment in lieu of rent as envisaged under section 194 I. The Tribunal after considering various decisions upheld the order of the CIT(A) and dismissed the appeal filed by the Revenue in respect of lease premium paid to PCNTDA. - Decided in favour of assessee
Issues Involved:
1. Applicability of Section 194I of the Income Tax Act, 1961 to lease premium payments. 2. Determination of whether lease premium constitutes rent under the Income Tax Act. 3. Validity of the demand raised under sections 201(1) and 201(1A) for non-deduction of TDS on lease premium. Detailed Analysis: 1. Applicability of Section 194I of the Income Tax Act, 1961 to lease premium payments: The core issue revolves around whether the lease premium paid by the assessee to the Pimpri Chinchwad New Town Development Authority (PCNTDA) for a 99-year lease constitutes rent under Section 194I of the Income Tax Act, 1961. The Assessing Officer (AO) concluded that the lease premium was in the nature of rent and required Tax Deducted at Source (TDS) under Section 194I. The AO treated the assessee as an assessee in default for non-deduction of TDS and raised a demand under sections 201(1) and 201(1A). 2. Determination of whether lease premium constitutes rent under the Income Tax Act: The CIT(A) disagreed with the AO's interpretation, holding that the payment of lease premium to PCNTDA was a precondition for entering into the lease agreement and not a recurring payment under the lease deed. The CIT(A) noted that stamp duty was paid on the market value of the plot represented by the lease premium, which further indicated that the payment was not rent but a premium for acquiring leasehold rights. This position was supported by various Tribunal decisions, including those of the Mumbai Bench in similar cases, where it was held that such upfront payments for leasehold rights do not fall under the purview of Section 194I as rent. 3. Validity of the demand raised under sections 201(1) and 201(1A) for non-deduction of TDS on lease premium: The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal. The Tribunal referenced its previous decisions in similar cases, such as ITO Vs. Preetam Medical Foundation & Research Centre, where it was consistently held that lease premiums paid as a precondition for entering into lease agreements do not constitute rent under Section 194I. The Tribunal emphasized that the lease premium was a one-time payment necessary for obtaining leasehold rights and was not a recurring rental payment. Consequently, the demand raised under sections 201(1) and 201(1A) for non-deduction of TDS on the lease premium was not justified. Conclusion: The Tribunal concluded that the lease premium paid to PCNTDA was not subject to TDS under Section 194I as it did not constitute rent but was a precondition for entering into the lease agreement. The CIT(A)'s order deleting the demand raised by the AO was upheld, and the Revenue's appeal was dismissed. This judgment reinforces the distinction between lease premiums and rent, clarifying that upfront payments for acquiring leasehold rights are not subject to TDS under Section 194I.
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