Payment of one time lease premium to acquire a leashold land isn’t subject to tax deduction under sec. 194-I

Where payment of lease premium was not made on periodical basis but it was one-time payment to acquire land with right to construct a commercial complex thereon, section 194-I had no application on deposit of such lease premium

In the instant case the Mumbai Development Authority offered certain land on lease to assessee for a period of 80 years for certain consideration comprising of lease premium. The assessee paid said premium in two installments. The AO held that the assessee was liable to deduct tax at source on lease premium under section 194-I. The CIT (A) held in favour of assessee. Aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) In Durga Das Khanna v. CIT (1969) 72 ITR 796 (SC), the Supreme Court held that the onus was on the Revenue to demonstrate that premium has been camouflaged as advance rent and the AO, in the instant case has not brought on record any material to indicate that the rent has been suppressed and the premium has been inflated.

2) Thus, undoubtedly premium in relation to leased land was on capital account not liable to be classified as revenue outgoing;

3) Since the payment of lease premium was not to be made on periodical basis but it was one- time payment to acquire land with right to construct a commercial complex thereon, section 194-I was not applicable

4) Therefore, the impugned sum does not constitute advance rent, but it was to be classified as capital expenditure not falling within the operative realm of section 194-I - ITO v. Indian Newspapers Society (2013) 37 taxmann.com 401 (Delhi - Trib.)