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

3. The respondent Rajesh Projects (India) is a private limited company engaged in the business of real estate activities of constructing, selling residential units etc. On 03.11.2010, the respondent-company entered into alease for 90 years with the Greater Noida Industrial Development Authority for Plot No.for development and marketing of Group Flats. As per terms of the lease deed, the company partially paid the consideration amount for the acquisition of the plot to Greater Noida at the time of execution of the lease deed and is also paying the balance lease premium annually as per the terms and conditions of the lease deed. Notice under Section 201/201(A) of the Income Tax Act, 1961 was issued by the Income Tax department inquiring regarding non-deduction of tax at source under Section194-I of the Income Tax Actfrom the annual lease rent paid to Greater Noida. Thereplied the notices. The respondents case was that it did not deduct tax at source as it was advised by Greater Noida that it is a Government authority, hence the tax deduction at source provisions are not applicable. The Assessing Officer passed the order dated 31.03.2014 for the Financial Year2, the respondent was held asit of TDS on account of payment of lease rent and interest made to Greater Noida. Consequent demand was raised against the respondents. Aggrieved by assessment order, thefiled an appeal before the Commissioner of IncomeRespondents prayed to stay the demand which was refused and recovery proceedings were initiated. Aggrieved by assessment and recovery proceedings emanating therefrom, the respondent-company filed a Writ Petition No. 8085 of 2014 praying for various reliefs including the relief that respondent-company be not treated asunder the Income Tax Act for non-deduction/depositing the tax at source in respect of payment of rent on lease land and in respect of other charges paid to Greater Noida. Different other entities also filed the writ petitions in the Delhi High Court praying for more or less the same reliefs relating to lease rent payment and for payment of interest to Greater Noida. All the writ petitions involving common questions of law and facts were heard together and were allowed by the Delhi High Court by its judgment dated 16.02.2017. Before the High Court, Greater Noida and the Noida authorities contended that they are local authorities within the meaning of Section 10(20) of the Income Tax Act, 1961, hence their income is exempt from the Income Tax. It was further contended that the interest received by them is exempt under Section 194A(3)(iii)(f) of the Income Tax Act and they are exempted from payment of any tax on the interest.The revenue refuted the contention of Greater Noida and Noida contending that w.e.f. 01.04.2003, the Greater Noida and Noida is not a local authority within the meaning of Section 10(20) and further they are also not entitled for the benefit of notification issued under Section 194A(3)(iii)(f). It was further contended that with regard to payment of rent to the Noida and Greater Noida, therespondent-company was liable to deductthe tax on payment of interest, nowas deducted by the respondent-company while paying rent to Noida and Greater Noida, hence they areThe revenue also relied on Division Bench judgment of Allahabad High Court in Writ Petition Tax No. 1338 of 2005 decided on 28.02.2011 where the Allahabad High Court has held that Noida is not a local authority within the meaning of Section 10(20) as amended by Finance Act, 2002. The Delhi High Court after hearing all the parties allowed the writ petitions. The Delhi High Court held that Noida and Greater Noida are not local authorities within the meaning of Section 10(20) as amended w.e.f. 01.04.2003. Delhi High Court further held that interest income of the Noida and Greater Noida is exempted under the notification dated 22.10.1970 issued under Section 194A(3)(iii)(f) of the Income Tax Act. The High Court further held that as far as payment of rent to the Noida and Greater Noida, therespondent-company was liable to deductincome tax at source. The High Court recorded its conclusions in Para 20 of the judgment, which is to the followingIn view of the above analysis, the court hereby concludes as follows:(1) Amounts paid as part of the lease premium in terms of the time-schedule(s) to the Lease Deeds executed between the petitioners and GNOIDA, or bi-annual or annual payments for a limited/specific period towards acquisition of lease hold rights are not subject to TDS, being capitalconstituting annual lease rent, expressed in terms of percentage (e.g. 1%) of the total premium for the duration of the lease, are rent, and therefore subject to TDS. Since the petitioners could not make the deductions due to the insistence of GNOIDA, a direction is issued to the said authority (GNOIDA) to comply with the provisions of law and make all payments, which would have been otherwise part of the deductions, for the periods, in question, till end of the date of this judgment. All payments to be made to it, henceforth, shall be subject towhich are payable towards interest on the payment of lump sum lease premium, in terms of the Lease which are covered by Section 194-A are covered by the exemption under Section 194A(3)(f) and therefore, not subjected tothe reason mentioned in (3) above, any payment of interest accrued in favour of GNOIDA by any petitioner who is a bank - to the GNOIDA, towards fixed deposits, are also exempt from TDS.Aggrieved by the aforesaid judgment of Delhi High Court, Greater Noida, Noida as well as Revenue has filed these appeals.

Court's reasoning:
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.