The Respondent Rajesh Projects (India), a private limited company engaged in the business of real estate activities of constructing, selling residential units etc. It entered into a long-term lease for 90 years with the Greater Noida Industrial Development Authority for Plot No. GH-07A for development and marketing of Group Flats. As per terms of the lease deed, the company partially paid the consideration amount for the acquisition of the plot to Greater Noida at the time of execution of the lease deed and is also paying the balance lease premium annually as per the terms and conditions of the lease deed. The Revenue held that payment is liable for TDS u/s 194-I and therefore Company is assessee in default. Against the rejection of stay petition, the Company filed writ petition to Delhi HC.
The Delhi Court held as follows:
- Amounts paid as part of the lease premium or bi-annual or annual payments for a limited/specific period towards acquisition of lease hold rights are not liable for TDS, being capital payments.
- Amounts constituting annual lease rent, expressed in terms of percentage (e.g. 1%) of the total premium for the duration of the lease, are rent, and therefore subject to TDS. Since the Petitioners could not make the deductions due to the insistence of GNOIDA, the HC issued a direction to GNOIDA to comply with the provisions of law and make all payments, which would have been otherwise part of the deductions, for the periods, in question, till end of the date of this judgment. The HC further held that all payments to be made to it, henceforth, shall be subject to TDS.
- Amounts which are payable towards interest on the payment of lump sum lease premium, in terms of the Lease which are covered by Section 194-A are covered by the exemption u/s. 194A(3)(f) and therefore, not subjected to TDS.
- For the same reason, any interest paid or payable to GNOIDA, by any Petitioner who is a bank-to the GNOIDA, towards fixed deposits, are also exempt from TDS.
Aggrieved by the aforesaid judgment of Delhi High Court, Greater Noida, Noida as well as Revenue has filed appeals before the Supreme Court.
The Supreme Court held that insofar as the appeals filed by Noida/Greater Noida were concerned, the principal submission raised by the Appellant is applicability of section 10(20) of the Income Tax Act. In New Okhla Industrial Development Authority vs. Commissioner of Income Tax-Appeals and Ors., (406 ITR 178) it had been held that Noida was not a “local authority” within the meaning of section 10(20) of the Income Tax Act as amended by the Finance Act, 2002 w.e.f. 01.04.2003.
Insofar as the question relating to exemption u/s. 194A(3)(iii)(f) by virtue of notification dated 24.10.1970, i.e. the exemption of interest income of the Noida, was concerned, in Commissioner of Income Tax (TDS) Kanpur and Anr. vs. Canara Bank (406 ITR 161) it had been held that Noida was covered by the notification dated 22.10.1970, and therefore the judgment of the Delhi High Court holding that Noida/Greater Noida was entitled for the benefit of section 194A(3)(iii)(f) had to be approved. With respect to High Court direction for deduction of tax at source on the payment of lease rent under section 194-I of IT Act, the SC held that a perusal of the Circular dated 30.01.1995 relied by Noida/Greater Noida, indicates that circular was issued on the strength of section 10(20A) and section 10(20) as it existed at the relevant time. The SC observed that Section 10(20) has been amended by Finance Act, 2002 by adding an explanation and further section 10(20A) has been omitted w.e.f. 01.04.2003. Therefore, very basis of the circular does not exist by virtue of amendments made by Finance Act, 2002. Thus, reliance on Circular is not sustainable. Therefore, TDS u/s. 194-I is applicable and is statutory liability of the Respondent-company. The High Court has adjusted the equities by recording its conclusion and issuing a direction. The same is upheld.