ITO (TDS) 3(2), MUMBAI V. SHREE NAMAN HOTEL P.LTD, MUMBAI

ITA 691/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70799 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 06-08-2013
• Assessment Year: 2011-2012
• Appeal Filed On: 02-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAHESH O RAJORA B C; J D MISTRY SHRI A T JAIN
• Assessee Lawyers: JAVED AKHTAR B
• Keywords: Maximum Marginal Rate; Capital receipt; Capital expenditure
• Section: 37(1); 201(1)

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI .. , !'# $ $ $ $ ! %, & !'# !' BEFORE SHRI P.M. JAGTAP, AM AND SHRI SANJAY GARG, J M !./ I.T.A. NO. 686 & 687 /MUM/2012 ( &) % $*% &) % $*% &) % $*% &) % $*% / / / / ASSESSMENT YEAR : 2008-09 & 2009-10) INCOME TAX OFFICER (TDS 3(2), 9 TH FLOOR, SMT K.G. MITTAL AYURVEDIC HOSPITAL BUILDING, CHARNI ROAD (W), MUMBAI 400 002. ) ) ) ) / VS. SHREE NAMAN DEVELOPERS LTD., 315, PAREKH MARKET, 39, J.S. ROAD, OPERA HOUSE, MUMBAI 400 004. #+ !./ PAN : AAACN2568H ( +, / // / APPELLANT ) .. ( -.+, / RESPONDENT ) -.' !/C.O. NO. 08 & 09 /MUM/20 13 ARISING OUT OF ITA NO. 686 & 687 /MUM/20 12 ( &) % $*% &) % $*% &) % $*% &) % $*% / / / / ASSESSMENT YEARS : 2008-09 & 2009-10) SHREE NAMAN DEVELOPERS LTD., 315, PAREKH MARKET, 39, J.S. ROAD, OPERA HOUSE, MUMBAI 400 004. ) ) ) ) / VS. INCOME TAX OFFICER (TDS 3(2), 9 TH FLOOR, SMT K.G. MITTAL AYURVEDIC HOSPITAL BUILDING, CHARNI ROAD (W), MUMBAI 400 002. #+ !./ PAN : AAACN2568H CROSS OBJECTOR .. ( -.+, / RESPONDENT ) ITA 686 & 687/M/12 CO 08 & 09/M/13 ITA 688 TO 691/M/12 CO 12 TO 15/M/13 2 !./ I.T.A. NO. 688 TO 691 /MUM/2012 ( &) % $*% &) % $*% &) % $*% &) % $*% / / / / ASSESSMENT YEARS : 2008-09, 2009-10, 2010-11 & 2011 -12) INCOME TAX OFFICER (TDS 3(2), 9 TH FLOOR, SMT K.G. MITTAL AYURVEDIC HOSPITAL BUILDING, CHARNI ROAD (W), MUMBAI 400 002. ) ) ) ) / VS. SHREE NAMAN HOTELS PVT. LTD., NAMAN CENTRE, C-31, BANDRA-KURLA COIMPLEX, BANDRA (E), MUMBAI 400 051. #+ !./ PAN : AAJCS 7195L ( +, / // / APPELLANT ) .. ( -.+, / RESPONDENT ) -.' !/C.O. NO. 12 TO 15 /MUM/20 13 ARISING OUT OF ITA NO. 688 TO 691 /MUM/20 12 ( &) % $*% &) % $*% &) % $*% &) % $*% / / / / ASSESSMENT YEARS : 2008-09 & 2009-10, 2010-11 & 201 1-12) SHREE NAMAN HOTELS PVT. LTD., 315, PAREKH MARKET, 39, J.S. ROAD, OPERA HOUSE, MUMBAI 400 004. ) ) ) ) / VS. INCOME TAX OFFICER (TDS 3(2), 9 TH FLOOR, SMT K.G. MITTAL AYURVEDIC HOSPITAL BUILDING, CHARNI ROAD (W), MUMBAI 400 002. #+ !./ PAN : AAACN2568H CROSS OBJECTOR .. ( -.+, / RESPONDENT ) +, B C ! / ASSESSEE BY : SHRI J.D. MISTRY SHRI A.T. JAIN & SHRI MAHESH O. RAJORA -.+, B C ! / RESPONDENT BY : SHRI JAVED AKHTAR !)$ B / // / DATE OF HEARING : 06-08-2013 DE* B / DATE OF PRONOUNCEMENT : 14-08-2013 ITA 686 & 687/M/12 CO 08 & 09/M/13 ITA 688 TO 691/M/12 CO 12 TO 15/M/13 3 'F / O R D E R PER BENCH . : THESE SIX APPEALS PREFERRED BY THE REVENUE AGAINST TWO SEPARATE ORDERS PASSED BY THE LD. CIT(A) -14, MUMBAI DATED 21-11-20 11 IN THE CASE OF TWO ASSESSEES INVOLVE A COMMON ISSUE AND THE SAME THERE FORE HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF ALONG WITH THE C ROSS OBJECTIONS FILED BY THE ASSESSEES BY THIS SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. ALTHOUGH THE REVENUE HAS RAISED AS MANY AS 12 ID ENTICAL GROUNDS IN ALL THE SIX APPEALS, THE SOLITARY ISSUE ARISING OUT OF THE SAME IS WHETHER THE ASSESSEE IS REQUIRED TO DEDUCT TAX AT SOURCE FROM T HE PAYMENT OF LEASE PREMIUM MADE TO MMRDA DURING THE YEARS UNDER CONSID ERATION U/S 194-1 OF THE INCOME TAX ACT, 1961 (THE ACT). 3. THE RELEVANT FACTS OF THE CASE GIVING RISE TO TH ESE APPEALS ARE THAT THE ASSESSEES WERE ALLOTTED CERTAIN PLOTS OF LAND IN TH E BANDRA KURLA COMPLEX ON LEASE SUBJECT TO PAYMENT OF LEASE PREMIUM TO MMRDA. IN ADDITION TO SUCH LEASE PREMIUM, THE ASSESSEE MADE FURTHER PAYMENT OF PREMIUM TO MMRDA TOWARDS ADDITIONAL BASEMENT AREA AND AREAS TOWARDS LIFTS, STAIRCASE & LIFT LOBBIES ETC. DURING THE YEARS UNDER CONSIDERATION. ACCORDING TO THE A.O., THE ASSESSEES WERE REQUIRED TO DEDUCT TAX AT SOURCE FRO M THE PAYMENT OF LEASE PREMIUM MADE TO MMRDA AS PER THE PROVISIONS OF SECT ION 194-1 OF THE ACT AND SINCE NO SUCH TAX WAS DEDUCTED BY THE ASSESSEES FROM THE SAID PAYMENTS, HE ISSUED NOTICES TO THE ASSESSEES REQUIR ING THEM TO SHOW CAUSE AS TO WHY THEY SHOULD NOT BE TREATED AS THE ASSESSEES IN DEFAULT FOR THEIR FAILURE TO DEDUCT THE TAX AT SOURCE FROM THE PAYMENTS OF LE ASE PREMIUM MADE TO MMRDA THE ASSESSEES FILED THEIR REPLY TO SHOW CAUS E NOTICES ISSUED BY THE A.O. EXPLAINING THEIR STAND ON THE ISSUE AND AFTER CONSIDERING AND DISCUSSING ITA 686 & 687/M/12 CO 08 & 09/M/13 ITA 688 TO 691/M/12 CO 12 TO 15/M/13 4 THE SAME IN DETAIL, THE A.O. HELD THAT THE ASSESSEE S WERE LIABLE TO DEDUCT TAX AT SOURCE FROM THE PAYMENT MADE TO MMRDA ON ACCOUNT OF LEASE PREMIUM AND TREATED THEM AS THE ASSESSEES IN DEFAULT FOR FA ILURE TO DO SO FOR THE FOLLOWING REASONS GIVEN IN THE ORDERS PASSED U/S 20 1(1) AND 201(1A) OF THE ACT, WHICH ARE IDENTICAL IN THE CASE OF BOTH THE AS SESSEES: AT THE OUTSET, IT NEEDS TO BE MENTIONED THAT THE A SSESSEE HAS VEHEMENTLY CLAIMED THAT THE PAYMENT REFERRED IN SHO W CAUSE DOES RIOT BEAR THE CHARACTER OF RENT MENTIONED IN SECT. 194 I AND THEREFORE THERE IS NO REQUIREMENT OF DEDUCTION OF TAX FROM SUCH PAY MENT MADE TO MMRDA. THE ENTIRE EMPHASIS OF THE ASSESSEE FROM GET TING AWAY FROM THE CLUTCHES OF SECTION 194 I IS THAT THE PAYMENT H AS NOT BEEN MADE FOR USE OF ANY LAND OR BUILDING BUT THE PAYMENTS RELATE S TO APPROVAL TO PERMIT AREAS COUNTED TOWARDS STAIR-CASE, LIFT, LIFT LOBBIES, ETC. CLAIMED FREE OF FSI. THIS PLEA OF THE ASSESSEE IS DEVOID OF ANY MERITS FROM VERY FACT THAT THIS ADDITIONAL PAYMENT OF LEASE PREMIUM IS EXTENSION OF ADDITIONAL LEASE LIABILITY ARISEN OUT OF ORIGINAL L EASE AGREEMENT ENTERED BETWEEN M/S. MMRDA AND M/S. NAMAN DEVELOPERS LTD. T HE ASSESSEE IS REQUIRED TO MAKE A PAYMENT DUE TO THE FACT THAT HE BEING PROVIDED ADDITIONAL USAGE AND AMENITY BY THE MMRDA IN ADDITI ON TO WHAT SPECIFIED IN THE ORIGINAL LEASE AGREEMENT. THIS BEI NG THE EXTENSION OF THE ORIGINAL AGREEMENT THE PAYMENT BEING MADE FOR G RANTING OF ADDITIONAL FACILITIES SUCH PAYMENT BEARS THE VERY C HARACTER WHICH WAS OWNED BY THE ORIGINAL CHARACTER I.E. RENT. FURTHER, ASSESSEES PLEAS THAT THE PAYMENT OF PREMIUM IS NOT FOR USE OF ANY LAND D OES NOT HOLD ANY WATER FROM THE VERY FACT THAT THE AREA USED FOR STA IR-CASE, LIFTS, AND LOBBIES SHOULD BE ALLOWED FREE OF FSI WHEREBY THE A SSESSEE HAS BECAME ENTITLED FOR USAGE OF SUCH FSI FOR HIS FRUITFUL PUR POSE IN AS MUCH AS ON SUCH ADDITIONAL FSI ENABLED ASSESSEE TO CONSTRUCT A DDITIONAL STRUCTURE. THUS IN LIEU OF SUCH ADDITIONAL ENTITLEMENT THE ASS ESSEE WAS REQUIRED TO MAKE ADDITIONAL PAYMENT TO THE MMRDA THAN FIXED BY THE ORIGINAL LEASE DEED. SUCH PAYMENT BEING ADDITIONAL PAYMENT T HAN WHAT WAS FIXED BY THE MMRDA IS A LEASE PAYMENT AND THEREFORE THE ASSESSEE WAS REQUIRED TO ADHERED TO THE PROVISIONS OF SECT. 194 I. THE LAND UNDER QUESTION IN RESPECT OF WHICH NOW THE ASSESSEE HAS GOT APPROVAL TO PERMIT AREAS COUNTED TOWARDS STAIR-CASE , LIFT, LIFT LOBBIES, ETC. CLAIMED FREE OF FSI HAS BEEN GIVEN BY THE MMRD A (LESSOR) TO THE NAMAN BKC PROPERTIES PVT. LTD. A JOINT VENTURE PROM OTED BY M/S. NAMAN DEVELOPERS LTD. ON LEASE VIDE LEASE AGREEMENT FOR WHICH LUMP SUM LEASE PREMIUM WAS CHARGED. THIS LUMP-SUM PAYMEN T MADE AT THE TIME OF ORIGINAL ALLOTMENT OF PLOT ON LEASE BY THE LEASEE HAS BEEN MADE TO AVOID RECURRING PAYMENT BY INSTALLMENTS TO THE L ESSOR. THE PAYMENT SO MADE IS A RENT FOR ENJOYMENT AND OCCUPANCY OF TH E IMPUGNED LAND. THE ONE TIME PAYMENT DOES NOT CHANGE THE CHARACTER OF THIS PAYMENT AND THEREFORE IT SQUARELY FALLS WITHIN THE PARAMETE R OF SECTION 1941. HOWE VER THE TDS WAS NOT DEDUCTIBLE ON THE IMPUGNED PREMIUM PAID ITA 686 & 687/M/12 CO 08 & 09/M/13 ITA 688 TO 691/M/12 CO 12 TO 15/M/13 5 AT THE TIME OF ALLOTMENT OF PLOT OF LAND IN RESPECT OF WHICH NOW ADDITIONAL FSI IS ALLOTTED WAS BECAUSE THE MMRDA WA S POSSESSING CERTIFICATE U/S. 197 AUTHORIZING THE PAYER (LEASEE) TO MAKE PAYMENT OF LEASE PREMIUM WITHOUT DEDUCTION OF TAX. HOWEVER, TH IS IS NOT THE SITUATION NOW. THE MMRDA IS NOT HAVING ANY SUCH EXE MPTION CERTIFICATE IN POSSESSION HENCE THE PREMIUM PAID NO W FOR ADDITIONAL FST I.E. APPROVAL OF PERMIT AREAS COUNTED TOWARDS S TAIR-CASE, LIFT, LIFT LOBBIES, ETC. CLAIMED FREE OF FSI FOR ADDITIONAL US AGE AND AMENITY DESERVES DEDUCTION OF TAX U/S. 1941 OF THE I.T. ACT . THIS INFERENCE ALSO GATHERS SUPPORT FROM THE JUDICI AL PRONOUNCEMENTS OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V/S HMT LIMITED - 203 ITR 820 AND THAT OF HONBLE CALCUTTA HIGH COURT IN THIS CASE OF BRAITHWOITE & CO. (I) LTD. V/S CIT - 111 ITR 542. B OTH THE HIGH COURTS IN THESE CASES HAVE RULED THAT LEASE PREMIUM PAID I N LUMP SUM IS NOTHING BUT THE RENT PAID IN ADVANCE TO OBVIATE PER IODICAL PAYMENTS. GOING BY THE VERDICT OF THESE HON BLE HIGH COURTS, THE RULINGS ARE SQUARELY APPLICABLE TO THE FACTS OF THE INSTANT CAS E. THEREFORE, THE OBLIGATION WAS CAST UPON THE ASSESSEE TO DEDUCT TAX AT SOURCE FROM THE LEASE PREMIUM PAID TO MMRDA AS PER THE PROVISIONS U /S 194-I OF THE INCOME TAX ACT, 1961. IT IS FURTHER NECESSARY TO MENTION THAT ADMITTEDLY VIDE ORIGINAL LEASE AGREEMENT FOR USAGE OF LAND AND SUBSEQUENT APPROVAL OF MMRDA TO PERMIT AREAS COUNTED TOWARDS STAIR-CASE, LIFT, LIFT LOBBIES, ETC. CLAIMED FREE OF FSI, THE ASSESSEE HAS ACQUIRED RIGHT OF OCC UPANCY AND RIGHT OF ENJOYMENT OF THE IMPUGNED PLOT, AND PAYMENT MADE FO R AVAILMENT OF SUCH RIGHT IS RENT AND RENT ONLY AND NOTHING ELSE. BY CALLING IT BY SOME OTHER NAME AND NOMENCLATURE DOES NOT CHANGE ITS REA L CHARACTER I.E. RENT. THEREFORE THE SUM SO PAID BY THE ASSESSEE IS RENT AND THEREFORE SQUARELY REQUIRES APPLICATION OF SECT. 194 I. AT TH IS JUNCTURE IT IS NECESSARY TO GO THROUGH THE EXPLANATION (I) TO SECT . 194 I WHICH PROVIDES DEFINCATION OF WORD RENT FOR THE PURPOSE OF SECT. 194 I. FOR SAKE OF CONVENIENCE AND PROPER UNDERSTANDING THE RE LEVANT PART OF EXPLANATION (I) TO SECT. 194 I IS REPRODUCED HEREIN UNDER: (I) RENT MEANS ANY PAYMENT, BY WHATEVER NAME CAL LED, UNDER ANY LEASE, SUB-LEASE, TENANCY OR ANY OTHER AGREEMEN T OR ARRANGEMENT 91 THE USE OF (EITHER SEPARATELY OR TO GENER) ANY (A) LAND; OR (B) TO (H ) WHETHER OR NOT ANY OR ALL OF THE ABOVE ARE OWNED BY THE PAYEE THE ASSESSEE CONVENIENTLY IGNORED TO READ THE CRUX OF THE DEFINITION OF RENT PROVIDED IN EXPLANATION (I) TO SECTION 194-I O F THE INCOME TAX ACT, ITA 686 & 687/M/12 CO 08 & 09/M/13 ITA 688 TO 691/M/12 CO 12 TO 15/M/13 6 1961. THE DEFINITION HAS CLEARLY MENTIONED THAT THE PAYMENT MADE BY WHATEVER NAME CALLED AND FOR THE USE OF GETS COVE RED BY THE PROVISIONS OF SECTION 194-I OF THE INCOME TAX ACT, 1961. AS A RESULT, BY CALLING LEASE RENT AS LEASE PREMIUM, DOES NOT CHANGE ITS RE AL CHARACTER. THE NOMENCLATURE USED IN RESPECT OF SUCH LEASE PREMIUM PAYMENT IS NOT DECISIVE. HERE IT IS NECESSARY TO MENTION THAT THE LEGISLATURE HAS TAKEN DUE CARE OF SUCH SITUATIONS ARISING BY USAGE OF DIF FERENT TERMINOLOGY BY PROVIDING A COMPREHENSIVE DEFINITION OF RENT IN THE SECTION ITSELF IN THE LIGHT OF THE FACTS OF THE CASE, STATUTORY PR OVISIONS OF SECT. 194 I ESPECIALLY DEFINITION OF RENT PROVIDED IN EXPLANATI ON THERETO AND THE CASE LAWS CITED ABOVE THE UNDERSIGNED HAS NO SLIGHT EST HESITATION IN ARRIVING AT THE CONCLUSION THAT ASSESSEE WAS REQUIR ED TO DEDUCT TAX U/S. 194 I AND PAY IT TO THE GOVT. TREASURY WITHIN THE S TIPULATED TIME AS REQUIRED BY PROVISIONS OF CHAPTER XVII B OF THE INC OME TAX ACT. ADMITTEDLY ASSESSEE HAS NOT COMPLIED WITH THE PROVI SIONS OF SECTION 194 I AND THEREBY CHAPTER XVII B OF THE INCOME TAX ACT BY DEDUCTING THE TDS FROM THE LEASE RENT PAID TO THE MMRDA AND NOT PAID IT TO THE GOVERNMENT TREASURY. AS A RESULT IT HAS COMMITTED D EFAULT WITHIN THE MEANING OF SECTION 201 (1) AND THEREBY IT IS AN ASS ESSEE IN DEFAULT. ACCORDINGLY, ASSESSEE IS TREATED AS ASSESSEE IN DEF AULT AND DIRECTED TO MAKE PAYMENT OF INTEREST U/S. 201 (1 A) ALONG-WITH THE TDS AS WORKED OUT HEREIN-UNDER: IN THE CASE OF SHREE NAMAN HOTELS PVT. LTD. DATE OF PAYMENT LEASE PREMIUM AMOUNT OF LEASE PREMIUM RATE OF TDS U/S 1941 @ 22.66% DELAY IN PAYMENT IN MONTHS INTEREST U/S 201(1A) @ 1% P.M. 23-10-2007 1,99,56,035 45,22,037 41 18,54,035 13-12-2008 7,82,925 1,77,410 27 47,900 31-12-2008 17-09-2009 6,22,34,818 56,82,406 1,41,02,409 12,87,633 27 18 38,07,650 2,31,774 30-06-2010 5,96,61,133 1,35,19,212 09 12,16,729 TOTAL 14,83,17,317 3,36,08,701 71,58,087 IN THE CASE OF SHREE NAMAN DEVELOPERS LTD. DATE OF PAYMENT LEASE PREMIUM AMOUNT OF LEASE PREMIUM RATE OF TDS U/S 1941 @ 22.66% DELAY IN PAYMENT IN MONTHS INTEREST U/S 201(1A) @ 1% P.M. 13-06-2007 72,31,80,150 16,38,72,621 45 7,37,42,679 31-12-2008 4,00,00,000 90,64,000 27 24,47,280 TOTAL 76,31,80,150 17,29,36,621 7,61,89,959 ITA 686 & 687/M/12 CO 08 & 09/M/13 ITA 688 TO 691/M/12 CO 12 TO 15/M/13 7 4. AGAINST THE ORDERS PASSED BY THE A.O. U/S 201(1) /201(1A) OF THE ACT, BOTH THE ASSESSEES FILED THEIR APPEALS BEFORE THE L D. CIT(A) AND ELABORATE SUBMISSIONS WERE MADE ON THEIR BEHALF BEFORE THE LD . CIT(A) IN SUPPORT OF THE STAND THAT THE LEASE PREMIUM PAID TO MMRDA NOT BEIN G IN THE NATURE OF ADVANCE RENT WITHIN THE MEANING OF SECTION 194-1 OF THE ACT, THESE ASSESSEES WERE NOT LIABLE TO DEDUCT TAX AT SOURCE AND THEREFO RE THEY COULD NOT BE TREATED AS ASSESSEES IN DEFAULT U/S 201(1) & 201(1A) OF THE ACT. THE SAID SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE BEFORE T HE LD. CIT(A), AS SUMMARIZED BY HIM IN HIS IMPUGNED ORDERS WERE AS UN DER:- THE PAYMENT MADE BY THE APPELLANT (LESSEE) TO THE MMRDA LESSER IS FOR ACQUIRING THE RIGHT IN THE LEASE PREMISES AND N OT AN ADVANCE RENT FOR USE OF THE LEASE PREMISES OVER A PERIOD OF 80 YEARS . II) THE LEASE PREMIUM HAS BEEN PAID FOR GETTING POS SESSION OF THE LEASE PROPERTY BEFORE THE LEASE AGREEMENT IS ENTERED INTO . III) THE APPELLANT (LESSEE) HAS A RIGHT TO OWN AND TRANSFER THE LEASE PROPERTY FOR A CONSIDERATION SUBJECT TO COMPLIANCE OF CONDITIONS STIPULATED IN THE LEASE AGREEMENT. CLAUSE 3 (P) OF THE LEASE A GREEMENT CLEARLY RECOGNIZES THE RIGHT TO OWNERSHIP OF THE LESSEE OVE R LEASE PROPERTY. IV) THE LEASE PROPERTY UNDER THE AGREEMENT CAN BE I NHERITED OR SUCCEEDED BY THE LEGAL HEIR OR SUCCESSOR. V) THE CLAUSES IN THE LEASE AGREEMENT REFER TO THE PAYMENT MADE BY THE APPELLANT (LESSEE) AS A PREMIUM BEING CONSIDERATION FOR ACQUIRING THE LEASE HOLD PROPERTY. NONE OF THE CLAUSES IN THE LEA SE AGREEMENT REFERS TO THE PREMIUM PAID BY THE APPELLANT (LESSEE) AS ADVAN CE RENT. VI) THE APPELLANT(LESSEE) WILL HAVE NO RIGHT TO GET ANY REFUND OF PREMIUM PAID FOR ACQUIRING THE LEASE HOLD RIGHT ON ITS SURR ENDER BEFORE THE EXPIRY DATE. VII) THE VARIOUS CLAUSES OF THE LEASE AGREEMENT WHI CH ARE REFERRED BY THE AO IN ITS SUBMISSION BEFORE YOUR HONOUR AS RESTRICT IVE CLAUSES, ARE IN FACT REGULATORY CLAUSES INCORPORATED IN THE LEASE AGREEM ENT FOR DESIRED DEVELOPMENT OF THE LEASED AREA IN A PARTICULAR MANN ER AND A PARTICULAR PURPOSE AS REGULATORY AUTHORITY (MMRDA) PROVIDE COM PLETE INFRASTRUCTURE AND GIVE EFFECT TO THE INTENTION OF THE GOVERNMENT TO DEVELOP THE AREA. ITA 686 & 687/M/12 CO 08 & 09/M/13 ITA 688 TO 691/M/12 CO 12 TO 15/M/13 8 VIII) KARNATAKA HIGH COURT JUDGEMENT IN THE CASE OF HMT LTD. HAS BEEN DECIDED BY THE HONBLE COURT ON A FINDING OF FACT B Y THE ITAT THAT THE PAYMENT MADE BY THE LESSEE CONSTITUTES AN ADVANCE R ENT AND HENCE THE SAME SHALL BE ALLOWED AS DEDUCTION U/S 3 7(1) OF TH E I. T. ACT. MOREOVER THE VARIOUS DECISIONS OF THE BOMBAY HIGH COURT AND THE ITAT HAVE CLEARLY DISTINGUISHED THE HMTS CASE AND ITS APPLIC ABILITY TO THE PREMIUM PAID FOR ACQUIRING LEASE HOLD RIGHT. THE HONBLE IT AT MUMBAI SPECIAL BENCH, IN THE CASE OF MUKUND LTD. HAS DISCUSSED IN DETAIL THE JUDGEMENT OF HMT LTD. AND HELD THAT PREMIUM PAID FOR ACQUIRIN G THE LEASEHOLD RIGHT DOES NOT CONSTITUTE AN ADVANCE RENT. HONBLE ITAT M UMBAI, SPEICAL BENCH HAS FOLLOWED THE JURISDICTIONAL HIGH COURTS VIEW IN THE CASE OF KHIMLINE PUMPS LTD. WHEREIN THE JURISDICTIONAL HIGH COURT HAS HELD THAT PREMIUM PAID FOR ACQUIRING THE LEASE HOLD RIGHT CON STITUTES A CAPITAL EXPENDITURE AND NOT AN ADVANCE PAYMENT OF RENT FOR THE LEASE PERIOD. IX) SECTION 194-1 OF THE I. T. ACT CLEARLY PROVIDES THAT PAYMENT MADE BY A PERSON SHOULD BE IN THE NATURE OF AN INCOME BY WAY OF RENT. THIS EXPRESSION EXPRESSLY REQUIRES THAT THE RECEIPT IN T HE HANDS OF THE LESSER/OWNER MUST CONSTITUTE THE INCOME BY WAY OF R ENT IN THE HANDS OF THE RECIPIENT. X) THE DEFINITION OF RENT CONTAINED IN EXPLANATION TO SECTION 1 94-I ALSO CLEARLY PROVIDES THAT THE PAYMENT MADE MUST BE FOR THE USE OF LAND NO WHERE THE DEFINITION OF RENT ROPES IN THE CONSIDERA TION PAID FOR ACQUIRING LEASEHOLD RIGHT. THE APPELLANT(LESSEE) REITERATES I TS CONTENTION THAT THE PREMIUM PAID FOR ACQUIRING LEASEHOLD RIGHT IS NOT AN INCOME BY WAY OF RENT OF THE RECIPIENT FOR USE OF LAND. XI) THE VARIOUS JUDGMENTS RELIED UPON BY THE APPELL ANT (LESSEE) IN SUPPORT OF ITS CONTENTION CLEARLY CONFIRMS THE VIEW THAT THE PREMIUM PAID FOR ACQUIRING LEASEHOLD RIGHTS IN LAND CONSTITUTES A CONSIDERATION OF CAPITAL NATURE AND NOT AN ADVANCE RENT FOR USE OF T HE LAND OVER THE LEASE PERIOD. ON THE PLAIN READING OF THE LEASE AGREEMENT THE PRE VAILING FACTS OF THE CASE AND TAKING A WHOLISTIC VIEW OF FACTS AND CIRCU MSTANCES OF THE CASE AND THE POSITION IN LAW, SUCH LEASE PREMIUM PAID CA N NOT BE CONSIDERED TO BE A RENT WITHIN THE MEANING OF SECTION 194-I. T HE APPELLANT ONCE AGAIN SUBMITS THAT ITS SUBMISSION CONCERNING LEASE PREMIUM PAID IS FULLY SUPPORTED BY VARIOUS JUDICIAL PRONOUNCEMENTS WHICH ARE DISCUSSED IN DETAIL BY THE HONBLE ITAT SPECIAL BENCH, MUMBAI IN THE CASE OF MUKUND LTD.. XII) RECENTLY THE HONBLE ITAT, MUMBAI HAD AN OCCAS ION TO CONSIDER SIMILAR ISSUE WHEREIN THE LEASE PREMIUM PAID BY NAT IONAL STOCK ITA 686 & 687/M/12 CO 08 & 09/M/13 ITA 688 TO 691/M/12 CO 12 TO 15/M/13 9 EXCHANGE OF INDIA LTD. TO MMRDA FOR ACQUIRING LEASE HOLD RIGHT IN LAND AT BANDRA KURLA COMPLEX WAS CLAIMED TO BE A DEDUCTIBLE ADVANCE RENT OVER THE LEASE PERIOD. THE HONBEL ITAT FOLLOWED MUKUND LTD. S CASE AND CLEARLY HELD THAT SUCH PAYMENT OF LEASE PREMIUM CON STITUTES A CAPITAL EXPENDITURE FOR ACQUIRING LEASE HOLD RIGHT AND NOT AN ADVANCE RENT FOR A LEASE PERIOD. 5. IN THE LIGHT OF THE SUBMISSIONS MADE BY THE ASSE SSEES AS ABOVE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A) PROCEEDED TO EXAMINE THE ISSUE INVOLVED IN THE CASE OF THE ASSESSEES. IN TH IS REGARD, HE NOTED THAT THE LEASE PREMIUM CHARGED BY THE MMRDA TO THE ASSESSEES WAS EQUAL TO THE PREVAILING MARKET RATE FOR ACQUISITION OF COMMERCIA L PREMISES AS PER THE VALUATION MADE FOR STAMP DUTY PURPOSE. HE ALSO NOTE D THAT THE RATES SO PRESCRIBED BY THE STAMP DUTY AUTHORITIES WERE FOR T HE ACQUISITION OF PROPERTY AND NOT FOR THE USE OF LET OUT PROPERTY BY THE TENA NT. HE FURTHER NOTED THAT EVEN THE ADDITIONAL PREMIUM WAS CHARGED BY THE MMRD A TO THE ASSESSEE FOR THE ADDITIONAL FSI AS PER THE READY RECKONER RATE P RESCRIBED BY THE STAMP DUTY AUTHORITIES. THE LD. CIT(A) HELD THAT THE WHO LE TRANSACTION INVOLVING GRANT OF LEASEHOLD RIGHTS BY THE MMRDA TO THE ASSES SEES THUS WAS NOTHING BUT THE TRANSACTION OF TRANSFER OF PROPERTY AND THE LEASE PREMIUM AGREED TO BE PAID WAS THE CONSIDERATION FOR THE ACQUISITION O F SUCH LEASEHOLD RIGHTS IN THE PROPERTY. IN THIS REGARD, A REFERENCE WAS MADE BY THE LD. CIT(A) TO THE DECISION IN THE CASE OF RAJA BAHADUR KAMAKSHYA NARA IN SINGH OF RAMGARH V. COMMISSIONER OF INCOME-TAX, (1943) 11 ITR 513 (PC) WHEREIN IT WAS HELD THAT THE PAYMENT OF SALAMI UNDER THE LEASE AGREEMENT WAS A CAPITAL RECEIPT BEING A SINGLE PAYMENT MADE FOR THE ACQUISITION OF THE RI GHT BY THE LESSEE TO ENJOY THE BENEFITS GRANTED TO THEM UNDER THE LEASE. HE AL SO RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MEMBER FOR THE BOARD OF AGRICULTURAL INCOME TAX VS. SINDHURANI CHAUDHRANI & ORS, 32 ITR 169 (SC) WHEREIN IT WAS HELD THAT SALAMI AS A LUMPSUM NON-RECURRING PAYMENT MADE BY A PROSPECTIVE TENANT TO THE LANDLORD WHICH IS NOT IN THE NATURE O F RENT WITHIN THE DEFINITION OF AGRICULTURAL INCOME GIVEN IN THE INCOME TAX AC T. IT WAS HELD THAT SUCH ITA 686 & 687/M/12 CO 08 & 09/M/13 ITA 688 TO 691/M/12 CO 12 TO 15/M/13 10 PAYMENT HAS ALL THE CHARACTERISTICS OF A CAPITAL PA YMENT AND IT IS NOT REVENUE IN NATURE. THE LD. CIT(A) FURTHER RELIED ON THE DE CISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TA X V. KHIMLINE PUMPS LTD. (2002) 258 ITR 459 WHEREIN IT WAS HELD THAT AM OUNT OF RS. 45 LACS PAID BY THE ASSESSEE TO M/S APVE LTD. FOR ACQUISITION OF LEASEHOLD LAND WAS A CAPITAL EXPENDITURE. THE LD. CIT(A) ALSO REFERRED T O THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF MUKUND LTD., 106 ITR 2 31 WHEREIN IT WAS HELD THAT THE PREMIUM PAID FOR ACQUIRING LEASEHOLD RIGHT IN LAND WAS A CAPITAL EXPENDITURE. THE LD. CIT(A) THEN DISCUSSED THE CAS E LAWS RELIED UPON BY THE A.O. IN HIS ORDERS AND RECORDED A FINDING AFTER SUC H DISCUSSION THAT IN NONE OF THE SAID CASE LAWS, IT WAS HELD THAT THE LEASE PREM IUM PAID IN THE SIMILAR CIRCUMSTANCES WAS IN THE NATURE OF ADVANCE RENT AND TAX WAS DEDUCTIBLE AT SOURCE U/S 194-I OF THE ACT. HE HELD THAT THE CASE LAWS RELIED UPON BY THE A.O., THEREFORE, WERE DISTINGUISHABLE ON FACTS AND IN LAW AND THE SAME WERE NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. THE LD. CIT(A) FINALLY REFERRED TO THE DECISION OF THE TRIBUNAL IN THE CAS E OF NATIONAL STOCK EXCHANGE OF INDIA LIMITED (ITA NO. 1955/MUM/99 AND OTHERS) A ND NOTED THAT IN THE SIMILAR FACTS AND CIRCUMSTANCES INVOLVED IN THAT CA SE, IT WAS HELD BY THE TRIBUNAL THAT A CONSIDERATION PAID FOR ACQUIRING LE ASEHOLD RIGHTS IN LAND WAS A CAPITAL EXPENDITURE AND NOT RENT. ACCORDINGLY, THE LD. CIT(A) HELD THAT THE PAYMENT MADE BY THE ASSESSEES TO MMRDA ON ACCOUNT O F LEASE PREMIUM FOR ACQUIRING LEASEHOLD RIGHTS AND ADDITIONAL FSI IN RE SPECT OF THE LEASE PROPERTY WAS NOT IN THE NATURE OF RENT AS CONTEMPLATED IN SE CTION 194-I OF THE ACT AND THE ASSESSEES WERE NOT REQUIRED TO DEDUCT TAX AT SO URCE FROM THE SAID PAYMENT. ACCORDINGLY, THE DEMAND RAISED BY THE A.O . TREATING THE ASSESSEES IN DEFAULT U/S 201(1) & 201(1A) WAS CANCELLED BY TH E LD. CIT(A). AGGRIEVED BY THE ORDERS OF THE LD. CIT(A), THE REVENUE HAS PREFE RRED THESE APPEALS BEFORE THE TRIBUNAL. ITA 686 & 687/M/12 CO 08 & 09/M/13 ITA 688 TO 691/M/12 CO 12 TO 15/M/13 11 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. REP RESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THE COMMON ISSUE INVOLVED IN THESE SIX APPEALS OF THE REVENUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESS EE BY THE DECISION OF THE TRIBUNAL RENDERED IN THE CASE OF M/S WADHWA & ASSOC IATES REALTORS PVT. LTD. VIDE ORDER DATED 3-7-2013 PASSED IN ITA NO. 695/MUM /2012 WHEREIN A SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN F AVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS GIVEN IN PARA 9 & 10 OF ITS O RDER:- 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE ORDER OF THE LOWER AUTHORITIES AND THE MATERIAL EVIDENCE BRO UGHT ON RECORD IN THE FORM OF PAPER BOOK AND THE JUDICIAL DECISIONS R ELIED UPON BY THE RIVAL PARTIES. THE ENTIRE GRIEVANCE REVOLVES AROUN D THE PREMIUM PAID BY THE ASSESSEE TO M/S. MMRDA LTD. FOR THE LEASEHOL D RIGHTS ACQUIRED 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 SUC H LEASE PREMIUM IS IN THE NATURE OF CAPITAL EXPENDITURE AND THEREFORE THE RE IS NO QUESTION OF DEDUCTION OF TAX AT SOURCE. FURTHER, THE SAID LEAS E PREMIUM DOES NOT COME WITHIN THE PURVIEW OF THE DEFINITION OF RENT A S PROVIDED U/S. 194-1 OF THE ACT. 10. WE HAVE CAREFULLY PERUSED THE LEASE DEED AS EXH IBITED FROM PAGE- 1 TO 42 OF THE PAPER BOOK. A CAREFUL READING OF TH E SAID LEASE DEED TRANSPIRES THAT THE PREMIUM IS NOT PAID UNDER A LEA SE BUT IS PAID AS A PRICE FOR OBTAINING THE LEASE, HENCE IT PRECEDES TH E GRANT OF LEASE. THEREFORE, BY ANY STRETCH OF IMAGINATION, IT CANNOT BE EQUATED WITH THE RENT WHICH IS PAID PERIODICALLY. A PERUSAL OF THE RECORDS FURTHER SHOW THAT THE PAYMENT TO MMRD IS ALSO FOR ADDITIONAL BUI LT UP ARE AND ALSO FOR GRANTING FREE OF FSI AREA, SUCH PAYMENT CANNOT BE EQUATED TO RENT. IT IS ALSO SEEN THAT THE MMRD IN EXERCISE OF POWE R U/S. 43 R.W. SEC. 37(1) OF THE MAHARASHTRA TOWN PLANNING ACT 1966, M RTP ACT AND OTHER POWERS ENABLING THE SAME HAS APPROVED THE PRO POSAL TO MODIFY REGULATION 4A(II) AND THEREBY INCREASED THE FSI OF THE ENTIRE G BLOCK OF BKC. THE DEVELOPMENT CONTROL REGULATIONS FOR BKC S PECIFY THE PERMISSIBLE FSI. PURSUANT TO SUCH PROVISIONS, THE ASSESSEE BECAME ENTITLED FOR ADDITIONAL FSI AND HAS FURTHER ACQUIRE D/PURCHASED THE ADDITIONAL BUILT UP AREA FOR CONSTRUCTION OF ADDITI ONAL AREA ON THE AFORESAID PLOT. THUS THE ASSESSEE HAS MADE PAYME NT TO MMRD UNDER DEVELOPMENT CONTROL FOR ACQUIRING LEASEHOLD LAND A ND ADDITIONAL BUILT UP AREA. THE DECISIONS OF THE TRIBUNAL IN THE CASE OF M/S. NATIONAL STOCK EXCHANGE (SUPRA) AND MUKUND LTD (SUPRA) HAVE BEEN WELL DISCUSSED BY THE LD. CIT(A) IS HIS ORDER. THE DECI SION OF THE HONBLE ITA 686 & 687/M/12 CO 08 & 09/M/13 ITA 688 TO 691/M/12 CO 12 TO 15/M/13 12 JURISDICTIONAL HIGH COURT IN THE CASE OF KHIMLINE PUMPS LTD. (SUPRA) SQUARELY AND DIRECTLY APPLY ON THE FACTS OF THE CAS E WHEREIN THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT PAYMENT FOR ACQUIRING LEASEHOLD LAND IS A CAPITAL EXPENDITURE. CONSIDERI NG THE ENTIRE FACTS IN TOTALITY IN THE LIGHT OF THE JUDICIAL DECISIONS VIS --VIS PROVISIONS OF SEC. 194-1, DEFINITION OF RENT AS PROVIDED UNDER THE SAI D PROVISION, WE DO NOT FIND ANY REASON TO TAMPER OR INTERFERE WITH THE FIN DINGS OF THE LD. CIT(A) WHICH WE CONFIRM. 7. AS THE ISSUE INVOLVED IN THE PRESENT CASES AS WE LL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THE CASE OF W ADHWA & ASSOCIATES REALTORS PVT. LTD. (SUPRA) DECIDED BY THE TRIBUNAL, WE RESPE CTFULLY FOLLOW THE SAID DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL AND UPHOLD THE IMPUGNED ORDERS OF THE LD. CIT(A) HOLDING THAT THE LEASE PRE MIUM PAID BY THE ASSESSEES TO MMRDA NOT BEING IN THE NATURE OF RENT AS CONTEMP LATED IN SECTION 194-I OF THE ACT, THEY WERE NOT LIABLE TO DEDUCT TAX AT SOUR CE FROM THE SAID PAYMENT AND HENCE COULD NOT BE TREATED AS THE ASSESSEES IN DEFAULT U/S 201(1) & 201(1A) OF THE ACT. THE APPEALS FILED BY THE REVEN UE ARE ACCORDINGLY DISMISSED. 8. IN THEIR CROSS OBJECTIONS, THE ASSESSEES HAVE RA ISED A SOLITARY IDENTICAL GROUND WHICH READS AS UNDER:- THE COMMISSIONER OF INCOME TAX (APPEALS) -14, MUMBA I [HEREINAFTER REFERRED TO AS CIT(A)] ERRED IN NOT APPRECIATING TH E FACT THAT STATE GOVERNMENT AND LOCAL AUTHORITY HAVE AN OVERRIDING T ITLE ON PAYMENT MADE TO MMRDA AND HENCE SAME DOES NOT REQUIRE DEDUC TION OF TAX AT SOURCE. THE APPELLANT SUBMITS THAT ON THE FACTS AND CIRCUMS TANCES OF THE CASE OF THE APPELLANT NO TDS IS REQUIRED TO BE DEDUCTED ON PREMIUM PAID TO MMRDA. 9. AS A RESULT OF OUR DECISION RENDERED HEREINABOVE WHILE DISMISSING THE APPEALS OF THE REVENUE, THE ISSUE RAISED IN THE CRO SS OBJECTIONS FILED BY THE ASSESSEES HAS BECOME INFRUCTUOUS. THE CROSS OBJECT IONS FILED BY THE ASSESSEE ARE, THEREFORE, DISMISSED AS INFRUCTUOUS. ITA 686 & 687/M/12 CO 08 & 09/M/13 ITA 688 TO 691/M/12 CO 12 TO 15/M/13 13 10. IN THE RESULT, APPEALS OF THE REVENUE AS WELL A S CROSS OBJECTIONS FILED BY THE ASSESSEES ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH AUGUST, 2013. . 'F B DE* G')H 14-08-2013 E B SD/- SD/- (SANJAY GARG) (P.M. JAGTAP ) & !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; G') DATED 14-08-2013. $.&).!./ RK , SR. PS 'F B -&IJ KJ* 'F B -&IJ KJ* 'F B -&IJ KJ* 'F B -&IJ KJ*/ COPY OF THE ORDER FORWARDED TO : 1. +, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. L () / THE CIT(A)- 35, MUMBAI 4. L / CIT 25, MUMBAI 5. J$O -&&) , , / DR, ITAT, MUMBAI E BENCH 6. P% Q / GUARD FILE. 'F)! 'F)! 'F)! 'F)! / BY ORDER, !.J -& //TRUE COPY// R R R R/ // /!S !S !S !S ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI