ITO vs. Earnest Towers (P) Ltd (ITAT Kolkata)

The revenue claimed that payment of lease premium by the assessee to MMRDA is in the nature of advance rent for 80 years and definition of the term “rent” u/s 194 I of the Act was wide enough to include such payments made. It was contended by the revenue that even after the execution of the lease deed the rights of the lessor did not extinguish in view of the provisions of obtaining the additional premium from the assessee in case time limit for its commercial development was not adhered to. According to the revenue premium paid in the case of the assessee came within the purview of section 194 I of the Act. HELD by the Tribunal rejecting the plea:

(i) The terms of the lease deed leaves no manner of doubt that the lease premium of Rs.1041.42 crores was for acquisition of rights in the lease hold property rather than use of land. Therefore the provisions of section 194 I of the Act are not applicable in the case of the assessee. The purport of section 194 I of the Act is not to bring in its purview payments of any or every kind. Only those payments which are in the nature of “use” of land come within the ambit of section 194 I of the Act. The word “use” is therefore of prime importance for transactions where the consideration paid for the property would be termed as “rent”. The term “use “according to us has to be interpreted keeping in mind the relationship between the landlord and the tenant. The same cannot be extended to bring within its purview exploitation of any kind with reference to the property by changing its identity for its own benefit and thereafter selling it for profit. If that be so and the word ‘use’ is given an extended meaning, there would be no difference between a sale transaction and a transaction between the landlord and the tenant. This would render the intention of the legislature in importing the word ‘use’ in section 194 I of the Act otiose. Landlord-tenant relationship does not contemplate such right being given to the tenant. However, there may be transactions of lease that may be identical to the transactions between a landlord and tenant and that is why the definition of the rent includes lease, sub-lease etc.

(ii) The amount paid by the assessee for lease premium has no connection with the market rent of the property leased to the assessee. Furthermore the term of lease deed is for a considerable period of 80 years which further supports the case of the assessee that the payment made was for the acquisition of rights in the land along with the right of possession, right of exploitation of property, its long term enjoyment, to mortgage the property, to sell the property etc. Also the entire lease premium of Rs.1041.42 crores has been paid before the execution of the lease deed and not after.