S. 194-I TDS: Lease premium paid to MMRDA is not "rent"

ITO vs. Wadhwa & Associates Realtors (ITAT Mumbai)

The assessee executed a lease deed with MMRDA pursuant to which it obtained a plot of land at Bandra Kurla Complex on a long-term lease. The assessee paid MMRDA Rs. 950 crore as lease premium. The AO held that the said lease premium was in the nature of rent and that the assessee ought to have deducted TDS thereon u/s 194-I. He held the assessee to be in default and demanded tax of Rs. 314 crore. This was reversed by the CIT(A) on the ground that lease premium could not be equated with rent. On appeal by the Department to the Tribunal, HELD dismissing the appeal:

Payment under a lease may be classified under three categories (1) "premium" or "salami", (2) minimum royalty and (3) royalty per ton. Lease "premium" or "salami" is in the form of a lump sum non-recurring payment made by a prospective tenant to the landlord as consideration for grant of the lease. It is paid anterior to the constitution of relationship of landlord and tenant. It is not “rent” and has all the characteristics of a capital payment. On facts, the lease deed shows that the premium is not paid under a lease but is paid as a price for obtaining the lease, hence it precedes the grant of lease. Therefore, by no stretch of imagination can it be equated with rent which is paid periodically. The payment is also for FSI and additional built up area. This also cannot be equated with rent and so the assessee was under no obligation to deduct TDS u/s 194-I (Mukund Ltd. 106 ITD 231 referred)