No TDS on Premium paid for a limited period for Acquisition of Leasehold Rights: SC [Read Judgment]

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The Supreme Court last week held that the amounts paid as part of the lease premium or biannual or annual payments for a limited/specific period towards the acquisition of leasehold rights are not subject to TDS, as the same amount to capital payments.

Earlier, on a writ petition filed by group of petitioners engaged in developing, constructing and selling residential units, plots and flats, the division bench of the Delhi High Court held that, Tax deduction at Source (TDS) need not be required for the payments of Lease Rent / Interest / Other payments for Acquisition of a Plot on Lease.

In the instant case, each of the petitioners entered into a long-term 90 years lease with the Greater Noida Industrial Development Authority (GNOIDA) for development and sale of land in various housing colonies. In terms of the lease deed entered into with the lessor, the petitioner paid upfront consideration and the balance was payable in terms of annual installments according to the terms and conditions of the lease deed.

The department sent notices to the petitioners under Sections 201 /201 (lA) of the Income Tax Act, 1961 for non-deduction and non-payment of TDS required to be deducted from the payments of lease rent/interest/other payments for acquisition of a plot of land on 90 years lease from NOIDA for the periods mentioned.

After going through the circular dated 30.01.1995, the bench comprising Justice A K Sikri and Justice Ashok Bhushan held circular was issued on the strength of Section 10(20A) and Section 10(20) as it existed at the relevant time. Section 10(20) has been amended by Finance Act, 2002 by adding an explanation and further Section 10(20A) has been omitted w.e.f. 01.04.2003.

Upholding the Delhi High Court order, the bench said that “the very basis of the circular has been knocked out by the amendments made by Finance Act, 2002. Thus, the Circular cannot be relied on by Noida/Greater Noida to contend that there is no requirement of deduction of tax at source under Section 194-I. Thus, deduction at source is on payment of rent under Section 194I, which is clearly the statutory liability of the respondent-company.”

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