Case Law Details
Revenue raised an appeal against the order of CIT (A) deleting the addition of Rs.35,85,083/- made by the assessing officer.
Brief of the case 6 to 8 lines
In the Case of Income Tax Officer (TDS) Vs. M/s Progressive Civil Engineers Private Limited, ITAT Mumbai held that Lease Premium payment made to CIDCO is to acquire capital asset being long term holding rights along with right to construct and therefore it is capital expenditure in nature. Thus, same cannot be treated as rent under the preview of Section 194I of the Income Tax Act, 1961.
Facts of the case
a. CIDCO (M/s City Industrial Development Corporation) allotted a plot No. 166 in sector 27 of Belapuron on 5.5.2009 under the provision or rules prevailing in the state for a period of 60 years. During the assessment year 2010-11, company paid a sum of Rs. 1,38,12,158/- to CIDCO as Lease Premium.
b. During the course of search u/s 133A of the Act, revenue observed this transaction and ask assessee Company, “why said amount should not be treated as lease rent failing under the preview of Section 194 I of the Act”.
c. Assessing officer after the review of agreement with CIDCO concluded that the assessee company has not acquired any right of ownership in the plot but merely having a right to use the land. Therefore in spite of such longer period, company is liable to deduct tax u/s 194I of the Act, made an addition of Rs.35,85,083/- and declared company as assessee in default.
d. Aggrieved Assessee company took the matter to CIT (A) and CIT (A) deleted the addition made by the assessing officer
Contention of Revenue
Section194I has widest range and covers rent and lease arrangement for use of land, land appurtenant to a building, machinery, plant, equipment, furniture and fittings. After studying, the agreements entered between assessee and CIDCO, revenue made following observation and conclude that this transaction is eligible under section 194I of the Act.
i) There are certain restrictive clause with respect to the usage of land like not placing the sign board and advertisement , erection beyond the building line, sanitation, alteration, to repair , to enter and inspect, not to create nuisance, not to assign, transfer or otherwise dispose off the land without the prior approval of the Metropolitan commissioner.
ii) There is restriction on change in the status of lessee, to use the premises for the purpose of commercial office only.
iii) These restrictive clauses, indicates that the assessee company has not acquired any right of ownership in the plot but merely got the right to use the plot. Therefore same is covered under section 194I of the Act.
Contention of Assessee
1. In the first appeal to CIT (A), assessee contended that CIDCO has issued him letter of allotment, which clearly states that main motive for payment of lease premium is used that plot and construct residential unit as well as right to sell the constructed area on ownership basis. Therefore this transaction is capital in nature and not eligible for TDS.
2.Payment to CIDCO is not eligible for TDS because CIDCO is an agent of state Government. CIDCO had paid taxes on its income and revenue is not any loss.
3. Further reliance is made on the following case laws :-
a. DCIT vs. Paradise Infra – Con Private Limited in ITA No. 4592/Mum/2012-(2014) 40 CCH 0567 (Mum – Trib.)
b. ITO (TDS) V/s Wadhwa & Associates Realtors Pvt. Ltd. [2004] 146 ITR 694
c. TRO V/s Shelton Infrastructures Private Limited, ITA No. 5678/Mum/2012 order dt 19th May 2014
d. Shree Naman Hotel Pvt. & Shree Naman Developers Ltd, ITA No.688 to 691/Mum/2012
e. Khimline Pumps Limited (supra)
Common Rulings
Lease premium is capital expenditure to acquire land with substantial right to construct and company is not responsible for deduction of tax, hence it cannot be declared as assessee in default.
Held by the CIT (A)
In first round of litigation CIT (A) concludes that amount paid to CIDCO is for allotment of plot in support of it stamp duty was also paid. Therefore lease premium is for the acquisition of the plot and not solely for right to use. Further reliance on following case was made by CIT(A) and deleted the addition made by the assessing officer.
Shah Group Builders Limited in ITA No. 4523/Mum/2012 dt 14.08.2013 for AYr. 2008-09
In this case it was held that :-
a. Lease premium paid to CIDCO not being in the nature of rent as stated in Section 194I
b. Assessee is not liable to deduct TDS from said payments and hence the assesse could not be treated as assessee in default.
Held by the Tribunal
ITAT after hearing the contention of both parties, held that addition made by assessing officer is not correct as payment made to CIDCO towards lease premium is for acquisition of capital asset. Further tribunal made its reliance on the ruling of Mumbai Tribunal in DCIT vs. Paradise Infra Con Private Limited in ITA No. 4592/Mum/2012 -2014 40 CCH 0567 (Mum-Tribunal) due to identical facts. In this particular case it is stated that the lease premium to CIDCO is capital expenditure i.e for acquisition for plot and same is not covered under the provision of section 194I.
Therefore, Appeal of Revenue is dismissed by the ITAT.
