2023 (9) TMI 1348 - AT - Income Tax

TDS u/s 194I - additional premium paid by the assessee - whether the additional premium paid by the assessee to MMRDA is in the nature of rent within the meaning of section 194-I ? - Assessee in default - HELD THAT - The 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 of the property were considered to be not in the nature of rent within the meaning of section 194-I of the Act. We find that in the present case, it is undisputed that the assessee agreed to pay a lease premium for the 80 years lease as per the agreement to lease dated 04/07/2000 entered into with MMRDA. For the grant of extension of time for construction of the building, the assessee was liable to pay an additional premium. Since the aforesaid Circular has been issued by CBDT after the orders passed u/s 201(1) and 201(1A) in the present appeals and the conditions laid down in the Circular have not been examined in any of the cases before us, therefore we deem it appropriate to remand this issue of deduction of tax u/s 194-I on the additional premium paid by the assessee to the file of AO for de novo adjudication in light of the CBDT Circular No. 35/2016 dated 13/10/2016. Accordingly, the order passed by the CIT(A) for the assessment years 2008-09, 2010-11, and 2011-12 to this extent is set aside. As a result, the appeals by the Revenue for the assessment years 2008-09, 2010-11, and 2011-12 are allowed for statistical purposes. Deduction of tax at source u/s 194-A on the interest paid by the assessee on delayed payment of additional premium - As in the exercise of the power conferred by the aforesaid provision, the Central Government vide Notification No. S.O.3489 dated 22/10/1970, inter-alia, notified any corporation established by a Central, State, or Provincial Act for the purpose of section 194A(3)(iii)(f) - Since MMRDA has been established under the Mumbai Metropolitan Region Development Authority Act, 1974, therefore we are of the considered view that the payment made to MMRDA will fall under the exclusion provided under sub-section (3) of section 194-A of the Act. Thus, the assessee cannot be held to be assessee in default for non-deduction of tax on the payment of interest on delayed payment of additional premium. Accordingly, the demand raised by the AO u/s 201(1) for non-deduction of tax under section 194A of the Act and interest levied u/s 201(1A) of the Act for the assessment year 2008-09 is deleted. As a result, the appeal by the assessee for the assessment year 2008-09 is allowed.

Summary

Issues Involved:
1. Liability to deduct TDS under section 194-I of the Income Tax Act on additional premium paid.
2. Liability to deduct TDS under section 194-A of the Income Tax Act on interest paid for delayed payment of additional premium.

Summary:

Issue 1: TDS on Additional Premium under Section 194-I
The Revenue appealed against the decision of the learned CIT(A) which ruled that the assessee was not an "assessee in default" for non-deducting TDS under section 194-I on the additional premium paid. The assessee, a nationalized bank, had entered into an 80-year lease agreement with MMRDA and paid a lease premium. Due to construction delays, the assessee paid an additional premium for an extension. The AO-TDS initially held that this additional premium fell under section 194-I, making the assessee liable for TDS. However, the learned CIT(A) disagreed, and the Revenue appealed. The Tribunal referred to the CBDT Circular No. 35/2016 which clarified that lump sum lease premiums for long-term leases are not considered rent under section 194-I. Consequently, the Tribunal remanded the issue back to the AO for re-evaluation in light of the CBDT Circular.

Issue 2: TDS on Interest under Section 194-A
The assessee appealed against the decision of the learned CIT(A) which upheld the AO's finding that the assessee was an "assessee in default" for not deducting TDS under section 194-A on interest paid for delayed payment of the additional premium. The Tribunal noted that section 194A(3)(iii)(f) exempts interest paid to certain institutions, including those established by a Central, State, or Provincial Act. Since MMRDA falls under this category, the Tribunal concluded that the assessee was not liable to deduct TDS on the interest paid. Thus, the demand raised by the AO under section 201(1) and the interest levied under section 201(1A) were deleted.

Conclusion:
The Tribunal allowed the assessee's appeal for the assessment year 2008-09 and remanded the Revenue's appeals for the assessment years 2008-09, 2010-11, and 2011-12 for statistical purposes. The order was pronounced in the open Court on 28/06/2023.