Lease premium for long-term rights is not rent under TDS rules, so no default arises on non-deduction.

A one-time upfront premium paid for acquisition of long-term leasehold rights was treated as capital in nature and not as rent, because it was not adjustable against periodic lease rent. On that basis, the payment fell outside section 194I, so no tax was deductible at source. As the threshold for TDS liability was not met, the consequential demand and default treatment under sections 201(1) and 201(1A) could not stand.

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Issues: Whether the lump sum lease premium paid for acquisition of long-term leasehold rights over land was in the nature of rent within section 194I of the Income-tax Act, 1961, and whether the assessee could be treated as an assessee in default under sections 201(1) and 201(1A) for failure to deduct tax at source.

Analysis: The payment was a one-time upfront lease premium for acquisition of long-term leasehold rights and was not adjustable against periodic rent. The Tribunal followed its earlier decision and the CBDT circular which accepted that such lease premium is capital in nature and does not fall within the ambit of rent under section 194I. As the payment was not liable to TDS under section 194I, the consequential demand under sections 201(1) and 201(1A) could not survive.

Conclusion: The issue was decided in favour of the assessee. The lease premium was held not to be rent, and the assessee was not liable to be treated as an assessee in default under sections 201(1) and 201(1A).

Ratio Decidendi: Lump sum premium paid for acquisition of long-term leasehold rights, where it is not adjustable against periodic rent, is capital in nature and not a payment by way of rent for purposes of section 194I; therefore no TDS is deductible and no default arises under sections 201(1) and 201(1A).

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