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Showing contexts for: definition of rent in Navi Mumbai Sez P.Ltd, Mumbai vs Department Of Income Tax on 23 July, 2013Matching Fragments
6. AO did not agree with the submissions of assessee and after considering the definition of rent under section 194-I of the Act in the light of Explanation(i) thereof stated that definition of "rent" creates a legal fiction , whereby almost anything and everything payment in relation to the property under lease transactions qualify for rent for the purposes of Section 194-I of the Act. Hence lease premium partakes of the character of rent. AO has further stated that there are various restrictive clauses in the lease agreement which negates the assessee's contention that it has acquired rights in the land and not merely the rights to use the land. AO has stated that had it being a case of acquisition of land rights, there was no need to put restrictive clauses in the agreement. AO after considering the decisions of the Hon'ble Delhi High Court in the case of United Airlines V/s CIT reported in 152 Taxmann 516(Delhi), the case I.T.A. Nos.738 to 741/Mum/2012 of CIT V/s Reebok Co. reported in 163 Taxmann 61 (Del), the decision of Hon'ble Karnataka High Court in the case of CIT V/s HMT Ltd 67 Taxmann 506 (Kar) and decision of the Hon'ble Andhra Pradesh High Court in the case of Krishna Oberoi V/s Union of India 123 Taxmann 709 has held that the lease premium paid by the assessee is in the character of rent as per extended definition contained under section 194-I of the Act. Therefore, the assessee has committed default within the meaning of section 201(1) of the Act by not deducting the tax at source u/s 194-I of the Act on payment of lease premium of Rs.50 crores in assessment year 2006-07, Rs.946.06 crores in assessment year 2007-08, Rs.1033.61 crores in assessment year 2008-09 and Rs.146.82 crores in assessment year 2009-10. AO has further stated that the assessee is also liable to pay interest u/s 201(1A) of the Act. Accordingly, AO has stated the tax and interest liability of the assessee for the assessment years under consideration as under :
ix) Section 194-I of the IT 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 the hands of the lesser/ owner must constitute the income by way of rent in the hands of the recipient.
x) The definition of rent contained in explanation to section 194-I also clearly provide that the payment made must be "for the use of .... land"
I.T.A. Nos.738 to 741/Mum/2012 no where the definition of rent ropes in the consideration paid for acquiring leasehold right. The Appellant (lessee) reiterates its 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 appellant has also acquired sole rights for marketing of the NMSEZ and the industrial/ commercial projects to potential tenants."
10. In view of above, ld. CIT(A) has stated that the assessee has been allotted land for a period of 60 years on the payment of lease premium. That the lease deed(s) and the Development Agreement, assigns to the assessee lease hold rights which includes a bundle of rights, some of which are outlined above. Assessee made payment of lease premium to CIDCO without deducting TDS and the AO has held that the payment of lease premium is nothing but rent covered under the definition of rent provided u/s 194-I of the Act and hence the deduction of tax at source was required. Ld. CIT(A) has thereafter reproduced section 194-I of the Act which is as under :
19. In the case before us, the assessee has entered in to lease agreements with CIDCO for acquisition of leasehold rights in the land to develop and operate the Special Economic Zone at Navi Mumbai. Assessee has paid premium for demised lease land. The question before us is as to whether the said lease premium paid by the assessee to CIDCO to acquire leasehold rights for 60 years under the lease deed(s) is liable for deduction of tax at source being rent within the meaning of section 194-I of the Act or not. AO has stated that the said payment made by assessee under lease agreements qualifies for rent for the purpose of section 194-I of the Act as it partakes all the characteristics of rent and whereas the assessee has contended that the assessee has obtained leasehold rights in the said leasehold lands on payment of lease premium and the said lease premium is not paid under a lease. Hence, it is a capital expenditure and not an advance rent. We observe that the main thrust of the AO to hold the premium paid by assessee to hold it as rent is on the definition of rent under section 194-I of the Act that it creates a legal fiction and the lease deed(s) entered into contain various restrictive covenants. That the said payments in substance are for I.T.A. Nos.738 to 741/Mum/2012 consideration for use of land under the lease deed(s), hence provisions of section 194-I of the Act is attracted.