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TMI Blog2012 (8) TMI 416X X X X Extracts X X X X X X X X Extracts X X X X ..... Abraham P. George, Accountant Member In this appeal filed by the assessee, its grievance is two-fold. First is that the CIT(Appeals) confirmed the action of the A.O. considering upfront charges paid by the assessee to SIPCOT for allotment of land as rent advance, making the assessee liable for deduction of tax at source under Section 194-I of Income-tax Act, 1961 (in short 'the Act'). As per the assessee, the payee having shown the amount as a part of its income, assessee could not be considered as one in default nor could be there any question of levy of interest under Section 201(1A) of the Act. 2. Short facts apropos are that assessee is engaged in the business of developing Special Economic Zone (SEZ) as per Special Economic Zone Act and Rules, in notified areas. Assessee had taken on lease a land of 151.85 acres for a period of 99 years from M/s SIPCOT Ltd., which is a company incorporated by the Government of Tamil Nadu under Companies Act, 1956. An amount of Rs. 28.41 Crores was paid by the assessee-company to M/s SIPCOT Ltd. as upfront charges for the lease. M/s SIPCOT Ltd. is the nodal agency for development of land for SEZ at Sriperumbudur. As per the allotm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession in the immovable property and not towards use of such property. Assessee also filed a certificate from M/s SIPCOT Ltd. wherein they certified that the upfront fee received from assessee was shown as income from deemed sale and offered for tax in its return of income. Reliance was also placed on CBDT Circular No.275/201/95-IT(B), dated 29.1.1997 for arguing that interest could be charged under Section 201(1A) of the Act only upto the date on which the recipient had made arrangement for payment of tax. As per the assessee, M/s SIPCOT Ltd. had paid necessary advance tax and therefore, no liability under Section 201(1A) of the Act could be fastened on the assessee. 4. After considering above submissions and also verifying the lease deeds, ld. CIT(Appeals) came to an opinion that true nature of the payment towards upfront fee was nothing but rent. According to ld. CIT(Appeals), per year rent was infinitesimally small and therefore, the huge amount paid as upfront fee was only rent advance. As per ld. CIT(Appeals), such payment obviated the problems for M/s SIPCOT Ltd. in collecting the rent annually. Therefore, he held that A.O. was justified in applying Section 194-I of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for non-deduction of tax could not be fastened on the assessee. In any case, according to the learned A.R., nothing more than interest under Section 201(1A) of the Act could have been charged on the assessee. Since M/s SIPCOT Ltd. had paid advance tax on due dates, even such a levy of interest was not warranted, according to him. 6. Per contra, learned D.R. supported the order of learned CIT(Appeals). 7. We have perused the orders and heard the rival submissions. It is an admitted position that assessee had taken a lease of 151.85 acres from M/s SIPCOT Ltd. and it had paid a sum of Rs. 27.092 Crores as a non-refundable amount and a sum of Rs. 1.3215 Crores as charges for providing water pipeline. It is also not disputed that assessee had treated this payment as an acquisition of capital asset and shown accordingly in its balance sheet. There is also no dispute that the amount was shown by M/s SIPCOT Ltd. as part of its business revenue falling under the head "income from business" and M/s SIPCOT Ltd. had paid advance tax on its business income on due dates. Ld. CIT(Appeals) has reproduced portion of letters of M/s SIPCOT Ltd. and this is once again reproduced hereunder by u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it had acquired an asset by making such payment. In our opinion, there cannot be any quarrel on this argument. Assessee had derived an interest in the property since lease hold interest is a valuable right. But, the question here is not whether the outgo was capital or revenue, the question is whether the upfront fee paid will fall within the definition of "rent" as given under Explanation to Section 194-I of the Act. It is pertinent to note that Section 194-I does not make any differentiation between capital outgo and revenue outgo. Explanation to the said Section which defines "rent" is reproduced hereunder:- Explanation - For the purposes of this section,- ( i ) "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any,- ( a ) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or ( d ) machinery; or ( e ) plant; or ( f ) equipment; or ( g ) furniture; or ( h ) Fittings, whether or not any or all of the above are owned by the payee; ( ii ) where any in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there cannot be any doubt that TDS could not be recovered from the assessee on such amounts despite assessee being one in default. Nevertheless, assessee would be liable for interest under Section 201(1A) of the Act and this position is clear from paras 10 and 11 of the decision of Hon'ble Apex Court, which are reproduced hereunder:- "10. Be that as it may, the Circular No.275/201/95-IT(B), dt. 29th Jan., 1997 issued by the CBDT, in our considered opinion, should put an end to the controversy. The circular declares "no demand visualized under s. 201(1) of the I.T. Act should be enforced after the tax deductor has satisfied the officer-in-charge of TDS, that taxes due have been paid by the deductee-assessee. However, this will not alter the liability to charge interest under s. 201(1A) of the Act till the date of payment of taxes by the deductee-assessee or the liability for penalty under s. 271C of the I.T. Act." 11. In the instant case, the appellant had paid the interest under s. 201(1A) of the Act and there is no dispute that the tax due had been paid by deductee-assessee (M/s Pradeep Oil Corporation). It is not disputed before us that the circular is applicable to the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X
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