By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi, Chartered Accountants
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S/s. 194I, 201(1) – Lease premium paid to acquire leasehold land is not rent and tax on such payment, made by the assessee to MMRDA, is not deductible u/s. 194I.
Facts:
The assessee, a private limited company dealing in real estate, during the previous year under consideration paid a sum of Rs. 949.92 crore for allotment of a plot of land namely C-59 in ‘G’ Block of Bandra Kurla Complex, Bandra (E), Mumbai as per lease deed dated 22-11-2004 and also for additional FSI in respect of the said plot. The lease premium was paid without deduction of tax at source u/s. 194I. The Assessing Officer (AO) held that this payment attracted provisions of section 194I and since the assessee failed to deduct tax at source it has committed default within the meaning of section 201(1) of the Act and therefore, he treated the assessee to be an assessee in default and directed the assessee to make payment of interest along with TDS totaling to Rs. 314.26 crore.
Aggrieved, the assessee filed an appeal to CIT(A) where it contended that the payment under consideration was not covered by the term `rent’ u/s. 194I but was made to MMRDA (a) for additional built-up area and (b) for granting free-of-FSI area of Rs. 4 crore. The CIT(A) observed that the amount charged by MMRDA as lease premium was equal to the rate prevalent as per stamp duty recovery for acquisition of the commercial premises. These rates are prescribed for transfer of property and not for use as let-out tenanted property. He also observed that even the additional FSI was given for additional charges as per Ready Reckoner rates only. He found that the whole transaction towards grant of leasehold transaction rights to the assessee is nothing but a transaction of transfer of property and the lease premium is the consideration for the purchase of the said leasehold rights. Relying on the ratio of the decision of Mumbai Tribunal in the case of M/s. National Stock Exchange of India Ltd. (ITA Nos. 1955/M/99, 2181/M/99, 4853/M/04, 4485/M/04, 4854/M/04, 356/M/01and 5850/M/00) he decided the appeal in favour of the assessee.
Aggrieved, the revenue preferred an appeal to the Tribunal.
Held:
The Tribunal observed that a careful reading of the lease deed shows 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. It also noted that the payment to MMRDA is also for additional built-up area and also for granting free-of-FSI area, such payment cannot be equated to rent. It held that the assessee has made payment to MMRDA under Development Control for acquiring leasehold land and additional builtup area. Considering the precedents relied upon by the CIT(A) and the definition of the term `rent’ as provided in section 194I, the Tribunal confirmed the order of the CIT(A) and decided the issue in favour of the assessee.
The appeal filed by the Revenue was dismissed.
