One-Time Non-Refundable Upfront Charges paid for Acquisition of Leasehold Right not subject to TDS: ITAT follows CBDT Circular [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the one-time non-refundable upfront charges paid for the acquisition of the leasehold rights are not ‘rent’ for the purpose of TDS under Section 194I of the Income Tax Act, 1961.

The assessee had purchased land from UPSIDC which was a lease hold land taken for 99 years from farmers. Assessee has paid one-time lease premium to UPSIDC and 1% of the cost of the land purchased by UPSIDC was treated as lease rent. Entire purchase of land has treated as stock-in-trade and it was contended by the assessee that same should not be treated as rent. However, the Assessing Officer treated the assessee as ‘Assessee-in-Default’ for not deducting TDS from the above said amount.

On second appeal, the Tribunal noted that the UPSIDC had submitted its account where it has duly confirmed that the amount paid by the assessee has been credited in the statement of P&L account and income tax has been paid thereon on the taxable profit.

“The entire account has been credited to the head ‘Lease Rent Received Account’. Once that is so, then in view of the proviso to Section 201 which came into effect from 01.07.2012, then assessee cannot be held as ‘assessee-in-default’,” the Tribunal said.

The Tribunal further noted that the CBDT Circular No.35 of 2016 said that one-time non-refundable upfront charges paid by the assessee for acquisition of leasehold rights over an immovable property cannot be constituted as rental income and assessee is not obliged to deduct tax at source under section 194I.

“Thus, on this ground alone assessee cannot be treated as ‘assessee-in-default’ u/s. 201(1),” the Tribunal said.

Relying on the CBDT circular, the Tribunal held that “From the aforesaid circular, it is absolutely clear from the CBDT circular that such a one-time non-refundable upfront charge paid by the assessee for acquisition of leasehold right or lump sum payment of lease premium for acquisition of over an immovable property for 99 years, no TDS is required to be deducted u/s.194-I. Thus, in view of the CBDT Circular and also the fact that the deductee has shown the amount paid as income and also paid taxes thereon, therefore, the assessee cannot be treated as ‘assessee-in-default’ and consequently, no interest u/s.201(1A) can be charged. Accordingly, Revenue’s appeal is dismissed.”