TaxTMI 
TaxTMI 
2016 (1) TMI 664
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.... holding that interest u/s 201(1A) is leviable from the date of deductibility to the date of furnishing of return of income by the payee. 2. Brief facts of the case are that the assessee is engaged in manufacturing of readymade garments of various brands like Bombay Dyeing, Life Style etc. The Rajasthan State Industrial Development and Investment Corporation Ltd. (RIICO) had allotted a plot for establishment of an Industry at Ramchandra Pura Industrial Area, Sitapura Extension, Jaipur, vide allotment letter dated 07.10.2010 pursuant to the application of the assessee dated 22.09.2010. Vide said allotment letter, the assessee was allotted the plot admeasuring 12066 sq. meter @ Rs. 4043/- per sq. meter (at the discounted rate). However, the prevailing rate of development charges was Rs. 4500/- per sq. mtr. Thereafter, on the basis of allotment letter, a document tiled as Lease Agreement was entered between the assessee and the RIICO dated 19.10.2011. As per the said allotment letter and the Lease Agreement, the land was allotted to the assessee for 99 years and the assessee was required to pay the amount of Rs. 6,05,70,034/-. The bifurcation of the said amount was as under :- D....
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....present case RIICO is selling land on lease hold basis i.e. on 99 years lease. The entrepreneurs who want to set industrial undertaking require to apply for allotment of land in prescribed form. According to form of application, he is required to deposit development charges as price for allotment of land. He is having all the right including sale of land, subletting of land, mortgage, construction etc. From the above, it is very much clear that allotment of land by RIICO on lease hold basis is nothing but sale of land for a fixed number of years. Section 1941 of the Act covers only the lease/sublease agreement which are in the nature of renting agreement not transfer of ownership. Section 194-I covers the transaction which property is given for periodical payment for use in the capacity as tenant. Section 194-I does not cover the transaction of lease where ownership of property is transferred and property is used in the capacity of owner. 3. There are two system of sale of land one is on lease hold basis and second is on freehold basis. Sale of land on free hold basis is permanent transfer of ownership. In other words sale of land on free hold basis are permanent transfer ....
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....ent charges, economic rent & other charges. Payment of development charges is towards allotment of land i.e. purchase price of land on which none of the provision of chapter XVIIB apply. RIICO being public financial institution not subject to TDS under section 194A of the Act, hence payment of interest on development charges is also not liable for deduction of tax at source. Payment of economic rent is very minor and below the minimum limit prescribed for deduction of tax at source. Payment of economic rent is very minor and below the minimum limit prescribed for deduction of tax at source. In view of above none of payment made to RIICO is liable for deduction of tax at source." The AO was not satisfied with the reply submitted by the assessee, and in view thereof, has held as under :- "7. The RIICO has divided the lease-amount under different heads/nomenclature like development charges, interest on development charge, security money, economic rent etc. However, if we go into the nature of these charges, they are just bifurcation of 'lease rent' to be paid by the allottee to the RIICO. Mere giving different names to various heads of 'rent' or bi....
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.... ld. CIT (A) is as under :- "It is evident from the perusal of the aforesaid clauses of the lease agreement that the land was given to the assessee on lease and not transferred by way of sale. Under this lease agreement, appellant only acquired a right to use the land for a specific purpose and for a specified time. Assessee did not acquire any ownership rights on the said land. Though the assessee has to ay a sum of Rs. 6,05,70,034/- to RIICO on non refundable basis and capitalized the expenditure in its books of accounts, it would not change the nature of transaction. Since the appellant has acquired a benefit of enduring nature by getting the right to use the land on lease for 99 years, it has rightly capitalized the expenditure. Irrespective of the fact that the outgo was capital in nature, the issue is whether the development charges paid by assessee to RIICO will fall within the definition of "rent" as provided in Explanation to Sec. 194-I of the Act, which is reproduced as under :- "Explanation - For the purpose of this section, - (i) "rent" means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement....
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....cision of Hon'ble ITAT, Chennai in the case of Foxconn India Developer Pvt. Ltd. (2012) 53 SOT 13/(2012) 24 taxmann.com. 48. In this case, the assessee had taken on lease a land for a period of 99 years from "S" for which an amount of Rs. 28.41 core was paid as upfront charges for lease which was not refundable. As per the lease deed, the assessee also paid lease rent of Rs. 1 per year. AO held that upfront fees falls within the definition of "rent" u/s 194-I and therefore assessee was liable to deduct tax at source therefrom. Assessee claimed that the upfront fees was in the nature of sale consideration. On these facts Hon'ble Tribunal has held as under :- "9. What the assessee had paid to M/s. SIPCOT Ltd. was under a lease agreement. One of the arguments taken by learned A.R. was that the lease agreement was dated after the end of the relevant previous year and hence the payments made ought not be considered as pursuant to the lease agreement. However, in our opinion, this is not relevant. Reason being that payments were effected during the relevant previous year and it is an accepted position that such payments were for the lease of the land. So, the date of the....
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.... paid by assessee on the deferred/delayed payment of income tax. It was held by the Courts that such interest on deferred/delayed payment of tax was compensatory and hence was in the nature of tax only and can not be allowed as revenue expenditure. Interest paid u/s 234A, 234B and 234C are treated as tax only. The interest paid on deferred payment of development charges are covered by the exhaustive definition of "rent" given in Explanation to Sec. 194-I of the Act." 4. Now the assessee is before us. 5. The important question to be determined from the terms of the lease deed is whether payment of development charges paid was for acquisition of leasehold rights or for use of land. 5.1. 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 Thousand Forty-one Crore Forty One Lacs Seventy-three Thousand Six Hundred Only) paid by the lessee to the lessor as a premium and of the covenants and agreements on the part of the Lessee hereinafter contained, the Less....
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....derable period of 99 years which further supports the case of the assessee 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 development charges of Rs. 4,87,96,830/- along with interest has been paid in terms of the lease deed. 5.6. 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 price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. The transferor is call....
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....ing 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." 5.8. The Hon'ble Delhi High Court in the case of Bharat Steel Tubes Ltd. Vs CIT reported in (2001) 252 ITR 0622 has brought out the distinction between the lease premium and the rent by laying down broad principles relating to the term lease premium/salami. The said princ....
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.... (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 wasting nature of the assets under the lease. These broad principles were summarized by Calcutta High Court in Promode Ch. Roy Chowdhury vs. CIT (1962) 46 ITR 1064 (Cal) : TC 38R.1092. ....
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....at the MMRD in exercise of power u/s. 43 r.w. Sec. 37(1) of the Maharashtra Town Planning Act 1966, MRTP Act and other powers enabling the same has approved the proposal to modify regulation 4A(ii) and thereby increased the FSI of the entire 'G' Block of BKC. The Development Control Regulations for BKC specify the permissible FSI. 5.10. In the case of ITO (TDS) vs Navi Mumbai SEZ Pvt. Ltd. 147 ITD 0261 (Mum). Similar issue is held in favour of the assesee in similar consideration and the relevant decision in paras 19 and 20 is reproduced herein below :- "In the case before us, the assessee has entered in to lease agreements with CIDCO for acquisition of leasehold rights in the land to develop and operate the Special Economic Zone at Navi Mumbai. Assessee has paid premium for demised lease land. Thequestion before us is as to whether the said lease premium paid by the assessee to CIDCO to acquire leasehold rights for 60 years under the lease deed(s) is liable for deduction of tax at source being rent within the meaning of section 194-I of the Act or not. AO has stated that the said payment made by assessee under lease agreements qualifies for rent for the purpose....
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....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 Mumbai in the case of Mukund Ltd. (supra). The assessee acquired a land on lease for a period of 99 years from the Maharashtra Industrial Development Corporation (MIDC) and paid Rs. 2.04 crores as premium of leasehold land and apart from fixing annual rent at Rs. 1 per annum. The assessee claimed that the said premium on leasehold land is a revenue expenditure, which was disallowed by the Aa holding it as a capital in nature. Ld. CIT(A) held that the premium cannot be treated as capital expenditure as the assessee did not acquire ownership of land. It was held that it was an expenditure relatable to 99 years and should be allowed on proportionate basis. However, on further appeal to the Tribunal, the Tribunal held that the benefit conferred on the assessee on lease hold rights in 99 years against lump sum payment of the premium was of an enduring nature. It was held that there ....