M/S.foxconn India Developer (P) Ltd.,Sipcot Hi Tech Sipcot,Sunguvarchatram Tk,Kancheepuram District v. The Income Tax Officer, Tds Ward-Ii(3),Chennai - 600 034

IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on 22.03.2016 & Delivered on: 04.4.2016 THE HON'BLE MR. JUSTICE V.RAMASUBRAMANIANandTHE HON'BLE MR. JUSTICE N.KIRUBAKARAN TAX CASE APPEAL NO.801 OF 2013 M/s.Foxconn India Developer (P) Ltd.,Sipcot Hi Tech SIPCOT,Sunguvarchatram TK,Kancheepuram District...Appellant's/Appellant Vs. The Income tax Officer, TDS Ward-II(3),Chennai - 600 034. ..Respondent's/Respondent-----Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961, against the order of the Income Tax AppellateTribunal 'C' Bench, Chennai, made in ITA No.492 /(Mds.)/2010dated 30.4.2012 against the order of the Commissioner of Income Tax(Appeals) 121 M.G.Salai Nungambakkam Chennai 600 034 in AppealNO.CIT(A)-IV/CHE/260/08-09 dated 02/02/2010. against the order of the Income Tax Officer TDS Ward II(3)7th floor New Block 121 M.G.Road Chennai 34 in TDS-II(3) III P2008-09 dated 16/3/2009 Assessment year 2006-07 This Tax Case Appeal filed under Section 260-A of theIncome Tax Act, 1961, by the assessee, raises the followingsubstantial questions of law: https://hcservices.ecourts.gov.in/hcservices/ (i) Whether the upfront payment made by an assessee, underwhatever name including premium, for the acquisition ofleasehold rights over an immovable property for a long durationof time say 99 years, could be taken to constitute rental incomeat the hands of the lessor, obliging the lessee to deduct tax atsource under Section 194-I of the Act? (ii) Whether in the facts and circumstances of the case andin law, the Tribunal was right in confirming the levy ofinterest under Section 201(1-A) of the Act?2. We have heard Mr.Arvind P.Datar, learned senior counselappearing for the appellant and Mr.J.Narayanaswamy, learnedStanding Counsel appearing for the respondent. 3. The crucial facts that are necessary for thedetermination of the substantial questions of law arising inthis appeal, can be briefly stated as follows: (i) The State Industries Promotion Corporation of TamilNadu Limited (SIPCOT), registered under the Companies Act, 1956,as a Government of Tamil Nadu Undertaking, acquired a vastextent of land measuring about 2469 acres, in various villagesof Sriperumbudur Taluk, Kancheepuram District, for the purposeof developing the same as an Industrial Park. (ii) After developing the said land, SIPCOT laid out thesaid land into various plots, after setting apart the lands forthe purpose of laying roads, drains and other common works forthe benefit of the allottees of the plots. (iii) Thereafter, by G.O.Ms.No.27 Industries dated1.3.2006, the Government of Tamil Nadu chose the assessee as a"Developer" to establish a project known as "Product-SpecificSpecial Economic Zone" in the Sriperumbudur Hitech SpecialEconomic Zone, in partnership with SIPCOT. (iv) Pursuant to the said Government Order, the assesseesigned a Memorandum of Understanding with the Government ofTamil Nadu on 3.3.2006, regarding the possibility ofestablishingseveralmanufacturingbaseswithallinfrastructural facilities to include electronic hardwaremanufacturing and supporting services facilities. (v) Thereafter, the assessee signed another Memorandum ofUnderstanding on 11.1.2007 with SIPCOT, agreeing to be a co-developer along with SIPCOT, for the development of theaforesaid project namely "Product Specific SEZ". (vi) In continuation of the above, the assessee made anapplication on 25.9.2006. On the basis of the said application,SIPCOT issued two orders of allotment, one on 11.1.2007 and https://hcservices.ecourts.gov.in/hcservices/ another on 10.4.2007. The first order of allotment was for theland of an extent of 100 acres and the second order was for theallotment of 51.85 acres. (v) Thereafter, the assessee signed another Memorandum ofUnderstanding on 11.1.2007 with SIPCOT, agreeing to be a co-developer along with SIPCOT, for the development of theaforesaid project namely "Product Specific SEZ". (vi) In continuation of the above, the assessee made anapplication on 25.9.2006. On the basis of the said application,SIPCOT issued two orders of allotment, one on 11.1.2007 and https://hcservices.ecourts.gov.in/hcservices/ another on 10.4.2007. The first order of allotment was for theland of an extent of 100 acres and the second order was for theallotment of 51.85 acres. (vii) Under the first order of allotment, the assessee wasrequired to pay an amount of Rs.10.50 crores at the rate ofRs.10.50 lakhs per acre towards upfront lease rent. Under thesecond order of allotment, the assessee was liable to payRs.17,59,20,000/- at the rate of Rs.32 lakhs per acre. (viii) The order of allotment stipulated that the amountindicated therein was to be paid as Non-refundable One TimeUpfront charges and that a lease deed would be executed onlyafter payment of 100% of the Upfront charges. (ix) Therefore, the assessee paid the upfront charges, asper the conditions stipulated in the order of allotment. Afterthe payment was so made, the SIPCOT executed two lease deedsboth dated 30.4.2008, granting a lease of the land of an extentof 100 acres and 51.85 acres respectively. (x) Under both the lease deeds, the assessee was entitledto enjoy the land for a period of 99 years, upon payment ofannual lease rent of Re.1/- per year for 98 years and Rs.2/- peryear for the 99th year. (xi) Both the lease deeds contain two important indicatorsnamely (a) that the payment of upfront charges as fixed underthe orders of allotment were actually non-refundable one timeupfront charges and that even the annual lease rent of Re.1/-per year for the 98 years and Rs.2/- per for the 99th yearshould be paid in advance. (xii) Since the non-refundable one time upfront charges wasconsidered by both SIPCOT as well as the assessee, not to bepart of the rent, the assessee did not deduct tax at source. (xiii) This was found out in the course of an inspectionconducted on 19.2.2006. Therefore, the Assessing Officer passedan order on 16.3.2009 holding that the upfront chargesconstituted rent on which tax should have been deducted atsource under Section 194-I and that since the assessee did notdo so, they were liable to pay Rs.6,43,84,991/- together withinterest of Rs.1,73,86,623/-. The demand was made under Section201(1) and Section 201(1-A). (xiv) As against the order of the Assessing Officer, theassessee filed a First Appeal before the Commissioner of IncomeTax (Appeals). The Commissioner of Income Tax (Appeals) heldthat the Assessing Officer was justified in treating theappellant as an assessee in default, due to their failure to https://hcservices.ecourts.gov.in/hcservices/ deduct tax at source. However, taking note of the fact thatSIPCOT had already included these upfront charges in theirincome and also paid the tax thereon, the Appellate Commissionerheld that no TDS can be recovered from the assessee. But thedemand for interest was sustained. The demand for interest wasdirected to be calculated from the date of payment of theupfront charges by the assessee to SIPCOT, up to the date ofpayment of advance tax by SIPCOT. Thus, the appeal of theassessee stood partly allowed. (xv) It is against the said order, that the above appeal isfiled by the assessee. https://hcservices.ecourts.gov.in/hcservices/ deduct tax at source. However, taking note of the fact thatSIPCOT had already included these upfront charges in theirincome and also paid the tax thereon, the Appellate Commissionerheld that no TDS can be recovered from the assessee. But thedemand for interest was sustained. The demand for interest wasdirected to be calculated from the date of payment of theupfront charges by the assessee to SIPCOT, up to the date ofpayment of advance tax by SIPCOT. Thus, the appeal of theassessee stood partly allowed. (xv) It is against the said order, that the above appeal isfiled by the assessee. 4. The main contentions of Mr.Arvind P.Datar, learnedsenior counsel for the appellant/assessee are:(i) that a definite distinction between the price paid for theacquisition of the transfer of a right to enjoy a property,normally called premium and the rent paid periodically isrecognized under Section 105 of the Transfer of Property Act,1882, that if a premium is paid for the acquisition of a rightto have a long term lease of immovable property, the same cannotbe treated as part of rent, as it is for the acquisition of anenduring benefit for a long duration of time and (ii) that since the payment of premium is capital in naturewhile payment of rent is revenue in nature, even the Explanationunder Section 194-I would not get attracted. 5. In support of the above contentions, the learned seniorcounsel for the appellant/assessee relied upon the followingdecisions: (1) Raja Shiva Prasad Singh v. King Emperor [AIR 1924 Patna 679](2) Board of Agricultural Income-tax v. Sindhurani (3) CIT v. Panbari Tea Co. Ltd. [(1965) 57 ITR 422 (SC)](4) R.K.Palshikar v. CIT [(1988) 172 ITR 311 (SC)] (5) A.R.Krishnamurthy v. CIT [(1989) 176 ITR 417 (SC)] (6) Bharat Steel Tubes Ltd. v. CIT [(2001) 252 ITR 622 (Del) 6. Responding to the above submissions, Mr.J.Narayanaswamy,learned Standing Counsel for the Department submitted (i) that the Explanation under Section 194-I is so wide that itincludes any and whatever payment; (ii) that the payment of upfront charges by the assessee wasmade under the lease agreement and hence it is not open to theassessee to describe the payment by any other term than what isstated in the lease deed; https://hcservices.ecourts.gov.in/hcservices/ (iii) that as per the Halsbury's Laws of England, premium isnothing but capitalised rent and hence a payment made for theuse of a land, will surely be treated as rent; and (iv) that the assessee cannot take advantage of Section 105 ofthe Transfer of Property Act, since the lease deeds do notcontain the expression "premium". 7. Apart from the above submissions, Mr.J.Narayanaswamy,learned Standing Counsel also submitted that even if for anyreason this Court came to the conclusion that the upfrontcharges paid by assessee could not entirely be treated asadvance rent, a portion of the same should be treated as thecost of acquisition and the balance treated as lease rent. Ifthis has to be done, the matter has to be remitted back to theAssessing Officer. 8. We have carefully considered the rival submissions. Section 105 of the Transfer of Property Act: 9. Let us first take for consideration, the argumentrevolving around Section 105 of the Transfer of Property Act. Itreads as follows:- "105. Lease defined- A lease of immovableproperty is a transfer of a right to enjoy suchproperty, made for a certain time, express orimplied, or in perpetuity, in consideration of aprice paid or promised, or of money, a share ofcrops, service or any other thing of value, to berendered periodically or on specified occasionsto the transferor or by the transferee, whoaccepts the transfer on such terms. 8. We have carefully considered the rival submissions. Section 105 of the Transfer of Property Act: 9. Let us first take for consideration, the argumentrevolving around Section 105 of the Transfer of Property Act. Itreads as follows:- "105. Lease defined- A lease of immovableproperty is a transfer of a right to enjoy suchproperty, made for a certain time, express orimplied, or in perpetuity, in consideration of aprice paid or promised, or of money, a share ofcrops, service or any other thing of value, to berendered periodically or on specified occasionsto the transferor or by the transferee, whoaccepts the transfer on such terms. Lessor, lessee, premium and rent defined-Thetransferor is called the lessor, the transfereeis called the lessee, the price is called thepremium, and the money, share, service or otherthing to be so rendered is called the rent." 10. All that Section 105 does is just to define what alease of immovable property is. To constitute a lease ofimmovable property, Section 105 lays down the followingconditions: (i) there must be a transfer of a right to enjoy immovableproperty; (ii) such enjoyment may be for a certain duration of timeor any perpetuity; https://hcservices.ecourts.gov.in/hcservices/ (iii) such transfer should be for consideration paid orpromised; (iv) the consideration could be of money or a share ofcrops or service or any other thing of value; and(v) such consideration should be rendered periodically or onspecified occasions. 11. Once the above ingredients of Section 105 areunderstood, it would be clear that first part of Section 105makes a distinction between two types of consideration, foracquiring the transfer of a right to enjoy an immovableproperty. The first type of consideration is described in thefirst part of Section 105 as "price". The second type ofconsideration is indicated by the use of the expressions"money", "share of crops", "service" or "any other thing ofvalue". In the first instance, the words "in consideration"appearing in the first part of Section 105 go along with theword "price". In the second instance, the words "inconsideration" go along with a series of expressions such as"money", "a share of crops", "service" or "any other thing ofvalue". If properly read, the relevant portion of Section 105would read as follows: 12. The use of the disjunction "or" between the first partdealing with the words "price paid or promised" and the secondpart dealing with the series of other words, make it clear thatSection 105 recognizes two different types of consideration.This is made clear by the second part of Section 105 whichdefines the expression "price" as the "premium" and the otherexpressions such as "money, a share of crops, service or anyother thing of value" as "rent". 13. Therefore, it is clear that the consideration payablefor the acquisition of a lease of an immovable property can takedifferent forms. One such form is termed as the price or premiumand the other termed as rent. Hence, we do not think that adistinction can really be made between premium and rent, solelyon the basis of Section 105 of the Transfer of Property Act, assought to be projected by the learned senior counsel for theappellant. Explanation under Section 194-I and Halsbury's Laws: 14. The obligation to deduct tax at source, primarilyarises under Section 194-I, out of the responsibility of aperson (not being an individual or a HUF) to pay "any income byway of rent" to a resident. Clause (i) of the Explanation underSection 194-I, defines rent, for the purpose of that Section asfollows: " (i) "rent" means any payment, by whatevername called, under any lease, sub-lease, tenancyor any other agreement or arrangement for the useof (either separately or together) any, - Explanation under Section 194-I and Halsbury's Laws: 14. The obligation to deduct tax at source, primarilyarises under Section 194-I, out of the responsibility of aperson (not being an individual or a HUF) to pay "any income byway of rent" to a resident. Clause (i) of the Explanation underSection 194-I, defines rent, for the purpose of that Section asfollows: " (i) "rent" means any payment, by whatevername called, under any lease, sub-lease, tenancyor any other agreement or arrangement for the useof (either separately or together) any, - (a) land; or (b) building (including factory building);or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment, or (g) furniture; or (h) fittings, whether or not any or all of the above areowned by the payee;]" 15. Thus, the definition of the expression "rent" appears tobe quite exhaustive. It includes "any payment by whatever namecalled". But two conditions are to be satisfied. They are: (1)the payment should be under any lease, sub-lease, tenancy or anyother agreement or arrangement and (2) the payment should be forthe use of one or more of certain things such as land, building,machinery etc. Even if the person to whom the payment is made,does not happen to be the owner of what is allowed to be used,the payment could still be rent within the meaning of Section194-I. 16. Therefore, what is indicated by the word "price" or"premium" in Section 105 of the Transfer of Property Act, wouldcertainly constitute rent within the meaning of Section 194-I, byvirtue of the exhaustive definition contained in Clause (i) ofthe Explanation. 17. As rightly contended by Mr.J.Narayanaswamy, learnedStanding Counsel for the Department, premium, in many cases couldtake different forms such as "security deposit", "rentaladvance", etc. This is why, it is treated as capitalised rent.Halsbury's Laws of England defines a premium as follows: https://hcservices.ecourts.gov.in/hcservices/ "Premium means a sum of money paid asconsideration for grant of lease. It representscapitalized rent and is different from the actualrent which otherwise be obtained by the lessee.It also includes any like sum whether payable tothe intermediate or a superior landlord and anysum (other than rent) paid on or in connectionwith the granting of a tenancy". 18. In the case of normal lease of a property, one canconceive of any number of situations, where premium paid at theinception of the lease, could be part of the rent. For instance,there may be cases where a premium is collected at the inceptionof the tenancy, as a refundable security deposit or asrefundable rental advance. There may also be cases where suchpremium is collected as advance that could be adjusted towardsthe last few months of the lease. Many times, the amount of thepremium collected, is equivalent to the rent for a fixed numberof months. It is only then that the same becomes eitheradjustable or refundable upon the termination of the lease. 19. Therefore, a general proposition that premium collectedas a lump sum at the time of inception of the lease, iscompletely different from rent, can never be accepted. If sucha proposition is accepted, no tax can be deducted at source,even from the rent payable towards the last few months of thelease, in cases where the premium is adjustable towards the lastfew months. Therefore, we cannot go so far as to accept thecontention of Mr.Arvind P.Datar, learned senior counsel for theappellant that a premium is different from rent and thattherefore, no tax is to be deducted at source from the premium,under Section 194-I. Citations 19. Therefore, a general proposition that premium collectedas a lump sum at the time of inception of the lease, iscompletely different from rent, can never be accepted. If sucha proposition is accepted, no tax can be deducted at source,even from the rent payable towards the last few months of thelease, in cases where the premium is adjustable towards the lastfew months. Therefore, we cannot go so far as to accept thecontention of Mr.Arvind P.Datar, learned senior counsel for theappellant that a premium is different from rent and thattherefore, no tax is to be deducted at source from the premium,under Section 194-I. Citations 20. In Raja Shiva Prasad Singh, the Division Bench of thePatna High Court was concerned with the payment of "salami" orpremium for the grant of leases of mineral rights on a portionof the estate of the Raja. On facts, the court found that thesalami paid was in the nature of a premium for the grant of thelease itself. The court pointed out that in that case salamirepresented the purchase price of a leasehold interest.Moreover, the leases were for a period of 999 years. Therefore,the court concluded that it was more in the nature of an out andout sale. 21. But we do not think that the above decision can be ofany assistance to the assessee. A lease of a property such asland, building, plant, machinery etc. would stand on a differentfooting than the lease of mineral rights. When someone takes aland on lease, he merely uses the land. But when someone takes https://hcservices.ecourts.gov.in/hcservices/ the lease of mineral rights, he excavates the land, carries outmining operations and takes away the minerals so mined. 22. The decision of the Supreme Court in Board ofAgricultural Income Tax Act, has also to be understood in thecontext of the facts out of which the case arose. As seen fromparagraph 12 of the said decision, the Supreme Court found onfacts in that case that salami was a payment by a tenant to thelandlord antecedent to the constitution of the relationship oflandlord and tenant. This finding was reiterated in para 24 ofthe decision also. 23. In Panbari Tea Co. Ltd., the lease deed contained boththe expressions "premium" and "rent". The arrangement madebetween the lessor and the lessee, as seen from para 1 of thedecision of the Supreme Court in Panbari, was as follows: "By a registered lease deed dt.31st March,1950, the assessee-company, respondent herein,leased out two tea estates named "Panbari TeaEstate" and "Barchola Tea Estate", along withmachinery and buildings owned and held by it, inDarrang, in the State of Assam, to a firm namedM/s Hiralal Ramdas for a period of 10 yearscommencing from 1st Jan., 1950. The lease wasexecuted in consideration of a sum of Rs.2,25,000as and by way of premium and an annual rent ofRs.54,000 to be paid by the lessee to the lessor.The premium was made payable as follows:Rs.45,000 to be paid in one lump sum at the timeof the execution of the lease deed and thebalance of Rs.1,80,000 in 16 half yearlyinstalments of Rs.11,250 on or before 31stJanuary and 31st July of each year. The annualrent of Rs.54,000 was payable as follows:Rs.1,000 per month to be paid on or before thelast day of each month, making in all Rs.12,000per year, and the balance of Rs.42,000 on orbefore 31st December of each year." 24. On the basis of the above facts, the Supreme Courtpointed out the distinction between premium and rent, inparagraph 9 of its decision, to the following effect: "Under s.105, of the Transfer of PropertyAct, a lease of immovable property is a transferof a right to enjoy the property made for acertain time, express or implied, or inperpetuity, in consideration of a price paid orpromised, or of money, a share of crops, serviceor any other thing of value, to be rendered https://hcservices.ecourts.gov.in/hcservices/ 24. On the basis of the above facts, the Supreme Courtpointed out the distinction between premium and rent, inparagraph 9 of its decision, to the following effect: "Under s.105, of the Transfer of PropertyAct, a lease of immovable property is a transferof a right to enjoy the property made for acertain time, express or implied, or inperpetuity, in consideration of a price paid orpromised, or of money, a share of crops, serviceor any other thing of value, to be rendered https://hcservices.ecourts.gov.in/hcservices/ periodically or on specified occasions to thetransferor by a transferee, who accepts thetransfer on such terms. The transferor is calledthe lessor, the transferee is called the lessee,the price is called the premium, and the money,share, service or other thing to be so renderedis called the rent. The section, therefore,brings out the distinction between a price paidfor a transfer of a right to enjoy the propertyand the rent to be paid periodically to thelessor. When the interest of the lessor is partedwith for a price, the price paid is premium orsalami. But the periodical payments made for thecontinuous enjoyment of the benefits under thelease are in the nature of rent. The former is acapital income and the latter a revenue receipt.There may be circumstances where the parties maycamouflage the real nature of the transaction byusing clever phraseology. In some cases, the so-called premium is in fact advance rent and inothers rent is deferred price. It is not the formbut the substance of the transaction thatmatters. The nomenclature used may not bedecisive or conclusive but it helps the Court,having regard to the other circumstances, toascertain the intention of the parties". 25. Therefore, what could be deduced from Panbari is thatwe must actually go by the substance of the transaction and notits form. We cannot even go by the nomenclature. Thecontingencies that we have pointed out in paragraphs 17 and 18,are indicated, to some extent in paragraph 9 of the decision ofthe Supreme Court in Panbari. 26. Moreover, the decision of the Supreme Court in Panbarishould not be applied blindfold to the case on hand. The onlyquestion that arose before the Supreme Court in Panbari waswhether the amount described as premium in the lease deed wasreally rent and therefore a revenue receipt or not. The questionthat arises in the case on hand is not about the nature of thereceipt but about the obligation under Section 194-I. Section194-I was not there when Panbari was decided. Section 194-I wasinserted by Finance Act, 1994. The definition of the expression"rent" under Clause (i) of the Explanation itself underwent achange under Taxation Laws (Amendment) Act, 2006 with effectfrom 13.7.2006. Therefore, the question on hand has to bedecided on the basis of the statutory provision now availableand not solely based upon the ratio in Panbari. 27. In R.K.Palshikar (HUF), the Supreme Court considered alease for a period of 99 years to be the parting of an asset of https://hcservices.ecourts.gov.in/hcservices/ an enduring nature. Therefore, the grant of lease was held totantamount to transfer of capital asset. Interestingly, theAssessing Officer took a stand in Palshikar that the assesseewas liable to pay capital gains tax on the amount of salami orpremium received. In the facts and circumstances of the case,the Supreme Court held in Palshikar that the grant of thoseleases for 99 years amounted to transfer of capital assets interms of Section 12-B of the 1922 Act. 28. Therefore, it is clear from Palshikar that at times,the grant of leasehold rights for 99 years could be taken to beequivalent to the transfer of capital assets. As a matter offact, even the Indian Stamp Act and the Registration Act, attimes treats such leases as tantamounting to conveyances. an enduring nature. Therefore, the grant of lease was held totantamount to transfer of capital asset. Interestingly, theAssessing Officer took a stand in Palshikar that the assesseewas liable to pay capital gains tax on the amount of salami orpremium received. In the facts and circumstances of the case,the Supreme Court held in Palshikar that the grant of thoseleases for 99 years amounted to transfer of capital assets interms of Section 12-B of the 1922 Act. 28. Therefore, it is clear from Palshikar that at times,the grant of leasehold rights for 99 years could be taken to beequivalent to the transfer of capital assets. As a matter offact, even the Indian Stamp Act and the Registration Act, attimes treats such leases as tantamounting to conveyances. 29. The decision in Palshikar was reaffirmed inA.R.Krishnamurthy, where even the assessee proceeded on theadmitted position that the grant of a lease would constitutetransfer of asset. But it was sought to be projected inA.R.Krishnamurthy that since there was a right to mine minerals,inherent in the leasthold right of land, a distinction had to bemade between the cost of acquisition of the land and the cost ofacquisition of the mining rights. 30. But fortunately the case on hand, the leasehold rightof land does not include any other benefit such as the right ofmine minerals. Therefore, the question of apportionment, assought to be argued by Mr.J.Narayanaswamy, learned StandingCounsel, does not arise. 31. In Rane Brake Linings Limited, a Bench of this Courtconstrued permanent lease to be as much as an alienation as asale. This is so in a manority of the cases and we have no doubtabout the same. But unfortunately, different branches of lawtend to treat the same kind of transfer differently. This is whyone has to keep in mind the statutory provisions with respect towhich the interpretation is sought to be given. 32. In Bharat Steel Tubes Limited, the Delhi High Courtformulated the indicia of salami to be (i) simple non-recurringcharacter; and (ii) payment prior to creation of tenancy. Afterextracting the broad principles summarised by the Calcutta HighCourt on the question of salami, the Delhi High Court made itclear that the question whether a particular receipt like salamican be regarded as revenue or capital, cannot be decided in theabstract and that each case is to be decided on its own facts. Argument based on Chapter XX-C 33. In support of his contention that premium stands apartfrom rent, Mr.Arvind P.Datar, learned senior counsel for theappellant/assessee also drew our attention to the definition of https://hcservices.ecourts.gov.in/hcservices/ the expression "apparent consideration" appearing in Clause (b)of Section 269-UA in Chapter XX-C of the Income Tax Act, 1961,which were inserted by Finance Act, 1986, but which have sincebeen repealed. In Clause (b) of Section 269-UA, the Act made adistinction between cases where the consideration for thetransfer of immovable property by way of lease consisted only ofpremium or consisted only of rent or consisted of both premiumand rent. 34. But despite the fact that Clause(b) of Section 269-UAuses both the expressions "premium" and "rent", Chapter XX-C didnot make a distinction between both. For the purpose ofdetermining what is apparent consideration in relation to thetransfer of any immovable property, Clause (a) of Section 269-UAtook into account (i) the entire amount of premium or (ii) theaggregate of the moneys payable by way of rent or (iii) theaggregate of the premium and the moneys payable by way of rent,according as whether the consideration consisted only of premiumor only of rent or both premium and rent. In other words, eventhe rent was treated as part of the consideration. Therefore,the argument does not take us anywhere. Questions of law arising in the case: 34. But despite the fact that Clause(b) of Section 269-UAuses both the expressions "premium" and "rent", Chapter XX-C didnot make a distinction between both. For the purpose ofdetermining what is apparent consideration in relation to thetransfer of any immovable property, Clause (a) of Section 269-UAtook into account (i) the entire amount of premium or (ii) theaggregate of the moneys payable by way of rent or (iii) theaggregate of the premium and the moneys payable by way of rent,according as whether the consideration consisted only of premiumor only of rent or both premium and rent. In other words, eventhe rent was treated as part of the consideration. Therefore,the argument does not take us anywhere. Questions of law arising in the case: 35. Having seen (a) the legal contentions revolving around(i) Section 105 of the Transfer of Property Act, (ii) theExplanation under Section 194-I (iii) the decisions making adistinction between the salami and rent and (iv) the indicatorsavailable in Chapter XX-C, let us now turn our attention to thequestions of law arising for consideration. 36. The first question of law that we have formulated inparagraph 1 of the decision is: Whether the upfront paymentmade by an assessee, under whatever name including premium, forthe acquisition of leasehold rights over an immovable propertyfor a long duration of time say 99 years, could be taken toconstitute rental income at the hands of the lessor, obligingthe lessee to deduct tax at source under Section 194-I of theAct. 37. We have already seen from the law on the point that thesubstance of the transaction is of importance and the answer tothe question would depend upon the agreement between theparties. Therefore, we may have get back to the facts of thecase. 38. As we have indicated in paragraph 3 above, SIPCOTacquired a vast extent of land measuring about 2469 acres. Thepurpose of the acquisition was to develop the area into anindustrial park. The requisitioning body namely the SIPCOT thusbecame a developer. The assessee was chosen as the co-developerunder G.O.Ms.No.27 (Industries) dated 1.3.2006 and the https://hcservices.ecourts.gov.in/hcservices/ Memorandum of Understanding that they entered into with theGovernment of Tamil Nadu dated 3.3.2006, for establishing theSriperumbudur Hi-Tech Special Economic Zone. After becoming aco-developer by virtue of the Government Order dated 1.3.2006and the Memorandum of Understanding dated 3.3.2006, the assesseesigned another Memorandum of Understanding with SIPCOT on11.1.2007. Based upon these, two orders of allotment dated11.1.2007 and 10.4.2007 were issued. The orders of allotmentprescribed the payment of One Time Non-refundable UpfrontCharges by the assessee to SIPCOT. It was only after thesepayments were made that two lease deeds were executed on30.4.2008. 39. Keeping the above facts in mind, if we have a look at aletter dated 9.3.2009, issued by SIPCOT to the assessee, it canbe seen as to how the parties wanted the payment of upfrontcharges to be treated. In paragraph 1 of the letter dated9.3.2009, SIPCOT stated the following: 40. Therefore, it is clear that the lessor as well as thelessee intended to treat the transaction as "deemed sale". Thisis one indicator for arriving at the answer to the substantialquestion of law. 41. There is also intrinsic evidence in the two deeds oflease themselves to suggest that the assessee was chosen notmerely as a lessee of the land, but as a co-developer along withSIPCOT to establish a project in the "Product Specific SpecialEconomic Zone". The relevant portion of the preamble to thelease deeds is extracted as follows:- 40. Therefore, it is clear that the lessor as well as thelessee intended to treat the transaction as "deemed sale". Thisis one indicator for arriving at the answer to the substantialquestion of law. 41. There is also intrinsic evidence in the two deeds oflease themselves to suggest that the assessee was chosen notmerely as a lessee of the land, but as a co-developer along withSIPCOT to establish a project in the "Product Specific SpecialEconomic Zone". The relevant portion of the preamble to thelease deeds is extracted as follows:- "WHEREAS the Government of Tamil Nadu issuedG.O.Ms.No.27 Industries (MIB.1) Department dated01.03.2006 in relation to the party of the secondpart to establish the project in the "Product-SpecificSpecialEconomicZone"namedSriperumbudur Hi Tech ZEZ and jointly developwith the party of the first part for the https://hcservices.ecourts.gov.in/hcservices/ activities to be carried out with unfetteredright of usage in the area earmarked by the partyof the first part. WHEREAS the party of the second part hassigned a Memorandum of Understanding with theGovernment of Tamil Nadu dated 03rd March 2006[hereinafter referred to as "TN MOU"] regardingthepossibilityofestablishingseveralmanufacturing bases with all infrastructurefacilities to include electronic hardwaremanufacturing and supporting services facility inthe State of Tamil Nadu. The said TNMOU hasoffered the related concessions and incentives tothe party of the second part. WHEREAS the party of the second part as"Developer" signed a Memorandum of Understandingwith the party of the first part on 11.01.2007[hereinafter referred to as "SIPCOT MOU"] toestablish its project and as a co-developer theparty of the second part shall develop itsproject in product-Specific SEZ jointly with theparty of the first part along with its customersand vendors in HI-Tech SEZ." 42. As a matter of fact, the Government of India, Ministryof Commerce and Industry also issued a letter of approval dated13.2.2007 for the proposal jointly made by the assessee andSIPCOT. The relevant portion of the letter of approval dated13.2.2007 issued by the Government of India reads as follows:- "With reference to your above mentionedapplication, Government of India is pleased toapprove your proposal as Co-Developer forproviding infrastructure facilities in the SIPCOTHi tech SEZ for electronics/telecom hardware andsupport services, including trading and logisticsactivities at Sriperumbudur, Tamil Nadu, as perthe details given below:(1) Name of the Co-Developer - Foxconn IndiaDeveloper Private Limited.(3) Details of facilities proposed to beprovided: Providing following infrastructurefacilities in the SEZ:A list of facilities to be provided in the SEZ isat Annexure-I." 43. Therefore, it is crystal clear that the One Time Non-refundable Upfront Charges paid by the assessee was not (i)under the agreement of lease and (ii) merely for the use of theland. The payment made for a variety of purposes such as (i)becoming a co-developer (ii) developing a Product SpecificSpecial Economic Zone in the Sriperumbudur Hi-Tech SpecialEconomic Zone (iii) for putting up an industry in the land. The https://hcservices.ecourts.gov.in/hcservices/ lessor as well as the lessee intended to treat the leasevirtually as a deemed sale giving no scope for any confusion.In such circumstances, we are of the considered view that theupfront payment made by the assessee for the acquisition ofleasehold rights over an immovable property for a long durationof time say 99 years could not be taken to constitute rentalincome at the hands of the lessor, obliging the lessor to deducttax at source under Section 194-I. Hence, the first substantialquestion of law is answered in favour of the appellant/assessee. https://hcservices.ecourts.gov.in/hcservices/ lessor as well as the lessee intended to treat the leasevirtually as a deemed sale giving no scope for any confusion.In such circumstances, we are of the considered view that theupfront payment made by the assessee for the acquisition ofleasehold rights over an immovable property for a long durationof time say 99 years could not be taken to constitute rentalincome at the hands of the lessor, obliging the lessor to deducttax at source under Section 194-I. Hence, the first substantialquestion of law is answered in favour of the appellant/assessee. 44. Once the first substantial question of law is answeredin favour of the appellant/assessee, by holding that theassessee was not under an obligation to deduct tax at source, itfollows as a corollary that the appellant cannot be termed as anassessee in default. As a consequence, there is no question oflevy of interest under Section 201(1-A) of the Act. 45. In the result, the appeal is allowed, the firstsubstantial question of law is answered in favour of theappellant/assessee. In view of our answer to the firstsubstantial question of law, the second substantial question oflaw does not arise. No costs. -s/d-Assistant RegistrarTrue CopySub-Assistant Registrar gr. To1.The Assistant RegistrarThe Income Tax Appellate Tribunal 'C' Bench, ChennaiBesant Nagar Chennai-90 2.The Commissioner of Income Tax(Appeals)NO.121 Mahatma Gandhi SalaiNungambakkam Chennai 600 034 3.The Income Tax Officer,TDS Ward II(3) VII Floornew Block MG Road, Chennai-34 +1 cc to M/s.Subbaraya Aiyar Advocate sr.21347+1 cc to Mr.J.Narayanasamy Advocate Senior CentralGovernment Standing Counsel sr.21344 T.C.A.No.801 OF 2013 aa13/04/2016