By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi Chartered Accountants
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Section 194-I – Where payment of lease premium was not made on periodical basis but it was a one time payment to acquire land with right to construct a commercial complex thereon, section 194-I had no application on deposit of such lease premium.
Facts:
The assessee was a non-profit-making company. The assessee was offered certain land on lease for a period of 80 years by the Mumbai Metropolitan Regional Development Authority (MMRDA). The Assessing Officer held that the assessee was liable to deduct tax at source on lease premium u/s. 194-I and accordingly treated the assessee as assessee-indefault u/s. 201.The CIT (A) partly allowed assessee’s claim. The CIT(A) held that as the lease premium was paid once and was paid prior to date of lease agreement, such payment being in nature of capital expenditure, does not attract section 194-I.
Held:
It is well-settled that premium and rent have distinct and separate connotations in law.
The essence of premium lies in the fact that it is paid prior to the creation of the landlord and tenant relationship that is, before the commencement of the tenancy and constitutes the very superstructure of the existence of that relationship. Its another vital characteristic is that it is a one-time non-recurring payment for transferring and purchasing the right to enjoy the benefits granted by the lessor resulting in conveyance of some of the rights, title and interest in the property out of such a bundle of rights.
In the present case the payment was done before the initiation of the tenancy relationship between the appellant and the MMRDA and consequently, a cardinal ingredient of premium is satisfied.
Hence, undoubtedly premium in relation to leased land is a payment on capital account not liable to be classified as revenue outgoing.
Readers may also refer to judgement of High Court of Delhi in the case of Krishak Bharati Co-operative Ltd. vs. Dy. CIT [(2013) 350 ITR 24 / (2012) 23 taxmann. com 265]
