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TMI Blog2016 (6) TMI 689X X X X Extracts X X X X X X X X Extracts X X X X ..... t - Provisions of section 194-I of the Act to deduct TDS on the lease premium paid by the assessee is not attracted - Decided in favour of assessee - I.T.A. No. 3123/Mum/2014 - - - Dated:- 16-6-2016 - Shri C. N. Prasad, Judicial Member And Shri Ramit Kochar, Accountant Member For the Assessee : Shri Mukundraj M Chate For the Revenue : Shri Devendra Jain ORDER Per Ramit Kochar, Accountant Member This appeal, filed by the Revenue , being ITA No. 3123/Mum/2014, is directed against the appellate order dated 17-02-2014 passed by learned Commissioner of Income Tax (Appeals)- 13, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2010-11, the appellate proceedings before the learned CIT(A) arising from the order dated 28-11-2011 passed by the learned Assessing Officer (hereinafter called the AO ) u/s 201(1) 201(1A)) of the Income Tax Act,1961 (Hereinafter called the Act ). 2. The grounds of appeal raised by the Revenue in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called the Tribunal ) read as under:- (i) On the facts and in the circumstances of the case and in law, the Ld, CIT(A) has erred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dated 24th November, 2009 showing that the consideration of ₹ 1,05,80,528/- is lease premium paid for a period of 60 years for acquiring residential plot of land . The assessee submitted that CIDCO has used the terminology of lease premium because for the first 4 years from the date of lease agreement ,the assessee has been given license and authority to enter upon the land for erecting a building for residential purposes and after completion of the construction of residential building within the time period, the agreement to lease provides that legal interest would be granted to the assessee whereby lease deed will be entered into by CIDCO with the assessee. The copy of the lease deed was also enclosed. It was submitted that the lease premium of ₹ 1,05,80,528/- is nothing but total consideration paid for the plot of land which the assessee has purchased as per the agreement to sell entered into with the CIDCO and duly registered in assessee s name as per Index No. II. Lease period is 60 years with an yearly rent of ₹ 100/- would be entered into with CIDCO. Thus, it was submitted that the lease premium amount of ₹ 1,05,80,528/- is nothing but a sale consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to any decision or case law, because as per decision of Supreme Court rules of interpretation/ construction come into play only where there is ambiguity in law and such rules of interpretation/ construction have no place when the law is clear and unambiguous. C1DCO is neither government nor a corporation incorporated under a Central Act. Accordingly as per the AO, it does not qualify for exclusion from the TDS under provisions of Chapter XVII-B as provided for under section 196 of the Act. On given facts, it is clear that the assessee was liable to deduct T.D.S. on any payment by whatever name called made by it to CIDCO under the lease for the use of land. Since, it has not been done, the T.D.S. default under Chapter XVII-B of the Act has occurred. On facts and circumstances it is clear that all payments made by the assessee to the CIDCO are for using the land and rights related to use of land. There is no right of ownership/title in the plot of land as per the AO . This is conclusively proved by restrictive clauses putting encumbrance on the assessee as held by the AO. Thus as per the AO vide orders dated 28.11.2011 , the assessee is in default u/s 201(1) /201(1A) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relationship that is before the commencement of the tenancy. Another fact is that it is a onetime non-recurring payment for transferring and purchasing the right granted by the lessor. Thus it was submitted that the premium paid to CIDCO amounting to ₹ 1,05,45,789/- is nothing but the total consideration paid for the plot of land which the assessee has purchased. The agreement to lease is only a temporary arrangement to enable the assessee to comply with the condition of completing the construction within the stipulated period and once the said condition is fulfilled , a lease deed for a period of 60 years with a yearly rent of ₹ 100/- will be executed. Thus, the agreement to lease is nothing but a sale consideration and TDS is not deductible as the payment made is for acquiring legal interest. Hence, it was submitted that assessee is not liable to deduct TDS. In support, the assessee relied on the decision of Tribunal-Mumbai in the case of ITO (TDS) v. Navi Mumbai SEZ (P.) Ltd. [2014] 147 ITD 261 (Mum), decision of the Tribunal-Delhi in the case of ITO v. Indian Newspapers Society [2013] 37 taxmann.com 401 and decision of the Tribunal-Mumbai in the case of ITO (TDS) v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see. It is observed that the lease deed will be entered into by the assessee for a period of 60 years for which the payment has been made. We have observed that similar issue came before the co-ordinate benches of this Tribunal as cited by the ld. Counsel for the assessee herein above, and this issue has been decided in favour of the assessee. The decision of the Mumbai Tribunal in the case of ITO v. Navi Mumbai SEZ Private Limited (2014) 147 ITD 261(Mum.Trib.) is reproduced hereunder: 17. We have carefully considered the submissions of the ld. Representatives of the parties, orders of the authorities below and the cases relied upon (supra). We have also carefully considered the provisions of section 194-I which deal with the provisions for deduction of income Tax at source from income by way of rent. The Explanation (i) to section 194-I of the Act defines the expression rent . It is worthwhile and relevant to state section 194-I which is a subject matter of dispute. It reads as under : '194-I Rent.- Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or acquisition of leasehold rights in the land to develop and operate the Special Economic Zone at Navi Mumbai. Assessee has paid premium for demised lease land. The question 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-I 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure, which was disallowed by the AO holding it as a capital in nature. 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 ₹ 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. 21. In the case before us also the assessee has paid lease premium to acquire the demised leasehold land and there is no material on record that the said lease premium paid by the assessee is refundable to the assessee and/or is in the nature of advance rent or merely for use of land. We observe that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is the same, whether the premium is for a simple lease of land or for a lease of mineral rights. Therefore, when the interest of the lessee 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 nature of rent. That the former is capital and the later is revenue in nature. Their Lordships of the Hon'ble Delhi High Court stated that rent is allowable as deduction u/s 30 of the Act. It is stated that section 105 of the Transfer of Property Act, 1882 also make a distinction between the rent and premium payable under lease. When the interest of the lessor is charged with for a price, the price paid is premium or salami but the periodical payment made for the continuous enjoyment of the benefits under lease are in the nature of rent. Their Lordships held that formal is capital and later is revenue in nature. A similar issue also came up before the Hon'ble Jurisdictional High Court in the case of CIT v. Khimline Pumps Ltd. [2002] 258 ITR 459/125 Taxman 104 (Bom.). In the said case open plot of land was leased out to APVE Ltd, a company for a period of 95 years on p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land under the lease deed(s) entered into, although with restrictive covenants is a capital expenditure, and it does not fall within the ambit of rent under section 194-I of the Act. 21.3 We observe that similar issue has also been considered recently by the Mumbai Bench of Tribunal vide order dated 3.7.2013 (supra) in the case of Wadhwa and Associates Realtors (P.) Ltd. (supra) and the Tribunal vide para 5 of the said order has held that the ld. CIT(A) is justified to hold that the whole transaction towards grant of leasehold transaction right to the assessee is nothing but a transaction of transfer of property and the lease premium is the consideration for the purchase of said leasehold rights. It is relevant to state that the Tribunal in the above order has also considered the decision of the Hon'ble Calcutta High Court, and the decision of Karnataka High Court (supra) on which the AO has placed reliance . We consider it prudent to state para 5 of the said order of the Tribunal which reads as under : '5. After considering the facts and the submissions and the nature of transaction, the Ld. CIT(A) observed that the amount charged by MMRD as lease premium is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther considered the decision of the Special Bench of Mumbai Tribunal in the case of JCIT v. Mukund Ltd. 106 ITD 231 wherein the issue was whether the premium paid for acquiring leasehold right in land is revenue or capital . The Special Bench has held that the same is capital expenditure. 5.2 The Ld. CIT(A) has distinguished the facts of the cases relied upon by the AO at page-53 para 5.39 of his order and after distinguishing the cases came to the conclusion that in none of these cases, the issue of 'lease premium as in the case of the assessee vis- -vis 'rent' has been considered. At para 5.41 of his order at page-54, the Ld. CIT(A) says that I have also considered the other cases relied upon the AO. These cases lay down general principles of interpretation of Law. I find that none of the above cases the court has held that the lease premium in similar circumstances is in the nature of advance rent and hence liable for deduction of TDS u/s. 194-I of the Act. The cases relied upon by the AO are thus distinguishable on facts and in law and the same cannot be made applicable to the facts of the present case where the issue raised is completely different. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made to SIPCOT Ltd under lease agreement. Therefore, the said payment is for lease or use of land and accordingly the payment could not be said to have been made for acquiring leasehold land and hence, it is observed that the Chennai Bench has held that the payment by the assessee company to CIDCO is rent u/s 194-I of the Act. Therefore, we are of the considered view that the above decision of ITAT Chennai Bench (supra) relied upon by ld. DR is not applicable to the case before us. On the other hand, the Special Bench Decision of ITAT, Mumbai in the case of Mukund Ltd. (supra) squarely apply wherein it has been held that the premium paid for acquiring lease hold right in land is a capital expenditure. The Special Bench decided the issue after considering the various judgments of the Hon'ble Jurisdictional High Court, Hon'ble Apex Court, various decisions of the Tribunal as discussed hereinabove which have distinguished between the lease premium and rent under the Income Tax Act. The Hon'ble Apex Court has held in the case of Enterprising Enterprises v. Dy. CIT [2007] 293 ITR 437/160 Taxman 188 that the assessee which had taken a quarry on lease, the lease rent paid w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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