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2017 (1) TMI 569 - AT - Income TaxTDS u/s 194I - lease premium paid for acquiring land from CIDCO - Held that - No tax is deductible at source u/s 194-I on 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 as held by CBDT in its recent circular that such payments are not liable for tax deduction at source under section 194-I of the Act , whereby the CBDT accepted the decisions in the case of The Indian Newspaper Society (2015 (12) TMI 984 - DELHI HIGH COURT ) and Foxconn Developer Limited (2016 (4) TMI 314 - MADRAS HIGH COURT ). The assessee has also made one-time up-front payment being lease premium of ₹ 11,43,36,405/- which was paid by the assessee to CIDCO in respect of Plot No. 5, Sector 2A, Koparkhairane, Taluka-Thane. we hold that there is no default on the part of the assessee in not deducting tax at source u/s 194-I of the Act on one-time up-front payment being lease premium of ₹ 11,43,36,405/- which was paid by the assessee to CIDCO in respect of Plot No. 5, Sector 2A, Koparkhairane, Taluka-Thane and we donot find any infirmity in the order of learned CIT(A) in ordering to delete the demand raised by the Revenue against the assessee u/s 201(1) and 201(1A) of the Act, which order of learned CIT(A) we affirm/sustain. - Decided in favour of assessee
Issues Involved:
1. Whether the amount paid by the Lessee to the Lessor was in the nature of rent as defined in Section 194I of the Income-tax Act, 1961. 2. Whether the payment made by the assessee to CIDCO for acquiring a plot of land on lease required tax deduction at source under Section 194I. 3. Whether the assessee should be treated as an assessee in default under Section 201(1) for non-deduction of tax and levying interest under Section 201(1A). 4. Interpretation of the definition of rent under Section 194I and its applicability. 5. Applicability of the Apex Court decision in The Aggarwal Chambers of Commerce V. Ganpat Rai Hiralal regarding the responsibility of tax deduction at source. Detailed Analysis: 1. Nature of Payment as Rent: The primary issue was whether the amount paid by the Lessee to CIDCO was considered rent under Section 194I of the Income-tax Act, 1961. The AO contended that the payment was for the use of land and thus attracted TDS under Section 194I. However, the assessee argued that the payment was for acquiring leasehold rights and not for rent. The CIT(A) and the Tribunal concluded that the payment was a lump sum premium for acquiring leasehold rights, not rent, and thus did not attract TDS under Section 194I. 2. Requirement of TDS under Section 194I: The AO treated the payment as rent requiring TDS under Section 194I, while the assessee argued it was a capital payment for acquiring leasehold rights. The Tribunal upheld the CIT(A)’s decision that the payment was not rent but a capital expenditure for acquiring leasehold rights, following the precedent set by the Mumbai Bench of the Tribunal in Shah Group Builders Ltd. and relevant High Court decisions. 3. Assessee in Default under Section 201(1) and Interest under Section 201(1A): The AO declared the assessee in default for not deducting TDS and levied interest under Section 201(1A). The CIT(A) and the Tribunal found no default as the payment was not subject to TDS under Section 194I. The Tribunal affirmed the CIT(A)’s order deleting the demand raised by the AO. 4. Interpretation of Rent under Section 194I: The AO’s interpretation was that the payment constituted rent, while the CIT(A) and the Tribunal relied on judicial precedents and CBDT Circular No. 35/2016, which clarified that lump sum lease premium or one-time upfront lease charges for long-term leasehold rights are not considered rent under Section 194I. The Tribunal emphasized that the payment was a capital expenditure, not rent. 5. Applicability of Apex Court Decision: The AO referenced the Apex Court decision in The Aggarwal Chambers of Commerce V. Ganpat Rai Hiralal, asserting that the responsibility for TDS lies with the payer regardless of the ultimate taxability. However, the Tribunal distinguished this case, focusing on the nature of the payment as a lump sum premium for leasehold rights, not periodic rent. Conclusion: The Tribunal dismissed the Revenue’s appeal, affirming that the payment made by the assessee to CIDCO was a one-time premium for acquiring leasehold rights and not rent. Therefore, it did not attract TDS under Section 194I, and the assessee was not in default under Sections 201(1) and 201(1A). The Tribunal’s decision was consistent with judicial precedents and the CBDT Circular.
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