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2018 (8) TMI 1374 - SC - Income TaxTDS u/s 194I - TDS on annual lease rent paid to Greater Noida - Scope of the term Rent - reliance on the Circular issued by the CBDT before amendment to the provisions of the act - Held that - Noida/Greater Noida is entitled for the benefit of Section 194A(3)(iii)(f) has to be approved. - Held that - A perusal of the above circular indicate that circular was issued on the strength of Section 10(20A) and Section 10(20) as it existed at the relevant time. Section 10(20) has been amended by Finance Act, 2002 by adding an explanation and further Section 10(20A) has been omitted w.e.f. 01.04.2003. The very basis of the circular has been knocked out by the amendments made by Finance Act, 2002. Thus, the Circular cannot be relied by Noida/Greater Noida to contend that there is no requirement of deduction of tax at source under Section 194-I. Thus, deduction at source is on payment of rent under Section 194-I, which is clearly the statutory liability of the respondent-company. The High Court has adjusted the equities by recording its conclusion in Paragraph 20 and issuing a direction in Paragraph 21. Decided against the assessee.
Issues Involved:
1. Applicability of Section 10(20) of the Income Tax Act to Noida and Greater Noida. 2. Exemption under Section 194A(3)(iii)(f) of the Income Tax Act for interest income of Noida and Greater Noida. 3. Requirement of Tax Deduction at Source (TDS) on payment of lease rent under Section 194-I of the Income Tax Act. Detailed Analysis: 1. Applicability of Section 10(20) of the Income Tax Act to Noida and Greater Noida: The primary issue was whether Noida and Greater Noida qualify as "local authorities" under Section 10(20) of the Income Tax Act, 1961, thus exempting their income from tax. The appellants argued that Noida and Greater Noida, constituted under Section 3 of the Uttar Pradesh Industrial Area Development Act, 1976, should be considered local authorities. They relied on a notification by the Governor of Uttar Pradesh and Circular No. 35/2016, which clarified that lumpsum lease premium paid for long-term land acquisition is not subject to TDS. However, the Supreme Court, referencing its judgment in Civil Appeal No. 792-793 of 2014, held that Noida is not a "local authority" within the meaning of Section 10(20) as amended by the Finance Act, 2002, effective from 01.04.2003. Consequently, the submission that Noida and Greater Noida are local authorities was rejected. 2. Exemption under Section 194A(3)(iii)(f) of the Income Tax Act for interest income of Noida and Greater Noida: The second issue concerned the exemption of interest income under Section 194A(3)(iii)(f) by virtue of a notification dated 24.10.1970. The Delhi High Court had held that the interest income of Noida and Greater Noida is exempt under this notification. The Supreme Court affirmed this, referencing its decision in Commissioner of Income Tax (TDS) Kanpur and Anr. Vs. Canara Bank, which concluded that Noida is covered by the notification dated 22.10.1970. Thus, the judgment of the Delhi High Court granting Noida and Greater Noida the benefit of Section 194A(3)(iii)(f) was approved. 3. Requirement of Tax Deduction at Source (TDS) on payment of lease rent under Section 194-I of the Income Tax Act: The final issue was whether TDS should be deducted on the payment of lease rent to Noida and Greater Noida under Section 194-I of the Income Tax Act. The definition of "rent" under Section 194-I is broad and includes any payment under a lease for the use of land. The Delhi High Court had concluded that annual lease rent payments are subject to TDS. The Supreme Court found no infirmity in this conclusion, emphasizing that Section 194-I's statutory liability mandates TDS deduction on lease rent payments. The Court also addressed the reliance on Circular dated 30.01.1995, which had indicated no TDS requirement for rent payments to government or statutory authorities exempt under Section 10(20) or 10(20A). However, the amendments made by the Finance Act, 2002, nullified the basis of this circular, thereby reinforcing the requirement for TDS on lease rent payments. Conclusion: The Supreme Court upheld the Delhi High Court's judgment, confirming that: 1. Noida and Greater Noida are not local authorities under Section 10(20). 2. Interest income of Noida and Greater Noida is exempt under Section 194A(3)(iii)(f). 3. TDS must be deducted on lease rent payments under Section 194-I. All appeals were dismissed, affirming the statutory requirements and exemptions as interpreted by the lower courts.
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