Lease premium paid to acquire a leasehold land for 60 years isn’t a rent; no TDS under sec. 194-I

ITO(TDS) V. NAVI MUMBAI SEZ (P.) LTD (2013) (Mumbai - Trib.)

Lease premium paid for acquiring leasehold land for a period of 60 years did not fall within meaning of 'rent' under section 194-I and, therefore, assessee was not liable to deduct tax at source while making said payment

Facts:

• The assessee entered into lease agreements for a period of 60 years with CIDCO for acquisition of leasehold rights in the land to develop and operate a SEZ; 
• It paid lease premium to CIDCO. The Assessing Officer held that lease premium amounted to payment of rent within meaning of section 194-I and, since, assessee did not deduct tax at source while making said payment, it was to be treated as assessee in default; 
• On appeal, the CIT (A) set aside the order of AO. Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

• When the interest of the lessor is parted with for a price, the price paid is called lease premium or salami. But the periodical payments made for the continuous enjoyment of the benefit under the lease are in the nature of rent; 
• In the instant case, there was transfer of substantive interest of lessor for the leasehold land in favour of the assessee. There is a conferment of right on the lessee by acquiring leasehold land and the premium has been paid in lieu thereof and not for the purpose of use of land; 
• Therefore, the lease premium paid by the assessee for acquiring leasehold land with a right to develop a SEZ thereon couldn’t deemed as advance payment of rent; 
• Accordingly, premium paid by the assessee for acquiring leasehold land does not fall within the ambit of rent under section 194-I. Thus, the CIT (A) had rightly held that the provisions of section 194-I were not attracted in respect of lease premium paid by the assessee. Thus, revenue’s appeal was to be dismissed.