2015 (11) TMI 1377 - AT - Income Tax

TDS u/s 194I - amount paid by the assessee bank (the lessee) to City Industrial Development Corporation (MMRDA) (Lessor) - whether not in the nature of rent ? - Held that - The provisions of section 194-I are not applicable to the facts of the present appeal to deduct TDS on the lease premium paid by the assessee. The payment to MMRDA is for additional built up area and also for granting fee of FSI and such payments cannot be equated to rent, thus, we find no infirmity in the impugned orders thus, the addition made u/s 201(1) and 201(1A) of the Act was rightly deleted. We affirm the stand of the ld. Commissioner of Income Tax (Appeals) as no infirmity is found therein. - Decided against revenue.

Issues Involved:
1. Whether the amount paid by the assessee bank to City Industrial Development Corporation (MMRDA) was in the nature of rent as defined under section 194-I of the Income Tax Act.
2. Whether the assessee was liable to deduct tax at source on the lease premium paid to MMRDA under section 194-I of the Income Tax Act.

Detailed Analysis:

Issue 1: Nature of Payment - Rent or Lease Premium
The primary issue in this case was whether the payment made by the assessee bank to MMRDA for acquiring leasehold rights was in the nature of rent under section 194-I of the Income Tax Act. The Tribunal analyzed several key points:
- Lease Premium vs. Rent: The Tribunal distinguished between lease premium and rent, noting that lease premium is a one-time payment made to acquire leasehold rights, which includes a bundle of rights such as possession, long-term enjoyment, development, and sale of the property. Rent, on the other hand, is a periodic payment made for the continuous enjoyment of the benefits under the lease.
- Legal Precedents: The Tribunal cited various judicial precedents, including the Supreme Court's decision in A.R. Krishnamurthy v. CIT, which held that lease premium is a capital expenditure and not rent. The Tribunal also referenced the Special Bench decision in JCIT v. Mukund Ltd., which held that the lump sum payment for acquiring leasehold rights is capital in nature.
- Transfer of Property Act: The Tribunal referred to Section 105 of the Transfer of Property Act, 1882, which defines lease and distinguishes between premium (a price paid for acquiring leasehold rights) and rent (a periodic payment for the use of property).

Issue 2: Liability to Deduct Tax at Source
The Tribunal examined whether the assessee was liable to deduct tax at source under section 194-I on the lease premium paid to MMRDA:
- Definition of Rent under Section 194-I: The Tribunal acknowledged that the definition of rent under section 194-I is broad and includes any payment under a lease, sub-lease, tenancy, or any other agreement for the use of land, building, etc. However, it emphasized that the payment in question was for acquiring leasehold rights and not merely for the use of land.
- Regulatory Clauses: The Tribunal noted that the restrictive clauses in the lease agreement were standard regulatory clauses for planned development and did not affect the nature of the payment as lease premium.
- Judicial Analysis: The Tribunal analyzed several decisions, including the Bombay High Court's decision in Khimline Pumps Ltd., which held that lease premium is a capital expenditure and not rent. The Tribunal also considered the decisions in the cases of National Stock Exchange of India Ltd. and Wadhwa and Associates Realtors Pvt. Ltd., which supported the view that lease premium is not subject to TDS under section 194-I.

Conclusion:
The Tribunal concluded that the lease premium paid by the assessee to MMRDA was not in the nature of rent under section 194-I of the Income Tax Act. Consequently, the assessee was not liable to deduct tax at source on the lease premium. The appeals filed by the Revenue were dismissed, affirming the orders of the Commissioner of Income Tax (Appeals) that the provisions of sections 201(1) and 201(1A) were not applicable in this case.

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