, MH MHMH MH INCOME TAX APPELLATE TRIBUNAL,MUMBAI - D BENCH. , LAT; XXZ LAT; XXZ LAT; XXZ LAT; XXZ BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & SANJAY GA RG,JUDICIAL MEMBER /. ITA NO. 1910/MUM/2012, ! ! ! ! / ASSESSMENT YEAR 2008-09 ITO (TDS) LTU, 29 TH FLOOR, W.T.C.1, CUFFE PARADE, MUMBAI-400005 VS. RELIANCE INDUSTRIES LTD. 3 RD FLOOR, MAKER CHAMBERS, IV,222, NARIMAN POINT, MUMBAI-400021 PAN: AAACR5055K ( '# / APPELLANT) ( $%'# / RESPONDENT) /. ITA NO. 1998/MUM/2012, ! ! ! ! / ASSESSMENT YEAR 2008-09 RELIANCE INDUSTRIES LTD. 3 RD FLOOR, MAKER CHAMBERS- IV, 222, NARIMAN POINT, MUMBAI-400021 VS. ITO (TDS) LTU, 29 TH FLOOR, CENTER NO.1, W.T.C., CUFFE PARADE, MUMBAI-400005 PAN: AAACR5055K ( '# / APPELLANT) ( $%'# / RESPONDENT) & ' / REVENUE BY :SHRI GIRIJA DAYAL () () () () ' ' ' ' / ASSESSEE BY :SHRI J.D.MISTRY & && & )+ )+ )+ )+ / DATE OF HEARING : 25 . 02 .201 4 ,-! & )+ / DATE OF PRONOUNCEMENT : 12 . 03 .201 4 , 1961 & && & 254 )1( ).) ).) ).) ).) / / / / ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER BENCH: CHALLENGING THE ORDERS DATED 24.01.2012 OF THE CIT( A)-24,MUMBAI ASSESSING OFFICER(AO) AND THE ASSESSEE HAVE FILED CROSS APPEALS.AO HAS RAISED FOLLOWING GROUNDS OF APPEAL : 1.THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN H OLDING THAT THE AMOUNT PAID BY M/S RELIANCE INDUSTRIES LTD. TO CITY INDUSTRIAL DEVELOPMENT CORP ORATION (MMRDA) AS PREMIUM FOR ACQUIRING LEASEHOLD RIGHTS AND ADDITIONAL FSI IN RESPECT OF T HE LEASED PLOT IS NOT IN THE NATURE OF RENT AS DEFINED U/S. 194I OF THE ACT. 2.THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN H OLDING THAT M/S RELIANCE INDUSTRIES LTD. WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE U/S.194I OF TH E I. T. ACT, 1961. 3.THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN N OT APPRECIATING THAT THE WELL ACCEPTED PRINCIPLE OF JURISPRUDENCE LAYS DOWN THAT NOMENCLATURE USED B Y ASSESSEE IS IRRELEVANT AND SUBSTANCE AND EFFECT IS TO BE SEEN TO DETERMINE NATURE OF AN ITEM AND THUS VIEWED LEASE PREMIUM IS NOTHING BUT 2 ITA NOS.1910 & 1998/MUM/2012 RELIANCE INDUSTRIES LTD . RENT BECAUSE WHAT IS DESCRIBED AS RENT IN CASE OF P ROPERTIES LEASED BY MMRDA IS INCREDIBLY LOW AND DOES NOT REFLECT MARKET VALUATION. 4.THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN G IVING THE WORD RENT RESTRICTIVE MEANING AS AGAINST THE PLAIN MEANING CLEARLY SPECIFIED IN EXPL ANATION TO SECTION 194I WHICH CONTAINS EXCLUSIVE DEFINITION OF THE RENT. IN THIS REGARD: I. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT ALTHOUGH THE SECTION 194I IS WIDE ENOUGH TO INCLUDE ALL TYPES OF PAYMENTS AS RENT WITHIN ITS FOLD, STILL USE OF THE WORDS FOR THE USE OF REQUIRES THAT RENT IS NOT IN TERPRETED BEYOND ITS MEANING IN COMMON PARLANCE. II. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN TOTALLY IGNORING THE SETTLED PRINCIPLE OF LAW THAT WHERE A DEFINITION OF A WORD IS GIVEN BY L EGISLATURE BY INCORPORATING THE SAME IN THE STATUTE, EVEN THE COURTS HAVE NO COMPETENCE TO SEEK SUCH DEFINITION BY RESORTING TO INTERPRETATIVE PROCESS. III. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N FAILING TO APPRECIATE THAT THE AMENDED DEFINITION OF RENT IN EXPLANATION TO SEC.194I OF THE ACT W.E.F 13.07.2006 IS VERY COMPREHENSIVE AND COVERS ANY PAYMENT, BY WHATEVER NAME CALLED, UNDER ANY LEASE, SUB-LEASE, TENANCY OR ANY OTHER AGREEMENT OR ARRANGEMENT AND WOULD INCLUDE ALL PAYMENTS MADE BY M/S. SHREE NAMAN DEVELOPERS LT D. TO MMRDA UNDER THE LEASE AGREEMENT. IV. BEING A STATUTORY AUTHORITY THE LD. CIT.A HAS E RRED IN LAW AND ON FACTS N NOT ACCEPTING THE DEFINITION OF RENT AS GIVEN IN THE EXPLANATION TO SECTION 194I AND GOING OUTSIDE THIS DEFINITION TO FIND THE TRUE CONNOTATION OF THE WORD RENT WITHOUT APPRECIATING THE FACT THAT THE DEFINITION OF RENT AS GIVEN IN THE EXPLANA TION BINDS THE JUDICIAL AUTHORITIES AS REQUIRED BY THE ESTABLISHED PRINCIPLES OF LAW AND H E HAD NO CHOICE IN THE MATTER. 5.THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN A SSIGNING WRONG MEANING TO THE WORD USE AS CONTAINED IN THE DEFINITION OF THE RENT AS USED IN EXPLANATION TO SECTION 194I. IN THIS REGARD: I. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOL DING THAT THE WORD USE IN DEFINITION OF RENT IN SECTION 194I WOULD ONLY INCLU DE PAYMENTS FOR THE USE OF LAND, BUILDING, ETC. IN THE SENSE OF PAYMENT BY LANDLORD TO TENANT AND CANNOT INCLUDE TRANSACTIONS INVOLVING EXPLOITATION OF PROPERTY BY CHANGING ITS IDENTITY AND SHAPE. II. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN GIV ING RESTRICTIVE MEANING TO THE WORD USE WHEREAS THE JUDICIAL PRONOUNCEMENTS CLEARLY H OLD THAT THE DEFINITION OF THE RENT AS GIVEN IN EXPLANATION (I) TO SEC. 194I IS OF WIDE IMPORT AND HAS TO BE GIVEN WIDE MEANING. III. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOL DING THAT THE ASSESSEE HAS RIGHT TO SELL THE PROPERTY BECAUSE IT IS SETTLED PRINCIPLE O F LAW THAT A BUYER CANNOT PASS A TITLE BETTER THAN WHAT IT HAS AND SINCE ASSESSEE ITSELF I S A LESSEE IT CAN ONLY SUB-LEASE THE PROPERTY AND NOT EFFECT ITS SALE. IV. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY HOL DING THAT ORDINARY MEANING IS TO BE ASSIGNED TO THE WORD USE AS CONTAINED IN THE D EFINITION OF RENT IN EXPLANATION TO SECTION 194I SO THAT THERE COULD BE DIFFERENCE BETW EEN SALE AND TENANCY. V. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY HOL DING THAT ONLY IF THE TENANT/LESSEE USES THE PROPERTY FOR HIS OWN PURPOSE OR EMPLOYEES IT FOR HIS OWN BENEFIT, THE CONSIDERATION PAID WOULD BE RENT AS DEFINED IN SEC. 194I OF THE ACT, BUT IF THE PROPERTY IS EXPLOITED IN A MANNER THAT ITS IDENTITY DOES NOT REMAIN THE SAME AND IS SOLD FOR A PROFIT, IT CANNOT BE CALLED USE OF PROPERTY BY TH E TENANT AND INSTEAD AMOUNTS TO EXPLOITATION OF PROPERTY WHICH WOULD BE OVER AND AB OVE THE RIGHTS OF A TENANT. VI. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT THE USE OF THE WORDS USE OF, EITHER SEPARATELY OR TOGETHER, ANY LAND OR BUILDING OR LAND APPURTENANT TO A BUILDING OR MACHINERY, OR PLANT OR EQUIPMENT O R FURNITURE OR FITTINGS CLEARLY SHOWS THAT USE ENCOMPASSES WITHIN ITS FOLD THE IMPROVEMEN T AND CREATION OF NEW STRUCTURES/ FACILITIES AND ANY OTHER EXPLOITATION BY THE LESSEE AND THEREFORE, RESTRICTIVE MEANING TO THE WORD GIVEN BY CIT(A) IS REPUGNANT TO THE CONTEX T IN WHICH THE TERM USE OF IS USED IN EXPLANATION TO SEC. 194I OF THE ACT. 3 ITA NOS.1910 & 1998/MUM/2012 RELIANCE INDUSTRIES LTD . 6.THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN H OLDING THAT THE WHOLE TRANSACTION TOWARDS THE GRANT OF LEASE RIGHTS TO THE APPELLANT IS NOTHING B UT TRANSACTION OF TRANSFER OF PROPERTY. IN THIS REGARD. I. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN H OLDING THAT THE GIVING OF PROPERTY ON LEASE IS NOTHING BUT TRANSACTION OF TRANSFER OF PRO PERTY FOR THE SIMPLE REASON THAT THE RIGHTS OF THE ASSESSEE ARE CLEARLY FETTERED AND CAN NOT BE SAID TO BE THAT OF OWNER OF THE PROPERTY ON GIVEN FACTS AND CIRCUMSTANCES. II. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN FAILING TO APPRECIATE THAT THE TERMS OF THE LEASE CLEARLY SPECIFY THAT AFTER THE EXPIRY OF THE LEASE PERIOD, THE PROPERTY ALONG WITH STRUCTURES THEREON WILL REVERT TO THE LESSOR. III. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOL DING THAT THE LEASE PREMIUM IS CONSIDERATION FOR THE PURPOSE OF ACQUIRING LEASE HO LD RIGHTS WITHOUT APPRECIATING THE FACT THAT SUCH PAYMENT IS IN SUBSTANCE AND EFFECT T HE PAYMENT FOR USE OF THE PROPERTY LEASED TO THE ASSESSEE UNDER THE TERMS AND CONDITIO NS OF THE LEASE AND GIVING ANY OTHER INTERPRETATION TO THE PAYMENT OF LEASE PREMIUM, IS UNJUSTIFIED ON FACTS AND CIRCUMSTANCES OF THE CASE. IV. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN RES ORTING TO INTERPRETATION WHERE NONE IS CALLED FOR IN VIEW OF THE ESTABLISHED LEGAL PRIN CIPLES THAT IN CASE OF STATUTE, THE DEFINITION GIVEN IN SUCH STATUTE/SECTION REQUIRES T O BE GIVEN EFFECT. V. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN LA YING TOO MUCH EMPHASIS ON STAMP DUTY VALUATION AND IN NOT APPRECIATING THE FACT THAT THE USE OF MARKET RATES UNDER STAMP DUTY VALUATION IS ONLY A METHOD TO QUANTIFY THE REN T FOR THE PERIOD OF LEASE AND HAS NO BEARING ON THE NATURE OF THE TRANSACTION WHICH IS C LEARLY WITHIN THE AMBIT OF SECTION 194I BEING ON ACCOUNT OF USE OF THE PROPERTY AND TH E DEFINITION OF RENT AS CONTAINED IN EXPLANATION TO THIS SECTION. 7.THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN R ELYING ON THE DEFINITION OF LEASE IN SECTION 105 OF THE TRANSFER OF PROPERTY ACT, 1882 FOR DRAWING D ISTINCTION BETWEEN PREMIUM AND RENT. IN THIS REGARD: I. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN IGNORING THE ESTABLISHED PRINCIPLES OF JURISPRUDENCE THAT REFERENCE TO THE OTHER ACT IS RE QUIRED ONLY IN CASE OF DOUBT FOR DECIDING THE ISSUE PERTAINING TO INTERPRETATION AND NOT WHEN THE DEFINITION OF THE RENT IS SPECIFICALLY ENSHRINED IN THE ACT IN CLEAR EXPRE SSION OF LEGISLATIVE INTENDMENT TO PRECLUDE SUCH EXERCISE AS HAS BEEN UNDERTAKEN BY TH E LD. CIT(A). II. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY FAILING TO APPRECIATE THE FACT THAT USUAL DISTINCTION BETWEEN THE PREMIUM AND RENT BECO MES IRRELEVANT WHEN THE TERM RENT DEFINED IN EXPLANATION TO SECTION 194I CLEARLY ENCO MPASSES ANY PAYMENT BY WHATEVER NAME CALLED UNDER LEASE SUB-LEASE, TENANCY OR ANY O THER AGREEMENT OR ARRANGEMENT FOR THE USE OF ANY LAND. III. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN REL YING ON DEFINITION OF LEASE U/S 105 BECAUSE SUCH DEFINITION IN NO WAY HAS ANY BEARING O N THE POINT IN ISSUE, NAMELY THE DEFINITION OF RENT WHICH IS CLEARLY GIVEN IN EXPLAN ATION TO SECTION 194I. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THA T THE LEASE PREMIUM IS A PAYMENT WHICH PRECEDES THE GRANT OF LEASE WHEREAS SUCH PAYM ENT IS MADE AS CONSIDERATION FOR GRANT OF LEASE. 8. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS THA T LEASE PREMIUM CANNOT BE TERMED AS ADVANCE RENT BECAUSE LEASE PREMIUM IS NOT RETURNABL E IN CASE OF PREMATURE TERMINATION OF LEASE. IN THIS REGARD: I. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN GIVING TOO MUCH EMPHASIS ON THE RETURN OR OTHERWISE OF ADVANCE RENT IN CASE OF PREM ATURE TERMINATION OF LEASE AND SUCH AN APPROACH IS MORE IN NATURE OF DEDUCTIVE THA N INDUCTIVE REASONING. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY NOT APPRECI ATING THAT THE LEASE DEED PROVIDES FOR PART REFUND OF PREMIUM WHEN THE LEASE IS FORFEI TED BY THE MMRDA AND THEREFORE, GOING BY HIS OWN LOGIC, WHICH IS NOT ACCEPTABLE TO THE DEPARTMENT, AT LEAST THE AMOUNT REQUIRED TO BE REFUNDED IN CASE OF SUCH FORFEITURE BY THE MMRDA, WOULD BE IN NATURE 4 ITA NOS.1910 & 1998/MUM/2012 RELIANCE INDUSTRIES LTD . OF RENT. II. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN FAILING TO APPRECIATE THAT ABSENCE OF CLAUSE FOR TERMINATION OF THE LEASE AT THE INSTANCE OF THE LESSEE AND FOR REFUND OF LEASE PREMIUM IN NORMAL CIRCUMSTANCES ARE NOT THE RELEVAN T ISSUES TO DECIDE THE CHARACTER OF PAYMENT BY THE ASSESSEE TO THE MMRDA WHICH IS IN NATURE OF RENT AS EXPRESSIVELY DEFINED IN EXPLANATION TO SECTION 194I. 9. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE DECISIONS RELIED UPON BY THE A.O. TO GIVE WIDE MEANING TO THE TERM RENT TH OUGH CORRECT IN THEIR CONTEXT ARE NOT APPLICABLE TO THE APPELLANT AS THEY ARE DISTINGUISH ABLE, WITHOUT APPRECIATING THAT THE RATIO DECENDI OF THESE DECISIONS ARE CLEARLY APPLICABLE T O THE FACTS OF THE ASSESSEES CASE. 10. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY RELYING ON JUDICIAL DECISIONS RENDERED IN A CONTEXT OTHER THAN THE DETERMINATION OF LIABILITY TO DEDUCT TDS U/S.194I OF THE ACT. IN THIS REGARD: I. THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE L D. CIT(A) ARE ALL RENDERED IN THE CONTEXT OF ALLOWABILITY OF EXPENDITURE U/S. 37(1) O F THE ACT IN THE HANDS OF PAYEE AND HAVE NO BEARING ON THE LIABILITY TO DEDUCT TDS BY T HE PAYER. II. THE LD. CIT(A) HAS ERRONEOUSLY RELIED ON DEC ISIONS WHERE PREMIUM UNDER A LEASE IS HELD TO BE A CAPITAL RECEIPT WITHOUT APPRECIATING T HE FACT THAT THE DEFINITION OF RENT U/S. 194I IS ALL ENCOMPASSING AND COVERS ANY PAYME NT, BY WHATEVER NAME CALLED, UNDER A LEASE OR SUB-LEASE, TENANCY OR ANY OTHER A GREEMENT OR ARRANGEMENT. 11. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN APPLYING THE MAXIM OF APPROBATE AND REPROBATE TO HOLD THAT A DECISION TAKEN BY THE REVE NUE AUTHORITIES IN ASSESSMENT PROCEEDINGS CANNOT BE IGNORED FOR THE PURPOSE OF TDS PROVISION. IN THIS REGARD: I. THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT THE PR OCEEDINGS FOR ASSESSMENT OF INCOME OF THE PAYEE STAND ON A DIFFERENT FOOTING, FROM THE PROCEEDINGS U/S.201 IN THE CASE OF THE DEDUCTOR WHERE LIABILITY TO DEDUCT TDS IS TO BE DETERMINED AS PER THE SPECIFIC PROVISIONS ENSHRINED IN SEC.194I OF THE ACT. II. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN FAI LING TO APPRECIATE THAT TDS PROVISIONS IN CHAPTER XVIIB ARE ATTRACTED EVEN IN R ESPECT OF ACQUISITION OF CAPITAL ASSETS AS EVIDENT FROM THE PROVISION OF LAW CONTAIN ED IN SEC.194LA OF THE I. T. ACT, 1961. III. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N ENGAGING INTO ACADEMIC EXERCISE OF APPROBATE AND REPROBATE WITHOUT APPRECIATING THE ES TABLISHED LEGAL PRINCIPLE THAT CHAPTER XVIIB OF WHICH SEC.194I IS A PART, CONTAINS A SELF CONTAINED CODE FOR THE PURPOSE OF TDS AND OTHER SECTIONS OF THE I. T. ACT WHICH INVOLVE INTERPRETATIVE ISSUES SUCH AS REVENUE OR CAPITAL HAVE NO BEARING ON THE P OINT IN ISSUE. 12. THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN HOLDING THAT THE RESTRICTIVE COVENANTS IN THE LEASE AGREEMENT ARE STANDARD REGULATORY CLAUSES WHI CH DO NOT AFFECT THE LEASEHOLD RIGHTS OF THE LESSEE IN ANY MANNER AND ARE MEANT FOR REGULATING P ROPER DEVELOPMENT OF THE LEASEHOLD PROPERTY. IN THIS REGARD: I. THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT THE LE ASE AGREEMENT IS REPLETE WITH RESTRICTIVE COVENANTS WHICH SEVERELY LIMIT THE USE OF LAND BY T HE LESSEE WHICH ONLY GOES TO SHOW THAT THE RIGHTS OBTAINED BY THE UNDER THE LEASE AGR EEMENT ARE NOT ABSOLUTE AND HENCE, THE PAYMENT MADE UNDER THE SAID AGREEMENT WAS NOT I N THE NATURE OF SALE CONSIDERATION BUT INSTEAD PARTOOK THE CHARACTER OF RENT. II. THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT BY VIR TUE OF RESTRICTIVE CLAUSES IN THE AGREEMENT, ESPECIALLY THE OBLIGATION TO DELIVER ON TO THE LESSOR THE DEMISED PREMISES WITH ALL ERECTIONS AND BUILDINGS ON THE EXPIRY OF T HE LEASE, THE LESSEE DID NOT OBTAIN ANY OWNERSHIP RIGHTS BUT ONLY THE RIGHT OF USE OF THE EASED PROPERTY FOR THE PERIOD OF LEASE. 13. THE ORDER OF THE LD. CIT(A) BEING ERRONEOUS BE SET ASIDE AND LD. A.OS ORDER BE RESTORED. 14.THE APPELLANT CRAVES TO AMEND OR ALTER ANY GROUN D OR ADD A NEW GROUND WHICH MAY BE 5 ITA NOS.1910 & 1998/MUM/2012 RELIANCE INDUSTRIES LTD . NECESSARY. ITA NO. 1998/MUM/2012 GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UND ER: 1. THE LEARNED COMMISSIONER OF INCOME TAX (A)-(LTU), M UMBAI {HEREINAFTER REFERRED TO AS CIT(A)} ERRED IN CONFIRMING THE ACTION OF THE INCOME TAX OF FICER (TDS) (LTU), MUMBAI {HEREINAFTER REFERRED TO AS AO} FOR PASSING AN ORDER U/S. 201(1) AND 201(1A) OF THE INCOME-TAX ACT, 1961 FOR ASSESSMENT YEAR 2008-09 TO THE EXTENT OF RS. 11,00, 001/- BEING LEASE PREMIUM PAID BY THE APPELLANT TO M/S. MUMBAI METROPOLITAN REGIONAL DEVE LOPMENT AUTHORITY (MMRDA). THE APPELLANT SUBMITS THAT THE ORDER PASSED BY THE AO AND CONFIRMED BY CIT(A) IS ULTRA VIRUS, ILLEGAL AND CONTRARY TO THE PROVISIONS OF LAW. 2. THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE A O IN LEVYING TAX 201(1) OF THE ACT ON THE LEASE PREMIUM PAID OF RS. 11,00,001/- BY TREATING THE APP ELLANT COMPANY AS ASSESSEE IN DEFAULT AND CHARGING INTEREST UNDER SECTION 201(1)A OF THE ACT. THE APPELLANT SUBMITS THAT THE TAX LEVIED U/S. 201( 1) AND INTEREST LEVIED U/S.201(1A) OF THE ACT BY THE AO IS NOT WARRANTED ON THE FACTS AND CIRCUMSTAN CES OF THE CASE AND THE SAME OUGHT TO BE DELETED. 3. THE CIT ERRED IN CONFIRMING THE ACTION OF THE AO AN D HOLDING THAT THE APPELLANT HAS FAILED TO COMPLY WITH THE PROVISIONS OF SECTION 194I OF THE A CT SINCE IT HAS NOT DEDUCTED TDS ON LEASE PREMIUM OF RS. 11,00,001/-, PAID BY THE APPELLANT T O M/S. MUMBAI METROPOLITAN REGIONAL DEVELOPMENT AUTHORITY (MMRDA). THE APPELLANT SUBMITS THAT ON THE FACTS AND CIRCUMS TANCES OF THE CASE THE TDS WAS RIGHTLY NOT DEDUCTED U/S. 194I OF THE ACT. 4. THE CIT ERRED IN CONFIRMING THE ACTION OF THE AO AN D HOLDING THAT LEASE PREMIUM OF RS. 11,00,001/- PAID TO M/S MMRDA WAS PAYMENT OF INCOME BY WAY OF RENT SINCE THE APPELLANT HAD NOT ACQUIRED ANY RIGHTS IN LAND. THE APPELLANT SUBMITS THAT ON THE FACTS AND CIRCUMS TANCES OF THE CASE LEASE PREMIUM PAYMENT WAS TOWARDS LEASEHOLD RIGHTS IN THE LAND WHICH IS NOT P AYMENT OF INCOME BY WAY OF RENT. 5. THE CIT ERRED IN CONFIRMING THE ACTION OF THE AO IN RAISING TAX DEMAND U/S. 201(1) AND LEVYING INTEREST U/S.201(1A) IN RESPECT OF TAX DEDUCTIBLE W HERE THE DEDUCTEE HAS PAID DUE AMOUNT OF TAXES. THE APPELLANT SUBMITS THAT WHEN THE DEDUCTEE PAYS T HE TAXES DUE TO THE GOVERNMENT, NO TAX DEMAND U/S.201(1) AND INTEREST U/S.201(1A) CAN BE R AISED ON THE TAX DEDUCTOR. 6. THE APPELLANT CRAVES LEAVES, TO ADD, TO ALTER OR TO AMEND THE AFORESAID GROUNDS OF APPEAL. THOUGH THERE ARE MORE THAN TWELVE GROUNDS OF APPEAL S IN THE APPEAL FILED BY THE AO,BUT THE EFFECTIVE GROUND OF APPEAL IS ABOUT APPLICABILITY O F THE PROVISIONS OF SECTION 194-I OF THE ACT WITH REGARD TO THE PAYMENTS MADE BY THE ASSESSEE TO MUMB AI METROPOLITAN REGIONAL DEVELOPMENT AUTHORITY (MMRDA). IN THE APPEAL FILED BY THE ASSESSEE,EFFECTIVE GROUN D DEALS WITH ORDER PASSED BY THE AO,U/S. 201(1) AND 201(1A) OF THE ACT,FOR ASSESSMENT YEAR UNDER AP PEAL TO THE EXTENT OF RS. 11,00,001/- BEING LEASE PREMIUM PAID BY THE ASSESSEE TO MMRDA.IN THIS REGARD GRIEVANCE OF THE ASSESSEE IS THAT FAA HAD HELD THAT PROVISIONS OF SECTION 194 I OF TH E ACT WERE APPLICABLE ON THE LEASE PREMIUM PAID. BRIEF HISTORY: 2. ASSESSEE WAS ALLOTTED A LEASEHOLD PLOTS LOCATED AT PLOT NO C-64,AND C-66 OF BLOCK G, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI BY MMRDA.AO FO UND THAT THE ASSESSEE HAD PAID LEASE PREMIUM OF RS. 16,30,74,05,551/- ON 21 ST MAY 2007, 12.01.2008, 14.05.2007, 25.03.2008 AND 2 2. 01.2008.A SHOW CAUSE NOTICE WAS ISSUED TO EXPLAIN A S TO WHY IT SHOULD NOT BE TREATED AS AN 6 ITA NOS.1910 & 1998/MUM/2012 RELIANCE INDUSTRIES LTD . ASSESSEE IN DEFAULT U/S.201(1) AND 201(1A) OF THE A CT FOR NON-DEDUCTION OF TDS ON THE LEASE PREMIUM PAID TO MMRDA . AFTER CONSIDERING THE ASSESSEES CONTENTION,AO HEL D THAT TDS PROVISIONS AS ENVISAGED BY SECTION 194-I OF THE ACT WERE APPLICABLE ON THE ABOVE PAYME NTS AND ACCORDINGLY TDS SHOULD HAVE BEEN DEDUCTED,THAT PAYMENTS MADE BY THE ASSESSEE WERE IN NATURE OF RENT. AO,AS PER ORDERS PASSED U/S 201(1) / 201 (1A) OF THE ACT,RAISED DEMANDS OF RS. 6,66,18,99,054/- UNDER THE HEAD INTEREST U/S. 201(1A) OF THE ACT. 3. AGGRIEVED BY THE ORDER OF THE AO, ASSESSEE FILED AN APPEAL BEFORE THE FAA. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ORDER OF THE AO PASSED U/S. 201/201(1A) OF THE ACT,HE HELD THAT ASSESSEE WAS GRANTED LEASE OF PLOT OF LAND FOR TOTAL LEASE PREMIUM OF RS. 9,18,03,05,550/-, THAT AS PER THE LEASE-DEED, DATED 15.07.2008 ASSESSEE HA D TO PAY PREMIUM IN TWO INSTALLMENTS OF RS. 4,49,01,52,775/- AND RS. 4,59,01,52,775/-, THAT ASS ESSEE HAD PAID LEASE PREMIUM TO MMRDA, THAT THE RIGHT OF THE ASSESSEE IN THE LAND ALLOTTED TO I T WAS NOT ONLY TO USE THE LAND BUT IT REQUIRED ALL THE RIGHTS BELONGING TO OWNER OF THE LAND 4 A PERIOD OF 80 YEARS OTHER THAN THE RIGHT TO THE MINERAL AND ORES,THAT BY VIRTUE OF PAYMENT OF LEASE PREMIUM A L ARGE BUNDLE OF RIGHT ATTACHED TO THE LAND ACQUIRED BY THE ASSESSEE, THAT ANOTHER PREMIUM OF R S. 6.96 CRORES WAS PAID BY THE ASSESSEE TO MMRDA IN PURSUANCE OF THE SUPPLEMENTARY LEASE-DEED DATED 13.07.2007 BY VIRTUE OF WHICH ASSESSEE WAS PERMITTED TO ADDITIONAL BUILT UP AREA I.E. FLOOR SPACE OF 72,500 SQ MTS. FAA REFERRED TO CLAUSE-2 OF THE SUPPLEMENTARY LEASE-DEED AND HEL D THAT ABOVE LEASE PREMIUM WAS CHARGED FOR ADDITIONAL BUILT UP AREA ON PLOT NO. C-64 ALREADY L EASED TO THE ASSESSEE VIDE LEASE-DEED DATED 01. 09.2006 AND FOR WHICH PREMIUM WAS PAID BY THE ASSES SEE AND THE LESSER HAD DEMISE THE SAID LAND INTO THE ASSESSEE TOGETHER WITH ALL RIGHTS EASEMENT S FOR A PERIOD OF 80 YEARS. REFERRING TO THE PROVISIONS OF SECTION 194-I OF THE ACT,HE HELD THAT PAYMENT MADE BY THE ASSESSEE TO MMRDA WAS NOT RENT,THAT ASSESSEE WAS NOT REQUIRED TO DEDUCT T AX AT SOURCE.HE RELIED UPON THE DECISION OF SPECIAL BENCH OF MUMBAI TRIBUNAL DELIVERED IN THE C ASES OF MUKUND LTD. (106 ITR 231) AND HELD THAT PAYMENT MADE BY THE ASSESSEE TO MMRDA FOR ACQU IRING THE LEASE RIGHTS WAS NOT IN NATURE OF RENT,THAT IT COULD NOT BE TREATED AN ASSESSEE -IN-D EFAULT AS PER THE PROVISIONS OF THE ACT,THAT THE LEASE OBTAINED BY IT IN RESPECT OF LAND AT C-64 & C -66 OF G BLOK OF BKC FROM MMRDA WAS NO THING,BUT TRANSFER OF IMMOVABLE PROPERTY. 4. DURING THE COURSE OF HEARING BEFORE US,DEPARTMENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE AO.AUTHORISED REPRESENTATIVE (AR) RELIED UPON T HE CASES OF WADHWA & ASSOCIATES REALTORS PVT. LTD.(ITA/695/M/2012),BKC PROPERTIES PVT.LTD. ( ITA/6270/M/2012),TRENT LTD.(ITA/1730 / M/2012),SHREE NAMAN DEVELOPERS LTD.(ITA/686 & 687/M /2012),TCG URBAN INFRASTRUCTURE HOLDING PVT. LTD.(ITA/4563/M/2012),NAVI MUMBAI SEZ PVT.LTD.(ITA/738/M/2012),THE INDIAN NEWS PAPER SOCIETY(ITA/5207/DEL/08),PARINEE DEVELOP ERS PVT.LTD.(ITA/1734/M/2012)AND JAMNABEN HIRACHAND AMBANI FOUNDATION(ITA/707/M/2012 ). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD.WE FIND THAT IN THE CASE OF WADHWA & ASSOCIATES REALTORS PVT. LTD.(SUPRA)THE ISSUE HAS BEEN DISCUSSED AND DECIDED IN FAVOUR OF THE ASSESSEE AS UNDER : 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED 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 REV OLVES AROUND THE PREMIUM PAID BY THE ASSESSEE TO M/S. MMRDA LTD. FOR THE LEASEHOLD RIGHTS ACQUIRE D BY THE ASSESSEE THROUGH THE LEASE DEED DT. 22 ND 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 B E TREATED AS ASSESSEE IN DEFAULT. IT IS THE SAY OF THE ASSESSEE THAT SUCH LEASE PREMIUM IS IN THE NATURE O F CAPITAL EXPENDITURE AND THEREFORE THERE IS NO QUESTION OF DEDUCTION OF TAX AT SOURCE.FURTHER,THE SAID LEASE PREMIUM DOES NOT COME WITHIN THE 7 ITA NOS.1910 & 1998/MUM/2012 RELIANCE INDUSTRIES LTD . PURVIEW OF THE DEFINITION OF RENT AS PROVIDED U/S. 194-1 OF THE ACT. 10.WE HAVE CAREFULLY PERUSED THE LEASE DEED AS EXHI BITED FROM PAGE-1 TO 42 OF THE PAPER BOOK. A CAREFUL READING OF THE SAID LEASE DEED TRANSPIRES T HAT THE PREMIUM IS NOT PAID UNDER A LEASE BUT IS PAID AS A PRICE FOR OBTAINING THE LEASE, HENCE IT P ROCEEDS THE GRANT OF LEASE. THEREFORE, BY ANY STRETCH OF IMAGINATION, IT CANNOT BE EQUATED WITH T HE RENT WHICH IS PAID PERIODICALLY. A PERUSAL OF THE RECORDS FURTHER SHOW THAT THE PAYMENT TO MMRD I S ALSO FOR ADDITIONAL BUILT UP ARE AND ALSO FOR GRATING FREE OF FSI AREA, SUCH PAYMENT CANNOT BE EQ UATED TO RENT. IT IS ALSO SEEN THAT THE MMRD IN EXERCISE OF POWER U/S. 43 R.W. SEC. 37(1) OF THE MA HARASHTRA 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 O F BKC. THE DEVELOPMENT CONTROL REGULATIONS FOR BKC SPECIFY THE PERMISSIBLE FSI. PURSUANT TO SU CH PROVISIONS, THE ASSESSEE BECAME ENTITLED FOR ADDITIONAL FSI AND HAS FURTHER ACQUIRED/PURCHASED T HE ADDITIONAL BUILT UP AREA FOR CONSTRUCTION OF ADDITIONAL AREA ON THE AFORESAID PLOT. THUS THE ASS ESSEE HAS MADE PAYMENT TO MMRD UNDER DEVELOPMENT CONTROL FOR ACQUIRING LEASEHOLD LAND AN D ADDITIONAL BUILT UP AREA. THE DECISIONS OF THE TRIBUNAL IN THE CASE OF M/S. NATIONAL STOCK EXC HANGE (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) SQU ARELY 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 ENTIR E FACTS IN TOTALITY IN THE LIGHT OF THE JUDICIAL DECISIONS VIS--VIS PROVISIONS OF SECT. 194-I,DEFIN ITION OF RENT AS PROVIDED UNDER THE SAID PROVISION, WE DO NOT FIND ANY REASON TO TAMPER OR INTERFERE WI TH THE FINDINGS OF THE LD. CIT(A) WHICH WE CONFIRM. 11.IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED . SIMILARLY,IN THE CASE OF IN THE CASE OF NAVI MUMBAI (SEZ) PVT.LTD.,TO WHICH ONE OF US WAS PARTY,THE ISSUE HAS BEEN DISCUSSED AT LENGTH AND IT HAS BEEN HELD THAT WORD RENT DOES NOT INCLUDE PREMIUM PAID FOR ADDITIONAL FSI OR LEASE HOLD RIGHT S.WE FIND THAT IN THE CASES UNDER CONSIDERATION PAYMENTS WERE MADE TO MMRDA FOR ADDITIONAL BUILD UP AREA AND LEASE HOLD RIGHTS.IN OUR OPINION SUCH PAYMENTS CANNOT BE TERMED RENT AND THEREFORE P ROVISIONS OF SECTION 194 I ARE NOT APPLICABLE IN THE CASES BEFORE US.THEREFORE,UPHOLDING THE ORDE RS OF THE FAA,WE DECIDED THE EFFECTIVE GROUNDS OF APPEAL AGAINST THE AO FOR THE AY.UNDER A PPEAL. ITA NO. 1998/MUM/2012 6. AS STATED EARLIER THE EFFECTIVE GROUND OF APPEAL IS ABOUT LEASE RENT PAID BY THE ASSESSEE FOR A PLOT(RG-1A,BKC) OF LAND.AO HAD HELD THAT LEASE PREM IUM PAID BY THE ASSESSEE WAS RENT AND IT HAD TO DEDUCT TAX SOURCE ON IT. 7. IN THE APPELLATE PROCEEDINGS FAA HELD THAT FROM THE PERUSAL OF AGREEMENT TO LEASE DATED 13.07. 2007;IN RESPECT OF PLOT NO. RG-1A IN G BLOCK OF BKC IN RESPECT OF WHICH A PREMIUM OF RS. 11 LAKHS HAD BEEN PAID BY THE ASSESSEE;SHOWED THAT IT HAD BEEN GRANTED THE LICENSE AND PERMISSION ONLY TO ENTER UPON THE LAND LEASED TO IT, THAT THE AGREEMENT CATEGORICALLY STATED THAT ASSESSEE HAD MERELY BEEN GRANTED A LICENSE, THAT THE ASSESSEE WA S ONLY A LICENCEE IN RESPECT OF PLOT OF LAND, THAT IT HAD NOT ACQUIRED ANY LEGAL RIGHTS IN THE PLOT OF LAND,THAT IT HAD NOT SHOWN BY WAY OF ANY DOCUMENT THAT IT HAD ACQUIRED ANY LEASE HOLD RIGHT IN THE LAND OR ANY CAPITAL ASSET, THAT PAYMENT OF RS.11 LACS WAS IN NATURE OF PAYMENT BY WAY OF RENT, THAT ASSESSEE WAS REQUIRED TO DEDUCT TDS ON THE ABOVE PAYMENT, THAT PROVISIONS OF SECTION 201 A ND 201(1A) WOULD BE APPLICABLE IN RESPECT OF THE PAYMENT OF RS. 11 LACS FOR THE BLOCK NO. RG-1-A IN THE G BLOCK OF BKC. HE UPHELD THE ORDER OF THE AO. 8. BEFORE US,AR SUBMITTED THAT FAA HAD DIFFERENTIATED THE CASES OF PLOT C64&C-66 AND PLOT NO. RG-1A ON THE BASIS OF SIGNING OF LEASE DEED,THAT BE CAUSE OF CERTAIN TECHNICAL PROBLEMS LEASE AGREEMENT WAS SIGNED LATER ON,THAT FOR PURPOSE OF S ECTION 201 AND 201(1A) OF THE ACT THERE COULD 8 ITA NOS.1910 & 1998/MUM/2012 RELIANCE INDUSTRIES LTD . NOT ANY DIFFERENCE ON THE BASIS OF DATE OF SIGNING OF LEASE DEED, THAT THE PAYMENT WAS NOT IN NATURE OF RENT.DR SUPPORTED THE ORDER OF THE FAA. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT VIDE LETTER DATED 04.05.2007 MMRDA HAD INFORMED THE ASSESSEE TH AT IT HAD APPROVED THE PROPOSAL OF OFFER OF ALLOTMENT OF THE PLOT OF LAND FOR CONSTRUCTION O F TWO LEVEL UNDERGROUND CAR PARK WITH GROUND ABOVE.LEASE WAS OFFERED FOR A PERIODS OF 80 YEARS.C ONSIDERING THE PECULIAR FACTS OF THE CASE UNDER APPEAL WE ARE OF THE OPINION THAT THE TRANSACTION H AS TO BE HELD A LEASE AND THAT PROVISIONS OF SECTION 201(1)AND 201(1A)ARE NOT ATTRACTED FOR NON DEDUCTION OF TAX AT SOURCE.IN THESE CIRCUMSTANCES,REVERSING THE ORDER OF THE FAA,WE DEC IDE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSE D AND APPEAL OF THE ASSESSEE IS ALLOWED. ( )0 ()-+ }KJK 2 & .3 4 & ) 56 7 () & 4 & ) 56 A ORDER PRONOUNCED IN THE OP EN COURT ON 12 TH MARCH, 2014. / & ,-! 8 12 EKPZ EKPZ EKPZ EKPZ , 2014 - & .. SD/- SD/- ( LAT; XXZ LAT; XXZ LAT; XXZ LAT; XXZ / SANJAY GARG) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, : /DATE: 12.03.2014. SK / / / / & && & $); $); $); $); <;!) <;!) <;!) <;!) / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '# 2. RESPONDENT / $%'# 3. THE CONCERNED CIT(A)/ = > , 4. THE CONCERNED CIT / = > 5. DR D BENCH, ITAT, MUMBAI / ;?. $) . MH MHMH MH , . . . 6. GUARD FILE/ . @ . %;) $) //TRUE COPY// / / BY ORDER, A / 5 DY./ASST. REGISTRAR , /ITAT, MUMBAI.