2013 (8) TMI 598 - AT - Income Tax

Lease premium not 'rent' for tax deduction: Tribunal

Income Tax Officer-(TDS), (OSD) Versus M/s Navi Mumbai SEZ Pvt. Ltd.

The Tribunal ruled that the lease premium paid by the assessee for acquiring leasehold rights is a capital expenditure and not considered 'rent' under ... TDS u/s 194I of the Income Tax Act - Lease premium - assessee has capitalized the lease premium in its books of accounts and treated the same as capital expenditure for tax purposes - Assessee in default u/s 201(1) and 201(1A) of the Act for not deducting tax u/s 194-I of the Act of lease premium paid by it - Lease premium paid by assessee to The City and Industrial Development Corporation of Maharashtra Ltd. (CIDCO) for acquiring development and lease-hold rights for a period of 60 years under the Lease Deed(s) is rent within the meaning of section 194-I of the Income Tax Act, 1961 (the Act) and hence liable for deduction of tax at source – Held that:- As per Hon'ble Apex Court in the case of Enterprising Enterprises V/s DCIT [2006 (12) TMI 138 - SUPREME Court], it was held that the assessee which had taken a quarry on lease, the lease rent paid was capital expenditure and the Hon'ble High Court also affirmed the decision of the Tribunal. The Hon'ble Apex Court while confirming the decision of the Hon'ble High Court held that premium for lease or any lumpsum payment for obtaining a lease for a long period is a payment for enduring advantage, so that it is a capital expenditure which is not deductible – In the present case it is held that lease premium paid by assessee to CIDCO is not in the nature of rent as contemplated u/s 194-I of the Act - Provisions of section 194-I of the Act to deduct TDS on the lease premium paid by the assessee is not attracted - Deleted the demand raised by the AO u/s 201(1) and 201(1A) of the Act by rejecting the grounds of appeal taken by the department – Decided against the Revenue. Issues Involved:1. Whether the lease premium paid by the assessee to CIDCO for acquiring development and leasehold rights for 60 years is considered 'rent' under section 194-I of the Income Tax Act, 1961, and liable for deduction of tax at source.Issue-Wise Detailed Analysis:1. Definition and Applicability of 'Rent' under Section 194-I:The core issue is whether the lease premium paid by the assessee to CIDCO qualifies as 'rent' under section 194-I of the Income Tax Act, 1961, necessitating tax deduction at source. The AO contended that the lease premium falls within the ambit of 'rent' as defined under section 194-I, which includes any payment under a lease, sub-lease, tenancy, or any other agreement for the use of land. The AO argued that the lease premium is essentially advance rent and thus liable for TDS.2. Nature of Lease Premium:The assessee argued that the lease premium is a capital payment for acquiring leasehold rights and not merely for the use of land. The lease premium represents a consideration for a larger interest in the leasehold land, including rights to develop, market, and collect user charges. The assessee cited section 105 of the Transfer of Property Act, 1882, and various judicial precedents to distinguish between rent and premium. The assessee maintained that the lease premium is a capital expenditure and not subject to TDS under section 194-I.3. Judicial Precedents and Legal Interpretation:The CIT(A) and the Tribunal referred to various judicial precedents to determine the nature of the lease premium. Key cases included:- A.R. Krishnamurthy v. CIT (176 ITR 417): The Supreme Court held that a premium paid for acquiring leasehold rights is a capital expenditure and not rent.- Panbari Tea Co. Ltd. v. CIT (57 ITR 422): The Supreme Court distinguished between premium (a capital receipt) and rent (a revenue receipt).- Mukund Ltd. (106 ITD 231): The Special Bench of the Tribunal held that a lump sum payment for acquiring leasehold rights is a capital expenditure.4. Analysis of Lease Deed and Development Agreement:The CIT(A) analyzed the lease deed and development agreement between the assessee and CIDCO. It was noted that the lease premium was paid for acquiring leasehold rights, which included a bundle of rights such as development, marketing, and collection of user charges. The CIT(A) concluded that the lease premium is not for the mere use of land but for acquiring substantial rights, making it a capital expenditure.5. Distinction Between Rent and Premium:The CIT(A) and the Tribunal emphasized the distinction between rent and premium. Rent is periodic and for the continuous enjoyment of the property, whereas premium is a one-time payment for acquiring leasehold rights. The lease premium paid by the assessee was not refundable and did not relate to periodic use, reinforcing its nature as a capital expenditure.6. Applicability of Section 194-I:The Tribunal upheld the CIT(A)'s decision that the lease premium paid by the assessee is not 'rent' under section 194-I and thus not subject to TDS. The Tribunal relied on the legal interpretation and judicial precedents to conclude that the lease premium is a capital expenditure for acquiring leasehold rights.Conclusion:The Tribunal dismissed the department's appeals, confirming that the lease premium paid by the assessee to CIDCO for acquiring leasehold rights is a capital expenditure and not 'rent' under section 194-I. Consequently, the assessee was not required to deduct tax at source on the lease premium payments.