Income Tax Appellate Tribunal - Mumbai
The Swasti Produce Co. P Ltd, Mumbai vs Cit (A) 14, Mumbai on 16 November, 2016
आयकर अपील
य अ धकरण "E" यायपीठ मंब
ु ई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI
BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER
AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
आयकर अपील सं./I.T.A. No. 6793/ Mum/2014
( नधा रण वष / Assessment Year : 2004-05)
The Swasti Produce Co. P vt. बनाम/ The ITO TDS Ward -3 (4),
Limited, Churney Road ,
v.
207/208, Bhave shwar Mumbai.
Arcade,
Opp Shreyas Cinema,
LBS Marg,
Ghatkop ar (W),
Mumbai.
थायी ले खा सं . /PAN : AAACT1886E
(अपीलाथ /Appellant) .. ( यथ / Respondent)
Assessee by Shri N.B. Gandhi
Revenue by : Ms. Pooja Swaroop,DR
ु वाई क तार ख / Date of Hearing
सन : 25-08-2016
घोषणा क तार ख /Date of Pronouncement : 16-11-2016
आदे श / O R D E R
PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee company, being ITA No. 6793/Mum/2014, is directed against the appellate order dated 1st August, 2014 passed by learned Commissioner of Income Tax (Appeals)- 14, Mumbai (hereinafter called "the CIT(A)"), for the assessment year 2004-05, the appellate proceedings before the learned CIT(A) arising from the order dated 28th March, 2011 passed by the learned Assessing Officer (hereinafter called "the AO") u/s 201(1)/201(1A) of the Income-tax Act,1961 (Hereinafter called "the Act").
2 ITA 6793/Mum/2014
2. The concise grounds of appeal filed by the assessee with the Income- Tax Appellate Tribunal, Mumbai (hereinafter called "the Tribunal") in lieu of grounds filed along with Memo of appeal filed with the tribunal read as under:-
"Ground 1 The Hon' CIT (A)-14,Mumbai has erred in confirming short deduction of TDS of Rs 61,500 on payment of Rs 300,000 to Suzlon Energy Ltd, made towards acquiring sub-lease rights of 5 Bigha land at Baramsar,Jaisalmer, Rajasthan for 19 years.
The Appellant Company humbly submits that the Payment of Rs 300,000 being consideration for acquiring sub-lease rights the land is Lease Premium and Capital Expenditure and is not covered by Explanation (i) to Section 194-I. Hence the demand for short(non) deduction of TDS may please be cancelled.
Ground 2 The Hon' CIT (A)-14,Mumbai has erred in confirming short deduction of TDS of Rs 61,500 on payment of Rs 300,000 to Suzlon Developers Pvt. Ltd, made for sharing infrastructure facility at village Baramsar,Jaisalmer, Rajasthan for wind turbine generator.
The Appellant Company humbly submits that One-time payment of Rs.3,00,000/- towards Sharing Infrastructure Facilities for Windmill for its lifetime is not covered by Explanation(i) to Section 194-I and hence the demand towards short(non) deduction of TDS of Rs.61,500 may please be deleted.
Ground 3 The Hon' CIT (A)-14, Mumbai has erred in confirming levy of interest u/s 201 (lA) of Rs 124,038 on short deduction of TDS of Rs 143,756.
The Appellant Company humbly submits that the delay in passing the Ordeer u/s 201(1) /201(1A) dated 28.03.2011 (on account of survey on 02.03.2007) was not on the part of the Appellant Company. Hence no 3 ITA 6793/Mum/2014 interest(if any) should be levied beyond the reasonable time required to complete the assessment i.e. say 31-03-2008.."
3. The Brief facts of the case are that a survey u/s. 133A of the Act was conducted by the Revenue in the case of the assessee on 2nd March, 2007 in its office premises situated at 207/208, Bhaveshwar Arcade, Opp. Shreyas cinema, LBS Marg, Ghatkopar(West), Mumbai-400 086.
The assessee is engaged in the business of power generation. It was observed during the course of survey and subsequent proceedings u/s 201 of the Act that the assessee had incurred expense on account of acquiring sub-lease rights of 5 Bigha Land for 19 years. However, no tax was deducted at source on payment of Rs. 3 lacs made to Suzlon Energy Ltd for the above said expenses. The assessee was asked to explain the same whereby it was submitted that the amount paid as consideration towards acquiring sublease rights of 5 Bigha Land for19 years and hence the sublease rights on which no tax was required to be deducted at source under the provisions of Act since the said sum is paid for purchase of rights in immovable property.
The A.O. rejected the contention of the assessee and relied upon the provisions of section 194-I of the Act whereby the AO held that the assessee in its submission had stated that this payment of Rs. 3 lacs had been made towards sublease of 5 Bigha land which was clearly covered in the definition of rent as stipulated u/s 194-I of the Act and hence the assessee was liable to deduct tax at source u/s 194-I of the Act. Since , the assessee did not deducted tax at source u/s 194-I of the Act on the payment made to Suzlon Energy Limited on account of 'Rent' called by the assessee as 'Payment for sublease' , the assessee was held to be assessee in default within provisions of Section 201 of the Act , whereby it was held that the default was to the tune of Rs. 61,500/- ( 20.5% of Rs. 3,00,000/- ) and as such , an amount of 4 ITA 6793/Mum/2014 Rs. 61,500/- was short deducted u/s 201 of the Act, vide orders dated 28-03- 2011 passed by the AO u/s 201(1) and 201(1A) of the Act.
Similarly, no tax was deducted at source on payment of Rs. 3 lacs made to Suzlon Developers Pvt. Ltd. on account of 'sharing infrastructure facility' at Village Baramsar, to run and maintain wind mill in the wind mill field developed by Suzlon Developers Private Limited. The assessee was issued show cause notice asking it to show cause as to why it should not be held as an assessee in default in respect of the above said defaults. In reply, the assessee submitted that the entire wind mill field at village Baramsar, Dist. Jaisalmer (Rajasthan) was developed by Suzlon Developers Pvt, Ltd. to construct, run and maintain its thousands of wind Mills installed in the said wind mill field at Jaisalmer. The amount paid by the company was towards its contribution for undivided undetermined common infrastructure facility to be utilized during the life time of the said wind mill. As this amount was paid as contribution for the common pool raised /created for the development of wind mill and to provide common facilities permanently for years, no tax was required to be deducted at source on such contribution. It was further submitted that M/s Suzlon Developer Private Limited is merely collection and disbursement facilitator whereas the actual development of infrastructure is carried out by various agencies for years together and in such circumstances contribution of Rs. 3 lacs amounts to acquiring common facility for life time of the wind mill and does not attract any provisions of the tax deduction at source.
The A.O. relied upon the provisions of section 194-I of the Act and observed that the expense incurred by the assessee is clearly covered by the definition of 'Rent' and it does not matter that the facilities developed are owned by the payee or by any other else and hence the assessee was liable to deduct tax at source u/s 194-I of the Act on the said payments and hence the assessees' 5 ITA 6793/Mum/2014 contentions were rejected by the AO and since the assessee company did not deduct tax at source u/s 194-I of the Act on the payments made to Suzlon Developers Private Limited on account of 'Rent' called by the assessee as 'payment for sharing infrastructure facility', the assessee was deemed to be an assessee in default within the provisions of section 201 of the Act and the assessee's default was determined at Rs. 61,500/- (20.5% of Rs. 3,00,000/-) and as such , an amount of Rs. 61,500/- was short deducted u/s 201 of the Act, vide orders dated 28-03-2011 passed by the AO u/s 201(1) and 201(1A) of the Act.
Thus, the AO passed the order u/s 201(1) and 201(1A) of the Act , dated 28.03.2011 against the assessee whereby consequential interest was also levied on the aforesaid default by the AO.
4. Aggrieved by the order dated 28.03.2011 passed by the AO u/s 201(1) and 201(1A) of the Act, the assessee carried the matter in first appeal before the learned CIT(A) .
5. Before the ld. CIT(A) , the assessee submitted that during financial year 2003-04, the assessee company entered into contract with Suzlon Energy Ltd. for turn-Key project of purchase, installation, commissioning and maintaining Windmill Turbine Generation J-38 (windmill) at village Baramsar, District Jaisalmer, Rajasthan for total consideration of Rs. 1,36,50,000/-. The assessee company paid Rs. 3 lacs by virtue of which it acquired sub-lease rights for a period of 19 years of the 5 Bigha land at village Baramsar vide sub-lease dated 12-08-2004 w.e.f. 19-02-2004, hence, this acquisition of lease rights cannot be treated as payment for lease rent. The payment of Rs. 3 lacs was paid to Suzlon Energy Ltd. for obtaining the lease right of the said piece of land which is a onetime payment being consideration/premium for acquiring the said right for 19 years. The assessee submitted that as against 6 ITA 6793/Mum/2014 the payments made by the assessee, the lease rent always is a recurring expense which is required to be paid either monthly or yearly to continue the lease rights year after year, but the amount of Rs. 3 lacs is not covered by and cannot be held as rent for the purpose of section 194-I of the Act and hence prayer was made to learned CIT(A) to delete the TDS demand of Rs. 61,500/-.
It was further submitted that payment of Rs. 3 lacs to M/s Suzlon Developers Pvt. Ltd. was made towards charges for sharing of infrastructure facility at village Baramsar, Jaisalmer (Rajastan] for Wind Turbine Generator. It was submitted that Suzlon Developers Private Limited has developed windmill Farm at Village Baramsar, Jaisalmer, Rajasthan . In the said wind mill farm, Suzlan Energy Ltd. Has installed thousands of windmill for its various customers as long term turn-key project. It was submitted that the assessee company was one of the customers for whom Suzlon Energy Ltd. installed one windmill during financial year 2003-04. As a part of the windmill Turn-Key project the company paid Rs. 3 lacs to Suzlon Developers Pvt. Ltd. as its share to the undivided common infrastructure facilities to be enjoyed throughout the life of the Windmill. Without prejudice , it was submitted that Suzlon Developers Pvt. Limited i.e. the payee has no tax dues payable as it had paid its entire tax liability for the assessment year 2004-05 hence no taxes can be determined/recovered from the assessee in view of the Hon'ble Supreme court judgment in the case of CIT v. Hindustan Coco Cola Beverage Pvt Ltd., (2007)293ITR226(SC).
The ld. CIT(A) after considering the submissions of the assessee, relied upon the order of the Chennai Bench of the Tribunal in the case of Foxconn India Developer (P) Ltd. V. ITO, (2012) 53 SOT 213(Chenn. Trib.) ,whereby the ld. CIT(A) observed that the definition of rent would definitely include payments of any type under any agreement or arrangement for the use of land. The learned CIT(A) observed that for the purposes of Section 194-I of the Act, the 7 ITA 6793/Mum/2014 normal meaning of the term rent could not be used but that the specific definition of rent has to be applied, hence, the payment made by the assessee to M/s Suzlon Developers Pvt. Ltd. is covered by the provisions of section 194-I of the Act and no tax was deducted at source by the assessee and hence the AO action of treating the assessee in default was upheld by learned CIT(A). The argument of the assessee that the deductee-payee has paid the taxes and hence the assessee could not be treated as assessee in default was rejected by learned CIT(A) as no evidence was filed by the assessee to that effect. The learned CIT(A) also upheld levy of interest u/s 201(1A) of the Act being compensatory in nature and also mandatory.The learned CIT(A) relied upon decisions of Hon'ble Bombay High Court in the case of Benett Coleman and Company Limited v. ITO (1986) 157 ITR 812(Bom.) and decision of Hon'ble Delhi High Court decision in the case of CIT v. Prem Nath Motors (2002) 120 Taxman 584(Delh) wherein the courts held that levy of interest is compensatory .
6. Aggreived by the appellate orders dated 01-08-2014 passed by learned CIT(A), the assessee filed second appeal with the tribunal.
7. The ld. Counsel for the assessee submitted that payment of Rs. 3 lacs was paid to M/s Suzlon Energy Limited for acquiring sublease rights of 5 bigha of land for 19 years which is further extendable for 11 years . The ld. Counsel submitted that further payment of Rs. 3 lacs was paid to Suzlon Developers Private Limited towards common infrastructure facilities at Wind Mill farm in village Baramsar, Jaisalmer. It is submitted that the assessee acquired the Wind Mill for a consideration of Rs. 1.36 crores including the payment of Rs. 3 lacs to M/s Suzlon Energy Limited towards premium for acquiring sublease rights of 5 Bigha land for 19 years which is further extendable for 11 years. It was submitted that the said payment of Rs. 3 lacs to Suzlon Energy Limited is in-fact lease premium paid for acquiring land for 8 ITA 6793/Mum/2014 19 years and is not paid for use of land which could be brought within ambit of definition of Rent for the purposes of Section 194-I of the Act as per explanation(i) to Section 194-I of the Act defining 'Rent' as was applicable for assessment year 2004-05.It was submitted that as part of the windmill Turn- Key project the company paid Rs. 3 lacs to Suzlon Developers Pvt. Ltd. as its share of the undivided common infrastructure facilities throughout the life of the Windmill which does not attract any provisions for tax deduction at source. It was submitted that section 194-I of the Act has been amended w.e.f. 13th July 2006 by Taxation Law (Amendment) Act, 2006 whereby new explanation(i) has been incorporated in lieu of old explanation(i) defining the meaning of 'Rent' It was also stated that TDS was applicable whether or not the building was owned by the payee or not as per the pre-amended definition while no such exclusion was there in pre-amended definition w.r.t. land and hence w.r.t. land it was compulsory that the land must be owned by the payee. It was submitted that the payment of rent for use of land is covered by the Explanation (i) of section 194-I of the Act only if the payee is the owner of the land as per pre-amended definition and payment made for acquiring land or capital assets cannot be brought within ambit of definition of 'Rent' as per Section 194-I of the Act. It is submitted that in assessee's case the payee M/s Suzlon Energy Ltd. is not the owner of land but the lessee of the land granted by Government of Rajasthan and the actual owner is Government of Rajasthan and the Rajasthan Government leased out the entire land of 307 bigha 03 biswa situated at Village Barmsar, Tehsil & District Jaisalmer, Rajasthan in favour of Suzlon Energy Ltd. vide lease deed dated 19th February, 2004 and the instant case is for assessment year 2004-05 which is covered by pre-amended definition of 'Rent'. In addition to the lumpsum payment of Rs. 3 lacs towards sub-lease premium, the assessee paid rent of Rs. 225/- periodically towards the use of the land. The ld. Counsel invited our attention to the agreement placed on record vide paper book page 3 to 18 whereby the assessee is entitled to mortgage or assign land in favour of any 9 ITA 6793/Mum/2014 financial institutions or banks and has only to notify within a period of three months of taking loan etc. to the sub-lessor and Government of Rajasthan, hence the payment is not covered by section 194-I of the Act as lease premium does not fall under the definition of 'Rent'. The ld. Counsel relied upon the judicial decisions:-
Sl No. Particulars Date of order
1 The ITO (TDS) 3(5) v. M/s Wadhwa & 03-07-2013
Associates Realtors Pvt. Ltd.
ITA No. 695/Mum/2012
2 The ITO (TDS) 3(2) v. M/s Shah Group 14-08-2013
Builders Ltd.
ITA no. 4523/Mum/2012
3 The ITO (TDS) 3(2) v. Shree Naman Developers 04-08-2013
Ltd.
ITA no 686 & 687/Mum/2012
4 The ITO (OSD)(TDS)- 3(2) v. M/s Trent Limited 21-08-2013
ITA no. 4629/Mum/2012
5 The ITO (OSD)(TDS) Range 2 v. M/s Navi 16-08-2013
Mumbai SEZ P. Ltd..
ITA no. 738 to 741/Mum/2012
6 M/s Foxconn India Developer (P) Ltd. V. The 04-04-2016
Income Tax Officer, TDS Ward -II(3)
(2016) 239 taxman 513(Mad. HC)
It is submitted that decision of the tribunal in the case of Foxconn relied upon by the authorities below has been reversed by the Hon'ble Madras High Court in 239 taxman 513(Mad.HC)(supra).
With respect to ground No. 2, it is submitted that the definition of Rent has been amended by the Taxation Laws (Amendment) Act,2006 w.e.f. 13th July, 2006 for the purposes of section 194-I of the Act. It is an old case relevant to assessment year 2004-05 and governed by pre-amended definition of 'Rent' in explanation(i) to Section 194-I of the Act. It was submitted that in pre- amended definition plant and machinery and equipments were not covered by the definition of 'Rent' u/s 194-I of the Act and hence payment of Rs. 3 lacs 10 ITA 6793/Mum/2014 for sharing common infrastructure facilities cannot be brought within ambit of Section 194-I of the Act and at best ,without prejudice, it could be covered u/s 194-C of the Act being contractual payments. To this effect certificate u/s 197(1) of the Act was issued by the Revenue-ACIT in favour of Suzlon Developers Private Limited to deduct TDS @0.55% for which the assessee may be held as assessee in default to that extent, which certificate issued by the Revenue u/s 197(1) of the Act is placed at paper book page 19. It was submitted that the Chartered Accountant of Suzlon Developers P. Ltd. has given certificate that they have duly deposited the tax with the Government whereby the receipt of Rs. 3.0 lacs from the assessee for the impugned assessment year i.e. 2004-05 was duly included in the income of the Suzlon Developers Private Limited in the return of income filed with the Revenue, copy of which is placed vide paper book page 20.
Ground No. 3 is with respect to the levy interest u/s 201(1A) of the Act. It was submitted by learned counsel for the assessee that the survey was conducted by the Revenue on 02-03-2007 and the assessee had made submission before the A.O. in the month of December 2007 with respect to alleged violations of Section 194-I of the Act for non deduction of tax at source by the assessee u/s 194-I of the Act, while the order u/s 201/201(1A) of the Act was passed in year 2011 i.e. after more than three years .It was submitted that there was inordinate delay of more than three years by the Revenue in passing orders u/s 201/201(1A) of the Act and the assessee is not at fault for such inordinate delays of more than three years by the AO in framing the impugned order u/s 201(1) and 201(1A) of the Act and hence the assessee should not be penalized for such inordinate delays of more than three years by the Revenue in framing the impugned order and thereby imposing heavy interest u/s 201(1A) of the Act for no-fault of the assessee.
11 ITA 6793/Mum/2014
8. The ld. D.R. submitted that even as per the old pre-amended definition of rent , sub-lease of land is covered within definition of 'Rent' and tax is to be deducted at source on such payments and the ld. CIT(A) is quite justified in passing his order. The learned DR submitted that it is not known whether the Revenue has accepted the decision of Hon'ble Madras High Court in the case of Foxconn India Developers Private Limited(supra). Interest is mandatory for non-deduction of TDS and the Revenue has rightly imposed interest u/s 201(1A) of the Act. It was submitted that interest is compensatory in nature relying on the decision of Hon'ble Bombay High Court in the case of Benett Coleman & Company Limited v. ITO (1986) 157 ITR 812(Bom.) and the case of CIT v. Prem Nath Motors (2002) 120 Taxman 584(Del.). With respect to delay in passing the order u/s 201(1A) of the Act as contended by the learned counsel for the assessee, it was submitted by learned DR that this facts need to be verified from the records and the matter may be remanded to the AO to find out when the assessee submitted its replies to the queries raised by the AO.
9. We have considered the rival contentions and also perused the material available on record including case laws relied upon by both the parties. We have observed that the assessee is in the business of generation of power. The assessee had given contract to Suzlon Energy Limited to supply, install, commission and operate Wind Turbine Generation J38(Windmill) in Wind Farm situated at Village Baramsar , Tehsil and District Jaisalmer, Rajasthan for total consideration of Rs.1,36,50,000/- . We have observed that the assessee has made payment of Rs. 3 lacs to M/s Suzlon Energy P. Ltd. which was included in the afore-stated total payment of Rs. 1,36,50,000/-, for acquisition of sub lease rights for a period of 19 years of the 5 Bigha land at village Baramsar with an option for further extension for 11 years. The said payment of Rs. 3 lacs included payment for stamp duty, registration , legal and administration charges. The said land was sub-leased to the assessee by 12 ITA 6793/Mum/2014 Suzlon Energy Private Limited for setting up windmill project. The Government of Rajasthan has allotted 307 Bigha 3 Biswa land on lease basis to Suzlon Eneregy Private Limited at Village Baramsar , Tehsil and District Jaisalmer, Rajasthan for a period of thirty years for the purpose of setting up Windmill projects vide lease deed dated 19-02-2004 which can be further extended beyond 30 years, and in turn Suzlon Energy Private Limited has sub-leased 5 Bigha land at Village Baramsar , Tehsil and District Jaisalmer, Rajasthan to the assessee for a period of 19 years for Rs. 3 lacs with further option to renew it for 11 years for setting up Windmill project and in case Government of Rajasthan extends lease with Suzlon Energy Private Limited beyond 30 years, then the assessee will have further option for extension even beyond 30 years, vide sub-lease deed dated 12-08-2004 effective from 19-02- 2004 after seeking approval from Government of Rajasthan(pb/page 3-18). The assessee is also in addition liable to pay yearly rent of Rs. 225/- to the Government of Rajasthan directly with respect to this sub-leased land situated at Village Baramsar , Tehsil and District Jaisalmer, Rajasthan (pb/page8) . As per the sub-lease agreement clause IV with Suzlon Energy Limited, the assessee is entitled and permitted by Government of Rajasthan and Suzlon Energy Private Limited to mortgage or assign the land in favour of any financial institutions or banks for availing loan and the assessee has to merely notify the Government of Rajasthan and Suzlon Energy Private Limited within three months and the said mortgage or assignment by the assessee shall convey good title in favour of mortgagee and/or assignee(pb/page 9). In our considered view, it is an acquisition by the assessee of the rights akin to ownership rights in the property consisting of 5 bigha's of land situated at Village Baramsar , Tehsil and District Jaisalmer, Rajasthan for a period of 19 years with right to further extension for 11 years and further option to extend even beyond 30 years if Government of Rajasthan extends the lease of Suzlon Eneregy Private Limited and hence this payment of Rs. 3,00,000/- by the assessee to Suzlon Energy Private limited is not merely payment of ' Rent' for 13 ITA 6793/Mum/2014 use of land.. Further we have observed that there is no provision in the sub- lease deed dated 12-08-2004 that this payment of Rs. 3 lacs is adjustable against yearly rent . Hence in our considered view this up-front one time payment of sub-lease charges of Rs. 3 lacs paid to Suzlon Energy Private Limited towards sub-lease of land for 19 years cannot be said to be paid for use of land to bring within the ambit and mandate of provisions of Section 194-I of the Act for deducting tax at source. We have observed that the issue is covered by the decision of the Tribunal in the case of Wadhwa & Associates Realtors Pvt. Ltd.(supra) and also decision of Hon'ble Madras High Court in the case of Foxconn India Deeveoper Private Limited (supra) as well other decisions relied upon by the assessee as detailed in preceding para's albeit in the said decisions the Court/tribunal were concerned with up-front lease premium paid for acquisition of land on long term lease basis while in the instant case land is acquired for setting up wind mill by entering into sub- lease deed where in the lessor has granted sub-lease in favour of the assessee with the approval of the owners of the land i.e. Government of Rajasthan for a period of 19 years with further option of extending by 11 years and also further option of extension beyond 30 years if Government of Rajasthan extends the lease with Suzlon Energy Private Limited beyond 30 years, with the permission of the owners of land i.e. Government of Rajasthan. We have also gone through the recent CBDT Circular No. 35/2016 [F No. 275/29/2015-IT (B)] dated 13th October, 2016 whereby CBDT have accepted the decision of the Hon'ble High Courts and has accepted that no TDS is deductible on payment of onetime up-front lease premium paid to acquire property on long-term lease. The CBDT Circular No. 35/2016 [F No. 275/29/2015-IT (B)] dated 13th October, 2016 is reproduced below:-
"CIRCULAR 0.35/2016 [F. 0.275/29/2015-IT (B)]
14 ITA 6793/Mum/2014 SECTION 194-I OF THE INCOME-TAX ACT, 1961 - DEDUCTION OF TAX AT SOURCE - RENT - APPLICABILITY OF TDS PROVISIONS OF SECTION 194-I ON LUMPSUM LEASE PREMIUM PAID FOR ACQUISITION OF LONG TERM LEASE.
CIRCULAR NO.35/2016 [F.NO.275/29/2015-IT (B)],
DATED 13-10-2016.
Section 194-I of the Income-tax Act, 1961 (the Act) requires that tax be deducted at source at the prescribed rates from payment of any income by way of rent. For the purposes of this section, "rent" has been defined as any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or machinery or plant or equipment or furniture or fittings.
2. The issue of whether or not TDS under section 194-I of the Act is applicable on 'lump sum lease premium' or 'one-time upfront lease charges" paid by an assessee for acquiring long-term leasehold rights for land or any other property has been examined by CBDT in view of representations received in this regard.
3. The Board has taken note of the fact that in the case of The Indian Newspaper Society (ITA Nos. 918 & 920/2015), the Hon'ble Delhi High Court has ruled that lease premium paid by the assessee for acquiring a plot of land on an 80 years lease was in the nature of capital expense not falling within the ambit of section 194-I of the Act. In this case, the court reasoned that since all the rights easements and appurtenances in respect of the said land were in effect transferred to the lessee for 80 years and since there was no provision in lease agreement for adjustment of premium amount paid against annual rent payable, the payment of lease premium was a capital expense not requiring deduction of tax at source under section 194-I of the Act.
4. Further, in the case Foxconn India Developer Limited (Tax Case Appeal No. 801/2013), the Hon'ble Chennai High Court held that the one-time non-refundable upfront charges paid by the assessee for the acquisition of leasehold rights over an immovable property for 99 years could not be taken to constitute rental 15 ITA 6793/Mum/2014 income in the hands of the lessor, obliging the lessee to deduct tax at source under section 194-I of the Act and that in such a situation the lease assumes the character of "deemed sale". The Hon'ble Chennai High Court has also in the cases of Tril Infopark Limited (Tax Case Appeal No. 882/2015) ruled that TDS was not deductible on payments of lump sum lease premium by the company for acquiring a long term lease of 99 years.
5. In all the aforesaid cases, the Department has accepted the decisions of the High Courts and has not filed an SLP. Therefore, the issue of whether or not TDS under section 194-I of the Act is to be made on lump sum lease premium or one-time upfront lease charges paid for allotment of land or any other property on long-term lease basis is now settled in favour of the assessee.
6. In view of the above, it is clarified that lump sum lease premium or one-time upfront lease charges, which are not adjustable against periodic rent, paid or payable for acquisition of long-term leasehold rights over land or any other property are not payments in the nature of rent within the meaning of section 194-I of the Act. Therefore, such payments are not liable for TDS under section 194-I of the Act."
Thus, keeping in view our detailed discussions and reasoning as set-out above we are of considered view that this payment of Rs. 3 lacs paid by the assessee to Suzlon Energy Limited towards sublease charges for 5 bigha land at Baramsar, Tehsil and District Jaisalmer, Rajasthan for setting up windmill project is not covered within the ambit and mandate of Section 194-I of the Act and no tax is deductible at source as the payment is made albeit as sub- lease charges for acquiring the rights in property which is akin to ownership rights.We order accordingly.
The assessee had also made payment of Rs. 3 lacs as its contribution for availing and use of common infrastructure facility to M/s Suzlon Developers Limited which are constructed, developed and operated by Suzlon Developers Private Limited. The common infrastructure facilities are :
16 ITA 6793/Mum/2014
a) Accessibility to the windmill
b) Protection and guarding of the wind turbine
c) Transmission of electricity generated from wind turbine to common grid station within the windmill farm
d) Meter reading of the electricity generated and transmission into grid
e) Day to day electricity generation and transmission report to the customer
f) Regular monitoring of the windmill to ensure smooth and continuous running of the windmill.
We have observed that Suzlon Developers Private Limited has developed windmill Farm at Village Baramsar, Jaisalmer, Rajasthan . In the said wind mill farm, Suzlan Energy Ltd. Has installed thousands of windmill for its various customers as long term turn-key project. We have observed that the assessee company was one of the customers for whom Suzlon Energy Ltd. installed one windmill during financial year 2003-04. As a part of the windmill Turn-Key project the company paid Rs. 3 lacs to Suzlon Developers Pvt. Ltd. as its share to the undivided common infrastructure facilities to be enjoyed throughout the life of the Windmill. It is also the claim of the assessee,without prejudice, that said payment at best could be covered u/s 194C of the Act It is also the claim of the assessee that Suzlon Developers Pvt. Limited i.e. the payee has no tax dues payable as it had paid its entire tax liability for the assessment year 2004-05 hence no taxes can be determined/recovered from the assessee in view of the Hon'ble Supreme court judgment in the case of CIT v. Hindustan Coco Cola Beverage Pvt Ltd., (2007)293ITR226(SC).
In our considered view, these common infrastructure facilities as detailed above require rendering of services associated with these infrastructure facilities for availing these infrastructure facilities which are in the nature of 17 ITA 6793/Mum/2014 payment to contractor for carrying out the work associated with the utilization of these common infrastructure facilities. These are payments hich are contractual payment for provision of various common infrastructure facilities by Suzlon Developers Private Limited to the assessee and is covered u/s 194-C of the Act. The assessee has claimed that the lower deduction certificate was issued by ACIT in favour of Suzlon Developers Private Limited to deduct tax at source @0.55% on contractual payments during the financial year 2003-04 which was produced by the payee (pb/page 19). In our considered view,this payment of Rs. 3 lacs was covered under the provisions of Section 194-C of the Act and the assessee has defaulted in not deducting tax at source u/s 194-C of the Act on this payment of Rs. 3 lacs to Suzlon Developers Private Limited. The verification is required from the side of A.O. w.r.t. claims of the assessee that the said Suzlon Develoeprs Private Limited hold lower deduction certificate issued by Revenue u/s 197(1) of the Act as also the claim of the assessee that the said Suzlon Develoeprs Private Limited has duly paid taxes on these payment of Rs. 3 lacs paid by the assessee( page 19-20/pb) and accordingly we set aside and restore this issue to the file of the A.O. with a direction to verify the afore-stated contentions of the assessee that M/s Suzlon Developers P. Ltd. has produced TDS certificate issued u/s 197(1) of the Act in their favour for the impugned assessment year 2004-05 for lower deduction of tax at source @0.55% on contractual payments and also that they have duly paid the taxes to Revenue after including afore-stated receipts. The binding decision of Hon'ble Supreme Court in the case of Hindustan Coca-Cola(supra) shall apply w.r.t. to interest liability accordingly after verification by the AO. Similarly, with respect to the contention of the assessee that there was an in-ordinate delay by Revenue of more than three years in passing the order in 2011 while the assesse gave all details by December 2007 and hence the assessee should not be penalized for interest for more than three years for no fault of assessee, this contention of the assessee needs verification by the AO and we are inclined to set aside and 18 ITA 6793/Mum/2014 restore this issue to the file of the AO for verification of contentions of the assessee and pass appropriate orders after verification on merits in accordance with law. Needless to say that proper and adequate opportunity of being heard shall be provided by the AO to the assessee in accordance with principles of natural justice in accordance with law. The assessee is directed to co-operate with the authorities below , so that issues set aside and restored to the file of the AO by us be decided on merits in accordance with law. The AO shall allow the assessee to file relevant evidences and explanations in its defense . We order accordingly.
10. In the result, the appeal filed by the assessee in ITA No. 6793/Mum/2014 for the assessment year 2004-05 is partly allowed as indicated above.
Order pronounced in the open court on 16th November, 2016. आदे श क घोषणा खुले #यायालय म% &दनांकः 16-11-2016 को क गई ।
Sd/- sd/-
(C.N. PRASAD) (RAMIT KOCHAR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
मुंबई Mumbai; &दनांक Dated 16-11-2016
[
व.9न.स./ R.K., Ex. Sr. PS
आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु:त(अपील) / The CIT(A)- concerned, Mumbai
4. आयकर आयु:त / CIT- Concerned, Mumbai
5. =वभागीय 9त9न?ध, आयकर अपील य अ?धकरण, मुंबई / DR, ITAT, Mumbai "E" Bench
6. गाडC फाईल / Guard file.
आदे शानुसार/ BY ORDER, स या=पत 9त //True Copy// 19 ITA 6793/Mum/2014 उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai