M/S New Okhla Industrial Development Authority v. Commissioner Of Income Tax Appeals & Ors

888 [2018] 7 S.C.R. AM/S NEW OKHLA INDUSTRIAL DEVELOPMENTAUTHORITY COMMISSIONER OF INCOME TAX – APPEALS & ORS. (Civil Appeal No. 15613 of 2017) JULY 02, 2018 [A. K. SIKRI AND ASHOK BHUSHAN, JJ.] Income Tax Act, 1961 – s.10(20) – Applicability of – Localauthority – Noida – Held: Noida is not a local authority within theCmeaning of s.10(20) as amended by Finance Act, 2002 w.e.f01.04.2003 by virtue of decision in Civil Appeal No. 792-793 of2014 – Uttar Pradesh Industrial Area Development Act, 1976. Income Tax Act, 1961 – s.194A(3)(iii)(f) – Exemption ofinterest income by virtue of Notification dated 24.10.1970 – Held,Dit was decided in Commissioner of Income Tax v. Canara Bank thatNoida is covered by the said notification and Noida/Greater Noidais entitled to the benefit of s.194A(3)(iii)(f) – The said view isapproved. Income Tax Act, 1961 – s.194-I – Deduction of tax at sourceEon payment of lease rent – Held: Tax is deductible at source onpayment of lease rent to the Greater Noida as per s.194-I of the Act. Dismissing the appeals, the Court HELD: 1. The definition of rent as contained in theFexplanation to Section 194-I is a very wide definition. Explanationstates that “rent” means any payment, by whatever name called,under any lease, sublease, tenancy or any other agreement orarrangement for the use of any land. The High Court has readthe relevant clauses of the lease deed and has rightly come tothe conclusion that payment which is to be made as annual rent isGrent within the meaning of Section 194-I. The High Court rightlyheld that TDS shall be deducted on the payment of the lease rentto the Greater Noida as per Section 194-I. A perusal of circulardated 30.01.1995 indicate that the query which has been answeredin the circular is “Whether requirement of deduction of income- tax at source under Section 194-I applies in case of payment byway of rent to Government, statutory authorities referred to inSection 10(20A) and local authorities whose income under thehead “Income from house property” or “Income from othersources” is exempt from income-tax.” A perusal of the circularindicate that circular was issued on the strength of Section 10(20A)and Section 10(20) as it existed at the relevant time. Section 10(20)has been amended by Finance Act, 2002 by adding an explanationand further Section 10(20A) has been omitted w.e.f. 01.04.2003.The very basis of the circular has been knocked out by theamendments made by Finance Act, 2002. Thus, the Circularcannot be relied by Noida/Greater Noida to contend that there isno requirement of deduction of tax at source under Section 194-I. Thus, deduction at source is on payment of rent under Section194-I, which is clearly the statutory liability of the respondent-company. [Paras 14, 16][895-G-H; 896-A-B, F-H] CIVIL APPELLATE JURISDICTION: Civil Appeal No. 15613of 2017. From the Judgment and Order dated 16.02.2017 of the High Courtof Delhi at New Delhi in WP No. 1214 of 2016. WITH C.A. Nos. 9365/2017, 12750/2017, 15615/2017, 9199/2017, 15130/2017, 15614/2017, 51/2018, 6115/2018 and 6113/2018. Balbir Singh, K. Radhakrishnan, Sr. Advs., Jasmeet Singh, NamanJoshi, Ms. Ruhsheet J. Saluja, Hemant Jain, S. N. Tayag Rajan, KiranKondaparthy, Nitesh Shrivastava, R. S. Saluja, Ms. Rubal Maini, SandeepChilana, Mohd. Raiz, Prbhu Dayal Chilana, Ms. Seema Joshi, D. L.Chidananda, Arijit Prasad, Shekar Vyas, Mrs. Anil Katiyar, Ravi PrakashMehrotra, Debesh Panda, Neil Chatterjee, V. D. Verma, Ravindra Kumar,Ms. Arti Singh, Ms. Pooja Singh, Jasmeet Singh, Ms. Kavita Jha, Advs.for the appearing parties. The Judgment of the Court was delivered by ASHOK BHUSHAN, J. 1. Delay condoned. 2. These appeals have been filed against the common judgmentof Delhi High Court dated 16.02.2017 by which the Delhi High Court [2018]4 3a. fA. 4. 348 J sien sitar faraorea wiftraeor (Aa) SADT BYR sitet sie sey dex atest aitenfres fore stra Weh ACH aryad (ctstva) sik 3 = siren sitar fora wiftrere UNA WA sie sey sirensitenhra fara wifererecr SEA aga, (sti) 41 site ay J sien sitar fares urltrpeor (Aa) WHY sgad sitet site sry sirsitenfra farse oiftreaeorn -HYrat sik sreT 349 Se-HY siged (cstva)-0 sik sa Weel Neen (fsa) wigde fetessik va aI Sa-HY strat silk 3a Gages da site sfear sik UH sr aettWEY syed (ctstva)-0 sik sre Weel Uisiaea (feat) wigde fetessik va sry WAY aged (ctsitva), Hy sik va 3tet vasivadldan fetes, dex aver 2 Wolly, 2018 varav. &. 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The factsand issues in all the appeals being common, it shall be sufficient to referthe facts and pleadings in Civil Appeal No. - 15130 of 2017 –BCommissioner of Income Tax (TDS) – II & Ors. Vs. Rajesh Projects(India) Pvt. Ltd. & Anr. for deciding this batch of appeals. 3. The respondent Rajesh Projects (India) is a private limitedcompany engaged in the business of real estate activities of constructing,selling residential units etc. On 03.11.2010, the respondent-companyCentered into a long-term lease for 90 years with the Greater NoidaIndustrial Development Authority for Plot No. GH-07A for developmentand marketing of Group Flats. As per terms of the lease deed, thecompany partially paid the consideration amount for the acquisition ofthe plot to Greater Noida at the time of execution of the lease deed andDis also paying the balance lease premium annually as per the terms andconditions of the lease deed. Notice under Section 201/201(A) of theIncome Tax Act, 1961 was issued by the Income Tax department inquiringregarding non-deduction of tax at source under Section 194-I of theIncome Tax Act from the annual lease rent paid to Greater Noida. Therespondent-company replied the notices. The respondents case wasEthat it did not deduct tax at source as it was advised by Greater Noidathat it is a Government authority, hence the tax deduction at sourceprovisions are not applicable. The Assessing Officer passed the orderdated 31.03.2014 for the Financial Year 2010-2011 and 2011-2012, therespondent was held as “assessee-in-default” for non-deduction/non-Fdeposit of TDS on account of payment of lease rent and interest madeto Greater Noida. Consequent demand was raised against therespondents. Aggrieved by assessment order, the respondent-companyfiled an appeal before the Commissioner of Income Tax-Appeals.Respondents prayed to stay the demand which was refused and recovery proceedings were initiated. Aggrieved by assessment and recoveryGproceedings emanating therefrom, the respondent-company filed a WritPetition No. 8085 of 2014 praying for various reliefs including the reliefthat respondent-company be not treated as “assessee-in-default” underthe Income Tax Act for non-deduction/depositing the tax at source inrespect of payment of rent on lease land and in respect of other chargesHpaid to Greater Noida. Different other entities also filed the writ petitions in the Delhi High Court praying for more or less the same reliefs relatingto lease rent payment and for payment of interest to Greater Noida. Allthe writ petitions involving common questions of law and facts wereheard together and were allowed by the Delhi High Court by its judgmentdated 16.02.2017. Before the High Court, Greater Noida and the Noidaauthorities contended that they are local authorities within the meaningof Section 10(20) of the Income Tax Act, 1961, hence their income isexempt from the Income Tax. It was further contended that the interestreceived by them is exempt under Section 194A(3)(iii)(f) of the IncomeTax Act and they are exempted from payment of any tax on the interest. fea s sik de a ga fiepy wo uda @ feWh daa afteferry @ wo A fhar oA & de oe 1948 H seterta fen&1 ga Vey Gl seat Marea S yatan fred F als otTel Ug &| Seq =aera A Sew A ae aftfratha fear & fHTeX ASI Hl fy wy veer fewG ars wW 19481 H srqaR 352 = sieaen siehfte faora wine (Ae) ¢. saa syad, atitet asiea ot welt Gt orett| aresi/dex Aes ERI aka 30waa, 1995 & Raa or stacia fers Tar &| Vata URoa GaReftet UY we suefsta erat & fH ae oRaa amet 10(20m) sikart 10(20), ori fe ae gaara ara ue feof, GH see Wwuet feat war at| at 10(20)wt faa safes, 2002 ER wh10(20m)mT aka 1 ste, 2003 8 ay we fea wa at | fadsfeafay, 2002 ari feu ae aweG arr wRIa H sree HI etaareat He fear Tat &1 Sa WHR Avs/Nex ASI UES aca I@ fay wRaa or stacig ael cf Ud & fh aN 1944 G seisald Wt HX Gt Held) Het Hl staggHa Fel F| SA WHR ITI1948 @ tei Gla We Heldl fore H Gara wes, Gl fH weaeli-oot or orp afer &| (A 15 sik 16) amitett (fae) sffarReat:2017 at fafa anitaFW. 15613(sum we2017atRifaaaitct 8. 9365,12750, 9199,15615,15614,1513072m2018 at fifaa amita. 51,6115silt 6113). 2016 at Re afar¥. 1214 A feet Gea ae, Agfecet & aka 15 weal,2017 & Fra silk sree h faegster| afer BA atet vetHri at ada dade fie, H. UIP,THTGilet,(yet westU.STANT, SIR. Va. Mero, (ys)was,WY cate fac, (yh)aoaware, sax are, (sil)aha wfeare, wea wert Feta, a, wax pa(yait) sediRie,(get)gorRie,orerttafie sik (yah) ofact at rarer ct Pure aaa sree ysor 4 fear| =m. yar — facia & fory Arpt at ag| 2. & atte feoGed =aretad | ANG 16 Weal, 2017Hou fra @ foeg wa wo ag & fim ae feel va~aHaes A sa site A wade wasea wsaHH as feaapmt FoR fare| a attel =z sirgon sitetfaoramie, Yer Ast silelhre femora wiper, sra-ax syaaa sra-ay sifffort sik sea ER wise Hl as &| at aici@ cea ok fare aaa @ safe acl & ga we 7fafizaa oe & fey 2017 at fafaa aritat G. 15130 sira-peorga (AS) 2 stk oa GAM woe saaea (fsa) wgdefaites sik UH sa ae Ae G aeal sik aftaaal ar fafereOe Tater | 3. wae wort weieee (gfsa) smanita gaigal onfe wParr sik faa & Satnaoe acl waaGS HRae 4att va mgd feftes oul &| weaefi-oodl 4 yo vetlel oTfiord sik faoeow fee dex aver siletfie faamiroG Uy yas U. viiva-o7y a 90 asi G fay ante 3AdaR, 2010 GI YH etatafl gear fear at| veer factaAS! GI Was GT SvGH & fay aifwo S wfawa atTae We veer War or at afta tars He wet &| sra-Hefaut 4 Vex AST HI Ged afta veer fhay a afar atGT 1948 h seis Ba Ww Hr H HellA Hel G Uda A aigoe Ux saa aftifay, 1961 Ht at 201/201(@) @ aiaGat ort ot| weaeii-pot + Yaar ot sae fear| weaelh oTae uae of fe Sad Ula we ox at Heldl safer adi awaftRife Yex AGS El Ye Gale at ag ot fe ae vp uronl 354= cree siehfte flare miftexr (Ae) ¢. srecae sngad, atitet 4. The revenue refuted the contention of Greater Noida and Noidacontending that w.e.f. 01.04.2003, the Greater Noida and Noida is not alocal authority within the meaning of Section 10(20) and further they arealso not entitled for the benefit of notification issued under Section194A(3)(iii)(f). It was further contended that with regard to payment ofrent to the Noida and Greater Noida, the respondent-company was liableto deduct the tax on payment of interest, no income-tax was deductedby the respondent-company while paying rent to Noida and Greater Noida,hence they are “assessee-in-default”. The revenue also relied on DivisionBench judgment of Allahabad High Court in Writ Petition Tax No. 1338of 2005 decided on 28.02.2011 where the Allahabad High Court hasheld that Noida is not a local authority within the meaning of Section10(20) as amended by Finance Act, 2002. The Delhi High Court afterhearing all the parties allowed the writ petitions. The Delhi High Courtheld that Noida and Greater Noida are not local authorities within themeaning of Section 10(20) as amended w.e.f. 01.04.2003. Delhi HighCourt further held that interest income of the Noida and Greater Noidais exempted under the notification dated 22.10.1970 issued under Section194A(3)(iii)(f) of the Income Tax Act. The High Court further held thatas far as payment of rent to the Noida and Greater Noida, the respondent-company was liable to deduct income tax at source. The High Courtrecorded its conclusions in Para 20 of the judgment, which is to thefollowing effect:- “20. In view of the above analysis, the court herebyconcludes as follows:(1) Amounts paid as part of the leasepremium in terms of the time-schedule(s) to the LeaseDeeds executed between the petitioners and GNOIDA, orbi-annual or annual payments for a limited/specific period Atowards acquisition of lease hold rights are not subject toTDS, being capital payments; (2) Amounts constituting annual lease rent, expressed interms of percentage (e.g. 1%) of the total premium for theduration of the lease, are rent, and therefore subject toBTDS. Since the petitioners could not make the deductionsdue to the insistence of GNOIDA, a direction is issued tothe said authority (GNOIDA) to comply with the provisionsof law and make all payments, which would have beenotherwise part of the deductions, for the periods, inquestion, till end of the date of this judgment. All paymentsCto be made to it, henceforth, shall be subject to TDS. (3) Amounts which are payable towards interest on thepayment of lump sum lease premium, in terms of the Leasewhich are covered by Section 194-A are covered by theexemption under Section 194A(3)(f) and therefore, notDsubjected to TDS. (4) For the reason mentioned in (3) above, any paymentof interest accrued in favour of GNOIDA by any petitionerwho is a bank - to the GNOIDA, towards fixed deposits,are also exempt from TDS.”E 5. Aggrieved by the aforesaid judgment of Delhi High Court,Greater Noida, Noida as well as Revenue has filed these appeals. 6. Learned counsel appearing for the Noida and Greater Noidacontended that Noida and Greater Noida have been constituted underSection 3 of the Uttar Pradesh Industrial Area Development Act, 1976Fand is a local authority within the meaning of Section 10(20) of the IncomeTax Act, 1961. Reliance on notification dated 24.12.2001 issued by theGovernor of the State of Uttar Pradesh under the proviso to Article243Q(1) has also been placed to contend that by virtue of said notificationboth Greater Noida and Noida are municipalities and are covered by theGlocal authorities as explained under the explanation to Section 10(20) ofthe Income Tax Act. It is further contended that interest income of theauthorities is exempted under the notification issued under Section194A(3)(iii)(f). Further reliance has been placed on Circular No. 35/2016 dated 13.10.2016 wherein it has been clarified that provision of Wier& sd: Bla ww He Hl HeldGS Sader ary sel eld s|frakor srferert + fata a¥ 2010-2011 silk 2011-2012& fayanka31 ard, 2014 om snea ORa fear sik dex AUST GITeel fern sik art GT Wala SE H AE Bla we He HL Hdl7 Ooa oe @ fer veal wr “afta fratkdr ceerarTa| yeast @ ergadt arr wt ag| weaefi-aotta PatersreeBI aya ex sra-pe aya, sitet G TAUH aterwisBt| wealA ah we teresom fay wert at, frestor oe fea var sik agelt wrdafeai ay at ag| waeort + fuk sk sad Bast agearelafeat @ alsa elnxfait aqatst @ fore Wea Hed By 2014 wT Re afar WF. 8085wiset ot frat ve agarwt affoad on fe gee we off WEyf & fey a yee Avs Gl Gara Ge sik Ga Aad syTAR Gl gad Glad We He Ot Heh7 He/oaa oew fayore-ar afar & aia wereli-podt ot “afta frat 4wn wy| fe-ha aer gargal 4 At Yex AST Hl Velfora sik art ar wala oe S Walla =aget yoR Gayarst @ fey welar aed ey fecct oe wrtA Reafar wise ot| saa fate sik cea @ UPwe sicdfedan ® oro fect ser rareee wit Re afsasit atUHM Yay Ht TS sie aha 16 weal, 2017G afactaant FOR Ht ag| Geaes S Baa Pex AVST sik ASTmitreA ue acter at fe a ara-pe aftfian, 1961 ofart 10(20) & sateta ware wife & stat: GAG! By, sa-HeG wears &| ae wt aca a ag fo Gad sR yA Aor sa-oy fafa ot aR 194H(3)(ii)(a) H aly wesw zs sikSe Art Ww fot vor G He or dad we S Sew& |4. wera fart A Dex alust sik Alest Hl acilat HI YEaeed ey dea fear fe akka 1 atte, 2003@ Yex AISTaie aes aI 10(20)S aaterta ve wire misoaezs3k sad aifaRar¢ at 194H(iii)3)(a) & seis ot at agSRT HT waa wat Ge GH Wt shar aval &| ae A cofferat wg fe areer sik dex aust ol fewg a Wala wl aad,yeai-oot arom Wag ww ay ot welt wet @ fay a dag ged wa ws sire welt wel wt WS, sa:a“afm Patd &| wera faurt ¥ aka 28 weal, 2011 FIfafafeaat 2005wm Re afar (Hx) G. 1338 4 golelsleGadwed Gbds =zraiic & facta a af sracia fern, forasoleSet arora + ve aftfraiRa fear en fe args faasfafraa, 2002 art uat desea ae 10(20)& aaivla vrwrite uitaél &| face Ger =rarera A Ul veroaIGr & ward Re asad Hoe at| fecci seq area A Ueafafraike fear fe arest sik Dex Arest aba 1 sitar, 2003 Faot dia at 10(20)& aatett writs wiser vet e|fecol Ga “ares a ae MW afsPaia fear fe Arvest sie dexAGS Hl ATT B BE Bs, HA-H SIAAA HI aI 194%(3) (iii) (a)@ adit oR wt Wy ake 22 saqay 1970 of aflyaal oait werd &| Seal wares A ar ae A aftafeafe wei dm Ae aie dex Aes aT fee a Gawet HIUda & yeaii-pott aa we ay a Held Gel w fore aret at|va ~rarea fFota & da 10 4 ara Peed aftiferaa fear &wl freafera& — “20. Salad faxctsur Hl eat F wad BY, VMIOTFrses fraferRaa & — (1) afaat sik tex aust @ dha frwiea veerfacral ot wra-gdl (afer) & seal @ saVeerWha a dea afte wt,a feats a atwirafarifeseGd We Hell Sstaf ateaehs & fry Fel S yo| dae eA GS ORT (2) afta veer fern aféa met deft xpd,vilyee wl sali & fey pa win & fared (1 wicer)@ wi ¥ aftaad & fous € sie safe aa WwHet & seas §| die afeal + Yex AISI G ses(ex Avs) wT ve Pest uret fa ore & fH fats o = shea sitehfite era wire (Aa) F. sear sya, aatet sudet or arrest fear ory sik gu fora ot arte@ sd de G a wt dare fey a, TH sae yeaasaat & fer welfeat or art vet off| olS oSfou ay ut dar Gla We eleG steals er| (3) wpa, ol vee & faeG STAR VHyRvea Wifes & daa we ant & fifa dea s sik WIGIR 194m H siertaail & A are 194H(iii)3)(a)ait we & sits ont & sie gafey ald W Held@ seatAet & | (4) sated (3)¥ aftta oreo S, wale ons &TSI G val F Wey art Sl Gye wpa At Ga WHeldt8 we-wet & P 5. facet ser =e@ Yalan frets @ aya elHx TexAes, AST Gat word fast 4 J attici wiga Hz | Section 194-I of the Income Tax Act, 1961 on lump-sum lease premiumpaid for acquisition of long-term lands is not applicable. 7. It is further submitted that the question as to whether Noida/Greater Noida is local authority is engaging attention of this Court inCivil Appeal No. 792-793 of 2014, in which judgment has already beenreserved. On tax deduction at source, it is further submitted that the saidissue is also pending consideration of this Court in Special Leave Petition(Civil) No. 33260 of 2016, in which judgment has also been reserved.With regard to tax deduction at source on the payment of lease rent,reliance has been placed on Circular dated 30.01.1995. 8. Learned counsel for the revenue in support of its appeal submitsthat Noida and Greater Noida are not covered by the definition of localauthority as contained under Section 10(20) and their income is notexempted under Section 10(20). Judgment of Allahabad High Courtdated 28.02.2011 in Writ Petition Tax No. 1338 of 2005 was also reliedby the revenue against which appeal has already been filed by Noidaand has been heard. With regard to income tax deduction at sourceunder Section 194A, the revenue has referred to its appeal in SpecialLeave Petition (C) No.34530 of 2016 Commissioner of Income Tax –TDS – Kanpur Vs. Central Bank of India, where the arguments hasalready been concluded and judgment is reserved. 9. Learned counsel for the revenue submits that Noida/GreaterNoida is not entitled for the benefit of Section 194A(3)(iii)(f). 10. We have considered the submissions of the learned counselfor the parties and perused the records. 11. Insofar as the appeals filed by Noida/Greater Noida areconcerned, the principal submission raised by the appellant is applicabilityof Section 10(20) of the Income Tax Act. Learned counsel for theNoida has submitted that the said issue has already been addressed indetail in Civil Appeal No. 792-793 of 2014. By our judgment of the datein Civil Appeal No. 792-793 of 2014 New Okhla Industrial DevelopmentAuthority Vs. Commissioner of Income Tax- Appeals & Ors., we haveheld that Noida is not a “local authority” within the meaning of Section10(20) of the Income Tax Act as amended by the Finance Act, 2002w.e.f. 01.04.2003. For the reasons given by our judgment of the date inthe above appeals, this submission has to be rejected. A12. Now coming to the appeals filed by the revenue, insofar asthe question relating to exemption under Section 194A(3)(iii)(f) byvirtue of notification dated 24.10.1970, i.e. the exemption of interestincome of the Noida, we have already decided the said controversy inCIVIL APPEAL NO._________ OF 2018 (arising out of SLP (C) No.3168 of 2017) - Commissioner of Income Tax(TDS) Kanpur and Anr.BVs. Canara Bank. Having held that Noida is covered by the notificationdated 22.10.1970, the judgment of the Delhi High Court holding thatNoida/Greater Noida is entitled for the benefit of Section 194A(3)(iii)(f)has to be approved. 13. Now coming to the direction of the High Court regardingCdeduction of tax at source on the payment of lease rent as per Section194-I of the Income Tax Act, 1961, the authority has relied on Circulardated 30.01.1995. Section 194-I of the Income Tax Act provides asfollows:- “Section 194-I : RentD 2[Any person, not being an individual or a Hindu undivided family,who is responsible for paying to a resident] any income by way ofrent, shall, at the time of credit of such income to the account ofthe payee or at the time of payment thereof in cash or by theissue of a cheque or draft or by any other mode, whichever isEearlier, deduct income-tax thereon at the rate of- 4[(a) two per cent. for the use of any machinery or plant orequipment; and (b) ten per cent. for the use of any land or building (includingfactory building) or land appurtenant to a building (including factoryFbuilding) or furniture or fittings:] 6. 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