2014 (7) TMI 854 - AT - Income Tax

Leasehold Payment Not Subject to TDS

The Tribunal upheld the Commissioner (Appeals) decision that the payment made for leasehold rights was capital expenditure, not rent under section 194-I. ... Order passed u/s 201(1)/201(1A) – Non-deduction of TDS and interest - Premium for leasehold rights u/s 194I – nature of rent not defined – Held that:- A payment of lease premium do not fall within the realm of 'rent' as contemplated in section 194–I - the assessee is not liable for deducting the TDS on payment - the lease premium is capital expenditure to acquire land with substantial right to construct and cover the building complex – Following the decision in ITO (TDS) 3 (5), Versus M/s. Wadhwa & Associates Realtors Pvt. Ltd. [2013 (9) TMI 261 - ITAT MUMBAI] - the lease premium paid by the assessee to MMRDA not being in the nature of rent as contemplated in section 194-I of the Act, the assessee was not liable to deduct tax at source from the said payment and hence could not be treated as the assessee in default u/s 201(1) & 201(1A) of the Act - payment on account of premium represents transfer price of the land on lease hold basis and no part qualifies to fall within the meaning of 'rent' as contemplated in section 194–I and, therefore, no deduction of tax at source is required - Decided against Revenue. Issues:Interpretation of payment as rent under section 194-I for TDS.Analysis:The Revenue appealed against the order by the Commissioner (Appeals) for the assessment year 2010-11, arguing that the payment made by the assessee to CIDCO as premium for leasehold rights was wrongly considered not as 'rent' under section 194-I, hence TDS was not deducted. The Assessing Officer treated the payment as rent, resulting in a liability of &8377; 5,56,83,979 due to non-deduction of tax. The Commissioner (Appeals) analyzed the nature of payment and concluded it was not rent, hence TDS was not required. The appellant cited Tribunal decisions supporting their stance, emphasizing that the lease premium was capital expenditure for land acquisition, not rent. The Tribunal noted consistent views that such premiums do not qualify as rent under section 194-I, citing specific observations from previous cases.The Tribunal referenced the case of ITO v/s Trent Ltd., highlighting that the premium paid for leasehold rights was considered capital expenditure, not rent, as per the lease deed. The Tribunal upheld the Commissioner (Appeals) decision, stating that the premium represented the land's transfer price on a leasehold basis, not falling under the definition of 'rent' in section 194-I. Consequently, no TDS deduction was required. The Tribunal dismissed the Revenue's appeal, confirming the Commissioner (Appeals) findings and conclusions. The judgment was pronounced on 19th May 2014.