TaxTMI 
TaxTMI 
2015 (5) TMI 864
X X X X Extracts X X X X
X X X X Extracts X X X X
....has erred both on facts and in law to appreciate that the issue in appeal was not capital vs. revenue expenditure, but whether the payment was made for use of the land or not as required u/s 194 I of the Act. 3. The Ld. CIT(A) has erred both on facts and in law to appreciate that restrictive clauses in the deed covering the transaction, governing use of the land, alteration etc. provision in the said deed for "ref und of 75% of such premium on forfeiture of the lease" as also for additional premium for additional built up area to be constructed using the "Land" as well as the "Building" constructed thereupon, do not amount to absolute transfer of land or extinguishment of the rights of the lessor MMRDA or demise of the rights of the lessor unto lessse and on the contrary, those provisions in the deed indicates that the payments - named as "Premium" was made for the use of the land - characterizing the payment as "rent" within the ambit of section 194 I of the Act. " 3. The brief facts of the case are that the assessee is a private limited company and is engaged in the business of real estate investment. MMRDA,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inition of the term "rent" u/s 194 I of the Act was wide enough to include such payments made. It is further contended by the revenue that even after the execution of the lease deed the rights of the lessor did not extinguish in view of the provisions of obtaining the additional premium from the assessee in case time limit for its commercial development was not adhered to. According to the revenue premium paid in the case of the assessee came within the purview of section 194 I of the Act. 4.1. The ld. Counsel for the assessee has refuted the submissions made by the revenue by submitting that the assessee had paid lease premium to MMRDA as consideration for the demise of the land in favour of the assessee and not for the use of land. The ld. Counsel for the assessee has further argued that there is a distinction between the lease premium and rent. It is the case of the assessee that substantial premium of Rs. 1041.42 crores having been paid, there is no question of camouflaging the same as advance rent. It was further submitted by the ld. Counsel for the assessee that payment of annual rent was Rs. 8077 was however within the definition of rent as per section 194 I of the Act bu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....use of (either separately or together) any,- (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) Machinery; or (e) Plant; or (f) Equipment; or (g) Furniture; or (h) Fittings , Whether or not any or all of the above are owned by the payee;] (ii) where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.]" 4.3. The important question to be determined from the terms of the lease deed is whether payment of premium was for acquisition of leasehold rights or for use of land. If the payment made was for use of land then assessee was required to deduct tax u/s 194 I of the Act, otherwise not. The relevant terms of the lease deed are extracted herein below :- "In consideration of the premises and of the sum of Rs. 1041,41,73,600 (Rupees One Thou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evant to mention that the amount paid by the assessee for lease premium has no connection with the market rent of the property leased to the assessee. Furthermore the term of lease deed is for a considerable period of 80 years which further supports the case of the assesee that the payment made was for the acquisition of rights in the land along with the right of possession, right of exploitation of property, its long term enjoyment, to mortgage the property, to sell the property etc. Also the entire lease premium of Rs. 1041.42 crores has been paid before the execution of the lease deed and not after. 4.7. The distinction between the lease premium and the rent has been a subject matter of discussion in various judicial pronouncements. The Hon'ble Supreme Court in the case or CIT vs Panbari Tea company Ltd. 57 ITR 422 has brought out the aforesaid distinction and the relevant part is reproduced as under :- " Under s. 105, of the Transfer of Property Act, a lease of immovable property is a transfer of a right to enjoy the property made for a certain time, express or implied, or in perpetuity, in consideration of a pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he date of the sublease which was February 23,1946, but w.e.f. June 1, 1946. (e) The sub-lessees would enter in to possession after the cinema house was said to be completed. (f) The payment of the lump sum was of a non-recurring nature. 9. On the basis of the aforesaid reasons .the Supreme Court held that the said sum of Rs. 55,200 was a capital receipt and not income. 10. It appears to us that the facts of the present case are very similar to the facts which were considered by the Supreme Court in the above decision and that the present reference is . covered by the said decision. 11. In the instant case the lease is for a long period with provision for escalation of rent. The .rent fixed is higher than the previous rent. The lease provides for demolition of the old structures and construction of a new building after substantial expenditure. The lump sum paid is described as salami or premium and not rent. There is no clause for repayment of the lump sum paid or adjustment of the said lump sum against rent. There is thing on record to show that the premium or salami paid had any characteristic of rent." 4.9. The Hon'ble Delhi High Court in the case of Bharat Ste....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... When a premium is received merely as an incident in the possession of property (even if leasehold) and there is no finding that the letting out of the property is the business of the assessee, the premium receipt is capital. (6) Salami or premium paid in advance of rent once for all at the outset the period of tenancy being uncertain and the changes of the resettlement of the same land to some other tenant being remote, is capital. (7) Premium (Salami) is a single payment made for the acquisition by the lessee of the right to enjoy the benefits granted to him by the lease. Money paid to purchase the said general right is a payment on capital account. (8) Salami is the amount of money which a landlord insists on receiving as condition precedent for parting with the land in favour of the lessee and that it was received by the landlord not because of the use of the land, but before the land was put into use by the assessee. (9) The question of Salami should not be decided on the length of the period of the lease but on the nature of the right conveyed. The characteristics of the payment should be decided without reference to the nature of the lease including the was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny 163 Taxman 61 (Del) it was held that as per the facts and circumstances of the case, even a security deposit under lease agreement can be tantamount to advance rent, hence TDS deduction is required to be made. 11. After careful consideration of the above submissions, contentions and legal propositions of both the parties in the light of factual matrix of present case, we observe that it is argued on behalf of the assessee that the MMRDA in its computation of income has not included the lease premium received in computing the total income because it was further payable to the Government of Maharashtra. From the impugned order, we observe that the issue involved in this ground has been decided in favour of the assessee with following observations and findings:- "I have considered the written submission of AR's and gone through various arguments canvassed by the learned counsel of the appellant as also taken into account the objections of the Assessing Officer as mentioned in the impugned order. i) It is well settled that premium and rent have distinct and separate connotations in law as enshrined in Section 105 of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ellant in the Bandra land in consideration of Rs. 88,52,75,OOO/- disbursed to MMRDA. vi) In addition, clause 1 of the operative portion of the lease agreement dated 09.04.2008 read with the recitals thereof unequivocally covenants that in consideration of the payment of Rs. 88,52,75,OOO/- by the Appellant, MMRDA, the lessor, demises the Bandra plot to the Appellant together with all the rights, easements and appurtenances and the like for 80 years commencing from 09.04.2008. In light of the above discussion read with the lease agreement dated 09.04.2008, the conclusion is irresistible that Appellant by tendering the amount Rs. 88,52,75,OOOl- acquired the right, title and interest in the Bandra land demised by MMRDA, the lessor. In the result, I hold that all the yardsticks as judicially held in the foregoing rulings relied upon by the l earned counsel for terming the sum of Rs. 88,52,75,000/- as lease premium are fulfilled in the Appellant's case. Moreover, in A. R. KRISHANAMURTHY v. CIT 176 ITR 417 (SC), the transfer of leasehold rights even for temporary period of 10 years has been held to give rise to char....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the orders passed by CIT(A)-14, Mumbai in favour of the Assessee in the cases listed on page no.9 above, copies of which are placed on record by the Appellant wherein facts are identical and all the seven cases pertain to the land leased by MMRDA in the same or adjoining area which is fortified by the plan appearing at page no.-44 and 59 of the lease deed dated 09.04.2008 [G block-page 43 of the factual paper book.]" 12. In view of above observations, we clearly observe that the Commissioner of Income Tax(A) has also dealt with other cases pertaining to the land leased by MMRDA in the same or adjoining area and has held that the impugned deposit of lease premium does not constitute advance rent but it is a lease premium for acquiring land with right to construct a commercial building although with certain restrictions, but it is a capital expenditure not falling within the ambit of section 194- 1 of the Act. We also observe that the payment of lease premium was not to be made on periodical basis but it was one time payment to acquire the land with right to construct a commercial complex thereon and the lease premium was paid to MMRDA in four instalments, therefore, we are unab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nable to approve the findings of TDS Officer/Assessing Officer that the assessee was liable to deduct TDS on payment of lease premium to MMRDA. At this point, we place reliance on the judgment of Hon'ble jurisdictional High Court of Delhi in the case of KrishakBharati Cooperative Ltd. vs DCIT (2013) 350 ITR 24 (Del) wherein their lordships held that for premium on acquisition of lease hold rights in the land, lease for 90 years with substantial interest in the land, then lease premium constituted capital expenditure. 16. In view of discussions made hereinabove, we are not in agreement with the findings of the Assessing Officer and we decline to hold that the Commissioner of Income Tax(A) has erred in not treating the assessee as assessee in default within the meaning of section 201(1)of the Income Tax Act for non-deduction of TDS on payment of lease premium to MMRDA. At the cost of repetition, it is worthwhile to mention that for invoking the provisions of section 201(1)of the Act, this is a precondition that the person should be required to deduct any sum in accordance with the provisions of this Act and he does not deduct, or does not pay or after deduction fails to pay th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 'G' Block of BKC. The Development Control Regulations for BKC specify the permissible FSI. Pursuant to such provisions, the assessee became entitled for additional FSI and has further acquired/purchased the additional built up area for construction of additional area on the aforesaid plot. Thus the assessee has made payment to MMRD under Development Control for acquiring leasehold land and additional built up area. The decisions of the Tribunal in the case of M/s. National Stock Exchange (supra) and Mukund Ltd (supra) have been well discussed by the Ld. CIT(A) is his order. The decision of the Hon'ble Jurisdictional High Court in the case of Khimline Pumps Ltd. (supra) squarely and directly apply on the facts of the case wherein the Hon'ble Jurisdictional High Court has held that payment for acquiring leasehold land is a capital expenditure. Considering the entire facts in totality in the light of the judicial decisions vis-a-vis provisions of Sec. 194-1, definition of rent as provided under the said provision, we do not find any reason to tamper or interfere with the findings of the Ld. CIT(A) which we confirm. " 4.12. In the case of ITO (TDS) vs Navi Mumbai SE....
X X X X Extracts X X X X
X X X X Extracts X X X X
....asehold right in the land for the purpose of developing, designing, planning, financing, marketing, developing necessary infrastructure, providing necessary services, operating and maintaining infrastructure administrating and managing "SEZ". By virtue of said lease deed(s), the assessee has acquired the rights to determine, levy, collect, retain, utilize user charges fee for provision of services and for tariffs in accordance with terms and conditions provided in the Development Agreement and the lease deed (s) entered into. Therefore, we agree with Id. CIT(A) that lease deed(s) and the Development Agreement have assigned to the assessee leasehold right which includes bundle of rights. The Assessee has paid the premium for lease deed(s) for the demised land to acquire entire rights of the land for a period of 60 years. Therefore, we are of the considered view that the said payment of lease premium is a payment for acquisition of leasehold land and not merely for use of land. The assessee has made payment for entering into lease agreements to acquire lease hold rights in the land for a period of 60 years and not under a lease. Similar issue came up before the Special Bench ITAT Mum....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee had already entered into lease agreements and the said payment was made to SIPCOT Ltd under lease agreement. Therefore, the said payment is for lease or use of land and accordingly the payment could not be said to have been made for acquiring leasehold land and hence, it is observed that the Chennai Bench has held that the payment by the assessee company to CIDCO is rent u/s194-1 of the Act. Therefore, we are of the considered view that the above decision of ITAT Chennai Bench (supra) relied upon by Id. DR is not applicable to the case before us. On the other hand, the Special Bench Decision of ITAT, Mumbai in the case of Mukund Ltd. (supra) squarely apply wherein it has been held that the premium paid for acquiring lease hold right in land is a capital expenditure. The Special Bench decided the issue after considering the various judgments of the Hon'ble Jurisdictional High Court, Hon'ble Apex Court, various decisions of the Tribunal as discussed hereinabove which have distinguished between the lease premium and rent under the Income Tax Act. The Hon'ble Apex Court has held in the case of Enterprising Enterprises V/s DCIT (2007) 293 ITR 437 (SC) that the a....