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ACIT vs. Oil and Natural Gas Corporation Ltd (ITAT Mumbai)
December, 15th 2014

S. 194-I: Lease premium and additional Floor Space Index (FSI) charges paid to MMRDA is not "rent" for TDS

It is the real nature of the arrangement or transaction, and not merely the words or phrases employed, even as cautioned by the apex court in Panbari Tea Co. Ltd. (supra), i.e., the substance of the transaction, that is relevant and paramount. The amount charged by MMRDA as lease premium is equal to the rate prevailing as per the stamp duty ready reckoner for the acquisition of commercial premises. There is no provision in the lease agreement for termination of the lease at the instance of the lessee and, hence, for refund of lease premium under regular circumstances.

Even the additional floor space index (FSI), given for additional space, is as per the ready reckoner rate only. The whole transaction is thus for grant of leasehold rights, and only a transfer of property; the lease premium being the consideration for the leasehold rights, which comprise a bundle of rights, including the right of possession, exploitation and its’ long term enjoyment. The charges for FSI also partake the character of a capital asset in the form of Transferable Development Rights (TDRs), so that the owner (of land) had transferred the rights of development and exploitation of land, which are again capital in nature. The restrictive convents toward excavation seek to retain the right of the State to any minerals from land.

Excavation is permitted for the purpose of construction of the foundation of the building, or for executing any work in pursuance of the terms of lease. Similarly, restriction with regard to erection beyond building line was only in conformity with DC Rules, civil aviation rules, BMC and coastal regulations, etc., i.e., are regulatory, and do not define the character of the transaction per se. The same in fact would apply, i.e., be imposed by a local authority while granting permission for construction on freehold land. The tribunal has in fact taken a consistent view for similar transactions with MMRD Ltd., CIDCO Ltd in ITO vs. Naman BKC CHS Ltd. (in ITA Nos. 708 & 709/Mum/2012 dated 12.09.2013) and TRO vs. Shelton Infrastructure Pvt. Ltd. (in ITA No. 5678/Mum/2012 dated 19.05.2014). The decisions relied upon by the A.O. stand also distinguished by the tribunal, as in ITO vs. Dhirendra Ramji Vora (in ITA No.3179/Mum/2012 dated 09.04.2014) and Naman BKC CHS Ltd. (supra).

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