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No TDS u/s 194I on Payment for Acquisition of Leasehold Rights over Immovable Property

In M/s.Nagarjuna Oil Corporation Ltd., vs The Assistant Commissioner of Income Tax, TDS Circle II,  the issue before the Madras High Court involved before the learned Tribunal was whether one time lump sum paid by the Assessee for getting 99 years lease of land from the Government Undertaking viz., SIPCOT was a payment in the nature of rental and therefore, the Assessee was required to deduct tax at sources under Section 194 I of the Act and having failed to do so, the said payment was liable to be added back to the declared income of the Assessee?

The learned Tribunal followed the earlier view of its own in the case of M/s.TRIL Infopark Ltd., (ITA No.699/Mds/2014, Order dated 19.06.2015) and Foxconn India Developers (P) Ltd. vs. ITO reported in 2012(53) SOT 0213.

The High Court agreeing with the Coordinate Bench of the Madras High Court in the case of Foxconn India Developer (P.) Ltd. vs. Income-tax Officer, TDS Ward- II (3), Chennai, [2016] 68 taxmann.com 95 (Madras) held that such lump sum payment made by the Assessee for getting a long term lease does not amount to payment of rent and the same is not adjustable against the annual rent payable by the Assessee and therefore, the provisions of Section 194I of the Act will not apply to such circumstances. The said judgment of the Division Bench of this Court has since been accepted by the Central Board of Direct Taxes which has issued CIRCULAR NO.35/2016 [F.NO.275/29/2015-IT (B)], DATED 13-10-2016, holding that the Assessee is not entitled to deduct any tax at sources in such circumstances.

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