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TMI Blog2020 (11) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... e upfront lease charges, which are not adjustable against periodic rent, paid or payable for acquisition of long-term leasehold rights over land or any other property are not payments in the nature of rent within the meaning of section 194-I of the Act. Therefore, such payments are not liable for TDS under section 194-I - Decided in favour of assessee. - THE HON'BLE DR. JUSTICE VINEET KOTHARI AND THE HON'BLE MR. JUSTICE M. S. RAMESH For Appellant : Mr. R. Venkat Narayanan for M/s. Subbaraya Aiyar Padmanabhan For respondent : Mr. V. Rajesh Junior Standing Counsel JUDGMENT ( Delivered by DR. VINEET KOTHARI , J. ) The present appeals have been filed by the Assessee raising the following substantial questions of law arising from the order of the learned Tribunal dated 11 March 2016 by which the learned Tribunal dismissed the appeal of the Assessee for AY 2009-10, 2010-11 and 2012-13. 1. Whether on the facts and circumstances of the case and in law the Tribunal was right in holding that the payments made by Assessee to M/s.SIPCOT Ltd for payment of land is in the nature of rent and hence Assessee ought to have deducted tax at source under Section 194 I of the Act? 2. Whether o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of the land has to be treated as rent. Since the Madras High Court in Rane Brake Linings Ltd. (Supra) had no occasion to consider the explanation (i) to Section 194-I which was introduced with effect from 13.07.2006, that judgment cannot be applied to the facts of the case as held by the Tribunal in the case of M/s.TRIL Infopark Ltd., in our opinion, the order of the Tribunal in the case of Foxconn India Developers (P) Ltd vs. ITO (Supra) is squarely applicable and the Assessee is liable to deducted TDS. Since the recipient has paid the taxes, the Assessee is liable for payment of interest under Section 201(1A) of the Act. Accordingly, we are inclined to dismiss the appeals of the Assessee. 7. In the result, all the three appeals filed by the Assessee for assessment years 2009-10, 2010-11 and 2012-13 stand dismissed. 4. Both the learned Counsel fairly pointed out that the earlier view of the learned Tribunal stood reversed by a Coordinate Bench of this Court in the case of Foxconn India Developer (P.) Ltd. vs. Income-tax Officer, TDS Ward- II (3), Chennai, [20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial Economic Zone. After becoming a co-developer by virtue of the Government Order dated 1.3.2006 and the Memorandum of Understanding dated 3.3.2006, the assessee signed another Memorandum of Understanding with SIPCOT on 11.1.2007. Based upon these, two orders of allotment dated 11.1.2007 and 10.4.2007 were issued. The orders of allotment prescribed the payment of One Time Nonrefundable Upfront Charges by the assessee to SIPCOT. It was only after these payments were made that two lease deeds were executed on 30.4.2008. 39. Keeping the above facts in mind, if we have a look at a letter dated 9.3.2009, issued by SIPCOT to the assessee, it can be seen as to how the parties wanted the payment of upfront charges to be treated. In paragraph 1 of the letter dated 9.3.2009, SIPCOT stated the following: (i) The upfront charges paid by your Company has been treated as 'Deemed Sale' and accounted as 'Income from Area Development Activity' as detailed below: a. ₹ 1050 lakhs paid for 100 acres of Land allotted on 11.1.2007 relating to the Financial year 2006-07 (Assessment year 2007-08) is accounted in that year. b. ₹ 1659.20 lakhs paid for 51.85 acres of land in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r providing infrastructure facilities in the SIPCOT Hi tech SEZ for electronics/telecom hardware and support services, including trading and logistics activities at Sriperumbudur, Tamil Nadu, as per the details given below: (1) Name of the Co-Developer - Foxconn India Developer Private Limited. (3) Details of facilities proposed to be provided :Providing following infrastructure facilities in the SEZ: A list of facilities to be provided in the SEZ is at Annexure-I. 43. Therefore, it is crystal clear that the One Time Non-refundable Upfront Charges paid by the assessee was not (i) under the agreement of lease and (ii) merely for the use of the land. The payment made for a variety of purposes such as (i) becoming a co-developer (ii) developing a Product Specific Special Economic Zone in the Sriperumbudur Hi-Tech Special Economic Zone (iii) for putting up an industry in the land. The lessor as well as the lessee intended to treat the lease virtually as a deemed sale giving no scope for any confusion. In such circumstances, we are of the considered view that the upfront payment made by the assessee for the acquisition of leasehold rights over an immovable property for a long duration o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80 years and since there was no provision in lease agreement for adjustment of premium amount paid against annual rent payable, the payment of lease premium was a capital expense not requiring deduction of tax at source under section 194-I of the Act. 4. Further, in the case Foxconn India Developer Limited (Tax Case Appeal No. 801/2013), the Hon'ble Chennai High Court held that the one- time non-refundable upfront charges paid by the assessee for the acquisition of leasehold rights over an immovable property for 99 years could not be taken to constitute rental income in the hands of the lessor, obliging the lessee to deduct tax at source under section 194-I of the Act and that in such a situation the lease assumes the character of deemed sale . The Hon'ble Chennai High Court has also in the cases of Tril Infopark Limited (Tax Case Appeal No. 882/2015) ruled that TDS was not deductible on payments of lump sum lease premium by the company for acquiring a long-term lease of 99 years. 5. In all the aforesaid cases, the Department has accepted the decisions of the High Courts and has not filed an SLP. Therefore, the issue of whether or not TDS under section 194-I of the Act is t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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