No TDS for lease premium to acquire leasehold rights; ITAT Mumbai [Read Order]

interest - tds - taxscan

The Mumbai bench of Income Tax Appellate Tribunal has held that TDS is not mandatory for lease premium paid by the assessee to CIDCO to acquire leasehold rights for 60 years under the lease deed.

The respondent/assessee has paid lease premium to the City and Industrial Development Corporation of Maharashtra Ltd. (CIDCO) but no tax was deducted at source u/s 194I of the Act on payment of lease premium to CIDCO by the assessee.

The assessee submitted that CIDCO has used the terminology of lease premium because for the first 4 years from the date of lease agreement, the assessee has been given license and authority to enter upon the land for erecting a building for residential purposes and after completion of the construction of residential building within the time period, the agreement to lease provides that legal interest would be granted to the assessee whereby lease deed will be entered into by CIDCO with the assessee.

The assessee also submitted that the lease premium of Rs. 1,05,80,528/- is nothing but total consideration paid for the plot of land which the assessee has purchased as per the agreement to sell entered into with the CIDCO and duly registered in assessee’s name as per Index No. II. The lease period is 60 years with a yearly rent of Rs. 100/- would be entered into with CIDCO. Thus, it was submitted that the lease premium amount of Rs. 1,05,80,528/- is nothing but a sale consideration as per agreement to sell and Index No. II for acquiring leasehold rights for 60 years which is virtually an ownership and legal interest in the land in favor of the assessee. It was submitted by the assessee that Section 194I of the Act stipulate payment of rent for use of land , while in the instant case payment of Rs.1,05,80,528/- is made to CIDCO for acquiring legal interest in the land in favor of the assessee.

The Tribunal bench comprising of Judicial member C.N Prasad and Accountant Member Ramit Kochhar relied on the case of ITO v. Navi Mumbai SEZ Private Limited (2014) 147 ITD 261(Mum.Trib.) and observed that there is a transfer of substantive interest of lessor for the leasehold land in favor of the assessee. That there is the conferment of right on the lessee by acquiring leasehold land and the premium has been paid in lieu thereof and not for the purpose of use of land. The case cited by the ld. CIT(A) of Raja Bahadur Kamakshya Narain Singh of Ramgarh v. CIT [1943] 11 ITR 513 (PC) and the case of the Hon’ble Apex Court in the case of CIT v. Panbari Tea Co. Ltd. [1965] 57 ITR 422 (SC) squarely apply to the facts of the case before us that the lease premium paid by the assessee to CIDCO for acquiring leasehold land is capital expenditure to acquire capital asset and not for the use of land. Therefore, we agree with ld. AR that the lease premium paid by the assessee for acquiring leasehold land with a right to develop and market, NMSEZ, cannot be said to be an advance payment of rent. Accordingly, a premium paid by the assessee for acquiring leasehold land under the lease deed(s) entered into, although with restrictive covenants is a capital expenditure, and it does not fall within the ambit of rent under section 194-I of the Act.

Citing bunch of decisions, Tribunal has also observed that, the assessee cannot be held as an assessee in default u/s 201/201(1A) of the Income Tax Act and dismissed the appeal filed by the revenue.

Read the full text of the order below.

taxscan-loader