CHEER SAGAR, Jaipur V. DCIT, Jaipur

ITA 630/JPR/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5273 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 18-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G R PARIKH JCIT DR DHK
• Assessee Lawyers: PARMOD PATINI
• Keywords: Question of law; Revenue expenditure; Capital expenditure
• Section: 201(1)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPUN] YS[KK LNL; DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 630/JP/2013 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13 M/S. CHEER SAGAR E-194, INDUSTRIAL AREA, MANSAROVAR JAIPUR CUKE VS. THE DCIT (TDS) JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AABFC 7023 N VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI PARMOD PATINI JKTLO DH VKSJ LS@ REVENUE BY:SHRI G.R. PARIKH, JCIT- DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 30/05/2016 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 03 /06/2016 VKNS'K@ ORDER PER BHAGCHAND, AM THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A)-III, JAIPUR DATED 30-04-2013 FOR THE ASSESS MENT YEAR 2012-13 WHEREIN THE ASSESSEE HAS RAISED FOLLOWING GROUNDS O F APPEAL. 1. THE LD. CIT(A) HAS GROSSLY ERRED IN FACT AS WE LL AS IN LAW IN CONFIRMING THE ACTION OF DCIT (TDS) IN TREATING THE TRANSACTION OF LAND BY RIICO TO THE APPELLANT F OR 99 YEARS AGAINST LUMPSUM CONSIDERATION AS LEASE RENT B Y TREATING THE SAME AS RENT LIABLE FOR DEDUCTION OF TAX U/ S 194I OF I.T. ACT, 1961. ITA NO. 630/JP/2013 M/S. CHEER SAGAR VS. DCIT (TDS), JAIPUR . 2 2. THE LD. CIT(A) HAS GROSSLY ERRED IN FACT AS WELL AS IN LAW IN CONFIRMING THE ACTION OF LD. DCIT (TDS ) OF TREATING THE APPELLANT ASS THE ASSESSEE IN DEFAUL T FOR NON- CONSIDERATION OF TDS FROM DEVELOPMENT CHARGES PAID TO RIICO AGAINST ALLOTMENT OF INDUSTRIAL LAND TO THE A PPELLANT ON LEASE FOR 99 YEARS BY TREATING THE SAID PAYMENT AS RENT AS PER SECTION 194I OF I.T. ACT, 1961 3. THE LD. CIT(A) HAS ALSO GROSSLY ERRED IN CONFIRMING THE LEVY OF INTEREST U/S 201(1A) OF I.T. ACT, 1961 AMOUNTING TO RS. 1,08,341/- [ALTHOUGH THE SAID INTE REST HAS BEEN LATER CHARGED BY THE DCIT (TDS) IN VIEW OF THE NEWLY INSERTED PROVISO TO SECTION 201(1A)] 2.1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE FIRM IS ENGAGED IN THE MANUFACTURE AND SALE OF READYMADE GARMENTS. THE AO OBSERVED THAT ASSESSEE ENTERED INTO A LEASE AGREEMENT DATED 30-01 -2012 WITH RIICO TO TAKE ON 99 YEARS LEASE A PLOT OF LAND AT RAMCHANDRA PURA INDUSTRIAL AREA, SITAPURA EXTENTION, JAIPUR FOR WHICH TOTAL AMOUNT O F RS. 3,40,17,310/- WAS REQUIRED TO BE PAID BY THE ASSESSEE TO RIICO WH ICH INCLUDED DEVELOPMENT CHARGES OF RS. 2,70,46,980/-, INTEREST ON DEVELOPMENT CHARGES OF RS. 66,94,040/-, SECURITY DEPOSIT OF RS. 2,70,470/- AND ECONOMIC RENT OF RS. 5,820/-. THE ENTIRE DEAL WAS F INANCED BY RIICO AND THE PAYMENT WAS REQUIRED TO BE MADE IN INSTALMENTS FROM F.Y. 2011-12 TO 2016-17. DURING THE F.Y. 2011-12, THE ASSESSEE PAID SUM OF RS. ITA NO. 630/JP/2013 M/S. CHEER SAGAR VS. DCIT (TDS), JAIPUR . 3 90,43,169/- TO RIICO ON WHICH NO TDS WAS MADE. A SH OW CAUSE NOTICE WAS ISSUED BY THE DCIT (TDS ) TO THE ASSESSEE FOR N ON-DEDUCTION OF TDS AND FOR WHICH THE ASSESSEE VIDE LETTER DATED 10-05 -2012 SUBMITTED THAT THE PAYMENT WAS MADE TO RIICO FOR PURCHASE OF INDUS TRIAL LAND AND NOT AS LEASE RENT. THE ASSESSEE SUBMITTED THAT THE SAID LEASE AGREEMENT DATED 30-01-2012 WAS REGISTERED ON WHICH THE ASSESSEE PA ID STAMP DUTY AND REGISTRATION CHARGES OF RS. 9,85,784/- TAKING THE M ARKET VALUE OF LAND AT RS. 3,40,17,130/-. THE DEVELOPMENT CHARGES AND OTHE R CHARGES PAID TO RIICO WERE NOTHING BUT THE COST OF LAND PURCHASED B Y THE ASSESSEE. THE LEASE FOR 99 YEARS WAS EQUIVALENT TO SALE. HENCE TH E PROVISIONS OF SECTION 194 I WERE NOT APPLICABLE ON THE PAYMENTS MADE TO R IICO. THE ASSESSEE FURTHER SUBMITTED THAT THE SAID LEASE TRANSACTION F ALLS WITHIN THE DEFINITION OF TRANSFER AS GIVEN IN SECTION 2(47)(V)/(VI) AND S UB CLAUSE (F) OF SECTION 269UA(2) OF THE ACT. THE AO WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE AND OBSERVED AS UNDER:- (I) RIICO HAS ALLOTTED THE INDUSTRIAL PLOT TO THE ASSESSEE ON LEASE AND THE LEASE AGREEMENT NOWHERE MENTIONS THAT THE P LOT WAS SOLD OR TRANSFERRED TO THE ASSESSEE (II) THE ASSESSEE WAS REQUIRED TO PAY YEARLY RENT I N ADVANCE TO RIICO BY 31 ST JULY EVERY YEAR. RIICO ALSO RESERVED THE RIGHT TO REVISE THE RATE OF RENT EVERY FIVE YEAR. ITA NO. 630/JP/2013 M/S. CHEER SAGAR VS. DCIT (TDS), JAIPUR . 4 (III) THE LEASE AGREEMENT DOES NOT GIVE THE OWNERSH IP RIGHT TO THE ASSESSEE WHO HAS NO RIGHT TO SELL OR TRANSFER THE L AND TO OTHERS. (IV) ASSESSEE HAS BEEN GIVEN ONLY A RIGHT TO USE TH E LAND FOR SPECIFIC PURPOSE AND FOR SPECIFIED PERIOD. (V) THE LESSOR AND HIS OFFICIAL HAVE THE RIGHT TO E NTER THE LAND AND BUILDING ERECTED THEREON TO INSPECT THE SAME. (VI) THE ASSESSEE WILL NOT MAKE ANY EXCAVATION UPON ANY PART OF LAND EXCEPT FOR FOUNDATION OF BUILDING. (VII) IN CASE OF ANY VIOLATION OF THE TERMS AND CON DITIONS OF LEASE AGREEMENT, THE LEASE MAY BE CANCELLED, LAND MAY BE ACQUIRED BACK AND SECURITY DEPOSIT SHALL STAND FORFEITED BY RIICO . (VIII) THE LEASE RENT PAID BY THE ASSESSEE IS COVER ED BY THE DEFINITION OF RENT AS PROVIDED IN EXPLANATION T O SECTION 194 I. (IX) SECTION 194 I NOWHERE MENTIONS ANY MINIMUM PE RIOD OF L EASE TO BE CONSIDERED AS SALE THUS THE DCIT (TDS) HELD THAT PAYMENTS MADE UNDER D IFFERENT NAMES BY THE ASSESSEE TO RIICO FALL UNDER THE DEFINITION OF RENT ON WHICH ASSESSEE WAS LIABLE TO MAKE TDS U/S 194-I OF THE AC T. THE DCIT (TDS) THUS OBSERVED THAT SINCE THE ASSESSEE DID NOT DEDUC T THE TAX, THEREFORE, THE DEMAND U/S 201(1)/201(1A) OF THE ACT WAS RAISED. 2.2 AGGRIEVED, THE ASSESSEE PREFERRED FIRST APPEAL BEFORE THE LD. CIT(A) WHO CONFIRMED THE ACTION OF THE AO BY HOLDING AS UN DER:- ITA NO. 630/JP/2013 M/S. CHEER SAGAR VS. DCIT (TDS), JAIPUR . 5 THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HON'BLE ITAT CHENNAI IN THE CASE OF FOXCONN INDIA DEVELOPER (P) LTD. (2012) 53 SOT 13/(2012) 24 TAXMANN.COM 48. IN THIS CASE, THE ASSESSEE HAD TAKEN ON LEASE A LAND FOR A PERIOD OF 99 YEARS FROM S FOR WHICH AN AMOUNT OF RS. 28.41 CRORE WAS PA ID AS UPFRONT CHARGES FOR LEASE WHICH WAS NOT REFUNDABLE. AS PER THE LEASE DEED, THE ASSESSEE ALSO PAID LEASE RENT OF RS. 1 PER YEAR . AO HELD THAT UPFRONT LEASE FALLS WITHIN THE DEFINITION OF RENT U/S 194I AND THEREFORE, ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOU RCE THEREFROM. ASSESSEE CLAIMED THAT THE UPFRONT FEE WAS IN THE NA TURE OF SALE CONSIDERATION. ON THESE FACTS HON'BLE TRIBUNAL HAS HELD AS UNDER:- 9. WHAT THE ASSESSEE HAD PAID TO M/S. SIPCOT LTD. WAS UNDER A LEASE AGREEMENT. ONE OF THE ARGUME NTS TAKEN BY LD. AR WAS THAT THE LEASE AGREEMENT WAS DA TED AFTER THE END OF THE RELEVANT PREVIOUS YEAR AND HENCE THE PAYMENTS MADE OUGHT NOT BE CONSIDERED AS PURSUANT TO THE LEA SE AGREEMENT. HOWEVER, IN OUR OPINION, THIS IS NOT REL EVANT. REASON BEING THAT PAYMENTS WERE EFFECTED DURING THE RELEVLANT PREVIOUS YEAR AND IT IS AN ACCEPTED POSIT ION THAT SUCH PAYMENTS WERE FOR THE LEASE OF THE LAND. SO, T HE DATE OF THE AGREEMENT DOES NOT MATER SINCE THE LEASE WAS AL READY IN CONTEMPLATION AND ASSESSEE WOULD NOT HAVE GIVEN THE MONEY UNLESS THE LEASE WAS AT LEAST ORALLY AGREED BETWEEN THE PARTIES. THIS BEING SO , THE PAYMENT MADE BY THE AS SESSEE TO M/S. SIPCOT LTD., BY WHATEVER NAME CALLED, WAS UNDE R A LEASE AGREEMENT. DEFINITION OF RENT GIVEN ABOVE WILL DEFINITELY INCLUDE PAYMENTS OF ANY TYPE UNDER ANY A GREEMENT OR ARRANGEMENT FOR USE OF LAND. ON THE FACT OF SUCH A CLEAR STATUTORY DEFINITION, WE CANNOT SAY THAT NORMAL MEA NING OF RENT HAS TO BE GIVEN WHILE INTERPRETING SECTION 194-I OF THE ACT. WHILE INTERPRETING RENT AS MENTIONED I N SECTION 194-I, WE HAVE TO APPLY THE DEFINITION GIVEN TO R ENT IN THE EXPLANATION THERETO. THE DEFINITION OF RENT GIV EN UNDER EXPLANATION TO SECTION 194-I OF THE ACT WILL SQUARE LY COVER THE PAYMENT MADE BY THE ASSESSEE TO M/S. SIPCOT LTD . AND RENDER SUCH PAYMENT AS SOMETHING ON WHICH ASSESSEE WAS OBLIGED TO DEDUCT TAX AT SOURCE. WE ARE THEREFORE, OF THE OPINION THAT ASSESSEE HAVING NOT DEDUCTED SUCH TAX AT ITA NO. 630/JP/2013 M/S. CHEER SAGAR VS. DCIT (TDS), JAIPUR . 6 SOURCE, RIGOURS OF SECTIONS 201(1) AND 201(1A) OF T HE ACT ARE ATTACHED. THE FACTS OF THE APPELLANTS CASE ARE EXACTLY SIMIL AR TO THE FACTS OF THE CASE DECIDED BY HON'BLE ITAT, CHENNAI . THE CASE LAWS RELIED UPON BY LD. AR ON DIFFERENT FATS AND ISSUES. THE MAIN CONTENTION IN THE CASES RELIED UPON BY THE APPELLAN T IS WHETHER THE PAYMENT MADE UNDER A LEASE AGREEMENT FOR LONGER PER IOD WAS A REVENUE EXPENDITURE OR CAPITAL EXPENDITURE. HENCE, THESE CASE LAWS ARE NOT RELEVANT FOR THE INTERPRETATION OF SECTION 194I OF THE ACT. IN VIEW OF THE ABOVE DISCUSSION, THE GROUND RAISED BY THE APPELLANT IS REJECTED AND THE DECISION OF DCIT, TDS IS UPHELD. 2.3 NOW THE ASSESSEE IS BEFORE ME AND THE LD. AR TH E ASSESSEE CONTENDS THAT THE DECISION OF ITAT CHENNAI BENCH I N THE CASE FOXCONN INDIA DEVELOPERS (P) LTD. (SUPRA) HAS BEEN REVERSED BY THE HON'BLE MADRAS HIGH COURT VIDE ITS ORDER DATED 4 TH APRIL, 2016 IN SAME ASSESSEE'S CASE I.E. FOXCONN INDIA DEVELOPER (P) LTD. VS. ITO, TDS WARD II(3), CHENNAI. 2.4 THE LD. DR RELIED ON THE ORDERS OF THE LOWER AU THORITIES. 2.5 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS OBSERVED THAT HON'BLE MADRAS HIGH COURT IN THE CASE OF FOXCONN INDIA DEVELOPER (P) LTD. VS. ITO, T DS WARD II(3), CHENNAI HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSE SSEE BY FOLLOWING OBSERVATIONS. ITA NO. 630/JP/2013 M/S. CHEER SAGAR VS. DCIT (TDS), JAIPUR . 7 43. THEREFORE, IT IS CRYSTAL CLEAR THAT ONE TIME NON- REFUNDABLE UPRFONT CHARGED PAID BY THE ASSESSEE WAS NOT (I) UNDER THE AGREEMENT OF LEASE AND (II) MERELY FOR THE USE OF THE LAND. THE PAYMENT MADE FOR A VARIETY OF PURPOSES SUCH AS (I) BECOMING A CO- DEVELOPER (II) DEVELOPING A PRODUCT SPECIFIC SPECIA L ECONOMIC ZONE IN THE SRIPERUMBUDUR HI-TECH SPECIAL ECONOMIC ZONE (III) FOR PUTTING UP AN INDUSTRY IN THE LAND. THE LESSOR AS WELL AS THE LESSEE INTENDED TO TREAT THE LEASE VIRTUALLY AS A D EEMED SALE GIVING NO SCOPE FOR ANY CONFUSION. IN SUCH CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT THE UPFRONT PAYMENT MADE BY TH E A FOR THE ACQUISITION OF LEASEHOLD RIGHTS OVER AN IMMOVABLE P ROPERTY FOR A LONG DURATION OF TIME SAY 99 YEARS COULD NOT BE TAK EN TO CONSTITUTE RENTAL INCOME AT THE HANDS OF THE LESSOR, OBLIGING THE LESSOR TO DEDUCT TAX AT SOURCE U/S 194-I. HENCE, THE FIRST SU BSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE APPELLANT / ASS ESSEE. 44. ONCE THE FIRST SUBSTANTIAL QUESTION OF LAW IS A NSWERED IN FAVOUR OF THE APPELLANT / ASSESSEE BY HOLDING TH AT THE ASSESSEE WAS NOT UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE , IT FOLLOWS AS A COROLLARY THAT THE APPELLANT CANNOT BE TERMED AS AN ASSESSEE IN DEFAULT. AS A CONSEQUENCE, THERE IS NO QUESTION OF LEVY OF INTEREST U/S 201(1-A) OF THE ACT. 45. IN THE RESULT, THE APPELLANT IS ALLOWED, THE FI RST SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR O F THE APPELLANT / ASSESSEE. IN VIEW OF OUR ANSWER TO THE FIRST SUBSTA NTIAL QUESTION OF LAW, THE SECOND SUBSTANTIAL QUESTION OF LAW DOES NO T ARISE. NO COSTS. RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE MAD RAS HIGH COURT IN THE CASE OF FOXCONN INDIA DEVELOPER (P) LTD. VS. ITO, T DS WARD II(3), (SUPRA), I ALLOW THE APPEAL OF THE ASSESSEE. ITA NO. 630/JP/2013 M/S. CHEER SAGAR VS. DCIT (TDS), JAIPUR . 8 3.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03 /06/ 2016 SD/- HKKXPUN ( BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 03 /06/ 2016 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S. CHEER SAGAR , JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- THE DCIT(TDS), JAIPUR 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 630/JP/2013) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ @ ASSISTANT. REGISTRAR