2013 (9) TMI 309 - AT - Income Tax

Lease premium not 'rent' for tax deduction under Income Tax Act

The Tribunal held that the lease premium paid to MMRDA was not 'rent' under section 194-I of the Income Tax Act, 1961. Consequently, the assessees were ... Disallowance of premium paid for acquiring lease - nature of payment - TDS u/s 194I - default u/s 201 - Held that:- A careful reading of the said lease deed transpires that the premium is not paid under a lease but is paid as a price for obtaining the lease, hence it precedes the grant of lease. Therefore, by any stretch of imagination, it cannot be equated with the rent which is paid periodically. A perusal of the records further show that the payment to MMRD is also for additional built up are and also for granting free of FSI area, such payment cannot be equated to rent. It is also seen that the MMRD in exercise of power u/s. 43 r.w. Sec. 37(1) of the Maharashtra Town Planning Act 1966, MRTP Act and other powers enabling the same has approved the proposal to modify regulation 4A(ii) and thereby increased the FSI of the entire 'G' Block of BKC. The Development Control Regulations for BKC specify the permissible FSI. Pursuant to such provisions, the assessee became entitled for additional FSI and has further acquired/purchased the additional built up area for construction of additional area on the aforesaid plot. Thus the assessee has made payment to MMRD under Development Control for acquiring leasehold land and additional built up area - Following decision of The ITO (TDS) 3 (5), Versus M/s. Wadhwa & Associates Realtors Pvt. Ltd. [2013 (9) TMI 261 - ITAT MUMBAI] - payment for acquiring leasehold land is a capital expenditure - not liable for TDS u/s 194I - Decided against Revenue. Issues Involved:1. Whether the assessee is required to deduct tax at source from the payment of lease premium made to MMRDA under section 194-I of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Requirement to Deduct Tax at Source from Lease Premium under Section 194-I:Facts and Background:The assessees were allotted plots of land in the Bandra Kurla Complex on lease, subject to payment of lease premium to MMRDA. The Assessing Officer (A.O.) contended that the assessees were required to deduct tax at source from these payments under section 194-I of the Income Tax Act, 1961, as the payments constituted 'rent.' Since no tax was deducted, the A.O. treated the assessees as defaulters under sections 201(1) and 201(1A) of the Act.Assessing Officer's Stand:The A.O. argued that the payments, including additional premiums for areas like staircases and lifts, were extensions of the original lease agreement and thus retained the character of 'rent.' The A.O. cited judicial pronouncements, including CIT v/s HMT Limited and Braithwaite & Co. (I) Ltd. v/s CIT, to support the view that lump-sum lease premiums are advance rent, necessitating TDS under section 194-I.Assessees' Defense:The assessees contended that the lease premium was not advance rent but a capital payment for acquiring leasehold rights. They argued that the premium was paid for the right to possess and transfer the lease property, which is distinct from periodic rent payments. The assessees cited several judicial decisions, including the ITAT Special Bench ruling in Mukund Ltd., which held that such premiums are capital expenditures, not rent.CIT(A)'s Findings:The CIT(A) sided with the assessees, noting that the lease premium was akin to the market rate for acquiring property rights, not for periodic use. The CIT(A) referenced the decision in Raja Bahadur Kamakshya Narain Singh, which characterized salami as a capital payment, and the Supreme Court ruling in Sindhurani Chaudhrani, which distinguished such payments from rent. The CIT(A) also cited the Bombay High Court decision in Khimline Pumps Ltd., which treated similar payments as capital expenditures.Tribunal's Decision:The Tribunal upheld the CIT(A)'s decision, emphasizing that the lease premium paid by the assessees to MMRDA was not 'rent' under section 194-I. The Tribunal referenced its own decision in Wadhwa & Associates Realtors Pvt. Ltd., where it was held that lease premiums are capital payments for acquiring leasehold rights and do not attract TDS under section 194-I. The Tribunal confirmed that the payments were for acquiring leasehold land and additional built-up area, thus not falling within the definition of 'rent.'Conclusion:The Tribunal concluded that the lease premium paid by the assessees to MMRDA was not in the nature of rent as contemplated under section 194-I of the Income Tax Act, 1961. Consequently, the assessees were not required to deduct tax at source from these payments, and the demands raised by the A.O. were canceled. The appeals filed by the Revenue were dismissed, and the cross objections by the assessees were deemed infructuous.Order Pronounced:The order was pronounced in the open court on 14th August, 2013, dismissing both the appeals of the Revenue and the cross objections filed by the assessees.