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TMI Blog2015 (5) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... the findings of the Commissioner of Income Tax(A). See CIT vs Vegetable products [1973 (1) TMI 1 - SUPREME Court]- Decided in favour of the assessee . In the case of ITO vs Indian Newspaper Society (2013 (9) TMI 158 - ITAT DELHI) held that in case the lease premium paid by the assessee is held to be capital in nature and the assessee is not liable to deduct TDS on payment of lease premium to MMRDA. The issue is therefore decided against the revenue. As regards the lease deed contained restrictive clauses therefore the payment of the assessee is in the nature of rent. A bare perusal of the clauses referred to by the revenue shows that they are only regulatory in nature for the uniform development of the area of land leased out to the assessee. Regulatory clauses are also present in the cases of development of freehold land owned by a person. Such regulatory clauses cannot convert the lease premium into tenancy as per section 194 I of the Act. Accordingly the issue is decided against the revenue. - I.T.A No. 265/Kol/2012 - - - Dated:- 13-5-2015 - Sri Mahavir Singh Sri B.P.Jain, JJ. For the Appellant : Shri Varinder Mehta, CIT For the Respondent : Shri R.N.Bajo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt every month of ₹ 8077 every year to MMRDA. The annual rent was to be increased by 10% over the rent of the preceding year. The contention of the Revenue is that the assessee did not deduct TDS on the aforesaid amount of ₹ 1041.42 crores paid to MMDA. Consequently the AO issued a notice dated 10.02.2011 requiring the assessee to show cause as to why the payment made to MMRDA was not covered by the TDS provision u/s 194 I of the Act. 3.1. The AO after considering these submissions of the assessee and relying upon the definition of rent as per section 194 I of the Act held that the lease premium of ₹ 1041.42 crores was in fact an advance rent and therefore the assessee was required to deduct tax at source. The assessee was therefore treated as assessee in default in terms of section 201(1) and 201(1A) of the Act for non deduction of TDS and non payment of interest amounting to ₹ 325,65,95,400/-. 3.2. Before the ld. CIT(A) the assessee made submission who allowed the appeal of the assessee. While doing so the ld. CIT(A) emphasized on the expression for the use of land appearing in section 194 I of the Act and held that the payment of premium by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, [deduct income-tax thereon at the rate of (a) Ten per cent for the use of any machinery or plant or equipment; (b) Fifteen per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings where the payee is an individual or a Hindu undivided family; and (c) Twenty per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings where the payee is a person other than an individual or a Hindu undivided family:]] Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed one hundred and twenty thous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the possession of the premises or any part of there or any interest therein the demised with the consent of Metropolitan Commissioner and after making payment of transfer charges. 4.5. The aforesaid terms of the lease deed leaves no manner of doubt that the lease premium of ₹ 1041.42 crores was for acquisition of rights in the lease hold property rather than use of land. Therefore the provisions of section 194 I of the Act are not applicable in the case of the assessee. The purport of section 194 I of the Act is not to bring in its purview payments of any or every kind. Only those payments which are in the nature of use of land come within the ambit of section 194 I of the Act. The word use is therefore of prime importance for transactions where the consideration paid for the property would be termed as rent . The term use according to us has to be interpreted keeping in mind the relationship between the landlord and the tenant. The same cannot be extended to bring within its purview exploitation of any kind with reference to the property by changing its identity for its own benefit and thereafter selling it for profit. If that be so and the word use is given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. The former is a capital income and the latter a revenue receipt. There may be circumstances where the parties may camouflage the real nature of the transaction by using clever phraseology. In some cases, the so-called premium is in fact advance rent and in others rent is deferred price. It is not the form but the substance of the transaction that matters. The nomenclature used may not be decisive or conclusive but it helps the Court, having regard to the other circumstances, to ascertain the intention of the parties. 4.8. The Hon ble Calcutta High Court in the case of CIT vs Purnendu Mullick 116 ITR 0591 observed that in case where the leases is for a long period, the lumpsum payment cannot be treated as rent. The relevant portion of the judgement is extracted herein below :- 8. On further appeal, the Supreme Court held that the Tribunal and the High Court were both in 'error in treating the said sum of ₹ 55,200 as advance payment of rent for the following reasons: (a) Prima facie, premium or salami was not income and it would be for the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : TC 38R.l046. Indicia of Salami are : (i) its simple non-recurring character, and (ii) payment prior to creation of tenancy. It is the consideration paid by the tenant for being let into possession and can be neither rent nor revenue but it is capital receipt in the hands of the landlord. In the former case it was observed that Salami is a payment by a tenant as a price for parting by the landlord with the rights under the lease of the holiday as a consideration for what the landlord transfers to the tenant. The broad principle relating to term Salami are as follows: (1) Prima facie Salami or premium is not income, it is for the taxing authorities to prove that the facts exist which would make the same as income, if they seek to tax it. (2) Where the premium represents payment of rent in advance it is income. But if it represents the whole or part of the price of the land or the sale price of the leasehold interest is not income but capital. (3) Salami to be income should be a periodical monetary return coming in which some sort of regularity or expected regularity from definite sources. (4) Salami or premium paid at the beginning of a mining lease for a long period o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinuous enjoyment of the benefits under the lease are in the nature of rent. The former is capital and the latter is a revenue in nature. 4.10. A similar issue arose for consideration by ITAT Delhi Bench in the case of ITO vs Indian Newspapers Society reported in (2013) 144 ITD 0668, wherein the assessee had been granted lease for a period of 80 years by MMRDA to enable construction of office complex. The terms of the lease deed in the aforesaid case are very much similar to the lease deed executed in the present case. The Tribunal in the similar circumstances held the issue in favour of the assessee. The relevant portion of the decision is extracted herein below:- . 10. Apropos these grounds, the DR submitted that the Commissioner of Income Tax(A) has grossly erred in not appreciating that the payment made by the assessee in the respective assessment years to MMRDA was covered under the definition of Rent as per provisions of Section 194-1 of the Act. The DR further submitted that the assessee has acquired land rights from MMRDA who provided land to the assessee on lease basis but on payment of lease premium. The DR also contended that the assessee compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.2008 and hence the payment of ₹ 88,52,75,000/- is before the initiation of the tenancy relationship between the Appellant and MMRDA and consequently, a cardinal ingredient of premium as advocated in the case laws cited supra is satisfied .. iii) Moreover, the payment ₹ 88,52,75,000/- is made only once for all by the Appellant since there is no other further payment apart from ₹ 88,52,75,000/- which can be attributed to bringing into existence the foregoing landlord and tenant relationship between the appellant and MMRDA. iv) Furthemore, the receipts dates 27.12.005 and 18.02.2008 pertaining to the payment of ₹ 88,52,75,000/- contain the description that the payment is on account of lease premium and not rent and there is no provision either in lease agreement dated 09.04.2008 or any other document for adjustment of the aforementioned premium amount against the annual rent ₹ 10,415/- payable by the Appellant to MMRDA de hors the premium. v) The development agreement dated 14.02.2008 entered into by the Appellant with Orbit Enterprises transfers development rights to the latter on terms and conditions set out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case, even the revenue in its affidavit in reply dated 14.09.2011 filed in the Bombay High Court in Writ petition no 1504 of 2011 instituted by the Appellant has accepted that MMRDA has construed the receipt of premium as a capital receipt not exigible to tax and the AO (TDS), Delhi cannot now approbate and reprobate, on the above issue. In DURGA KHANNA v. CIT 72 ITR 796 (SC), the Supreme Court held that the onus is on the revenue to demonstrate that premium has been camouflaged as advance rent and the Assessing Officer, in the instant case has not brought on record any material to indicate that the rent has been suppressed and the premium has been inflated. In my opinion, to prove such a factual case of measly rent and enlarged premium where an arm of the government is a party [MMRDA] to the lease agreement, the burden would very heavy and onerous. Such a state of affairs cannot be presumed without cogent evidence and the AO has made no attempt to lead any such evidence whatsoever, much less to substantiate the same. In that view of the matter, I hold that the impugned sum does not constitute advance rent, but lease premium for capital expenditure not falling within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axes. 14. Replying to the above, the counsel of the assessee submitted that the payment of lease premium was payment of capital expenditure and the payment was not liable for tax deduction at source by the payee, therefore, the assessee had no occasion to deduct tax at source and in this situation, the Assessing Officer/TDS officer wrongly held that the assessee was liable to deduct tax at source on payment of lease premium to MMRDA. The counsel of the assessee vehemently submitted that when TDS was not required to be made, how the assessee can be held liable for default in not deducting TDS from the payment of lease rent paid to MMRDA. 15. On careful consideration of the rival submissions, we observe that as per section 194-1 of the Act, any person, not being an individual or a Hindu undivided family, who is responsible for paying any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, shall deduct income-tax thereon at the rate prescribed therein. Since in the present case, we have held that the lease premium p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g which the assessee is to be treated asassessee in default. It is the say of the assessee that such lease premium is in the nature of capital expenditure and therefore there is no question of deduction of tax at source. Further, the said lease premium does not come within the purview of the definition of rent as provided u/s,194- 1 of the Act. 10. We have carefully perused the lease deed as exhibited from page-l to 42 of the Paper Book. A careful reading of the said lease deed transpires that the premium is not paid under a lease but is paid as a price for obtaining the lease, hence it precedes the grant of lease. Therefore, by any stretch of imagination, it cannot be equated with the rent which is paid periodically. A perusal of the records further show that the payment to MMRD is also for additional built up are and also for granting free of FSI area, such payment cannot be equated to rent. It is also seen that the MMRD in exercise of power u/s. 43 r.w. Sec. 37(1) of the Maharashtra Town Planning Act 1966, MRTP Act and other powers enabling the same has approved the proposal to modify regulation 4A(ii) and thereby increased the FSI of the entire 'G' Block of BKC. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o hold it as rent is on the definition of rent under section 194-1 of the Act that it creates a legal fiction and the lease deed(s) entered into contain various restrictive covenants. That the said payments in substance are for consideration for use of land under the lease deed(s), hence provisions of section 194-1 of the Act is attracted. 20. On the other hand, we observe that Government of Maharashtra appointed CIDCO as the nodal agency for setting up of Special Economic Zone at Navi Mumbai NMSEZ . That the assessee has been jointly promoted as a Special Purpose Vehicle (SPV) by CIDCO and Dronagiri Infrastructure Pvt Limited (DIPL) to develop and operate the Special Economic Zone at Navi Mumbai. Pursuant thereto assessee and CID CO entered into Development Agreement and the assessee is required to make payment of lease premium in respect of the land which was being acquired by CIDCO and being allotted to assessee from time to time. As per Development Agreement, the assessee is to develop and market NMSEZ . There is no dispute to the fact that the assessee has acquired leasehold right in the land for the purpose of developing, designing, planning, financing, marketing, develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision in the case of Foxconn India Developers Pvt. Ltd. Vs ITO 492/2010 rendered by ITAT, Chennai Bench. The distinction is brought out in the decision of ITAT Mumbai Bench in the case of ITO vs Navi Mumbai SEZ Pvt. Ltd (supra) in the following paras of the decisions at para 22 which is reproduced herein below :- 22. During the course of hearing Id. DR submitted that the above decisions of ITAT, Delhi Bench and ITAT Mumbai Bench (supra) are distinguishable. Whereas the decision of ITAT,Chennai Bench in the case of Foxconn India Developers Pvt.Ltd (supra) should be considered and be followed. We observe that the said decision of ITAT has been consideredbytheId.CIT(A)in para 5.40 of the impugned order. On perusal of the said order of ITAT, Chennai Bench, we observe that in the said order of Chennai Bench only the provisions of section 194-1 has been considered in respect of upfront charges paid in respect of leaseoflandforaperiodof99years. On perusal of the facts of the case, it is observed that the assessee had already entered into lease agreements and the said payment was made to SIPCOT Ltd under lease agreement. Therefore, the said payment is for lease o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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