Income-tax Officer, V. M/s. Space Properties, Pune

ITA 9/PUN/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8538 (ITAT-PUNE)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 02-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Maximum Marginal Rate; Capital expenditure
• Section: 37(1); 201(1); 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE BEFORE SHRI R.S. PADVEKAR , JUDICIAL MEMBER AND SHRI R.K. PANDA , ACCOUNTANT MEMBER I TA NO. 9 /PN / 2014 ( ASSESSMENT YEAR : 2 011 - 12 ) INCOME TAX OFFICER (TDS - 3), PUNE .. APPELLANT V/S M/S. SPACE PROPERTIES D - 1, CHANDRIKA SOCIETY BIBWEWADI, PUNE .... RESPONDENT PERMANENT ACCOUNT NUMBER ABHFS3364B ASSESSEE BY : NONE REVENUE BY : SHRI B.C. MALAKAR DATE OF HEARING : 0 2 .12 .2014 DATE OF PRONOUNCEMENT : 05 .1 2 .2014 O R D E R PER R.S. PADVEKAR, J.M. THIS APPEAL IS FILED BY THE REVENUE CHALLENGING THE IMPUGNED ORDER OF THE LEARNED CIT(A) - V, PUNE, DATED 30 TH OCTOBER 2013, FOR THE ASSESSMENT YEAR 2011 - 12. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS: - 1. THE LEARNED CIT(A) ERRED IN DELETING THE DEMAND RAISED OF RS. 43,75,000 U/S 201(1)/201(1A) OF THE ACT IN RESPECT OF LEASE PREMIUM PAYMENT PAID TO PIMPRI CHINCHWAS NEW TOWNSHIP DEVELOPMENT AUTHORITY (PCNTDA). 2. THE LEARNED CIT(A) ERRED IN CONSIDERING THE FACT THAT THE PREMIUM PAID TO PCNTDA IS UPFRONT PAYMENT AS PRE - CONDITION FOR ENTERING INTO LEASE AGREEMENT. 3. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THE DEED ENTERED INTO BY THE DEDUCTOR WITH PCNTDA WAS NOT A TRANSFER DEED BUT A LEASE DEED AND EXPLANATION TO SECTION 194I CLEARLY STIPULATES THAT ANY PAYMENT BY WHATEVER NAME CALLED UNDER ANY LEASE DEED / AGREEMENT IS TO BE TAKEN AS RENT FOR TDS PURPOSE . 2 M/S. SPACE PROPERTIES 2. WHEN THIS APPEAL WAS CALLED FOR HEARING, NONE WAS PRESENT FOR THE ASSESSEE. TH E LEARNED D.R., SHRI B.C. MALAKAR, WAS PRESENT FOR THE REVENUE. IT IS SEEN THAT THE NOTICE FOR HEARING WAS SERVED ON THE ASSESSEE BY RPAD AND THE ACKNOWLEDGEMENT IS ALSO PLACED ON RECORD. WE, THEREFORE, PROCEED TO DECIDE THIS APPEAL AFTER HEARING THE LEARN ED D.R. 3. THE FACTS, WHICH ARE REVEALED FROM THE RECORD, ARE THAT THE ASSESSEE IS A BUILDER AND DEVELOPER. DURING THE COURSE OF TDS VERIFICATION IN THE CASE OF PIMPRI CHINCHWAD NEW TOWN DEVELOPMENT AUTHORITY (PCNTDA) ON 7 TH AUGUST 2012, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD ENTERED INTO LEASE AGREEMENT FOR 99 YEARS WITH WITH PCNTDA ON THE TERMS AND CONDITIONS LAID DOWN BY THE LESSOR IN THE LEASE DEED DATED 23 RD NOVEMBER 2010 FOR POT NO.2 OF SECTOR - 11 OF PCNTDA, A S PER THE TERMS OF LEASE DEED. THE ASSESSING OFFICER REPRODUCED CLAUSE 2 OF THE LEASE DEED AND CAME TO THE CONCLUSION THAT PROVISIONS OF SECTION 194 I OF THE ACT ARE APPLICABLE IN RESPECT OF PAYMENT OF RS. 3.50 CRORES CLAIMED TO HAVE BEEN MADE IN RESPECT OF PREMIUM OF ACQUISITION OF LEASE HOLD RIGHTS FOR 99 YEARS AS PER THE SAME WAS NOTHING BUT RENT. ACCORDINGLY, HE RAISED DEMAND U/S 201(1) / 201(1A) OF THE ACT AFTER CONFRONTING THE APPELLANT ON THIS ISSUE. 4. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LEARNED CIT(A). THE LEARNED CIT(A), FOLLOWING THE DECISION OF THE ITAT, MUMBAI BENCH, IN THE FOLLOWING CASES: - I) SEZ(P) LTD., ITA NO.738 TO 7741/MUM./2012, ORDER DATED 12 TH AUGUST 2013. 3 M/S. SPACE PROPERTIES II) M/S. WADHWA ASSOCIATES, ITA NO.695/*MUM./2012, ORDER DATED 3 RD JULY 2012 AND III) SHRI NAMAN HOTEL PVT. LTD. V/S DEPARTMENT OF INCOME TAX IN ITA NO.686 & 687/MUM./2012. 5. IT WAS HELD THAT UPFRONT FEE STANDS ON DIFFERENT FOOTING COMPARED TO LEASE PREMIUM AS UPFRONT PAYMENT IS A PART OF CONSIDERATION UNDER THE LEASE DEED WHILE LEASE PREMIUM IS PRE - CONDITION FOR ENTERING INTO LEASE DEED AND NOT PART OF RENT CONSIDERATION. THE OPERATIVE PART OF THE FINDINGS OF THE LEARNED CIT(A) IS AS UNDER: - 8. FROM THE DEFINITION OF RENT AS ENUMERATED ABOVE, IT IS QUITE CLEAR THAT T HE SAME IS QUITE WIDE AND COVERS ANY PAYMENT BY WHATEVER NAME CALLED UNDER ANY LEASE, SUBLEASE, TENANCY OR ANY OTHER AGREEMENT OR ARRANGEMENT FOR THE USE OF LAND AND OTHER ASSETS. HOWEVER, THE CATCH POINT IN THE DEFINITION IS ANY PAYMENT UNDER ANY LEASE. I N THIS CASE, THOUGH LEASE PREMIUM FINDS MENTION IN THE LEASE DEED BUT IT IS IMPORTANT TO NOTE THAT PAYMENT OF LEASE PREMIUM IS NOT PART OF THE LEASE RENT. FROM THE READING OF CLAUSE 2 OF THE DEED IT IS CLEAR THAT LEASE PREMIUM IS NOT PART OF THE RENT. THIS CAN BE VERIFIED FROM THE FACT THAT LEASE PREMIUM HAS BEEN PAID MUCH BEFORE THE REGISTRATION OF LEASE DEED. IN THIS CASE WHILE LEASE DEED HAS BEEN REGISTERED AND EXECUTED ON 23.11.2010, PAYMENT OF LEASE PREMIUM WAS MADE PRIOR TO EXECUTION OF LEASE DEED. TH IS BEING SO, IT CANNOT BE SAID THAT LEASE PREMIUM HAS BEEN PAID UNDER THE TERMS OF LEASE DEED. THE ITO(TDS) - 1, PUNE, HAS HEAVILY RELIED UPON HONBLE CHENNAI TRIBUNALS DECISION IN THE CASE OF FAX CONN INDIA DEVELOPER (P) LTD. (SUPRA) BUT THE SAME IS DISTIN GUISHABLE ON THE FACT THAT IN THAT CASE ISSUE IN QUESTION WAS UPFRONT PAYMENT AND NOT LEASE PREMIUM. FURTHER, UPFRONT PAYMENT WAS PART OF CONSIDERATION FOR ACQUIRING LEASEHOLD RIGHTS UNLIKE THE PRESENT CASE WHERE PAYMENT OF LEASE PREMIUM WAS PRE - CONDITION FOR ENTERING INTO LEASE AGREEMENT AND THEREFORE THE FACTS OF THE CAE ARE CLEARLY DISTINGUISHABLE. FURTHER, I FIND SUFFICIENT FORCE IN THE ARGUMENTS OF THE APPELLANT THAT UPFRONT FREE STANDS ON DIFFERENT FOOTING COMPARED TO LEASE PREMIUM AS UPFRONT PAYMENT IS PART OF CONSIDERATION UNDER THE LEASE DEED WHILE LEASE PREMIUM IS A PRECONDITION FOR ENTERING INTO LEASE DEED AND NOT PART OF RENT CONSIDERATION. 4 M/S. SPACE PROPERTIES 9. IT IS ALSO SEEN THAT SIMILAR ISSUE CAME UP BEFORE HONBLE MUMBAI BENCH IN THE CASE OF NAVI MUMBAI SEZ(P LTD. ITA NO.738 TO 7741/MUM./2012 FOR A.Y. 2006 - 07 TO 2009 - 10 WHEREIN HONBLE MUMBAI TRIBUNAL IN ITS ORDER DATED 12.08.2013 HELD THAT LEASE PREMIUM PAID BY THE ASSESSEE TO THE CITY AND INDUSTRIAL DEVELOPMENT CORPORATION OF MAHARASHTRA LTD. (C IDCO) FOR ACQUIRING DEVELOPMENT AND LEASE HOLD RIGHTS FOR A PERIOD OF 60 YEARS, WAS NOT REQUIRED TO BE SUBJECT TO DEDUCTION AT SOURCE U/S 194I OF THE INCOME - TAX ACT. 10. SIMILAR VIEW HAS BEEN TAKEN BY ANOTHER BENCH OF MUMBAI TRIBUNAL IN THE CASE OF M/S. W ADHWA ASSOCIATES IN ITA NO.695/MUM./2012 IN ORDER DATED 03.07.2013, WHEREIN IT WAS HELD THAT TDS WAS NOT REQUIRED TO BE DEDUCTED U/S 194I OF THE INCOME - TAX ACT IN RESPECT OF PAYMENT OF LEASE PREMIUM TO M/S. MMRDA LTD. 11. IN YET ANOTHER CASE OF SHRI NAYAN DEVELOPERS LTD. V/S DEPARTMENT OF INCOME - TAX IN ITA NO.686 & 687/MUM./2012 MUMBAI, TRIBUNAL E BENCH HELD THAT TDS WAS NOT REQUIRED TO BE DEDUCTED U/S 201(1) OF INCOME - TAX ACT IN RESPECT OF LEASE PREMIUM PAID TO MMRD LTD. 12. THUS, AFTER ANALYZING THE F ACTS OF THE CASE AS WELL AS AVAILABLE JUDICIAL PRECEDENTS, IT IS SEEN THAT PAYMENT OF LEASE PREMIUM OF PCNTDA WAS A PRECONDITION FOR ENTERING INTO LEASE AGREEMENT AND THEREFORE IT CANNOT BE SAID THAT THE SAME WAS PAID UNDER THE TERMS OF LEASE AGREEMENT. FU RTHER, IT IS SEEN THAT STAMP DUTY HAS BEEN PAID ON THE MARKET VALUE OF THE PLOT REPRESENTED BY LEASE PREMIUM. THEREFORE, ON THE FACTS OF THE CASE AS WELL AS RELYING UPON ABOVE MENTIONED THREE DECISIONS OF HONBLE MUMBAI TRIBUNAL, IT IS HELD THAT ITO (TDS) - 1, PUNE, WAS NOT JUSTIFIED IN RAISING DEMAND U/S 201(1)(201(1A), OF INCOME - TAX ACT IN RESPECT OF LEASE PREMIUM PAID TO PCNTDA. ACCORDINGLY, HE IS DIRECTED TO DELETE THE DEMAND. THUS, GROUND NO.1 & 2 ARE ALLOWED. 6. THE FACTS ARE ALREADY NARRATED HEREIN ABO VE. THE ASSESSEE HAS ENTERED INTO LEASE AGREEMENT FOR 99 YEARS WITH PCNTDA VIDE LEASE DEED DATED 23 RD NOVEMBER 2012, FOR ACQUIRING PLOT NO.2 OF SECTOR 11 PCNTDA. THE ASSESSEE HAS PAID THE PREMIUM OF RS. 3.50 CRORES FOR ACQUIRING THE LEASE HOLD RIGHTS FOR 9 9 YEARS AND THE ASSESSING OFFICER WAS OF THE OPINION THAT IT IS IN THE NATURE OF RENT AND, HENCE, THE 5 M/S. SPACE PROPERTIES PROVISIONS OF SECTION 194I OF THE ACT ARE APPLICABLE. IN THE ORDER DATED 20 TH DECEMBER 2012, PASSED UNDER SECTION 201(1) AND 201(1A) OF THE ACT, THE ASSES SING OFFICER RAISED THE DEMAND OF RS 43,75,000, FOR FAILURE TO DEDUCT THE TAX AND DEPOSIT THE SAME TO THE GOVERNMENT ACCOUNT. WE FIND THAT THE ISSUE STANDS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT, MUMBAI, IN THE CASES OF WADH WA ASSOCIATES (SUPRA) WHEREIN THE PAYMENT OF LEASE PREMIUM TO MMRDA WAS HELD TO BE OUTSIDE THE PURVIEW OF SECTION 194I. THE REASONS AND FINDINGS GIVEN IN THE OPERATIVE PARA - 9 AND 10 , ARE AS UNDER: - 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED 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 REVOLVES AROUND THE PREMIUM PAID BY THE ASSESSEE TO M/S. MMRDA LTD. FOR THE LEASEHOLD 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 WHI CH THE ASSESSEE IS TO BE TREATED AS ASSESSEE IN DEFAULT. IT IS THE SAY OF THE ASSESSEE THAT SUCH LEASE PREMIUM IS IN THE NATURE OF CAPITAL EXPENDITURE AND THEREFORE THERE IS NO QUESTION OF DEDUCTION OF TAX AT SOURCE. FURTHER, THE SAID LEASE PREMIUM DOES NO T COME WITHIN THE PURVIEW OF THE DEFINITION OF RENT AS PROVIDED U/S. 194 - I OF THE ACT. 10. WE HAVE CAREFULLY PERUSED THE LEASE DEED AS EXHIBITED FROM PAGE - 1 TO 42 OF THE PAPER BOOK. A CAREFUL READING OF THE SAID LEASE DEED TRANSPIRES THAT THE PREMIUM IS NOT PAID UNDER A LEASE BUT IS PAID AS A PRICE FOR OBTAINING THE LEASE, HENCE IT PRECEDES THE 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 BUILT 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 POWER 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 PROPOSAL TO MODIFY REGULATION 4A(II) AND THEREBY INCREASED THE FSI OF THE ENTIRE G BLOCK OF BKC. THE DEVELOPMENT CONTROL REGULATIONS FOR BKC SPECIFY THE PERMISSIBLE FSI. PURSUANT TO SUCH PROVISI ONS, THE ASSESSEE BECAME ENTITLED FOR ADDITIONAL FSI AND HAS FURTHER ACQUIRED / PURCHASED THE ADDITIONAL BUILT UP AREA FOR CONSTRUCTION OF ADDITIONAL AREA ON THE AFORESAID PLOT. THUS THE ASSESSEE HAS 6 M/S. SPACE PROPERTIES MADE PAYMENT TO MMRD UNDER DEVELOPMENT CONTROL FOR ACQUI RING LEASEHOLD LAND AND 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 DECISION OF THE HONBLE JURISDICTIONAL H IGH COURT IN THE CASE OF KHIMLINE PUMPS LTD. (SUPRA) SQUARELY 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 ENTIRE FACT S IN TOTALITY IN THE LIGHT OF THE JUDICIAL DECISIONS VIS - - VIS PROVISIONS OF SEC. 194 - 1, DEFINITION OF RENT AS PROVIDED UNDER THE SAID PROVISION, WE DO NOT FIND ANY REASON TO TAMPER OR INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) WHICH WE CONFIRM. 7. IN TH E PRESENT CASE, AS PER THE FACTS ON RECORD, THE PAYMENT TO PCNTDA IS TOWARDS THE PREMIUM FOR ACQUISITION OF LEASE HOLD RIGHTS FOR 99 YEARS WHICH CANNOT BE TREATED AS RENT WITHIN THE MEANING OF SECTION 194 I OF THE ACT. WE, THEREFORE, CONFIRM THE ORDER OF TH E LEARNED CIT(A) AND THE GROUNDS TAKEN BY THE REVENUE ARE DISMISSED. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT O N 05.12.2014 SD/ - R.K. PANDA ACCOUNTANT MEMBER SD/ - R.S. PADVEKAR JUDICIAL MEMBER PUNE , DATED : 05.12.2014 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A ) ; (4) THE CIT, PUNE CITY CONCERNED; (5) THE DR, ITAT, PUNE; (6) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (ASSTT. REGISTRAR) ITAT, PUNE