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TMI Blog2019 (2) TMI 977X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO accepting such spread over has necessarily to be held as erroneous, even if the assessee had put forth its explanation about the spreading over of Premium and the AO accepted the same without recording anything in the assessment order. The amount of lease premium accrues to the assessee at the time of its receipt. Such a lease premium does not bear any traits of rent, which in the extant case resembles with annual payment by the lessee at the rate of Re.1/-. Since the amount of lease premium has no characteristics of rent, in our view, such amount cannot be subjected to TDS u/s 194-I of the Act, which, therefore, rules out the application of Circular No.05/2001. It is further noted that the CBDT has recently clarified vide Circular No.35/2016 dated 13.10.2016 that on the amount of lump sum lease premium, which is not adjustable against the periodic rent, as is the case under consideration as well, there is no requirement of tax withholding u/s 194-I of the Act. We therefore jettison the contention raised on behalf of the assessee on this aspect of the matter. To sum up, since the assessee did not offer full amount of lease premium in the year of receipt and the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supposed to file its return of income, which it did not. Notice u/s.148 of the Act was served on the assessee, pursuant to which, the assessee filed the return declaring NIL income claiming that its income should be treated as exempt u/s.11 r.w.s. 13 of the Act. The AO held that the assessee was not eligible for exemption u/s 11 as it was not registered u/s.12A of the Act. He further noticed that the Commissioner passed the order u/s.12AA r.w.s. 12A on 30.05.2007 rejecting the application of the assessee. He proceeded to frame the assessment at a total income of ₹ 7.42 crore and odd by adding back the amount of depreciation amounting to ₹ 1.68 crore and odd to the excess of Income over expenditure to the tune of ₹ 5.74 crore and odd. The Ld. CIT, invoking the provisions of section 263 of the Act, held that the assessment order passed by the AO on 12-12-2008 was both erroneous and prejudicial to the interest of the Revenue inasmuch as the assessee adopted a faulty method of revenue recognition. He noticed that the assessee was spreading over lease premium at 1/99th on the basis of the lease period of 99 years, and in case of transfer, it was recognizing the same at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to 1/99th of the remaining amount or 1/78th of the remaining amount in case of transfer of lease, as the case may be. The ld. CIT has canvassed a view that the entire amount of Premium is chargeable to tax in the year of receipt, without any spread over the life of lease. 5. The question as to whether the Premium should be shown as income in the year of receipt or spread over the life of lease, depends upon the fact whether the assessee acquired the unbridled right to receive and adjust full amount of such Premium as its own at the time of receipt itself without there being any legal obligation of repaying a part of it during the term of lease or the accrual of such Premium takes place on annual basis and the assessee can be made to return a part of the premium for the unused period of lease by terminating the lease agreement. Or, in the alternate, has the lessee any right to claim refund of the proportionate part of Premium at any time during or at the end of the lease period under any circumstance? 6. The assessee has placed on record two lease agreements for consideration, which have been stated to be representative of all the lease agreements inasmuch as the terms and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch entitles the lessee to claim refund of the part or the full amount of Premium in any situation whatsoever. Thus, it is manifest that upon entering into the lease agreement for 99 years, the assessee acquires an enforceable right to receive the full amount of Premium at the threshold itself without there being any obligation to repay the same as there is no possibility of the assessee terminating such lease during its currency and dispossess the lessee from the demised property. It shows that the full amount of Premium becomes the income of the assessee at the time of its receipt and there is no legal rationale in spreading it over a period of 99 years. It is the other consideration of Re.1/- per annum, which is dependent upon the user of the property. If the lessee pays a sum of ₹ 99/-, being the lease rent for a full period of 99 years in advance at the time of entering into lease, it is this amount of ₹ 99/-, which will be a liability of the assessee and can be charged to revenue only at the rate of Re.1/- per annum, by keeping the remaining amount as liability. Since the right to receive the Premium amount gets crystalized and vests in the assessee at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce u/s 194-I on advance rent pertaining to more than one financial year to be adjusted against future rent, credit shall be allowed in the same proportion in which such income is offered for taxation for different assessment years based on the single certificate furnished for tax so deducted on the entire advance rent. Thus, this Circular primarily deals with the cases in which advance rent is received which has suffered deduction of tax at source at the time of receipt, but the income is to be offered in later years as well. 12. In order to be covered by this Circular, it is sine qua non that there should be receipt of advance rent. The primary question which, thus, falls for our consideration is, whether the amount of lease premium received by the assessee, can be construed as rent. In our considered opinion, the answer to this poser can be in negative alone. Lease premium received by the assessee cannot be categorized as rent, much less the advance rent, as argued by the Ld. AR. We have noticed above that the amount of lease premium accrues to the assessee at the time of its receipt. Such a lease premium does not bear any traits of rent, which in the extant case resembles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxation. In our considered opinion, this issue is no more res integra in view of the latest judgment dated 12-10-2018 rendered by the Hon ble Supreme Court in ITO Vs. M/s. Urban Improvement Trust. The Hon ble Apex Court has held that Urban Improvement Trust constituted under the Rajasthan Urban Improvement Act, performing various municipal functions, is chargeable to tax in respect of its income and further no exemption u/s.10(20) is available to it. Since the Hon ble Supreme Court has held that Urban Improvement Trust, doing admittedly activities similar to those of the instant assessee, is chargeable to tax and further not entitled to exemption u/s. 10(20) of the Act, the argument of the Ld. AR that assessee should be treated as not at all chargeable to tax as an arm of the State Government, deserves to be and is hereby repelled. 18. In the result, the appeal of the assessee is dismissed. ITA No.614/PUN/2011 - A.Y. 2004-05 : 19. Both the sides are in agreement that the facts and circumstances of the A.Y. 2004-05 are mutatis mutandis similar to those of A.Y. 2003-04. In fact, both the sides adopted their earlier arguments without making any fresh submission. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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