DCIT (TDS) 1(3), MUMBAI V. MAHADEV P PATEL, NAVI MUMBAI

ITA 4258/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9715 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 09-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T A KHAN SR
• Keywords: Capital expenditure
• Section: 201(1)

Judgement Text

ITA NO.4258/M/2015 MAHADEV P PATEL ASSESSMENT YEAR-2010-11 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE SHRI JOGINDER SINGH, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.4258/MUM/2015 ( / ASSESSMENT YEARS: 2010-11) DEPUTY COMMISSIONER OF INCOME TAX (TDS) 1(3) 7 TH FLOOR, ROOM NO.703 SMT.K.G.MITTAL AYURVEDIC HOSPITAL BUILDING CHARNI ROAD MUMBAI-400 002 / VS. MAHADEV P . PATEL PROP. M/S SHREE AMBIKA DEVELOPER SHOP NO.7 NL SECTOR NO.3 NERUL NAVI MUMBAI 400 706 ! ./ ./PAN/GIR NO. AAJPP-7115-N ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) A SSESSEE BY : NONE RE VENUE BY : T.A.KHAN (SR.AR) / DATE OF HEARING : 27/07/2017 / DATE OF PRONOUNCEMENT : 31/07/2017 ITA NO.4258/M/2015 MAHADEV P PATEL ASSESSMENT YEAR-2010-11 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2010- 11 ASSAILS THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-40 [CIT(A)], MUMBAI DATED 22/04/2015 QUA RELIEF PROVIDED TO THE ASSESSEE U/S 201(1) & 201(1A) OF THE INCOME TAX ACT,1961. N ONE HAS APPEARED ON BEHALF OF THE ASSESSEE AND THEREFORE, WE PROCEED TO DISPOSE-OFF THE APPEAL ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND AFTER HEARING LD. DEPARTMENTAL REPRESENTATIVE. 2. BRIEFLY STATED, THE ASSESSEE BEING RESIDENT ASSESSEE ENGAGED IN CONSTRUCTION BUSINESS WAS TREATED AS ASSESSEE-IN-DEFAULT FOR IMPUGNED AY U/S 201(1) / 201(1A) OF THE INCOME TAX ACT, 1961 VIDE ASSESSING OFFICER [AO] DATED 27/03/2012. 2.1 IT WAS NOTED THAT THE ASSESSEE PAID AN AMOUNT O F RS.40 CRORES AS LEASE PREMIUM TOWARDS ALLOTMENT OF PLOT NO.1 ADMEASURING 5296.85 SQ.MTRS. SITUATED AT KHARGHAR, TALUKA, PANVEL, DIST T. RAIGADH ON LEASEHOLD BASIS. THE SAID LEASE PREMIUM, IN THE OPI NION OF LD. AO, CONSTITUTED RENT AND REQUIRED DEDUCTION OF TAX AT S OURCE U/S 194-I OF THE INCOME TAX ACT. THE ASSESSEE, INTER-ALIA, CONTENDED THAT THE PLOT WAS PURCHASED ON LEASEHOLD BASIS FOR 60 YEARS AND LEASE PREMIUM WAS IN THE NATURE OF COST OF PLOT AND WAS PAID TOWARDS CON SIDERATION FOR ACQUISITION OF LEASE HOLD RIGHTS IN THE LAND AND DI STINCT FROM RENT. FURTHER, THE PLOT WAS SHOWN AS ASSET IN THE BOOKS OF ACCOUNT AND NO DEDUCTION THEREOF WAS CLAIMED IN THE PROFIT & LOSS ACCOUNT. H OWEVER, NOT CONVINCED, LD. AO AFTER APPRECIATING THE STATUTORY PROVISIONS, CAME TO A ITA NO.4258/M/2015 MAHADEV P PATEL ASSESSMENT YEAR-2010-11 3 CONCLUSION THAT THE LEASE PREMIUM WAS NOTHING BUT R ENT COVERED BY THE PROVISIONS OF SECTION 194-I AND HENCE, THE ASSESSEE WAS REQUIRED TO DEDUCT TDS AGAINST THE SAME. CONSEQUENTLY, THE ASSE SSEE WAS TREATED AS ASSESSEE-IN-DEFAULT WITHIN THE MEANING OF SECTION 201(1) FOR NON DEDUCTION OF TAX AT SOURCE AND ALSO LIABLE FOR CONS EQUENTIAL INTEREST U/S 201(1A). RESULTANTLY, THE ASSESSEE WAS SADDLED WITH FOLLOWING DEMANDS:- TAX U/S.201(1) -- RS. 4,12,00,014 /- INTEREST U/S.201(1A) RS. 1,01,42,7 27/- ----------------------- TOTAL RS. 5,13,42,727/- ------------------------ 3. AGGRIEVED, THE ASSESSEE SUCCESSFULLY CONTESTED T HE STAND OF REVENUE BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 22/04/2015 AND BY RAISING SIMILAR CONTENTIONS PLACED RELIANCE ON S EVERAL JUDICIAL PRONOUNCEMENTS IN THIS REGARD. THE LD. CIT(A) AFTER APPRECIATING THE CONTENTIONS OF THE ASSESSEE AND REMAND REPORT AGREE D WITH THE STAND OF ASSESSEE AND CONCLUDED THE MATTER IN ASSESSEES FAV OR BY MAKING FOLLOWING OBSERVATIONS:- 5. I HAVE CONSIDERED THE SUBMISSION OF THE AUTHORI ZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE REMAND REPORT AND REJOINDER TO REMAND REPORT. IT IS SEEN THAT THE ASSESSEE WAS ALLOTTED A PLOT OF LAND AT SE CTOR 01, KHARGHAR, NAVI MUMBAI BY CIDCO LTD. FOR WHICH THE ASSESSEE HAS PAID LEASE PR EMIUM OF RS.40.00 CRORES. IN THE OPINION OF THE ASSESSING OFFICER, SUCH LEASE PREMIU M WAS IN THE NATURE OF ADVANCE RENT, LIABLE FOR DEDUCTION OF TDS U/S.1941 AND SINCE THE ASSESSEE HAD NOT DEDUCTED TAX, HE WAS TREATED AS ASSESSEE IN DEFAULT U/S.201(1) TO THE EXTENT OF TAX DEDUCTIBLE U/S.194I ON SUCH PAYMENT AND INTEREST U/S 201(1A) WAS ALSO LEVIED. O N THE OTHER HAND, THE ASSESSEE HAS CLAIMED THAT SUCH PAYMENT WAS NOT IN THE NATURE OF RENT AND THE PROVISIONS OF SECTION 194I ARE NOT APPLICABLE IN THE FACT OF THE CASE. THE APP ELLANT RELIED ON CITED DECISIONS OF VARIOUS COURTS INCLUDING THE JURISDICTIONAL OF ITAT, MUMBAI . I HAVE CONSIDERED THE CITED DECISIONS INCLUDING THE DECISION IN THE CASE OF ITO-(TDS), (O SD), RANGE-2 VS. NAVI MUMBAI SEZ (P).LTD [2013] 38 TAXMANN.COM 218(MUMBAI-TRIB.). TH E FACTS OF THE CASE AND THE DECISION, AS REPORTED ARE AS UNDER: FACTS: ITA NO.4258/M/2015 MAHADEV P PATEL ASSESSMENT YEAR-2010-11 4 THE ASSESSEE ENTERED INTO LEASE AGREEMENTS WITH CID CO FOR ACQUISITION OF LEASEHOLD RIGHTS IN THE LAND TO DEVELOP AND OPERATE A SPECIAL ECONOMIC ZONE. THE PERIOD OF SAID LEASEHOLD RIGHTS WAS 60 YEARS. IN TERMS OF LEASEHOLD AGREEMENT, THE ASSESSEE PAID LEASE PREMIUM TO CIDCO THE AO OPINED THAT LEASE PREMIUM PAID BY ASSESSEE A MOUNTED TO PAYMENT OF RENT WITHIN MEANING OF SECTION 194I AND, SINCE ASSE SSEE DID NOT DEDUCT TAX AT SOURCE WHILE MAKING SAID PAYMENT, IT WAS TO BE TREA TED AS ASSESSEE IN DEFAULT UNDER SECTION 201(1) AND 201(IA). THE COMMISSIONER (APPEALS) HELD THAT AMOUNT PAID BY THE ASSESSEE WAS LEASE PREMIUM FOR ACQUIRING LEASEHOLD RIGHTS IN RESPECT O F LEASED LAND AND THE SAME WAS NOT IN THE NATURE OF RENT AS CONTEMPLATED UNDER SECTION 194I. THUS, DEMAND RAISED BY THE AO BY INVOKING PROVISIONS OF SECTION 201(1)/201(IA) WAS SET ASIDE. ON REVENUES APPEAL. HELD: THE TERM RENT HAS BEEN DEFINED IN SECTION 194I, B UT OTHER TERMS LIKE, LEASE, LEASE PREMIUM, LESSOR AND LESSEE ETC. HAVE NOT BEEN DEFINED UNDER THE ACT. THE COMMISSIONER (APPEALS) HAS RIGHTLY STATED IN THE IM PUGNED ORDER THAT THE MEANING OF THESE TERMS AS PROVIDED IN THE TRANSFER OF PROPERTY ACT, 1882 HAVE TO BE CONSIDERED. (PARA 21) WHEN THE INTEREST OF THE LESSOR IS PARTED WITH FOR A PRICE, THE PRICE PAID IS CALLED LEASE PREMIUM OR SALAMI. BUT THE PERIODICAL PAYMENT S MADE FOR THE CONTINUOUS ENJOYMENT OF THE BENEFIT UNDER THE LEASE ARE IN THE NATURE OF RENT. [PARA 21.1] IN THE INSTANT CASE, THERE IS A TRANSFER OF SUBSTAN TIVE INTEREST OF LESSOR FOR THE LEASEHOLD LAND IN FAVOR OF THE ASSESSEE. THERE IS A CONFERMENT OF RIGHT ON THE LESSEE BY ACQUIRING LEASEHOLD LAND AND THE PREMIUM HAS BEEN PAID IN LIEU THEREOF AND NOT FOR THE PURPOSE OF USE OF LAND.[PAR A 21.2]. THEREFORE, THE LEASE PREMIUM PAID BY THE ASSESSEE F OR ACQUIRING LEASEHOLD LAND WITH A RIGHT TO DEVELOP A SEZ THEREON CANNOT BE SAI D TO BE AN ADVANCE PAYMENT OF RENT. ACCORDINGLY, PREMIUM PAID BY THE ASSESSEE FOR ACQUI RING LEASEHOLD LAND UNDER THE LEASE DEED(S) ENTERED INTO, ALTHOUGH WITH RESTR ICTIVE COVENANTS IS A CAPITAL EXPENDITURE, AND IT DOES NOT FALL WITHIN THE AMBIT OF RENT UNDER SECTION 194I [PARA 21.2] IN VIEW OF ABOVE, THE COMMISSIONER (APPEALS) RIGHTL Y HELD THAT THE PROVISIONS OF SECTION 194I IN RESPECT OF LEASE PREMIUM PAID BY TH E ASSESSEE ARE NOT ATTRACTED. [PARA 22] IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISSE D.[PARA 23}. 5.1 SINCE THE FACTS IN THE PRESENT CASE ARE ABSOLUT ELY IDENTICAL TO THE FACTS IN THE CASE OF NAVI MUMBAI SEZ(P) LTD (SUPRA), RESPECTFULLY FOLLOW ING THE DECISION OF JURISDICTIONAL ITAT, WITH WHICH I AGREE, IT IS HEREBY HELD THAT THE LEAS E PREMIUM PAID BY THE ASSESSEE TO CIDCO LTD. DURING THE YEAR UNDER CONSIDERATION, WAS NOT I N THE NATURE OF RENT AS CONTEMPLATED U/S.194I AND, THEREFORE, THE ASSESSEE WAS NOT REQUI RED TO DEDUCT TAX AT SOURCE FROM THE SAID PAYMENT U/S.194I. ALSO THE DEPARTMENTS APPEAL AGAI NST THE MUMBAI ITAT DECISION IN THE CASE OF WADHWA & ASSOCIATES, IS AT PRE-ADMISSION ST AGE AS ON DATE, AS PER THE WEBSITE OF HONBLE HIGH COURT OF BOMBAY. THE DECISION OF JURIS DICTIONAL ITAT HAS BINDING PRECEDENT UNTIL SET ASIDE OVER RULED BY A SUPERIOR COURT. ACC ORDINGLY, THE DEMAND RAISED BY THE ASSESSING OFFICER U/S.201(1)/201(1A), TREATING THE ASSESSEE IN DEFAULT, IS INCORRECT AND IS DIRECTED TO BE DELETED. GROUNDS OF APPEAL ARE ALLOWED TO THE ABOVE EXTENT . ITA NO.4258/M/2015 MAHADEV P PATEL ASSESSMENT YEAR-2010-11 5 AGGRIEVED, THE REVENUE HAS CONTESTED THE STAND OF L D. CIT(A) BEFORE US. 4. THE LD. DEPARTMENTAL REPRESENTATIVE [DR] PLACED RELIANCE ON THE ORDER OF LD. AO AND CONTENDED THAT THE DEFINITION O F RENT U/S 194-I WAS WIDE ENOUGH TO COVER THE LEASE PREMIUM PAID BY THE ASSESSEE AND THEREFORE, THE DEMAND WERE RIGHTLY RAISED AGAINST T HE ASSESSEE. 5. WE HAVE HEARD THE CONTENTIONS AND PERUSED RELEVA NT MATERIAL ON RECORD. IT IS UNDISPUTED FACT THAT THE ASSESSEE HAS PAID LEASE PREMIUM TO CIDCO TOWARDS ACQUISITION OF LEASE HOLD RIGHTS FOR SIXTY YEARS. THE SAME IS APPARENTLY A PRICE FOR OBTAINING THE LEASE AND T HEREFORE, PRECEDES THE GRANT OF LEASE AND THEREFORE, COULD NOT BE EQUATED WITH RENT. FURTHERMORE, THE ASSESSEE HAS NOT CLAIMED ANY EXPEN DITURE IN THE PROFIT & LOSS ACCOUNT BUT REFLECTED THE LAND AS AN ASSET I N THE BALANCE SHEET. THEREFORE, THE LD. CIT(A) WAS RIGHT IN PLACING THE RELIANCE ON THE JUDGMENT OF THIS TRIBUNAL RENDERED IN ITO-(TDS) VS. NAVI MUMBAI SEZ (P).LTD [2013 38 TAXMANN.COM 218]. SIMILAR VIEW HAS BEEN TAKEN BY THIS TRIBUNAL IN ITO(TDS) VS. WADHWA & ASSOCIATES REALTORS P. LTD. [ 2013 36 TAXMANN.COM 526]. 6. OUR VIEW IS FURTHER FORTIFIED BY A RECENT DECISI ON OF HONBLE DELHI HIGH COURT RENDERED IN RAJESH PROJECTS (INDIA) P. LTD. & OTHERS VS CIT (TDS) [2017 392 ITR 483] WHEREIN THE HONBLE HIGH COURT HAS SUCCINCTLY SUMMARIZED ITS DECISION IN THE FOLLOWING MANNER:- 20. IN VIEW OF THE ABOVE ANALYSIS, THE COURT HEREB Y CONCLUDES AS FOLLOWS: (1) AMOUNTS PAID AS PART OF THE LEASE PREMIUM IN TE RMS OF THE TIME-SCHEDULE(S) TO THE LEASE DEEDS EXECUTED BETWEEN THE PETITIONERS AN D GNOIDA, OR BI-ANNUAL OR ANNUAL PAYMENTS FOR A LIMITED/SPECIFIC PERIOD TOWAR DS ACQUISITION OF LEASE HOLD RIGHTS ARE NOT SUBJECT TO TDS, BEING CAPITAL PAYMENTS; (2) AMOUNTS CONSTITUTING ANNUAL LEASE RENT, EXPRESS ED IN TERMS OF PERCENTAGE (E.G. 1%) OF THE TOTAL PREMIUM FOR THE DURATION OF THE LE ASE, ARE RENT, AND THEREFORE SUBJECT ITA NO.4258/M/2015 MAHADEV P PATEL ASSESSMENT YEAR-2010-11 6 TO TDS. SINCE THE PETITIONERS COULD NOT MAKE THE DE DUCTIONS DUE TO THE INSISTENCE OF GNOIDA, A DIRECTION IS ISSUED TO THE SAID AUTHORITY (GNOIDA) TO COMPLY WITH THE PROVISIONS OF LAW AND MAKE ALL PAYMENTS, WHICH WOUL D HAVE BEEN OTHERWISE PART OF THE DEDUCTIONS, FOR THE PERIODS, IN QUESTION, TILL END OF THE DATE OF THIS JUDGMENT. ALL PAYMENTS TO BE MADE TO IT, HENCEFORTH, SHALL BE SUB JECT TO TDS. 7. RESPECTFULLY FOLLOWING THE ABOVE JUDICIAL PRONOU NCEMENTS, TAKING THE SAME VIEW, WE HOLD THAT THE LEASE PREMIUM PAID BY THE ASSESSEE WAS CAPITAL IN NATURE AND THEREFORE, NO TDS WAS REQ UIRED TO BE DEDUCTED THEREUPON AND THEREFORE, THE ASSESSEE COULD NOT BE VISITED WITH THE IMPUGNED DEMANDS. 8. RESULTANTLY, THE REVENUES APPEAL STANDS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JULY, 2017. SD/- SD/- (JOGINDER SINGH) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 31 .07.2017 SR.PS:- THIRUMALESH / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. $'- , - , / DR, ITAT, MUMBAI 6. ./ / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI