Case: NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY Vs. COMMISSIONER INCOME TAX APPEALS(41)

Now coming to the direction of the High Court regarding deduction of tax at source on the payment of lease rent as per Section 194-I of the Income Tax Act, 1961, the authority has relied on Circular dated 30.01.1995. Section 194¬I of the Income Tax Act provides as follows:¬?Section 194¬I : Rent 2[Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident] any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income¬tax thereon at the rate of 4[(a) two per cent. for the use of any machinery or plant or equipment; and (b) ten per cent. for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings:] Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed 5[one hundred eighty thousand rupees] : 6[Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income¬tax under this section.] 1[Provided also that no deduction shall be made under this section where the income by way of rent is credited or paid to a business trust, being a real estate investment trust, in respect of any real estate asset, referred to in clause (23FCA) of section 10, owned directly by such business trust.] Explanation : For the purposes of this section,¬ 2[(i) ?rent? means any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of (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 are owned by the payee;] (ii) where any income is credited to any account, whether called ?Suspense account? or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.?14. The definition of rent as contained in the explanation is a very wide definition. Explanation states that ?rent? means any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of any land. The High Court has read the relevant clauses of the lease deed and has rightly come to the conclusion that payment which is to be made as annual rent is rent within the meaning of Section 194-I, we do not find any infirmity in the aforesaid conclusion of the High Court. The High Court has rightly held that TDS shall be deducted on the payment of the lease rent to the Greater Noida as per Section 194-I. Reliance on circular dated 30.01.1995 has been placed by the Noida/Greater Noida. A perusal of the circular dated 30.01.1995 indicate that the query which has been answered in the above circular is ?Whether requirement of deduction of income-tax at source under Section 194¬I applies in case of payment by way of rent to Government, statutory authorities referred to in Section 10(20A) and local authorities whose income under the head ?Income from house property? or ?Income from other sources? is exempt from income¬tax.? 15. In Paragraph 3 of the circular, it was stated that income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, is exempt from income¬tax under Section 10(20A). In view of the aforesaid, in Paragraph 4 of the circular, following was stated:¬"In view of the aforesaid, there is no requirement to deduct income¬tax at source on income by way of rent if the payee is the Government. In the case of the local authorities and the statutory authorities referred to in para 3 of this circular, there will be no requirement to deduct income¬tax at source from income by way of rent if the person responsible for paying it is satisfied about their tax¬exempt status under clause(20) or (20A) of Section 10 on the basis of a certificate to this effect given by the said authorities.?16. A perusal of the above circular indicate 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 explanation and further Section 10(20A) has been omitted w.e.f. 01.04.2003. The very basis of the circular has been knocked out by the amendments made by Finance Act, 2002. Thus, the Circular cannot be relied by Noida/Greater Noida to contend that there is no requirement of deduction of tax at source under Section 194-I. Thus, deduction at source is on payment of rent under Section 194-I, which is clearly the statutory liability of the respondent-company. The High Court has adjusted the equities by recording its conclusion in Paragraph 20 and issuing a direction in Paragraph 21. 17.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]11. Insofar as the appeals filed by Noida/Greater Noida are concerned, the principal submission raised by the appellant is applicability of Section 10(20) of the Income Tax Act. Learned counsel for the Noida has submitted that the said issue has already been addressed in detail in Civil Appeal No. 792-793 of 2014. By our judgment of the date in Civil Appeal No. 792-793 of 2014 New Okhla Industrial Development Authority Vs. Commissioner of Income Tax- Appeals & Ors., we have held that Noida is not a ?local authority? within the meaning of Section 10(20) of the Income Tax Act as amended by the Finance Act, 2002 w.e.f. 01.04.2003. For the reasons given by our judgment of the date in the above appeals, this submission has to be rejected.Now coming to the appeals filed by the revenue, infar as the question relating to exemption under Section 194A(3) (iii)(f) by virtue of notification dated 24.10.1970, i.e. the exemption of interest income of the Noida, we have already decided the said controversy in CIVIL APPEAL NO._________ OF 2018 (arising out of SLP (C) No. 3168 of 2017)Commissioner of Income Tax(TDS) Kanpur and Anr. Vs. Canara Bank. Having held that Noida is covered by the notification dated 22.10.1970, the judgment of the Delhi High Court holding that Noida/Greater Noida is entitled for the benefit of Section 194A(3)(iii)(f) has to be approved.The definition of rent as contained in the explanation is a very wide definition. Explanation states that ?rent? means any payment, by whatever name called, under any lease, sublease, tenancy or any other agreement or arrangement for the use of any land. The High Court has read the relevant clauses of the lease deed and has rightly come to the conclusion that payment which is to be made as annual rent is rent within the meaning of Section 194-I, we do not find any infirmity in the aforesaid conclusion of the High Court. The High Court has rightly held that TDS shall be deducted on the payment of the lease rent to the Greater Noida as per Section 194-I. Reliance on circular dated 30.01.1995 has been placed by the Noida/Greater Noida. A perusal of the circular dated 30.01.1995 indicate that the query which has been answered in the above circular is ?Whether requirement of deduction of income-tax at source under SectionIn Paragraph 3 of the circular, it was stated that income of an authority constituted in India by or under any law enacted either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, is exempt fromunder Section 10(20A). In view of the aforesaid, in Paragraph 4 of the circular, following wasview of the aforesaid, there is no requirement to deductincome-tax at sourceon income by way of rent if the payee is the Government. In the case of the local authorities and the statutory authorities referred to in para 3 of this circular, there will be no requirement to deductincome-tax at sourcefrom income by way of rent if the person responsible for paying it is satisfied about theirstatus under clause(20) or (20A) of Section 10 on the basis of a certificate to this effect given by the said authorities.A perusal of the above circular indicate 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 explanation and further Section 10(20A) has been omitted w.e.f. 01.04.2003.The very basis of the circular has been knocked out by the amendments made by Finance Act, 2002. Thus, the Circular cannot be relied by Noida/Greater Noida to contend that there is no requirement of deduction of tax at source under Section 194-I. Thus, deduction at source is on payment of rent under Section 194-I, which is clearly the statutory liability of the respondent-company. The High Court has adjusted the equities by recording its conclusion in Paragraph 20 and issuing a direction in Paragraph 21.