Opinion Of Eminent Legal Luminaries On Controversial Issues

Deduction at source – Rent -Lease premium for grant of lease

QUERY: BIDCO which is a State Industrial Development Corporation grants a 99 year lease and collects a lump sum premium for granting the lease amounting to Rs. 40 crores. Yearly rent is Rs. 1,000/- . Whether section 194-I is applicable on the lump sum amount?
ANSWER: In ITO (TDS) v. Navi Mumbai SEZ (P) Ltd. [38 Taxmann.com 218] the Mumbai Tribunal has taken a view that lease premium paid by the assessee to BIDCO for acquiring leasehold land for a period of 60 years in order to develop a SEZ amounted to capital expenditure which did not fall within meaning of rent under section 194-I of the Act.
Similarly, ITO (TDS) v. Wadhwa & Associates Realtors (P) Ltd. [36 taxmann.com 526] the Mumbai Tribunal held that since premium was not paid under a lease but was paid as a price for obtaining lease, it preceded grant of lease and therefore, by any stretch of imagination, it could not be equated with rent which was paid periodically.
Thus, BIDCO collects, a lump sum premium for grant of lease. Therefore, the said sum is in nature of capital receipt in its hand. Therefore, section 194-I is not applicable on such lump sum amount.
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