Long-Term Lease Premiums Not To Attract TDS: ITAT
Mumbai’s Income-Tax Appellate Tribunal (ITAT) has provided relief to the commercial property owners and lessees in Mumbai’s central business district, the Bandra-Kurla Complex though a recent order. The ITAT has ruled that the lease premium, which is a one-time charge a company has to pay upfront to acquire long-term lease rights, will not attract tax-deducted at source (TDS). A large number of companies have been operating from the BKC by entering into long-term lease agreements with the Mumbai Metropolitan Regional Development Authority (MMRDA).
Under the current practice, long-term leases that span between 60 and 99 years attract a heavy lease premium. For this, the tax officials have been issuing notices claiming TDS for such payments. For instance, when Bank of India leased space to construct residents and office buildings in the BKC from the Mumbai Metropolitan Regional Development Authority (MMRDA) for 80 years, the bank paid the lease premium and additional premium for the floor space index (FSI), along with interest and fee for delay in the construction of the structure. For this one-time payment, the I-T department had then claimed 20 per cent TDS on the lease premium paid by the bank. During that time the tax department had claimed that such payments may be considered as rent under the Section 194-I under the I-T Act, being applicable for TDS.
However, now ITAT has ruled that these payments would not be considered as rent, and would not attract TDS by virtue of that.
Earlier, in 2016, the Madras High Court had ruled that payment for one-time non-refundable upfront charges for acquiring leasehold rights in land for long duration is not rent. Therefore, such lessee is not liable to deduct TDS. Many courts have held similar views, but almost all of them did not address the applicability of Section 194-IA.