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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 ..... the Tribunal was right in holding that since Assessee had not deducted tax at source in respect of payments to SIPCOT the provisions of Section 201(1A) are attracted?" 2. The issue involved before the learned Tribunal was whether one time lump sum paid by the Assessee for getting 99 years lease of land from the Government Undertaking viz., SIPCOT was a payment in the nature of rental and therefore, the Assessee was required to deduct tax at sources under Section 194 I of the Act and having failed to do so, the said payment was liable to be added back to the declared income of the Assessee? The learned Tribunal followed the earlier view of its own in the case of M/s.TRIL Infopark Ltd., (ITA No.699/Mds/2014, Order dated 19.06.2015) and Foxconn India Developers (P) Ltd. vs. ITO reported in 2012(53) SOT 0213. 3. The relevant part of the order of the learned Tribunal is quoted below for ready reference :- "However ld.AR submitted that since the lease deed executed between the parties was produced before the lower authorities, there was no necessity to remit the issue back to the file of the AO for fresh consideration and issue is to be decided in favour of the Assessee in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich a Division Bench of this Court has held that such lump sum payment made by the Assessee for getting a long term lease does not amount to payment of rent and the same is not adjustable against the annual rent payable by the Assessee and therefore, the provisions of Section 194I of the Act will not apply to such circumstances. The said judgment of the Division Bench of this Court has since been accepted by the Central Board of Direct Taxes which has issued CIRCULAR NO.35/2016 [F.NO.275/29/2015-IT (B)], DATED 13-10-2016, holding that the Assessee is not entitled to deduct any tax at sources in such circumstances. 5. The relevant part of the judgment of the Division Bench as well as the aforesaid Circular are quoted below for ready reference :- Foxconn India Developer (P.) Ltd. "Questions of law arising in the case: 35. Having seen (a) the legal contentions revolving around (i) Section 105 of the Transfer of Property Act, (ii) the Explanation under Section 194-I (iii) the decisions making a distinction between the salami and rent and (iv) the indicators available in Chapter XX-C, let us now turn our attention to the questions of law arising for consideration. 36. The firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 10.4.2007 relating to the Financial year 2007-08 (Assessment year 2008- 09) is accounted in the year." 40. Therefore, it is clear that the lessor as well as the lessee intended to treat the transaction as "deemed sale". This is one indicator for arriving at the answer to the substantial question of law. 41. There is also intrinsic evidence in the two deeds of lease themselves to suggest that the assessee was chosen not merely as a lessee of the land, but as a co-developer along with SIPCOT to establish a project in the "Product Specific Special Economic Zone". The relevant portion of the preamble to the lease deeds is extracted as follows: "WHEREAS the Government of Tamil Nadu issued G.O.Ms.No.27 Industries (MIB.1) Department dated 01.03.2006 in relation to the party of the second part to establish the project in the "Product-Specific Special Economic Zone"named Sriperumbudur Hi Tech ZEZ and jointly develop with the party of the first part for the activities to be carried out with unfettered right of usage in the area earmarked by the party of the first part. WHEREAS the party of the second part has signed a Memorandum of Understanding with the Government of Tamil N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty for a long duration of time say 99 years could not be taken to constitute rental income at the hands of the lessor, obliging the lessor to deduct tax at source under Section 194-I. Hence, the first substantial question of law is answered in favour of the appellant/assessee. 44. Once the first substantial question of law is answered in favour of the appellant/assessee, by holding that the assessee was not under an obligation to deduct tax at source, it follows as a corollary that the appellant cannot be termed as an assessee in default. As a consequence, there is no question of levy of interest under section 201(1-A) of the Act. 45. In the result, the appeal is allowed, the first substantial question of law is answered in favour of the appellant/assessee. In view of our answer to the first substantial question of law, the second substantial question of law does not arise. No costs. CBDT CIRCULAR SECTION 194-I OF THE INCOME-TAX ACT, 1961 - DEDUCTION OF TAX AT SOURCE - RENT - APPLICABILITY OF TDS PROVISIONS OF SECTION 194-I ON LUMPSUM LEASE PREMIUM PAID FOR ACQUISITION OF LONG TERM LEASE. CIRCULAR NO.35/2016 [F.NO.275/29/2015-IT (B)], DATED 13-10-2016 Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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