Lease premium for leasehold and development rights was not rent, so no tax deduction obligation arose.

Payment made for additional built-up area and leasehold rights to MMRDA was treated as lease premium for acquiring leasehold and development rights, including additional floor space index, rather than periodic rent. Because the amount was a price for obtaining the lease and had the character of capital expenditure, it did not fall within the definition of rent for tax deduction at source. As a result, no deduction was required under section 194I, and the consequential demand under section 201(1) and section 201(1A) was not sustainable.

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Issues: Whether the payment made for additional built-up area and leasehold rights to MMRDA constituted rent so as to attract deduction of tax at source under section 194I and consequent liability under section 201(1) and section 201(1A).

Analysis: The payment was treated as lease premium paid for obtaining leasehold rights and additional built-up area, not as periodic rent. The reasoning accepted that such premium preceded the grant of lease and was a price for acquiring the lease and related development rights, including additional floor space index, and therefore had the character of capital expenditure. On that basis, the payment did not fall within the definition of rent for the purposes of tax deduction at source.

Conclusion: The payment was not rent and did not attract deduction of tax at source under section 194I. The consequential demand under section 201(1) and section 201(1A) was not sustainable, and the issue was decided in favour of the assessee.

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