2016 (6) TMI 689 - AT - Income Tax

Tribunal rules payment to CIDCO as lease premium, not rent, no TDS required

The Tribunal dismissed the Revenue's appeal, affirming that the payment made by the assessee to CIDCO was a lease premium for acquiring leasehold rights, ... TDS u/s 194I - non deduction of tds on amount paid for lease - demand u/s 201(1) and 201(1A) - Held that:- We have observed that the assessee along with his wife Mrs. Kavita Vikram Shah purchased a plot of residential land whereby lease deed for a period of 60 years will be executed in favour of the assessee and his wife for which lease premium has been paid for a sum of ₹ 1,05,80,528/- to CIDCO. Initially , the assessee entered into an agreement to sell dated 24th November, 2009 and the agreement to lease which was registered on 25th November, 2009. After completion of construction of residential building within four years, the lease deed will be executed in favour of the assesse and his wife whereby ownership title/rights shall be granted in favour of the assessee. It is observed that the lease deed will be entered into by the assessee for a period of 60 years for which the payment has been made. See ITO v. Navi Mumbai SEZ Private Limited [2013 (8) TMI 598 - ITAT MUMBAI ] wherein held lease premium paid by assessee 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 - Decided in favour of assessee Issues Involved:1. Nature of the amount paid by the Lessee to the Lessor (CIDCO) and its classification as rent under Section 194I of the Income Tax Act.2. Applicability of tax deduction at source (TDS) under Section 194I for the payment made to CIDCO.3. Treatment of the assessee as an assessee in default under Section 201(1) and levy of interest under Section 201(1A).4. Interpretation of the definition of rent under Section 194I.5. Consideration of taxability of the payment made to CIDCO despite Supreme Court rulings.Detailed Analysis:Issue 1: Nature of the Amount Paid by the Lessee to the Lessor (CIDCO)The Revenue contended that the amount paid by the Lessee to CIDCO constituted rent as defined under Section 194I of the Income Tax Act, which necessitated tax deduction at source (TDS). The assessee argued that the payment was a lease premium for acquiring leasehold rights for a period of 60 years, which is akin to ownership and not merely rent. The CIT(A) accepted the assessee's contention, noting that the payment was a one-time consideration for acquiring legal interest in the land, not periodic rent for its use.Issue 2: Applicability of TDS under Section 194IThe AO held that the payment to CIDCO was rent and thus subject to TDS under Section 194I. The assessee countered that the payment was for acquiring leasehold rights, not for the use of the land, and hence not subject to TDS. The CIT(A) and the Tribunal supported the assessee's view, relying on precedents where similar payments were treated as capital expenditure for acquiring leasehold rights rather than rent.Issue 3: Treatment as Assessee in Default and Levy of InterestThe AO treated the assessee as in default under Section 201(1) for not deducting TDS and levied interest under Section 201(1A). The CIT(A) overturned this, concluding that the payment was not rent and thus no TDS was required. The Tribunal upheld this decision, finding no fault in the CIT(A)'s order.Issue 4: Interpretation of Rent under Section 194IThe AO interpreted rent broadly to include any payment related to property transactions under a lease. However, the Tribunal emphasized the distinction between rent and lease premium, noting that lease premium is a capital payment for acquiring leasehold rights, not periodic rent. The Tribunal cited multiple precedents where lease premiums were treated as capital expenditures.Issue 5: Taxability of Payment to CIDCO Despite Supreme Court RulingsThe AO argued that the taxability of the payment should be considered regardless of the ultimate assessment outcome, referencing Supreme Court rulings. The Tribunal, however, focused on the nature of the payment, concluding that it was a capital expenditure for acquiring leasehold rights, not subject to TDS as rent.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision that the payment made by the assessee to CIDCO was a lease premium for acquiring leasehold rights, not rent under Section 194I. Consequently, the assessee was not required to deduct TDS, and the AO's order treating the assessee as in default was overturned. The Tribunal's decision was based on a thorough analysis of the nature of the payment and relevant legal precedents.