2015 (11) TMI 872 - AT - Income Tax

TDS u/s 194I - premium for acquisition of Lease hold rights for 99 years - Held that - Where the lease premium paid to PCNTDA was a pre-condition for entering into the lease agreement, the same not being paid consequent to the execution of the lease agreement, cannot be said to be payment in lieu of rent as envisaged under section 194 I of the Act. In addition, the assessee had paid stamp duty on the market value of the plot represented by the lease premium and the said finding of the CIT(A) having not been controverted by the learned Departmental Representative for the Revenue, we find no merit in the appeal filed by the Revenue. - Decided in favour of assessee

Summary

Issues:
Appeal against deletion of demand under sections 201(1) and 201(1A) of the Income Tax Act related to lease premium payment to PCNTDA.

Analysis:

1. Issue 1 - Lease Premium Payment and TDS Obligation:
The Revenue contended that the lease premium payment to PCNTDA required TDS deduction under section 194I. The Assessing Officer held the assessee in default for not deducting TDS, leading to a demand of Rs. 13,73,696 and interest under section 201(1A) of Rs. 82,416. The CIT(A) disagreed, stating that the lease premium was a pre-condition for entering into the lease agreement, falling outside the definition of rent under section 194I. The CIT(A) highlighted that stamp duty was paid on the plot's market value represented by the lease premium. The Tribunal upheld the CIT(A) decision, citing similar precedents where lease premium payments were not subject to TDS.

2. Issue 2 - Precedents and Distinguishing Factors:
The Tribunal referred to the case of ITO Vs. Camp Education Society, where a similar issue arose concerning lease premium payment and TDS obligations. The Tribunal held that the payment of premium as a pre-condition for obtaining lease rights did not constitute rent under section 194I. The CIT(A) distinguished the Foxconn India Developer case, emphasizing the upfront payment nature in that case compared to the pre-condition nature in the present case. The Tribunal further mentioned other cases where lease premium payments were not subject to TDS, supporting the CIT(A)'s decision.

3. Issue 3 - Ownership and Lease Agreement Interpretation:
The Assessing Officer argued that the transaction between the parties was a lease, not a transfer, and the assessee was not the absolute owner of the property. However, the CIT(A) analyzed the lease agreement clauses, emphasizing that the lease premium was a pre-condition for entering into the agreement, not a payment under the lease deed. This interpretation led to the conclusion that the payment did not fall within the scope of rent under section 194I.

4. Final Decision:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision that the lease premium payment to PCNTDA, being a pre-condition for entering into the lease agreement and not constituting rent under section 194I, was not subject to TDS. The Tribunal also noted that stamp duty was paid on the market value of the plot represented by the lease premium, further supporting the decision. The appeal was thus rejected, affirming the order of the CIT(A) in favor of the assessee.