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No TDS for long-term property lease premium, says Mumbais Income-tax Appellate Tribunal
January, 10th 2019

In a huge relief to corporates in Mumbai’s Bandra Kurla Complex (BKC), Mumbai’s Income-tax Appellate Tribunal (ITAT) has ruled that lease premium — a one-time amount paid upfront to acquire long-term lease rights — will not attract any TDS.

Long-term leases, usually ranging from 60 to 99 years, involve a hefty one-time ‘lease premium’ payment. Tax officials are known to have issued notices claiming TDS for such payments in a large number of cases. This has now been struck down by the ITAT.

80-year lease
Bank of India (BoI) had leased a BKC property from the Mumbai Metropolitan Regional Development Authority (MMRDA) for 80 years for the construction of residential flats and office buildings.

BoI paid MMRDA the lease premium and additional premium for FSI (floor space index) along with interest and fee for delay in the construction of the corporate building.

The I-T Department had claimed that such lump-sum one-time payments can be considered as rent under Section 194-I of the I-T Act, and that TDS was applicable. Tax officials claimed TDS at the rate of 20 per cent from BoI for the payment of ‘lease premium’ to MMRDA.

The ITAT has, however, ruled that such payments cannot be equated to rent, and therefore would not attract TDS.

“TDS on lease premium has been a long-standing issue and despite one or two court directives and internal circulars, I-T continues with its practice of making tax claims,” said a Mumbai-based tax lawyer.

Section 194-I provides for TDS from payment of any income by way of rent. I-T officials often took refuge in the definition of ‘rent’ under the Act that covers a wide range of payments, despite there being circulars from the Central Board of Direct Taxes to the contrary.

A large number of corporates in BKC — including Reliance Industries — have taken long-term leases from MMRDA.

The recent ITAT ruling is likely to aid several of them, experts say.

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