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TMI Blog2016 (1) TMI 664X X X X Extracts X X X X X X X X Extracts X X X X ..... deductibility to the date of furnishing of return of income by the payee. 2. Brief facts of the case are that the assessee is engaged in manufacturing of readymade garments of various brands like Bombay Dyeing, Life Style etc. The Rajasthan State Industrial Development and Investment Corporation Ltd. (RIICO) had allotted a plot for establishment of an Industry at Ramchandra Pura Industrial Area, Sitapura Extension, Jaipur, vide allotment letter dated 07.10.2010 pursuant to the application of the assessee dated 22.09.2010. Vide said allotment letter, the assessee was allotted the plot admeasuring 12066 sq. meter @ Rs. 4043/- per sq. meter (at the discounted rate). However, the prevailing rate of development charges was Rs. 4500/- per sq. mtr. Thereafter, on the basis of allotment letter, a document tiled as Lease Agreement was entered between the assessee and the RIICO dated 19.10.2011. As per the said allotment letter and the Lease Agreement, the land was allotted to the assessee for 99 years and the assessee was required to pay the amount of Rs. 6,05,70,034/-. The bifurcation of the said amount was as under :- Development charges Rs. 4,87,96,830/- Interest on development char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allotment of land in prescribed form. According to form of application, he is required to deposit development charges as price for allotment of land. He is having all the right including sale of land, subletting of land, mortgage, construction etc. From the above, it is very much clear that allotment of land by RIICO on lease hold basis is nothing but sale of land for a fixed number of years. Section 1941 of the Act covers only the lease/sublease agreement which are in the nature of renting agreement not transfer of ownership. Section 194-I covers the transaction which property is given for periodical payment for use in the capacity as tenant. Section 194-I does not cover the transaction of lease where ownership of property is transferred and property is used in the capacity of owner. 3. There are two system of sale of land one is on lease hold basis and second is on freehold basis. Sale of land on free hold basis is permanent transfer of ownership. In other words sale of land on free hold basis are permanent transfer of ownership. Transfer of land on lease hold basis is transfer of ownership of land for fixed number of years. Thus where there is transfer of ownership may be on l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . RIICO being public financial institution not subject to TDS under section 194A of the Act, hence payment of interest on development charges is also not liable for deduction of tax at source. Payment of economic rent is very minor and below the minimum limit prescribed for deduction of tax at source. Payment of economic rent is very minor and below the minimum limit prescribed for deduction of tax at source. In view of above none of payment made to RIICO is liable for deduction of tax at source." The AO was not satisfied with the reply submitted by the assessee, and in view thereof, has held as under :- "7. The RIICO has divided the lease-amount under different heads/nomenclature like development charges, interest on development charge, security money, economic rent etc. However, if we go into the nature of these charges, they are just bifurcation of 'lease rent' to be paid by the allottee to the RIICO. Mere giving different names to various heads of 'rent' or bifurcating them, does not qualify it to be out of the definition of 'lease rent'. The responsibility to deduct TDS lies on the assessee deductor & the onus cannot be transferred to other party. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the said land. Though the assessee has to ay a sum of Rs. 6,05,70,034/- to RIICO on non refundable basis and capitalized the expenditure in its books of accounts, it would not change the nature of transaction. Since the appellant has acquired a benefit of enduring nature by getting the right to use the land on lease for 99 years, it has rightly capitalized the expenditure. Irrespective of the fact that the outgo was capital in nature, the issue is whether the development charges paid by assessee to RIICO will fall within the definition of "rent" as provided in Explanation to Sec. 194-I of the Act, which is reproduced as under :- "Explanation - For the purpose 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re assessee was liable to deduct tax at source therefrom. Assessee claimed that the upfront fees was in the nature of sale consideration. On these facts Hon'ble Tribunal has held as under :- "9. What the assessee had paid to M/s. SIPCOT Ltd. was under a lease agreement. One of the arguments taken by learned A.R. was that the lease agreement was dated after the end of the relevant previous year and hence the payments made ought not be considered as pursuant to the lease agreement. However, in our opinion, this is not relevant. Reason being that payments were effected during the relevant previous year and it is an accepted position that such payments were for the lease of the land. So, the date of the agreement does not matter since the lease was already in contemplation and assessee would not have given the money unless the lease was atleast orally agreed between the parties. This being so, the payment made by the assessee to M/s. SIPCOT Ltd., by whatever name called, was under a lease agreement. Definition of "rent" given above will definitely include payments of any type under any agreement or arrangement for use of land. On the face of such a clear statutory definition, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The important question to be determined from the terms of the lease deed is whether payment of development charges paid was for acquisition of leasehold rights or for use of land. 5.1. If the payment made was for use of land then assessee was required to deduct tax u/s 194-I of the Act, otherwise not. The relevant terms of the lease deed are extracted herein below :- "In consideration of the premises and of the sum of Rs. 1041,41,73,600 (Rupees One Thousand Forty-one Crore Forty One Lacs Seventy-three Thousand Six Hundred Only) paid by the lessee to the lessor as a premium and of the covenants and agreements on the part of the Lessee hereinafter contained, the Lessor doth hereby demise unto the Lessee all that piece of land............together with all Rights easements and appurtenances thereto belonging to the Lessor .........to hold the land and premises hereinbefore expressed to be hereby demised unto the Lessee for the term of 80 years ......" 5.2. Further as per clause 2(1) of the Lease Deed, at page 17 of PB the assessee is further permitted to sell and mortgage, assign, underlet or sublet or part with the possession of the premises or any part of there or any interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al pronouncements. The Hon'ble Supreme Court in the case or CIT vs Panbari Tea company Ltd. 57 ITR 422 has brought out the aforesaid distinction and the relevant part is reproduced as under :- "Under s. 105, of the Transfer of Property Act, a lease of immovable property is a transfer of a right to enjoy the property made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent. The section, therefore, brings out the distinction between a price paid for a transfer of a right to enjoy the property and the rent to be paid periodically to the lessor. When the interest of the lessor is parted with for a price, the price paid is premium or salami. But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilding after substantial expenditure. The lump sum paid is described as salami or premium and not rent. There is no clause for repayment of the lump sum paid or adjustment of the said lump sum against rent. There is thing on record to show that the premium or salami paid had any characteristic of rent." 5.8. The Hon'ble Delhi High Court in the case of Bharat Steel Tubes Ltd. Vs CIT reported in (2001) 252 ITR 0622 has brought out the distinction between the lease premium and the rent by laying down broad principles relating to the term lease premium/salami. The said principle are applicable in the case of the assessee in as much as the lease premium has been paid before the execution of the lease which is for a term of a long period of 80 years and there is no provision to treat the same as advance rent in the succeeding years. The relevant portion of the judgment is extracted herein below : "4. As was observed by apex Court in Board of Agrl. IT vs. Sindhurani Chaudharani (1957) 32 ITR 169 (SC) : TC 31R.278 and Chintamani Saran Nath Sah Deo vs. CIT (1961) 41 ITR 506 (SC) : TC 38R.1046. Indicia of Salami are : (i) its simple non-recurring character, and (ii) payment prior to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the land, but before the land was put into use by the assessee. (9) The question of Salami should not be decided on the length of the period of the lease but on the nature of the right conveyed. The characteristics of the payment should be decided without reference to the nature of the lease including the wasting nature of the assets under the lease. These broad principles were summarized by Calcutta High Court in Promode Ch. Roy Chowdhury vs. CIT (1962) 46 ITR 1064 (Cal) : TC 38R.1092. Question whether a particular receipt like Salami can be regarded as revenue or capital cannot be decided in the abstract and each case has to be decided on its facts. 5. Rent is allowable as deduction under s. 30 of the Act. What is allowable is the rent paid or payable for the period during which the premises are used for the purposes of business. Sec. 105 of the Transfer of Property Act, 1882 (in short, T.P. Act) makes a distinction between rent and premium payable under a lease when the interest of the lessor is parted with for a price, the price paid is premium or Salami. But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perate the Special Economic Zone at Navi Mumbai. Assessee has paid premium for demised lease land. Thequestion before us is as to whether the said lease premium paid by the assessee to CIDCO to acquire leasehold rights for 60 years under the lease deed(s) is liable for deduction of tax at source being rent within the meaning of section 194-I of the Act or not. AO has stated that the said payment made by assessee under lease agreements qualifies for rent for the purpose of section 194-I of the Act as it partakes all the characteristics of rent and whereas the assessee has contended that the assessee has obtained leasehold rights in the said leasehold lands on payment of lease premium and the said lease premium is not paid under a lease. Hence, it is a capital expenditure and not an advance rent. We observe that the main thrust of the AO to hold the premium paid by assessee to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture. Ld. CIT(A) held that the premium cannot be treated as capital expenditure as the assessee did not acquire ownership of land. It was held that it was an expenditure relatable to 99 years and should be allowed on proportionate basis. However, on further appeal to the Tribunal, the Tribunal held that the benefit conferred on the assessee on lease hold rights in 99 years against lump sum payment of the premium was of an enduring nature. It was held that there was no material on record to suggest that the sum of Rs. 2.04 crores had been paid by way of advance rent nor there was any provision for its adjustment towards rent or for its re-payment to the assessee. It was held that the consideration paid by the assessee was capital expenditure and accordingly the issue was decided against the assessee." 5.11. In the aforesaid decision the ITAT has distinguished 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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