2016 (12) TMI 240 - AT - Income Tax

TDS u/s 194I - TDS towards sublease of 5 Bigha land - Held that - This payment of 3 lacs paid by the assessee to Suzlon Energy Limited towards sublease charges for 5 bigha land at Baramsar Tehsil and District Jaisalmer Rajasthan for setting up windmill project is not covered within the ambit and mandate of Section 194-I of the Act and no tax is deductible at source as the payment is made albeit as sublease charges for acquiring the rights in property which is akin to ownership rights. Common infrastructure facilities as detailed above require rendering of services associated with these infrastructure facilities for availing these infrastructure facilities which are in the nature of payment to contractor for carrying out the work associated with the utilization of these common infrastructure facilities. These are payments which are contractual payment for provision of various common infrastructure facilities by Suzlon Developers Private Limited to the assessee and is covered u/s 194-C of the Act. The assessee has claimed that the lower deduction certificate was issued by ACIT in favour of Suzlon Developers Private Limited to deduct tax at source @0.55% on contractual payments during the financial year 2003-04 which was produced by the payee (pb/page 19). In our considered view, this payment of 3 lacs was covered under the provisions of Section 194-C of the Act and the assessee has defaulted in not deducting tax at source u/s 194-C of the Act on this payment of 3 lacs to Suzlon Developers Private Limited. The verification is required from the side of A.O. w.r.t. claims of the assessee that the said Suzlon Develoeprs Private Limited hold lower deduction certificate issued by Revenue u/s 197(1) of the Act as also the claim of the assessee that the said Suzlon Develoeprs Private Limited has duly paid taxes on these payment of 3 lacs paid by the assessee( page 19-20/pb) and accordingly we set aside and restore this issue to the file of the A.O. with a direction to verify the afore-stated contentions of the assessee that M/s Suzlon Developers P. Ltd. has produced TDS certificate issued u/s 197(1) of the Act in their favour for the impugned assessment year 2004-05 for lower deduction of tax at source @0.55% on contractual payments and also that they have duly paid the taxes to Revenue after including afore-stated receipts.

Summary

Issues Involved:

1. Short deduction of TDS on payment for acquiring sub-lease rights.
2. Short deduction of TDS on payment for sharing infrastructure facilities.
3. Levy of interest under Section 201(1A) for short deduction of TDS.

Issue-wise Detailed Analysis:

Issue 1: Short deduction of TDS on payment for acquiring sub-lease rights

The assessee company paid ?3,00,000 to Suzlon Energy Ltd for acquiring sub-lease rights of 5 Bigha land at Baramsar, Jaisalmer, Rajasthan for 19 years. The Assessing Officer (AO) held that this payment was covered under the definition of 'rent' as per Section 194-I of the Income-tax Act, 1961, and thus, tax should have been deducted at source. The AO determined the short deduction at ?61,500. The CIT(A) upheld the AO's decision, citing the definition of 'rent' under Section 194-I.

The Tribunal, however, observed that the payment was a one-time lease premium for acquiring rights akin to ownership for a period of 19 years, with an option for extension. It was not a recurring payment and thus did not fall under the definition of 'rent' as per Section 194-I. The Tribunal referred to several judicial precedents, including the decision of the Hon’ble Madras High Court in the case of Foxconn India Developer Pvt. Ltd., and the CBDT Circular No. 35/2016, which clarified that lump sum lease premium or one-time upfront lease charges paid for long-term leasehold rights are not subject to TDS under Section 194-I. Consequently, the Tribunal held that the payment of ?3,00,000 to Suzlon Energy Ltd was not liable for TDS under Section 194-I.

Issue 2: Short deduction of TDS on payment for sharing infrastructure facilities

The assessee also paid ?3,00,000 to Suzlon Developers Pvt. Ltd. for sharing infrastructure facilities at the windmill farm. The AO treated this payment as 'rent' under Section 194-I and determined a short deduction of ?61,500. The CIT(A) upheld the AO's decision.

The Tribunal noted that the payment was for availing common infrastructure facilities, which included accessibility to the windmill, protection and guarding of the wind turbine, transmission of electricity, meter reading, and regular monitoring. These services were in the nature of contractual payments for the provision of various facilities. The Tribunal held that such payments were covered under Section 194-C of the Act, not Section 194-I. The Tribunal also noted that Suzlon Developers Pvt. Ltd. had a lower deduction certificate under Section 197(1) for a TDS rate of 0.55%. The Tribunal remanded the matter to the AO to verify the lower deduction certificate and whether Suzlon Developers Pvt. Ltd. had paid the taxes on the amount received.

Issue 3: Levy of interest under Section 201(1A) for short deduction of TDS

The AO levied interest under Section 201(1A) for the short deduction of TDS. The assessee contended that there was an inordinate delay by the Revenue in passing the order, which was not attributable to the assessee. The CIT(A) upheld the levy of interest, stating it was compensatory and mandatory.

The Tribunal remanded this issue to the AO for verification of the assessee's claim regarding the delay. The AO was directed to verify the timeline and determine whether the delay was attributable to the Revenue. The Tribunal instructed the AO to pass appropriate orders after verification, in accordance with the law, and to provide the assessee with an opportunity to present relevant evidence.

Conclusion:

The Tribunal partly allowed the appeal. It held that the payment for acquiring sub-lease rights was not subject to TDS under Section 194-I, while the payment for sharing infrastructure facilities was covered under Section 194-C. The issue of interest under Section 201(1A) was remanded to the AO for further verification.