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2020 (11) TMI 101 - HC - Income TaxTDS u/s 194I - payments made by Assessee to M/s.SIPCOT Ltd for payment of land as in the nature of rent - lump sum payment - applicability of provisions of Section 201(1A) - HELD THAT - As in the case of Foxconn India Developer (P.) Ltd. 2016 (4) TMI 314 - MADRAS HIGH COURT in which has held that such lump sum payment made by the Assessee for getting a long term lease does not amount to payment of rent and the same is not adjustable against the annual rent payable by the Assessee and therefore, the provisions of Section 194I of the Act will not apply to such circumstances. The said judgment of the Division Bench of this Court has since been accepted by the Central Board of Direct Taxes which has issued CIRCULAR NO.35/2016 F.NO.275/29/2015-IT (B) , DATED 13-10-2016, holding that the Assessee is not entitled to deduct any tax at sources in such circumstances. Thus lump sum lease premium or one-time upfront lease charges, which are not adjustable against periodic rent, paid or payable for acquisition of long-term leasehold rights over land or any other property are not payments in the nature of rent within the meaning of section 194-I of the Act. Therefore, such payments are not liable for TDS under section 194-I - Decided in favour of assessee.
Issues Involved:
1. Whether the payments made by the Assessee to SIPCOT Ltd for land acquisition are in the nature of rent, requiring tax deduction at source under Section 194-I of the Income Tax Act. 2. Whether the Assessee's failure to deduct tax at source on payments to SIPCOT attracts the provisions of Section 201(1A) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Nature of Payments to SIPCOT and Requirement of TDS under Section 194-I: The core issue was whether the one-time lump sum payment by the Assessee for a 99-year lease of land from SIPCOT was considered rent, necessitating tax deduction at source under Section 194-I. The Tribunal initially held that such payments were in the nature of rent, referencing prior cases like M/s. TRIL Infopark Ltd. and Foxconn India Developers (P) Ltd. The Tribunal concluded that any amount paid under any lease agreement for the use of land should be treated as rent, thus requiring TDS deduction. However, the High Court noted that this view was reversed by a Coordinate Bench in Foxconn India Developer (P.) Ltd. vs. Income-tax Officer, which clarified that lump sum payments for long-term leases do not constitute rental income and are not subject to Section 194-I. This decision was accepted by the CBDT, as evidenced by Circular No. 35/2016, which stated that such payments are capital expenses, not rent. 2. Applicability of Section 201(1A) for Non-deduction of TDS: Given the Tribunal's initial stance that the payments were rent, it held that the Assessee's failure to deduct TDS attracted Section 201(1A), which imposes interest for non-deduction. However, with the High Court's clarification that the payments were not rent, the obligation to deduct TDS under Section 194-I did not arise. Consequently, the Assessee could not be considered in default under Section 201(1A), and no interest liability would accrue. Conclusion: The High Court, aligning with the Coordinate Bench's ruling in Foxconn India Developer (P.) Ltd., held that the one-time lump sum payments for long-term leasehold rights do not constitute rent and are not subject to TDS under Section 194-I. This judgment was reinforced by the CBDT's Circular No. 35/2016. As a result, the Assessee was not liable for interest under Section 201(1A) for non-deduction of TDS. The appeals filed by the Assessee were allowed, and the questions of law were answered in favor of the Assessee.
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