2018 (3) TMI 1338 - AT - Income Tax

TDS u/s 194I - payment by way of Lease Premium to MMRDA - assessee in default - Held that - In the assessee s own case for the Assessment Year 2008-09 we are not in agreement with the findings of the Assessing Officer and we decline to hold that the Commissioner of Income Tax(A) has erred in not treating the assessee as assessee in default within the meaning of section 201(1)of the Income Tax Act for non-deduction of TDS on payment of lease premium to MMRDA. For invoking the provisions of section 201(1)of the Act, this is a precondition that the person should be required to deduct any sum in accordance with the provisions of this Act and he does not deduct, or does not pay or after deduction fails to pay the whole or in part of the tax as required under the provisions of the Act, then only such person shall be deemed to be an assessee in default in respect of payment of such tax. In the case in hand, the assessee was not liable to deduct any tax on payment of lease premium to MMRDA because it was capital expenditure to acquire land on lease with substantial right to construct a commercial building complex. - Decided in favour of assessee

Summary

Issues involved:
Interpretation of lease premium as rent for TDS deduction under Sec. 194I of the Income Tax Act, 1961; Capital vs. revenue expenditure determination for lease premium payment; Applicability of judicial pronouncements on the issue; Failure to deduct TDS on lease premium and interest paid; Adverse decision by the First Appellate Authority; Appeal by the revenue against the order.

Interpretation of lease premium for TDS deduction under Sec. 194I:
The case involved a dispute over whether the lease premium paid by the assessee should be considered as rent for the purpose of TDS deduction under Sec. 194I of the Income Tax Act, 1961. The Assessing Officer contended that the premium paid constituted rent and thus, TDS should have been deducted. However, the Tribunal, citing a previous judgment, held that the lease premium was capital in nature and not rent. The Tribunal emphasized that the lease premium was a capital expenditure for acquiring leasehold rights, as supported by a relevant High Court judgment. Consequently, the Tribunal rejected the revenue's appeal on this issue.

Capital vs. revenue expenditure determination:
The dispute also revolved around whether the payment of lease premium should be treated as a capital or revenue expenditure. The revenue argued that the premium was akin to advance rent and should be considered as revenue expenditure. In contrast, the Tribunal, based on previous rulings and legal analysis, concluded that the lease premium was a capital expenditure for acquiring substantial rights in the land. The Tribunal highlighted the distinction between rent and capital expenditure, ultimately upholding the decision of the First Appellate Authority in favor of the assessee.

Applicability of judicial pronouncements:
The revenue sought to rely on the applicability of a judicial pronouncement in the case of CIT vs. Panbari Tea Co. Ltd. to support its argument regarding the nature of the payment made by the assessee. However, the Tribunal, after considering various case laws and legal precedents, found that the lease premium in question was indeed a capital expenditure for acquiring leasehold rights, aligning with the principles established in relevant judgments. Consequently, the Tribunal dismissed the revenue's contentions based on the cited judicial pronouncement.

Failure to deduct TDS on lease premium and interest paid:
The Assessing Officer raised concerns regarding the failure of the assessee to deduct TDS under Sec. 194I and Sec. 194A on the lease premium and interest paid to the Mumbai Metropolitan Region Development Authority (MMRDA). However, the Tribunal, after thorough examination and referencing previous rulings, determined that the lease premium was not subject to TDS deduction under Sec. 194I due to its capital nature. The Tribunal reiterated that the payment was for acquiring leasehold rights and not akin to rent, thereby dismissing the revenue's appeal on this ground.

Adverse decision by the First Appellate Authority and appeal by the revenue:
The First Appellate Authority had previously ruled in favor of the assessee for the Assessment Year 2008-09, holding that Sec. 194I was not applicable to the instalments payable by the assessee to MMRDA. Subsequently, the revenue filed an appeal challenging this decision. However, the Tribunal, consistent with its earlier stance and legal analysis, upheld the decision of the First Appellate Authority, leading to the dismissal of the revenue's appeals for both the Assessment Years 2010-11 and 2011-12.

This detailed analysis of the judgment from the Appellate Tribunal ITAT Kolkata highlights the key issues, legal interpretations, and the ultimate decision rendered in the case concerning the treatment of lease premium, TDS deductions, and the distinction between capital and revenue expenditures.