Lease premium for acquiring leasehold rights is not rent under section 194-I, so no TDS or default liability arises.

A lump-sum lease premium paid for acquiring leasehold rights was held not to be "rent" within section 194-I of the Income-tax Act, because it was a premium for obtaining the rights and not a recurring payment for use of land. As no tax was deductible at source on that payment, the payer could not be treated as an assessee in default, and the consequential interest liability under sections 201(1) and 201(1A) also failed. The Tribunal followed earlier co-ordinate Bench decisions on identical facts and held the demand unsustainable.

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Issues: Whether lease premium paid for acquiring leasehold rights was rent within the meaning of section 194-I of the Income-tax Act, 1961, so as to require deduction of tax at source and attract liability under sections 201(1) and 201(1A).

Analysis: The payment was found to be a premium for obtaining leasehold rights and not a recurring payment for use of land. Following earlier co-ordinate Bench decisions on identical facts, the Tribunal held that such premium does not fall within the statutory definition of rent under section 194-I. Since no tax was deductible at source on that payment, the foundation for treating the payer as an assessee in default and levying interest under sections 201(1) and 201(1A) did not survive.

Conclusion: The lease premium was not rent for the purpose of section 194-I, no obligation to deduct tax at source arose, and the demand under sections 201(1) and 201(1A) was unsustainable; the issue was decided in favour of the assessee.

Ratio Decidendi: A lump-sum lease premium paid for acquiring leasehold rights is not rent within section 194-I, and therefore does not attract TDS liability or consequential proceedings under sections 201(1) and 201(1A).

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