Shri Anand H. Bansal,, vs Department Of Income Tax

ITO (TDS)-1, Pune .. Appellant

Vs.

Shri Anand H. Bansal, Prop. Bansal Enterprises, Termax Chowk, Telco Road, Chinchwad, Pune - 411019 .. Respondent PAN No.AARPA0440R

Appellant by : Shri Sunil Pathak Department by : Shri P.S. Naik

Date of Hearing : 27-05-2015 Date of Pronouncement : 29-05-2015

ORDER

PER VIKAS AWASTHY, JM :

The appeal has been filed by the Revenue against the

order of CIT(A)-V, Pune dated 08-10-2013 for the Assessment

Year 2011-12 passed u/s.201(1)/201(1A) of the Income-tax Act,

1961 (hereinafter referred to as 'the Act').

2. The only issue raised by the Revenue in appeal is deleting

of demand of Rs.41,63,359 u/s.201(1)/201(1A) of the Act in

respect of the lease premium payment made by the assessee to

Pimpri Chinchwad New Township Development Authority (in

short 'PCNTDA).

3. Shri P.S. Naik, representing the Department submitted

that the CIT(A) has erred in not appreciating the fact that the

lease premium paid by the assessee to PCNTDA is upfront

payment as pre-condition for entering into lease agreement. He 2

submitted that the deed entered into by the deductor with

PCNTDA was not a transfer deed but a lease deed. 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. The Ld. Departmental Representative

vehemently supported the order of the Assessing Officer and

prayed for setting aside the order of CIT(A).

4. Shri Sunil Pathak, Authorised Representative appearing

on behalf of the assessee submitted that the issue raised by the

Revenue in appeal has already been considered by the Tribunal

in appeals of various assessees. The Tribunal has been

consistently holding that lease premium paid to PCNTDA is not a

payment in lieu of rent as envisaged u/s.194I of the Act. The

Ld. Authorised Representative of the assessee placed reliance on

the decision of Coordinate Bench of the Tribunal in ITA

No.10/PN/2014 in the case of ITO Vs. Shri Vijay N. Kodnani for

A.Y. 20011-12 decided on 31-03-2015. The Ld. Authorised

Representative prayed for confirming the impugned order and

dismissing the appeal of the Revenue

5. We have heard the submissions made by the

representatives of both the sides and have perused the orders of

the authorities below. We have also examined the decision on

which the Ld. Authorised Representative of the assessee has

placed reliance.

6. The brief facts of the case are :

During the course of TDS verification in the case of PCNTDA it

was noticed that the assessee had entered into lease agreement

for 99 years with PCNTDA vide lease deed dated 20-07-2010 in 3

respect of Plot No. 3 in sector 29. The Assessing Officer held

that on the lease payment, the assessee was liable to deduct tax

at source in accordance with the provisions of section 194-I of

the Act. The stand of the Revenue is that the premium paid for

acquiring lease hold rights for 99 years is akin to payment of

rent. Accordingly, demand u/s.201(1)/201(1A) of the Act was

raised against the assessee. In appeal before the first appeal

authority the matter was decided in favour of the assessee. The

CIT(A) after analysing the provisions of section 194-I and the

decision of the Mumbai Bench of the tribunal in the case of Navi

Mumbai SEZ(P) Ltd. in ITA Nos.738 to 741/Mum/2012 for A.Y.

2006-07 to 2009-10 deleted the demand raised

u/s.201(1)/201(1A).

6.1 We observe that the issue in appeal has been agitated

earlier before the Tribunal in appeals of various assessees. The

Tribunal has been consistently holding that the payment of lease

rentals to PCNTDA does not fall within the purview of section

194I of the Act. The Ld. Authorised Representative of the

assessee has placed reliance on the recent decision of the

Coordinate Bench of the Tribunal in the case of Vijay N. Kodnani

(Supra). In the said case, the Tribunal followed the decision in

the case of ITO (TDS) Vs. Preetam Medical Foundation &

Research Centre in ITA No.190/PN/2014 decided on 16-01-2015

and adjudicated the issue in favour of the assessee. The

relevant extract of the order of the Tribunal reads as under :

"5. We find that an identical issue as raised in the present appeal, arose before the Tribunal in ITO (TDS) Vs. Preetam Medical Foundation & Research Centre, in ITA No.190/PN/2014, relating to assessment year 2013-14, vide order date 16.01.2015, wherein it was held as under:-

4 "5. We have heard the rival contentions and perused the record. The issue arising in the present appeal is in relation to the demand raised under sections 201(1) and 201(1A) of the Act in respect of the lease premium paid to Pimpri Chinchwad New Township Development Authority (PCNTDA). In the facts of the case before us, the assessee had entered into 99 years lease agreement through its Chairman with PCNTDA for using 3261 sq. mtrs. of land located on Plot No.1, in Sector 13, Chikhali, Taluka Haveli, Pune. The said land was to be used for education purposes as per clause (N) of the lease deed. The assessee paid lease premium of Rs.1,37,36,963/- for the said plot and further agreed to pay sum of Rs.100/- per annum for the entire period of lease. The Assessing Officer (TDS) was of the view that the assessee was required to deduct tax at source under section 194 I of the Act at the time of payment of lease premium to PCNTDA. The Assessing Officer issued a show cause notice to the assessee and also issued summons to the deductor. In reply, the assessee explained that the transaction between it and PCNTDA was a transaction of sale and further appropriate tax return had been filed by it. The Assessing Officer was of the view that the transaction between the parties was not that of transfer, but of lease and there was no transfer of ownership of the property, but the same was leased for use either for commercial or residential purposes as approved by the Lessor. However, the Assessing Officer referred to the various restrictions on the Lessee / assessee put up by the Lessor and it was observed by the Assessing Officer that this was not a case of freehold transfer or sale and the assessee was not the absolute owner of the property. The Assessing Officer thus, concluded that the assessee was liable to deduct tax at source under section 194 I of the Act on the lease premium paid to PCNTDA. The assessee having failed to deduct tax at source, was held to be in default under section 201(1) of the Act at Rs.13,73,696/- and further interest under section 201(1A) of the Act was charged at Rs.82,416/-. Reliance was placed on the ratio laid down by Chennai Bench of the Tribunal in Foxconn India Developer (P) Ltd. Vs. ITO (TDS) (supra).

6. The CIT(A) after considering the facts and reply filed by the assessee, observed that no doubt, after 99 years of lease, the lease hold right expired and the Lessor was vested with the full rights on the said plot of land, with the option either to renew the lease for further period and take back the possession of the land. However, the preliminary clause of the lease agreement reflects that the payment of lease premium was a pre-condition for entering into lease agreement. The CIT(A) has reproduced the preliminary clause of the lease agreement at page 7 of the appellate order, which are not being reproduced for the sake of brevity. The CIT(A) thus, held that the payment of lease premium of Rs.1,37,36,963/-

was a pre-condition for entering into the lease agreement and the same was not under the lease deed, therefore, the payment of lease premium fell outside the purview of definition of rent as provided under section 194 I of the 5

Act. It was further pointed out by the CIT(A) that there is no merit in the reliance placed upon the decision of Chennai Bench of the Tribunal in Foxconn India Developer (P) Ltd. Vs. ITO (TDS) (supra) as the same was distinguishable on facts. In the facts of the case before the Tribunal, the issue in question was upfront payment of lease and further the said upfront payment was part of the conditions for acquiring leasehold rights, unlike the present case where, the payment of lease premium was a pre-condition for entering into a lease agreement. The CIT(A) placed reliance on the decision of Mumbai Bench of the Tribunal in Navi Mumbai SEZ(P) Ltd in ITA No.738 to 7741/Mum/2012, relating to assessment years 2006-07 to 2009-10, vide order dated 12.08.2013, in order to hold that the payment of lease premium to PCNTDA being a pre-condition for entering into lease agreement, could not be said to be paid under the terms of lease agreement. Further, stamp duty had been paid on the market value of the plot represented by lease premium. In view thereof, the Assessing Officer was directed to delete the demand created under sections 201(1) and 201(1A) of the Act.

7. The issue arising in the present appeal is squarely covered by the ratio laid down by the co-ordinate Bench of the Tribunal in ITO Vs. Camp Education Society (supra), wherein it was held as under:-

"6. We have heard the rival contentions and perused the record. The assessee was an educational society registered under section 12A of the Act. The assessee was running various schools and colleges in the city of Pune. During the year under consideration, in order to establish another school in Pimpri Chinchwad area, the assessee in reply to an advertisement by PCNTDA, applied for a plot on leasehold basis. As per the Bid document, where the Bid quoted by a party accepted, the said party was required to pay the quoted amount i.e. the premium within 3 months of the letter of allotment. In case such premium was not paid within period of 3 months, 25% of the Tender deposit was to be fortified and balance amount was to be refunded without any interest. The Tender document stated that the Tender was for the purpose of sale of reserved plots and as per the document full premium was to be paid to PCNTDA and lease agreement would be entered with the party. The assessee entered into a lease agreement with PCNTDA for 99 years and the lease rent was Rs.100/- per annum for the period of 99 years. The assessee accordingly, deposited the premium amount of Rs.2,20,24,860/-. After receiving the premium amount, the licenser i.e. PCNTDA agreed to execute Lease Deed to convey / transfer / assign the leasehold rights. The Lease Deed authorizes the assessee to build / construct any building on the said plot of land. The case of the assessee was that the payment of premium was a pre-condition for obtaining the lease rights and it was only after payment of the lease premium, the lease agreement was entered into and bundle of rights were obtained by the assessee.

6 7. The Assessing Officer held the assessee to be default in respect of the TDS payable on such lease rent payment to PCNTDA. Reliance was placed on the ratio laid down by the Chennai Bench of the Tribunal in Fox Conn India Developer (P) Ltd. (supra). The assessee was held to be in default for non-deduction of tax on source under section 194I of the Act on the lease premium paid to PCNTDA and demand under section 201(1) of the Act was raised and interest under section 201(1A) of the Act was charged, raising a demand of Rs.22,90,585/-.

8. The CIT(A) vide para 8 referred to the preliminary clauses of the agreement entered into between assessee and PCNTDA and pointed out that the lease premium finds mention in the Lease Deed but the said payment of lease premium was a pre-condition for entering into lease agreement. The CIT(A) thus, held that same was not under the lease deed and the payment of lease premium falls outside the purview of definition of rent as specified in section 194I of the Act. The CIT(A) further observed from the ratio laid down in the case of Fox Conn India Developer (P) Ltd. (supra) was distinguishable on the facts as 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 case were clearly distinguishable. Further reliance was placed on the series of decisions, under which such similar payment of lease premium was held to be not subject to deduction of tax at source under section 194I of the Act.

9. We find that similar issue of payment of lease premium arose before the Mumbai Bench of the Tribunal in the case of Navi Mumbai SEZ (P) Ltd. in ITA Nos.738 to 740/Mum/2012 for assessment years 2006-07 to 2009-10, wherein the 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. (CIDCO) for acquiring development and leasehold rights for a period of 60 years, was not required to be subject to deduction at source under section 194I of the Act. Further another Bench of the Mumbai Tribunal in the case of M/s.

Wadhwa Associates in ITA No.695/Mum/2012, vide order dated 03.07.2013, held that TDS was not required to be deducted under section 194I of the Act in respect of payment of lease premium to M/s. MMRD Ltd.

10. In view of above said facts and circumstances, wherein the lease premium was paid to PCNTDA by the assessee as a pre-condition for entering into a lease agreement, the same cannot be said to have been paid consequent to the lease agreement executed between the parties. Further, the CIT(A) has given a finding that stamp duty had been paid on the market value of the plot represented by the lease premium, which has not been controverted by the learned Departmental Representative for the Revenue. Relying upon the ratio laid down by the 7

Mumbai Bench of the Tribunal in three different cases, we uphold the order of CIT(A) in holding that the lease premium paid by the assessee is outside the purview of section 194I of the Act and the Assessing Officer was not justified in raising the demand under section 201(1) and 201(1A) of the Act. The grounds of appeal raised by the Revenue are thus, dismissed."

8. Following the same parity of reasoning, we hold that where the lease premium paid to PCNTDA was a pre- condition for entering into the lease agreement, the same not being paid consequent to the execution of the lease agreement, cannot be said to be payment in lieu of rent as envisaged under section 194 I of the Act. In addition, the assessee had paid stamp duty on the market value of the plot represented by the lease premium and the said finding of the CIT(A) having not been controverted by the learned Departmental Representative for the Revenue, we find no merit in the appeal filed by the Revenue. Accordingly, we uphold the order of CIT(A) and dismiss the grounds of appeal raised by the Revenue."

6. Following the same parity of reasoning, we uphold the order of CIT(A) and dismiss the grounds of appeal raised by the Revenue."

7. We find that the facts of the instant appeal are identical to

the facts of the case relied on by the Ld. Authorised

Representative. The Ld. Departmental Representative has not

been able to controvert the findings of the Tribunal in the

aforesaid case. Therefore, we do not find any reason to deviate

from the view consistently being taken by the Tribunal.

Accordingly, this appeal of the Revenue is dismissed being

devoid of merit.

8. In the result, the appeal of the Revenue is dismissed.

Order pronounced on Friday, the 29th day of May, 2015 at

Pune.

Sd/- Sd/- (R.K. PANDA) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER

satish Pune Dated: 29th May, 2015 8

Copy of the order forwarded to : 1. Assessee 2. Department 3. CIT(A)-V, Pune 4. CIT-V, Pune 5. The D.R, "A" Pune Bench 6. Guard File

By order

// True Copy // Senior Private Secretary ITAT, Pune Benches, Pune