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Citation Codes
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Case Number
Advocates
  • Pavan Ved
Judges
  • H.L. KARWAN.K. BILLAIYA
Acts
  • Sec. 37(1) of the Maharashtra Town Planning Act 1966, MRTP Act
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • Pavan Ved
Judges
  • H.L. KARWAN.K. BILLAIYA
Acts
  • Sec. 37(1) of the Maharashtra Town Planning Act 1966, MRTP Act
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Smart Summary

Structured Summary of the Tribunal Order

Factual and Procedural Background

This appeal by the Revenue and the cross objection by the assessee were directed against the order of the Learned CIT(A)-14, Mumbai dated 21.11.2011 for Assessment Year 2008-09. The Assessing Officer (AO) passed an assessment order dated 29.03.2011 under sections 201(1) and 201(1A) of the Income-tax Act. During the year under consideration the assessee paid approximately Rs. 949.92 crores as lease premium to M/s. MMRDA Ltd. for allotment of plot C-59, 'G' Block, Bandra Kurla Complex, Mumbai, and for additional FSI (built-up area) in respect of that plot. The AO held that tax was required to be deducted at source under section 194-I on these payments, issued a show cause notice dated 21.02.2011, and, finding failure to deduct TDS, treated the assessee as an assessee-in-default and raised a demand (interest plus TDS) totaling Rs. 314.26 crores. The assessee contended before the AO and on appeal to the CIT(A) that the payments were not "rent" within the meaning of section 194-I but were consideration for acquisition of leasehold rights and for additional built-up area / free FSI.

Legal Issues Presented

  1. Whether the payment characterized as "lease premium" (including payment for additional built-up area and free FSI) payable to M/s. MMRDA Ltd. is "rent" within the meaning of section 194-I of the Income-tax Act and hence liable to deduction of tax at source.
  2. Whether, if such payments were required to have tax deducted at source and the assessee failed to do so, the assessee is to be treated as an assessee-in-default under sections 201(1) and 201(1A).

Arguments of the Parties

Revenue / Assessing Officer

  • The AO considered that the payments to MMRDA constituted rent within the meaning of section 194-I and thus required deduction of tax at source.
  • On the assessee's failure to deduct tax, the AO issued a show cause notice and held the assessee to be an assessee-in-default, raising a demand (interest plus TDS) amounting to approximately Rs. 314.26 crores.

Assessee

  • The assessee submitted that the payments were not periodic rent but were lease premium paid as consideration for acquiring leasehold rights (a capital nature transaction).
  • The assessee also stated that part of the payment was for additional built-up area and for granting free FSI area (noted as Rs. 4 crores in the record), and therefore these payments could not be equated with rent under section 194-I.

Representations before the Tribunal

  • The Learned Departmental Representative supported the AO's findings.
  • The assessee's senior counsel reiterated the submissions made before the lower authorities.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Raja Bahadur Kamakshya Narain Singh of Ramgarh v. CIT [1943] 11 ITR 513 (PC) Held that payments exigible under a lease may be classified in categories and that lump-sum "salami" payments are properly treated as capital receipts—single payment for acquisition of lessee's rights. The CIT(A) relied on this decision to support the proposition that lump-sum lease premium (salami) has characteristics of capital payment and is not in the nature of periodic rent.
Board of Agricultural Income-tax v. Sindhurani Chaudhurani [1957] 32 ITR 169 (SC) Held that a lump-sum payment (salami) by a prospective tenant made prior to constitution of landlord-tenant relationship is not "rent" and is capital in nature. The CIT(A) and the Tribunal cited this authority to reinforce that lump-sum premium paid anterior to the lease cannot be equated with "rent" for the purposes of section 194-I.
CIT v. Khimline Pumps Ltd. [2002] 258 ITR 459 / 125 Taxman 104 (Bom.) Held that an amount paid for acquisition of leasehold land was a capital expenditure. The Tribunal found this decision of the Jurisdictional High Court to squarely and directly apply to the facts of the present case and treated it as supporting the conclusion that the premium was capital in nature.
Jt. CIT v. Mukund Ltd. [2007] 13 SOT 558 (Mum.)(SB) The Special Bench considered whether the premium paid for acquiring leasehold right in land was revenue or capital and held it to be capital expenditure. The CIT(A) discussed this Special Bench decision and the Tribunal treated it as supportive authority that lease premium for acquiring leasehold rights is capital expenditure and not "rent".
Decisions of the Tribunal in the case of National Stock Exchange of India Ltd. (various ITA Nos.) The Tribunal decisions held that consideration paid for acquiring leasehold rights in land was capital expenditure and not "rent". The CIT(A) prepared a comparative chart and concluded that the facts in the National Stock Exchange matters were identical to the assessee's case; the Tribunal accepted that comparison and treated the NSE decisions as supporting the conclusion that the payments were capital in nature.

Court's Reasoning and Analysis

The Tribunal undertook a fact-focused examination of the lease deed (exhibited pages 1–42 of the Paper Book) and the nature of the transaction. The analytical steps and legal application were as follows:

  1. Documentary reading of the lease deed showed that the so-called "premium" was paid as a price for obtaining the lease and preceded the grant of the lease; it was not a periodic payment made in exchange for continued use. On that basis the Tribunal concluded the payment could not be equated with periodic "rent."
  2. The Tribunal noted that part of the payment was for additional built-up area and for grant of free FSI area; such payments were related to acquisition/purchase of additional development rights rather than periodic consideration for use.
  3. The Tribunal observed that the MMRDA had exercised powers under the Maharashtra Town Planning Act (referenced as section 37(1) and related provisions) to modify regulations and increase permitted FSI for the 'G' Block of BKC; pursuant to these modifications the assessee became entitled to additional FSI and acquired that built-up area, which reinforced the conclusion that the payments were for acquisition of development/leasehold rights.
  4. The Tribunal reviewed authorities relied upon by both sides. It agreed with the CIT(A)'s reasoning that the cases cited by the AO did not decide the specific question whether a lump-sum lease premium, paid as consideration for leasehold rights and additional FSI, was "advance rent" for the purpose of section 194-I; those cases were distinguished on facts. Conversely, the Tribunal found that the decisions in Khimline Pumps Ltd., Mukund Ltd. (SB), and the National Stock Exchange cases supported the assessee's position that such payments are capital in nature.
  5. Applying the legal principle that lump-sum payments which effect acquisition of proprietary/leasehold rights are capital receipts/expenditure (and not periodic rent), and having regard to the documentary lease deed and comparative precedents, the Tribunal confirmed the CIT(A)'s conclusion that the payments were not "rent" as contemplated under section 194-I.

Holding and Implications

HOLDING: The Revenue's appeal is DISMISSED. The Tribunal confirmed the CIT(A)'s conclusion that the payments made by the assessee to M/s. MMRDA Ltd. were lease premium for acquiring leasehold rights and additional FSI and were not in the nature of "rent" liable to deduction of tax at source under section 194-I. Consequently, the demand raised by the AO (u/s. 201(1)/201(1A)) was deleted.

Implications:

  • Direct effect on the parties: The demand of the AO (interest and TDS totaling approximately Rs. 314.26 crores) was deleted; the assessee was held not to be required to deduct tax at source under section 194-I for these payments.
  • Cross-objection: Because the Tribunal decided the Revenue's appeal in favor of the assessee, the assessee's cross-objection was rendered otiose and was dismissed.
  • Precedential scope: The Tribunal applied and relied on existing decisions (including the Jurisdictional High Court and Tribunal Special Bench decisions) to reach its conclusion. The order confirms and follows the cited authorities on the characterisation of lump-sum lease premium and acquisition payments as capital in nature; the text does not indicate that the Tribunal sought to create any new legal principle beyond these applications.

Order delivered by the Bench: the appeal filed by the Revenue (ITA No. 695/M/2012) was dismissed and the cross-objection (C.O. No. 06/Mum/2013) was dismissed as otiose. (Bench notation: SB)

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    Income-tax Officer (TDS) -3(5) v. Wadhwa & Associates Realtors (P.) Ltd.

    ORDER

    N.K. Billaiya, Accountant Member - This appeal by the Revenue and the cross objection by the assessee are directed against the very same order of the Ld. CIT(A)-14, Mumbai dt.21.11.2011 pertaining to A.Y. 2008-09.

    2. The Revenue has raised as many as 12 grounds. The sum and substance of the grievance of the Revenue is that the Ld. CIT(A) erred in law as well as on facts in holding that the provisions of Sec. 194-I are not applicable on the facts of the case.

    3. The impugned assessment order is dt. 29.3.2011 passed u/s. 201(1) and 201(1A) of the Act. The facts of the case show that the assessee has made payment of lease premium to M/s. MMRD Ltd. amounting to Rs. 949.92 crores approximately during the year under consideration. This lease premium was paid for allotment of a plot of land namely C-59 in 'G' Block of Bandra Kurla Complex, Bandra (E), Mumbai as per lease deed dt. 22.11.2004 and also for additional FSI in respect of the said plot. The AO was of the firm belief that the assessee was liable to deduct tax as per provisions of Sec. 194-I of the Act in respect of the aforesaid payment to MMRD Ltd and as the assessee has failed to deduct tax at source, the AO issued show cause notice dt. 21.2.2011 to the assessee. The assessee explained that it has entered into a lease agreement with M/s. MMRD on 22.11.2004. The land under question has been given by the lesser i.e. MMRD to the assessee on lease and for which the assessee has paid the premium amounting to Rs. 949.91 crores approximately.

    3.1 After considering the submissions made by the assessee in the light of certain judicial decisions, the AO arrived at the conclusion that the assessee was required to deduct tax u/s. 194-I and pay it to the Government treasury within the stipulated time as required by provisions of Chapter XVII-B of the I.T. Act and as the assessee has not complied with the provisions of Sec. 194-I, it has committed default within the meaning of Sec. 201(1) of the Act and therefore, the assessee is treated as assessee in default and accordingly directed the assessee to make payment of interest alongwith TDS totaling to Rs. 314.26 crores.

    4. The assessee carried the matter before the Ld. CIT(A). The assessee explained that the payment referred by the AO does not bear the character of rent mentioned in Sec. 194-I and therefore there is no requirement of deduction of tax from such payment made to MMRD. It was further explained that the assessee has made payment to MMRD for

  • (a) For additional built-up area
  • (b) For granting free of FSI area of Rs. 4 crores.

    • 5. After considering the facts and the submissions and the nature of transaction, the Ld. CIT(A) observed that the amount charged by MMRD as lease premium is equal to the rate prevalent as per Stamp Duty recovery for acquisition of the commercial premises. These rates are prescribed for transfer of property and not for the use as let out tenanted property. The Ld. CIT(A) further observed that even the additional FSI given for additional charges as per Ready Reckoner rates only. It is the finding of the Ld. CIT(A) that the whole transaction towards grant of leasehold transaction rights to the assessee is nothing but a transaction of transfer of property and the lease premium is the consideration for the purchase of the said leasehold rights. The ld. CIT(A) went on to discuss the judicial decisions relied upon by the AO of Hon'ble Calcutta and Karnataka High Court and observed that both the decisions pertain to the same issue i.e. whether lease premium was a revenue or a capital expenditure. The ld. CIT(A) also discussed the decision in the case of Raja Bahadur Kamakshya Narain Singh of Ramgarh v. CIT [1943] 11 ITR 513 (PC) wherein it has been held that the payment which under the lease is exigible by the lesser may be classed under 3 categories (1) Premium or salary (2) the minimum royalty and (3) the royalty per ton . The salamy have been rightly treated as capital receipt. It is a single payment made for the acquisition of the right of the lessees to enjoy the benefits granted both by the lease. The Ld. CIT(A) has also considered the decision of the Hon'ble Supreme Court in the case of Member for the Board of Agricultural Income-tax v. Sindhurani Chaudhurani [1957] 32 ITR 169 (SC) wherein it has been held that Salami is in the form of a lump sum non recurring payment made by a prospective tenant to the landlord as a consideration and is paid anterior to the constitution of relationship of landlord and tenant, it is not "rent" within the meaning of the word used in the definition of "agricultural income" in section 291)(a) of the I.T. Act. It has all the characteristics of a capital payment and it is not revenue. The Ld. CIT(A) further discussed certain other judicial decisions and in particular the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Khimline Pumps Ltd. [2002] 258 ITR 459/125 Taxman 104 (Bom.) wherein the Hon'ble Jurisdictional High Court has held that an amount of Rs. 45 lakhs paid by the assessee to M/s. APVE Ltd., for acquisition of leasehold land was a capital expenditure and hence the same was not deductible. The Ld. CIT(A) has further considered the decision of the Special Bench of Mumbai Tribunal in the case of Jt. CIT v. Mukund Ltd. [2007] 13 SOT 558 (Mum.)(SB) wherein the issue was whether the premium paid for acquiring leasehold right in land is revenue or capital . The Special Bench has held that the same is capital expenditure.

    5.2 The Ld. CIT(A) has distinguished the facts of the cases relied upon by the AO at page-53 para 5.39 of his order and after distinguishing the cases came to the conclusion that in none of these cases, the issue of 'lease premium as in the case of the assessee vis-à-vis 'rent' has been considered. At para 5.41 of his order at page-54, the Ld. CIT(A) says that—

    "I have also considered the other cases relied upon the AO. These cases lay down general principles of interpretation of Law. I find that none of the above cases the court has held that the lease premium in similar circumstances is in the nature of advance rent and hence liable for deduction of TDS u/s. 1941 of the Act. The cases relied upon by the AO are thus distinguishable on facts and in law and the same cannot be made applicable to the facts of the present case where the issue raised is completely different."

    5.3 The Ld. CIT(A) finally considered the decision of the Tribunal in the case of National Stock Exchange of India Ltd. in ITA Nos. 1955/M/99, 2181/M/99, 4853/M/04, 4485/M/04, 4854/M/04, 356/M/01and 5850/M/00. At para 5.45 of his order on page 57, the Ld. CIT(A) has given a comparative chart of the facts in the case of the assessee and that in the case of NSE and after comparing the facts finally concluded that the facts of the case of the NSE are identical to the facts of the case of the assessee and observed that in the case of NSE, the stand of the department as well as the decision of the Tribunal was that the consideration paid for acquiring leasehold rights in land is a capital expenditure and not 'rent'.

    5.4 The Ld. CIT(A) finally concluded that the amount paid by the assessee is lease premium for acquiring leasehold rights and additional FSI in respect of the leased plot and the same is not in the nature of rent as contemplated u/s. 194-1 of the Act. Accordingly, the assessee was not required to deduct tax at source u/s. 194-1 of the Act and deleted the demand raised by the assessee.

    6. Aggrieved by this finding of the Ld. CIT(A), Revenue is before us.

    7. The Ld. Departmental Representative strongly supported the findings of the AO.

    8. The Ld. Senior Ld. Counsel for the assessee reiterated what has been stated before the lower authorities.

    9. We have considered the rival submissions, perused the order of the lower authorities and the material evidence brought on record in the form of paper Book and the judicial decisions relied upon by the rival parties. The entire grievance revolves around the premium paid by the assessee to M/s. MMRDA Ltd. for the leasehold rights acquired by the assessee through the lease deed dt. 22nd November, 2004. It is the say of the Revenue that this lease premium was liable for deduction of tax at source failing which the assessee is to be treated as assessee in default. It is the say of the assessee that such lease premium is in the nature of capital expenditure and therefore there is no question of deduction of tax at source. Further, the said lease premium does not come within the purview of the definition of rent as provided u/s. 194-1 of the Act.

    10. We have carefully perused the lease deed as exhibited from page-1 to 42 of the Paper Book. A careful reading of the said lease deed transpires that the premium is not paid under a lease but is paid as a price for obtaining the lease, hence it precedes the grant of lease. Therefore, by any stretch of imagination, it cannot be equated with the rent which is paid periodically. A perusal of the records further show that the payment to MMRD is also for additional built up are and also for granting free of FSI area, such payment cannot be equated to rent. It is also seen that the MMRD in exercise of power u/s. 43 r.w. Sec. 37(1) of the Maharashtra Town Planning Act 1966, MRTP Act and other powers enabling the same has approved the proposal to modify regulation 4A(ii) and thereby increased the FSI of the entire 'G' Block of BKC. The Development Control Regulations for BKC specify the permissible FSI. Pursuant to such provisions, the assessee became entitled for additional FSI and has further acquired/purchased the additional built up area for construction of additional area on the aforesaid plot. Thus the assessee has made payment to MMRD under Development Control for acquiring leasehold land and additional built up area. The decisions of the Tribunal in the case of National Stock Exchange (supra) and Mukund Ltd. (supra) have been well discussed by the Ld. CIT(A) is his order. The decision of the Hon'ble Jurisdictional High Court in the case of Khimline Pumps Ltd. (supra) squarely and directly apply on the facts of the case wherein the Hon'ble Jurisdictional High Court has held that payment for acquiring leasehold land is a capital expenditure. Considering the entire facts in totality in the light of the judicial decisions vis-à-vis provisions of Sec. 194-1, definition of rent as provided under the said provision, we do not find any reason to tamper or interfere with the findings of the Ld. CIT(A) which we confirm.

    11. In the result, the appeal filed by the Revenue is dismissed.

    C.O. No. 06/Mum/2013

    12-13. As we have decided that the assessee is not liable to deduct tax at source in Revenue's appeal in ITA No. 695/M/2012, the cross objection raised by the assessee become otiose.

    14. In the result, the appeal filed by the Revenue and the cross objection filed by the assessee are dismissed.

    SB

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    Comments

    Income-tax Officer (TDS) -3(5) v. Wadhwa & Associates Realtors (P.) Ltd.
    (Jul 3, 2013)