Lease payments and TDS: charges for plan approval or construction-time extension are outside rent under section 194-I.

Payments made under a lease must be examined by their substance to determine whether they constitute "rent" for section 194-I. A balcony enclosure fee paid for approval of an amended building plan and use of larger built-up area was treated as additional lease premium linked to enlargement of leasehold rights, not as consideration for use of land or premises, and so outside section 194-I. A separate payment for extension of time to complete construction was treated as a contractual charge or fee for modifying lease terms, not as rent and not liable to tax deduction at source under Chapter XVII-B.

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Issues: Whether amounts paid under a lease arrangement to the development authority were liable to tax deduction at source under section 194-I of the Income-tax Act, 1961, namely the amount paid as balcony enclosure fee for approval of an amended building plan and the amount paid for extension of time to complete construction.

Analysis: The payment for balcony enclosure fee was found to be in substance additional lease premium for approval of the amended building plan and utilisation of larger built-up area. It was therefore treated as consideration for acquiring or enlarging leasehold rights and not as rent for use of land. The payment made for extension of time to complete construction did not result in acquisition of any leasehold right or capital asset. It was also not consideration for use of land and could not be characterised as rent under section 194-I. Since the second payment was only a charge or fee under the lease for modification of the original terms, it also did not fall within any other provision for deduction of tax at source in Chapter XVII-B.

Conclusion: Both amounts were held not to be rent within the meaning of section 194-I and were not liable to tax deduction at source.

Ratio Decidendi: A payment under a lease agreement is not "rent" under section 194-I unless it is consideration for the use of land or premises; amounts paid as lease premium or as charges for alteration or extension of contractual terms, where they do not represent use-related consideration, are outside the ambit of that provision.

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