Brief of the case:
In the case of ACIT vs. OBC, Mumbai Bench of ITAT observed that the amount paid by the assessee bank (the lessee) to City Industrial Development Corporation (MMRDA) (Lessor) was in the nature of rent as defined u/s 194I of the Act or not, which held yes by CIT (A). ITAT observed the finding of the decision of ITAT Mumbai in case of Navi Mumbai SEZ Pvt. Ltd. vs Income Tax (ITA No.738 to 741/Mum/2012) in detail and held that the provisions of section 194-I are not applicable to the facts of the present appeal to deduct TDS on the lease premium paid by the assessee. Hon’ble ITAT found that the payment to MMRDA is for additional built up area and also for granting fee of FSI and such payments cannot be equated to rent.
Observations made in the case of Nvi Mumbai SEZ Pvt. Ltd. (Supra).
In the deciding the above case tribunal mainly observed the findings of its co-ordinate bench in the case of Navi Mumbai SEZ Pvt. Ltd. (Supra). Hence, it is necessary to go through the findings and observation of this case, which are as following:
- The main fact is that assessee has paid lease premium in huge amounts in different AYs to CIDCO in order to acquire various lands lying at Navi Mumbai from CIDCO on lease basis.
- As per Development Agreement between the assessee and CIDCO, the assessee is required to make payment of lease premium in respect of the land which is being acquired by CIDCO and being allotted to the assessee from time to time.
- In respect of above payments made by assessee to CIDCO towards lease premium, the AO stated that no deduction of TDS has been made by assessee for any of such payments. That payments/crediting of lease premium falls within the ambit of section 194-I of the Act.
- On behalf of the assessee it was submitted that pre- dominant objective for the payment of lease premium under lease deed(s) is acquisition of leasehold rights in the said leasehold land and not for the use of the land.
- It was contended on behalf of assessee that rent as defined in section 194- I of the Act, envisages such payments only for use of land or building, without there being any corresponding acquisition of larger rights in the said leasehold plots. Hence, the lease premium paid to CIDCO Ltd. for acquisition of leasehold land is clearly distinct from rent.
- On behalf of assessee, a reference was made to section 105 of the Transfer of Property Act, 1882 and submitted that rent is defined to mean money paid periodically or on specified occasion to the transferor of land.
- Reliance was placed on the decision of the Hon’ble Apex Court in the case of A.R.Krishnamurthy V/s CIT (176 ITR 417) where it was submitted that there is a difference between rent and premium and if what is paid is the cost of acquisition of right in a property known as leasehold right, it is not rent but a premium which is a capital for the recipient.
- AO contended that definition of “rent” creates a legal fiction, whereby almost anything and everything payment in relation to the property under lease transactions qualify for rent for the purposes of Section 194-I of the Act. Hence lease premium partakes of the character of rent.
- AO has further stated that there are various restrictive clauses in the lease agreement which negates the assessee’s contention that it has acquired rights in the land and not merely the rights to use the land.
- AO relied upon the decision of the Hon’ble Andhra Pradesh High Court in the case of Krishna Oberoi V/s Union of India 123 Taxmann 709 where it was held that the lease premium paid by the assessee is in the character of rent as per extended definition contained under section 194-I of the Act.
- Being aggrieved from the addition assessee filed appeal before CIT(A) who held that
a. various clauses of lease agreement are standard regulatory clauses which do not affect leasehold right of the assessee in any manner.
b. They are only regulatory in nature and are meant for the purpose of proper development of the area. Such restriction would be imposed by the local authority while granting permission for construction of building even in the case of freehold ownership.
c. Hence, the amount paid by the assessee is lease premium for acquiring leasehold rights in respect of lease land and the same is not in the nature of rent as contemplated u/s 194-I of the Act.
Held by ITAT on Further Appeal
- There is a transfer of substantive interest of lessor for the leasehold land in favour of the assessee. That there is a 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.
- Similar issue has also been considered recently by the Mumbai Bench of Tribunal vide order dated 3.7.2013 in the case of M/s Wadhwa and Associates Realtors Pvt Ltd. [(2013) 36 taxman.com 526 (Mumbai Trib.)] and the Tribunal vide para 5 of the said order has held that the ld. CIT(A) is justified to hold that the whole transaction towards grant of leasehold transaction right to the assessee is nothing but a transaction of transfer of property and the lease premium is the consideration for the purchase of said leasehold rights.
- Similar issue has come up before the Delhi Bench of the Tribunal in the case of The Indian News Papers Society [144 ITD 668 (Del)] and the Tribunal has held that the lease premium paid by the assessee to MMRDA does not fall under section 194-I of the Act and therefore the provisions of section 201(1) of the Act does not apply because the said lease premium was capital expenditure to acquire land on lease with substantial right to construct and cover the building complex.