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2013 (9) TMI 261 - AT - Income TaxTDS u/s 194I premium paid for acquiring lease - nature of payment - TDS u/s 194I - default u/s 201 - Held that - A careful reading of the said lease deed transpires that the premium is not paid under a lease but is paid as a price for obtaining the lease, hence it precedes the grant of lease. Therefore, by any stretch of imagination, it cannot be equated with the rent which is paid periodically. A perusal of the records further show that the payment to MMRD is also for additional built up are and also for granting free of FSI area, such payment cannot be equated to rent. It is also seen that the MMRD in exercise of power u/s. 43 r.w. Sec. 37(1) of the Maharashtra Town Planning Act 1966, MRTP Act and other powers enabling the same has approved the proposal to modify regulation 4A(ii) and thereby increased the FSI of the entire G Block of BKC. The Development Control Regulations for BKC specify the permissible FSI. Pursuant to such provisions, the assessee became entitled for additional FSI and has further acquired/purchased the additional built up area for construction of additional area on the aforesaid plot. Thus the assessee has made payment to MMRD under Development Control for acquiring leasehold land and additional built up area - Following decision of Commissioner of Income-Tax Versus Khimline Pumps Ltd. 2002 (9) TMI 94 - BOMBAY High Court - payment for acquiring leasehold land is a capital expenditure - not liable for TDS u/s 194I - Decided against Revenue.
Issues involved:
Interpretation of Sec. 194-I applicability on lease premium payment; Determination of lease premium nature - rent or capital expenditure. Analysis: The judgment involved an appeal by the Revenue and a cross objection by the assessee against the same order of the Ld. CIT(A) pertaining to A.Y. 2008-09. The main issue revolved around whether the provisions of Sec. 194-I were applicable to the lease premium payment made by the assessee to MMRD Ltd. The AO contended that tax should have been deducted at source under Sec. 194-I, as the premium payment was for acquiring leasehold rights. The AO treated the assessee as in default for not deducting tax and directed payment of interest along with TDS. The assessee argued that the payment did not fall under the definition of rent as per Sec. 194-I, as it was made for additional built-up area and free FSI area. The Ld. CIT(A) analyzed the nature of the transaction and various judicial decisions to conclude that the lease premium was a capital expenditure, not rent, hence not subject to TDS under Sec. 194-I. The Ld. CIT(A) considered the lease premium as consideration for acquiring leasehold rights and additional FSI, akin to a capital payment. He distinguished various judicial decisions cited by the AO, emphasizing that none directly addressed the issue of lease premium as in the present case. The Ld. CIT(A) referenced the decision in the case of Khimline Pumps Ltd., where the Jurisdictional High Court held that payment for acquiring leasehold land was a capital expenditure. Additionally, the Ld. CIT(A) compared the facts with a case involving the National Stock Exchange, where the Tribunal determined that the consideration for leasehold rights was a capital expenditure, not rent. Based on these analyses, the Ld. CIT(A) concluded that the lease premium payment was not subject to TDS under Sec. 194-I. The Tribunal upheld the Ld. CIT(A)'s findings, emphasizing that the lease premium was paid as a price for obtaining the lease, preceding its grant, and thus distinct from periodic rent payments. The Tribunal considered the additional built-up area and FSI aspects of the payment, further supporting the capital nature of the expenditure. Referring to relevant judicial decisions and the definition of rent under Sec. 194-I, the Tribunal affirmed the Ld. CIT(A)'s decision, dismissing the Revenue's appeal. Consequently, the cross objection by the assessee was deemed unnecessary and dismissed. In conclusion, the judgment clarified the distinction between lease premium as a capital expenditure and rent, determining that the payment made by the assessee for leasehold rights and additional FSI was not subject to TDS under Sec. 194-I. The decision relied on legal interpretations, precedents, and the specific nature of the transaction to uphold the assessee's position and dismiss the Revenue's appeal.
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