, , C ,
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "C", MUMBAI
Before Shri Shailendra Kumar Yadav, Judicial Member, and
Shri Ramit Kochar, Accountant Member
ITA Nos.2930/Mum/2014
Assessment Years : 2010-11
Income Tax Officer(TDS) 2(5) , M/s Progressive Civil Engineers
Room No. 703,Smt. K.G.Mittal Private Limited, Devrata ,
Hospital Building, Charni v. Piramal Towers,2nd Floor, Plot
Road(West) ,Mumbai-400 703 No. 83, Sect 17, Vashi, Navi
Mumbai 400 703
PAN AACPP0298C
TAN MUMP11572B
(Appellant) (Respondent)
/ Revenue By : Shri C.W.Angolkar
/Appellant By : Sh. Rajeev Waglay
Date of Hearing :21.10.2015 Date of Pronouncement : 23.10.2015
ORDER
Per Ramit Kochar, Accountant Member
This appeal has been filed by the Revenue against the order dated 7th
February 2014 passed by the Commissioner of Income Tax(Appeals)-14,
Mumbai,(Hereinafter called "the CIT(A)") for the assessment year 2010-11.
2. The effective grounds of appeal raised in this appeal by the Revenue in
memo of appeal filed are with respect to non-deduction of TDS u/s 194I of Income
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ITA Nos.2930/Mum/2014
Assessment Years : 2010-11
Tax Act,1961 (Hereinafter called "the Act") by the assessee company on the amount
paid to the lessor M/s City Industrial Development Corporation (Hereinafter called
"the CIDCO") as held by the assessing officer and the holding by CIT(A) that the
said amount paid was not in nature of rent covered u/s 194I of the Act and not
confirming the assessee company as an assessee in default u/s 201(1) of the Act for
failure to deduct and pay TDS and for levying interest u/s 201(1A) of the Act.
3.The Brief facts of the case are that during the course of survey u/s 133A of the
Act on 04.02.2011 in the case of the CIDCO ,it was found by Revenue that the
CIDCO had given plots to the assessee company on lease through tender against
which the assessee company has made payment by way of lease rent and other
sums termed as premium of Rs.1,38,12,158/- during the assessment year 2010-11
against which the assessee company has not deducted TDS on such lease premium
and ground rent paid to the CIDCO.
4. The assessing officer (Hereinafter called "the AO") issued notices u/s 201(1) and
201(1A) of the Act to the assessee company asking it to explain why sums paid
termed as premium/other sums should not be treated as lease rent falling under the
provisions of Section 194I of the Act and why the assessee should not be treated as
an assessee in default as per provisions of Section 201(1) and 201(1A) of the Act.
5. The assessee company submitted before AO that it has been allotted plot no 166
in Sector 27 of Belapuron on 5.5.2009 which is leased to the assessee company
under the provisions of Section 118 of Maharashtra Regional and Town Planning
Act,1966 by a Development Authority constituted by State Government namely the
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ITA Nos.2930/Mum/2014
Assessment Years : 2010-11
CIDCO which is fully owned by Maharashtra Government for the purpose of
development of new areas in the State of Maharashtra. The assessee company
submitted that these payments towards lease premium are to CIDCO which is an
agent of State Government and no TDS is applicable. The assessee has made
advance payment to CIDCO during the assessment year and formal agreement is
entered in May 2010 with CIDCO and till then these payments are in the nature of
security deposit and the assessee company is not liable to deduct TDS as per
provisions of the Act . The assessee company, without prejudice, submitted that till
the erection of building for residential purposes within a period of 4 years from the
date of agreement, the lease can not be executed and till that time the assessee
company shall be merely licensee only liable to pay rent and service charges to
CIDCO as if the lease has been executed and the Managing Director has power to
revoke the license and re-enter the land even if Town planning officer approve the
plans for construction. The assessee company submitted that the payee , CIDCO
has already paid taxes on the amounts received by CIDCO from the assessee
company and no prejudice has been caused to Revenue, such fact can be verified
by Revenue from CIDCO and hence the assessee company cannot be declared as
assessee in default vide CBDT Circular No. 275/201/95-IT(B) dated 29.1.2015 and
also by said proposition accepted by Hon'ble Apex Court in Hindustan Coca-Cola v.
CIT 293 ITR 226 (SC).
6. The AO rejected the contentions of the assessee company by relying on Section
194I of the Act and held that the said section 194I of the Act is of widest amplitude
and shall cover rent and lease in relation to any kind of property transactions be it
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Assessment Years : 2010-11
lease, sub-lease, tenancy or any other agreement or arrangement for use of land,
building, land appurtenant to a building ,machinery, plant, equipment , furniture ,
fittings whether or not any or all of these are owned by the payee . The AO held
that in the instant case , the CIDCO has given plot of land on lease basis for a
period of 60 years to the assessee company and the assessee company has paid
lease premium as per agreement with CIDCO. Thus, AO held that it is not the case
that the assessee company has acquired the land or acquired the rights in property
rather it is a clear cut case of lease arrangement whereby the lessee is paying to
the lessor prespecified lease premium for a lease which is for a substantially long
period running into 60 years which cannot change the inherent nature of the
transaction which is giving land on lease basis by the CIDCO and hence TDS is
deductible on the said payments. The agreement with CIDCO contains several
clauses restricting usage of land that even sign board and advertisements cannot
be put by the assessee company. Other restrictive clauses in the agreement relate
to not to excavate, not to erect 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 , restriction on change in the status of lessee , to use the premises
for purpose of commercial/office only. These restrictive clauses indicate that the
assesee company has not acquired any right of ownership in the plot but merely
right to use the land although the period is substantially long on which the assessee
company was liable to deduct TDS u/s 194I of the Act. Thus, the AO held that the
assessee company has paid Rs.1,38,12,158/- towards lease premium or cost of
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Assessment Years : 2010-11
additional FSI as consideration for use of land under the lease , the assessee has
committed default with in the meaning of Section 201(1) of the Act by not
deducting TDS u/s 194I of the Act and also the assessee company is also liable to
pay interest u/s 201(1A) of the Act.
7. Aggrieved by the orders of the AO, the assessee company filed first appeal with
the CIT(A) and reiterated its submissions as made before the AO. The assessee
company submitted that the assessee company executed lease agreements with
CIDCO, who also issued the letter of allotment which outlines the rights and
obligations of the lessee with regards to FSI , terms of lease for 60 years , water
and power connection , final demarcation plan, land use and predominant objective
for payment of lease premium is acquisition of long term holding rights in the plot of
land for constructing residential units with a right to sell the constructed area on
ownership basis which is towards bringing capital assets and hence there is no
question of deduction of TDS.
8. The CIT(A) held that the premium is paid to CIDCO for granting allotment of plot.
The amount paid is as per rates prevalent as per stamp duty ready reckoner and
payment for acquisition of land rights and not merely a payment of rent for use of
land. The CIT(A) held that the Mumbai Tribunal in Shah Group Builders Limited in
ITA No. 4523/Mum/2012 dated 14.08.2013 for assessment year 2008-09 has held
that lease premium paid to CIDCO not being in the nature of rent as contemplated
u/s 194I of the Act , the assessee is not liable to deduct TDS from said payments
and hence the assessee could not be treated as assessee in default. Taking similar
view as taken by Mumbai Tribunal in above case and the facts of the case, the
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ITA Nos.2930/Mum/2014
Assessment Years : 2010-11
CIT(A) allowed the appeal of the assessee and deleted the additions of
Rs.35,85,083/- made by the AO on accounts of defaults u/s 201(1) and 201(1A) of
the Act.
9. Aggrieved by the orders of CIT(A), the Revenue is in appeal before us.
10. The Ld. DR relied upon the orders of the AO and contended that the payment of
Rs.1,38,12,158/- has been made by the assessee company to CIDCO towards lease
premium for lease of plot for 60 years entered into by the assessee company with
CIDCO and no TDS is deducted while the said payment is duly covered under the
provisions of Section 194I of the Act and since assessee has not deducted TDS u/s
194I of the Act on payment of Rs.1,38,12,158/- to CIDCO towards lease premium,
the AO has rightly declared the assessee as `assessee in default' u/s 201(1) and
201(1A) of the Act and raised the demand against the assessee company.
11. The assessee company at the outset submitted that the payment of
Rs.1,38,12,158/- towards lease premium is made to CIDCO for acquiring the plot of
land which is for acquisition of capital asset being long term holding rights in the
plot. The assessee company reiterated its submissions as made before authorities
below. The assessee company relied upon the orders of CIT(A) and submitted that
one time payment of Rs. 1.38 crores has been made for acquiring long lease of plot
of land for 60 years. The assessee company relied upon the decision of Mumbai
Tribunal in DCIT v. Paradise Infra-con Private Limited in ITA No. 4592/Mum/2012
(2014) 40 CCH 0567 (Mum-Trib.), whereby Mumbai Tribunal has held that the lease
premium is capital expenditure to acquire land with substantial right to construct
7 Progressive Civil Engineers Private Limited
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Assessment Years : 2010-11
and could not be considered as rent to be covered u/s 194I of the Act and hence no
TDS is to be deducted on the same. The said judgment of Paradise Infra-con Private
Limited(supra) is reproduced hereunder:
"2. The main issue involved in this appeal is that, whether the learned
Commissioner (Appeals) has erred in law and on facts in holding that the
amount paid by the assessee to CIDCO (City and Industrial Development
Corporation), towards premium for acquiring lease hold rights is in the
nature of rent or not as defined in section 194I of the Act, and accordingly,
the assessee was not required to deduct the tax at source under section 194
I.
3. Before us, the learned Counsel for the assessee submitted that this
issue is covered by a series of decisions given by the Tribunal, Mumbai Bench,
in various cases, wherein it has been consistently been held that the amount
of premium in such cases to the Government authorities represents transfer
price of the land on lease hold basis and no part thereof falls within the
meaning of rent as contemplated under section 194I and, therefore, no TDS
is required to be deducted.
4. The learned Departmental Representative, on the other hand,
agreed that this issue has come up for consideration before the Tribunal in
various cases and the same has been decided in favour of the assessee.
However, on merits, he strongly relied upon the reasoning give in the order of
the Assessing Officer.
5. After carefully considering the relevant findings of the Assessing
Officer and the learned Commissioner (Appeals) as well as various decisions
relied upon by the assessee in ITO (TDS) v/s Wadhwa & Associates Realtors
8 Progressive Civil Engineers Private Limited
ITA Nos.2930/Mum/2014
Assessment Years : 2010-11
Pvt. Ltd., [2004] 146 ITR 694, and TRO v/s Shelton Infrastructures Pvt. Ltd.,
ITA no.5678/Mum./2012, order dated 19th May 2014, we find that the issue
involved herein before us is squarely covered by the decisions of the Tribunal.
In this case, the assessee has made payment amounting to Rs. 6,60,71,665, in
the financial year 200708 towards lease premium in respect of the plot of
land at New Panvel, Navi Mumbai, to CIDCO. Since the assessee had not
deducted tax at source on the amount of payment paid to the CIDCO, the
Assessing Officer held that the assessee is at default under section 201(1) and
is also liable to pay interest under section 201(1A). The Assessing Officer held
that the payment made towards lease premium was within the definition of
rent as stipulated under section 194I of the Act.
6. The learned Commissioner (Appeals), after considering the detail
submissions of the assessee and analyzing various decisions and also the
lease deed between the assessee and CIDCO, came to the conclusion that such
a payment cannot be treated as in the nature of rent within the meaning of
section 194I. The Tribunal in Shelton Infrastructures Pvt. Ltd. (supra), after
noting series of decisions of the Tribunal, decided the issue in favour of the
assessee and against the Revenue after observing and holding as under:
"6. We have heard the rival contentions and have perused the
various decisions of the Tribunal relied upon by the assessee. We
find that the Tribunal, Mumbai Bench, of the Tribunal has taken
a consistent view that such a payment of lease premium do not
fall within the realm of "rent" as contemplated in section 194I.
Therefore, the assessee is not liable for deducting the TDS on
such a payment. The main reason is that the lease premium is
capital expenditure to acquire land with substantial right to
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Assessment Years : 2010-11
construct and cover the building complex. For the sake of ready
reference, we are quoting the relevant observations and findings
of the Tribunal in ITO v/s Trent Ltd., ITA no.4629/Mum./2012,
order dated 21st August 2013, wherein the Tribunal observed
and held as under:
"7. We have heard the arguments of both the sides and also
perused the relevant material available on record. It is observed
that a similar issue involved in the case of Shree Naman Hotels
Pvt. & Shree Naman Developers Ltd. has been decided by the
Tribunal in favour of the assessee vide an order dated 14-08-
2013 passed in ITA No. 688 to 691/Mum/2012 by following the
decision of the co-ordinate Bench rendered in the case of M/s
Wadhwa & Associates Realtors Pvt. Ltd. vide order dated 3-7-
2013 passed in ITA No.695/Mum/2012. In the case of M/s
Wadhwa & Associates Realtors Pvt. Ltd. (supra), a similar issue
was decided by the Tribunal in favour of the assessee for the
following reasons given in para 9 to 10 of its order dated 3-7-
2013 (supra):-
"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
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Assessment Years : 2010-11
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-I 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 M/s. Paradise Infracon Pvt. Ltd. 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
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Assessment Years : 2010-11
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 M/s. National Stock
Exchange (supra) and Mukund Ltd (supra) have been well
discussed by the Ld. CIT(A) is his order. The decision of the
Honble Jurisdictional High Court in the case of Khimline
Pumps Ltd. (supra) squarely and directly apply on the
facts of the case wherein the Honble 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. 194I, 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".
8. As the issue involved in the present case as well as all the
material facts relevant thereto are similar to the case of
Wadhwa & Associates Realtors Pvt. Ltd. (supra) as well as Shree
Naman Hotels Pvt. Ltd. & Shree Naman Developers Ltd. (supra)
decided by the Tribunal, we respectfully follow the decisions
rendered in the said cases by the co-ordinate Bench of this
Tribunal and uphold the impugned order of the ld. CIT(A)
holding that the lease premium paid by the assessee to MMRDA
not being in the nature of rent as contemplated in section 194-I
of the Act, the assessee was not liable to deduct tax at source
from the said payment and hence could not be treated as the
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Assessment Years : 2010-11
assessee in default u/s 201(1) & 201(1A) of the Act. The appeal
filed by the Revenue is accordingly dismissed."
8. Thus, in view of the catena of decision, we hold that the impugned
payment on account of premium represents transfer price of the land
on lease hold basis and no part thereof qualifies to fall within the
meaning of "rent" as contemplated in section 194I and, therefore, no
deduction of tax at source is required. We, accordingly, confirm the
findings and conclusion of the learned Commissioner (Appeals) and
dismiss the grounds raised by the Revenue."
7. Thus, consistent with the view taken by the Tribunal, we also hold
that the payment made by the assessee to the CIDCO represent transfer
price of the land on lease hold basis and it cannot be contemplated as
rent within the meaning of section 194I. Accordingly, the order of the
learned Commissioner (Appeals) is affirmed on this score. Thus, the
ground raised by the Revenue stands dismissed.
8. In the result, Revenue's appeal is dismissed."
12. We have considered the rival contentions , perused the material on records and
the case law relied upon by the rival parties .We have observed that the assessee
company has made payment of Rs.1,38,12,158/- to CIDCO towards lease premium
for plot no 166 in Sector 27 of Belapuron on 5.5.2009 which is leased to the
assessee company by CIDCO for 60 years , which in our considered opinion is for
acquisition of capital asset being long term holding rights in the afore-stated plot.
The Mumbai Tribunal in DCIT v. Paradise Infra-con Private Limited in ITA No.
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ITA Nos.2930/Mum/2014
Assessment Years : 2010-11
4592/Mum/2012 (2014) 40 CCH 0567 (Mum-Tribunal) on identical facts has held
that the lease premium to CIDCO is capital expenditure to acquire land with
substantial right to construct and could not be considered as rent to be covered u/s
194I of the Act and hence no TDS is to be deducted on the same which we
Respectfully follow in the instant appeal as the facts are identical. In our considered
view, the payment of Rs.1,38,12,158/- made by the assessee company to CIDCO
towards lease premium for plot no 166 in Sector 27 of Belapuron on 5.5.2009 which
is leased to the assessee company by CIDCO for 60 years is for acquisition of capital
asset being long term holding rights with substantial right to construct in the afore-
stated plot and could not be considered as rent to be covered u/s 194I of the Act
and hence no TDS is to be deducted on the same. We hereby affirm the orders of
the CIT(A) deleting the additions of Rs.35,85,083/- made by the AO on accounts of
defaults u/s 201(1) and 201(1A) of the Act.We order accordingly.
13. Thus, the appeal of the Revenue is dismissed for reasons indicated above.
14. This Order is pronounced in the open court on this day of 23rd October 2015.
Sd/- Sd/-
(Shailendra Kumar Yadav) (Ramit Kochar)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated : 23.10.2015.
Pooja
Copy of the Order forwarded to :
1. The Appellant.
2. The Respondent.
3. The CIT(A), Mumbai.
4. The CIT
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ITA Nos.2930/Mum/2014
Assessment Years : 2010-11
5. The DR, `C' Bench, ITAT, Mumbai
BY ORDER,
//True Copy//
(Dy./Asstt. Registrar)
Income Tax Appellate Tribunal, Mumbai
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