No TDS for Long-Term Property Lease Premium – Mum ITAT

GST On Development Rights

Ruling in BoI case to benefit several BKC lessees

In a huge relief to corporates in Mumbai’s Bandra Kurla Complex (BKC), Mumbai’s Income-tax Appellate Tribunal (ITAT) has ruled that lease premium — a one-time amount paid upfront to acquire long-term lease rights — will not attract any TDS.

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

Facts & Judgement

Bank of India (BoI) had leased a BKC property from the Mumbai Metropolitan Regional Development Authority (MMRDA) for 80 years for the construction of residential flats and office buildings.

BoI paid MMRDA the lease premium and additional premium for FSI (floor space index) along with interest and fee for delay in the construction of the corporate building.

The I-T Department had claimed that such lump-sum one-time payments can be considered as rent under Section 194-I of the I-T Act, and that TDS was applicable. Tax officials claimed TDS at the rate of 20 per cent from BoI for the payment of ‘lease premium’ to MMRDA.

The ITAT has, however, ruled that such payments cannot be equated to rent, and therefore would not attract TDS.

“TDS on lease premium has been a long-standing issue and despite one or two court directives and internal circulars, I-T continues with its practice of making tax claims,” said a Mumbai-based tax lawyer.

Section 194-I provides for TDS from payment of any income by way of rent. I-T officials often took refuge in the definition of ‘rent’ under the Act that covers a wide range of payments, despite there being circulars from the Central Board of Direct Taxes to the contrary.

A large number of corporates in BKC — including Reliance Industries — have taken long-term leases from MMRDA.

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