TDS/TCS Rates Chart for FY 2015-16 / AY 2016-17

TDS/TCS Rates Chart for FY 2015-16 / AY 2016-17

TDS/TCS Rates Chart for Financial Year 2015-16 / Assessment Year 2016-17 vide Finance Act 2015 i.e Budget 2015-16-  We have updated the TDS rate chart considering the amendments made by Finance Act, 2015. Some of these amendments takes effect from 01.04.2015 and other have  taken effect from 01.06.2015.

The term ‘TDS’ refers to ‘Tax Deduction at source’. It is a mechanism wherein a person responsible to pay a sum of specified nature shall deduct an amount towards TDS and pay it to the credit of Central Government. Various TDS rates on various incomes have been prescribed under the Income-tax Act. This write up covers all such rates.

Section	Nature of income	When to deduct	Rate of TDS
192	Salary	Monthly- at the time of payment where estimated yearly net taxable salary exceedstax free limit.	On the average rates on the basis of per rates for individuals.
192A	Payment of accumulated balance due of Employees’ Provident Fund Scheme, 1952, to Employess (w.e.f 01-06-15)	when the amount of payment or aggregate amount of payment exceeds Rs. 30,000/-	10%
193(See note- 1 )*	Interest on securities*a) any debentures or securities for money issued by or on behalf of any local authority or a corporation established by a Central, State or Provincial Act;b) any debentures issued by a company where such debentures are listed on a recognised stock exchange in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and any rules made thereunder;c) any security of the Central or State Government;d) interest on any other security	At the time of credit or payment, whichever is earlier, when the amount exceeds Rs. 5,000/-	10%
194	Dividends	Before making payment to’ shareholder, other than dividend declared U/s. 115-0, when amount exceeds Rs. 2,500/-	20%
194A (See note- 2)*	Interest other than “Interest on securities”	At the time of credit or payment, whichever is earlier, when the amount exceeds Rs. 5,000/-. However, limit is Rs. 10,000/- in case of interest credited by banks including co‑operative banks to its members.	10%
194B /194BB	Winnings from lottery, cross word puzzles card games,horse race, games of any sort including T.V. Game Shows	At the time of  payment when it exceeds Rs. 5,000/- in other games and Rs. 2,500/- in the case of horse race.	30%
194C(See note- 3)*	Payment to contractors/ sub- contractors	At the time of credit or payment, whichever is earlier, when the amount of a  particular contract exceeds Rs. 30,000/- or the total amount of contract during the whole year exceeds Rs. 75,000/-	2% – For payments to contractor/Sub-contractor who is not an Individual/HUF
			1% – For payment to contractor/Sub-contractor who is an Individual/HUF
194D	Insurance Commission	At the time of credit or payment, whichever is earlier when the amount exceeds Rs. 20,000/-	10%
194DA	Payment under life insurance policy (including Bonus)	At the time of payment when the amount or the total amount during the whole year exceeds Rs. 1 ,00,000/-	2%
194H	Payment of commission brokerage	At the time of credit or payment whichever is earlier when the amount exceeds Rs. 5000/-	10%
194I	Rent	At the time of credit or payment, whichever is earlier, when the amount exceeds Rs. 1 ,80,000/-	10% – If rent is for land, building or furniture
			2% – If the rent is for Machinery, Plant or Equipment
194J	Any sum paid by way ofa) Fee for professional services,b) Fee for technical servicesc) Royalty,d) Remuneration/fee/commission to a director ore) For not carrying out any activity in relation to any businessf) For not sharing any know-how, patent, copyright etc.	At the time of credit or payment, whichever is earlier, when the amount exceeds Rs. 30,000/-	10%
194IA	Payment on transfer of certain immovable property other than agriculture land.	At the time of credit or payment, whichever is earlier, when the land is situated in specified area when amount exceeds Rs. 50 lacs	1%
194LB	Payment of interest on infrastructure debt fund to non resident or foreign company	At the time of credit or payment whichever is earlier	5%#
194LBA	Payment of distributed income to resident unit holder by a business trust and Payment of distributed income to non resident unit holder by a business trust	At the time of credit or payment whichever is earlier	10%5%#
194LBB	Payment of distributed income to unit holder in respect of units of an investment fund (w.e.f 01-06-15)	At the time of credit or payment whichever is earlier	10%
194LC	Payment of interest by an Indian Company or a business trust in respect of money borrowed in foreign currency under a loan agreement or by way of issue of long-term bonds (including long-term infrastructure bond)	At the time of credit or payment whichever is earlier	5%#
194LD	Payment of interest on rupee denominated bond of an Indian Company orGovernment securities to a Foreign Institutional Investor or a Qualified Foreign Investor	At the time of credit or payment whichever is earlier	5%#
206C	Collection on Sale of bullion and Jewellery	At time of sale, if sale consideration is received in cash in excess of Rs. 2 Lacs .	1%

# Surcharge, education cess and secondary and higher education cess will be added to the above tax rate, as applicable.

Notes:

1. Securities includes listed as well as unlisted debentures issued by companies in which public are substantially interested.

2. In case of interest payment on time deposits  by co-operative banks to its members the TDS Provision is applicable from 1-6-2015.

3. TDS provisions under Section 194A shall not apply to income paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income does not exceed Rs. 50000/- and further TDS on interest payment on compensation amount awarded by Motor Accident Claim Tribunal is deductible at the time of payment instead of accrual  (WEF 01.06.2015)- Section 194A- Amendment in provisions related to TDS on interest

4. As per amended definition of ‘time deposits’ under section 194(3) it now includes include recurring deposits also. This implies that now, interest on recurring deposits is also subject to TDS.

5.  Bankwise Income to be considered for TDS deduction on time deposits instead of Branch- Section 194A- Amendment in provisions related to TDS on interest

6. a) From 01.06.2015 – If the payment is made to contractor/sub contractor in transport business, no TDS shall be deducted at source in the course of payment for plying, hiring or leasing goods carriages if the contractor provides PAN Number and such contractor owns ten or less goods carriage at any time during the previous year and furnishes a declaration to that effect. (WEF 01.06.2015)-  TDS deductible on Payment to Transporters owing more than 10 goods carriage

b) Up to 31.05.2015– No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages on furnishing of his Permanent Account Number, to the person paying or crediting such sum.

7. No TDS deduction shall be made under section 194-I of the Act where the income by way of rent is credited or paid to a business trust, being a real estate investment trust (REIT), in respect of any real estate asset held directly by such REIT.  (wef 01-04-2015)  – Read More-Tax Regime for Real Estate Investment Trusts and Infrastructure Investment Trusts

8. In case of section 194LA, the sub-registrar shall register the document only after the challan for payment of TDS is presented before him.

9. Concessional rate of 5% withholding tax on interest payment under  section 194LD  will now be available on interest payable upto 30th June, 2017. – Extension of eligible period of concessional tax rate U/s. 194LD

10. TDS on Income in respect of units of investment fund- New section 194LBB to provide for TDS @ 10% on payments to a unit holder in respect of units of Investment Fund u/s 115UB  – Pass through status to Category –I and II Alternative Investment Funds

11. Section 195 has been amended to provide furnishing of information in Form 15CA and 15CB for payments to a non resident/foreign company irrespective to the fact that whether or not those payments were chargeable under Income tax Act. (wef 01-06-2015)  – Rationalisation of provisions relating to TDS and TCS

12. If the payment is made to a person (including non resident) whose receipts are subject to TDS shall mandatory furnish his PAN to the deductor (even though the deductee file a declaration in form no. 15G or 15H) otherwise the deductor shall deduct the TDS at higher of the following rates-

–      The applicable rate prescribed in the Act or

–      The rate mentioned in the Finance Act or

–    20%

13.  Surcharge on TDS on payments made to non-resident person and company other than a domestic company

a) non-resident person (other than a company)– The amount of tax so deducted shall be increased by a surcharge at the rate of twelve per cent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees .

b) company other than a domestic company– The amount of tax so deducted shall be increased by a surcharge,-

• at the rate of two per cent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees but does not exceed ten crore rupees;
• at the rate of five per cent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds ten crore rupees.

c)  Surcharge on tax is not deductible/collectible at source in case of  resident individual/ HUF /Firm/LLP/ AOP / BOI/Domestic Company in respect of payment of income other than salary.

14. Education Cess on payments made to non-resident person and company other than a domestic company

a) Non Resident & Foreign Companies– “Education Cess on income-tax” and “Secondary and Higher Education Cess on income-tax” shall continue to be levied at the rate of two per cent. and one per cent. respectively, of income tax including surcharge wherever applicable.

b) Other Resident Assessees-  Education Cess is not deductible/collectible at source in case of resident Individual/HUF/Firm/ AOP/ BOI/ Domestic Company in respect of payment of income other than salary.Education Cess @ 2% plus secondary & Higher Education Cess @ 1% is deductible at source in case of non-residents and foreign company.

15. NO TDS on service tax component comprised in the payments made to residents – Circular No. 1/2014 , Dated 13-1-2014

(Republished with Amendments)

Modification in Trade Circular No. 5T of 2015 Dt. 06/05/2015

 Modification in Trade Circular No. 5T of 2015 Dt. 06/05/2015

8th floor, Vikrikar Bhavan, Mazgaon, Murnbai 400010. TRADE CIRCULAR To No. JC (Reg)/uploading Document Regn/2015/530 Trade Circular No.  7T of 2015 Mumbai. Dated 19/05/201S Subject: Modification in Trade Circular No. 5T of 2015 Dt. 06/05/2015. Ref: Trade Circular No. 5T of 2015 Dt. 6th May 2015. Background: The Trade Circular 5T of 2015 was issued to explain the procedure in detail for new registration under The Maharashtra Value Added Tax Act, 2002 and The Central Sales Tax Act, 1956. Certain queries and suggestions have been received from the trade to modify, certain procedures and instructions contained in the said circular. Also the method of payment of fees and/or security deposit has been changed. In view of the same it has become necessary to supersede the instructions mentioned in the Trade Circular 5T of 2015 dated 06/05/2015. Accordingly, the revised instructions are being issued as under : (i) The applicant shall fill in the application for Registration as per the procedure laid down in the Trade Circular No. 4T of 2015 Dt.09/03/2015. It is expected that, at the time of selecting the option for new registration, the applicant should select the Act under which he is applying for new registration. It is observed that, many times applicant selects the Act under which he is already registered or application for new registration under such Act is already submitted. Such applications may be accepted by system but may not be ported into Mahavikas. It may cause inconvenience to the applicant. Therefore, the applicants are requested to select appropriate Act for new registration. The applicant may check the status of his application, whether it is created/ submitted or not by selecting the options for e-registration on Home page of the Department website www.mahavat.gov.in. Applicant has to enter his PAN to view his application in “existing dealer” option. (ii) In Trade Circular 5T of 2015, it was mentioned to pay registration fee and security deposit by way of demand draft. However, a facility has now been made available by which the fees and security deposit will be accepted by way of e-payment. The procedure for e-payment is explained in Annexure “D”. After filling the application for new registration, and making e-payment of fees and/or deposit, applicant shall upload scanned documents such as PAN CARD, proof of constitution, bank details, address proof, photo of applicant, photo ID, challans etc. which are explained in Annexure “A” of this circular. The applicant needs to reduce the size of page ( up to 100 kb per page) by reducing “dpi” while scanning the document so that, it gets uploaded. (iv) Applicant shall upload the scanned copy of Declaration Form mentioned in Annexure “B”, bearing signature and photograph of applicant (signatures of all partners in case of partnership and Limited. Liability Firm). (v) Applicant shall upload the details of the Introducer in Annexure “C” (in case of voluntary Registration Scheme) with TIN number, signature and Rubber stamp of introducer.) (vi) Applicant shall submit the correct and complete application form along with required scanned documents, Declaration Form and Annexure “C”. (vii) After submitting the application and scanned documents an acknowledgement will be generated containing the details of the registration authority. (viii) The Registration Authority shall call the following class of applicants before him for verification of documents before granting the Registration certificate:- a) The applicant or the person interested in the business is found to have been involved in non-genuine business activities previously. b)The applicant dealing in commodities which are declared as risky by the Sales Tax Department from time to time. (ix) Process of TIN generation: a)   After examining the uploaded application, scanned documents and photo of applicant with photo ID as mentioned in “Annexure A” and “Annexure B” and “C”, if Registration Authority finds that, application is correct and complete, scanned documents are uploaded properly and payment of Deposit and Fees is received ,will approve the application and TIN will be generated. b)  TIN will be communicated to the applicant on his email provided in the application form. c) Certificate of Registration will be sent by post/courier on the address mentioned in the application form for registration. Ix)   If the application and documents uploaded are not found in order and proper, the application shall be rejected and rejection order will be communicated on the email address provided in the application form. Further the copy of rejection order will be sent by Registered post/ Courier to applicant on the address mentioned in the application form for registration. If application for new Registration is rejected then, the applicant a)     can make fresh application for new registration using same challan of payment made for earlier application on same PAN or, b)  has to make manual application for refund of Fees and Security Deposit, along with rejection order and copy of challan, under “Miscellaneous Refund Head” to The Joint Commissioner of Sales Tax, Refund Branch for Mumbai Location and to The Joint Commissioner of Sales Tax, VAT Adm for other than Mumbai Locations. (xii) The procedure for registration of Non Resident dealer as well as for the other Acts remains unchanged. a)   Non Resident dealers have to submit their application in physical form to Deputy Commissioner of Sales Tax, Registration, Mumbai b) The dealers of Mumbai location applying for other than MVAT, CST 8s PT Acts have to file their application to The Deputy Commissioner of Sales Tax, Registration, Mumbai c) The dealers of locations other than Mumbai applying for other than MVAT,CST 86 PT Acts have to file their application to The Registration Officer of their respective location (xiii) Modified Annexures “A” and “B”, existing Annexure “C” and new Annexure “D” are attached with this circular. (xiv) This circular cannot be made use of for legal interpretation of provisions of law, as it is clarificatory in nature. If any member of the trade has any doubt, he may refer the matter to this office for further clarification. You are requested to bring the contents of this circular to the notice of the members of your association. - 

Modification in Syllabi of Accounting Papers & applicability for forthcoming CA Examinations

Modification in Syllabi of Accounting Papers & applicability for forthcoming CA Examinations

Modification in the Syllabi of Accounting Papers and its applicability for the forthcoming Chartered Accountancy Examinations

It has been decided that the following modification be made for the forthcoming examinations in context with Final Paper 1 : Financial Reporting and Intermediate (IPC) Paper 5 : Advanced Accounting :‐

Exclusion from the syllabus with effect from November, 2015 examination

Level	Paper	Topic
Final	Paper             1: Financial Reporting	Overview of International Accounting Standards (IAS) / International Financial Reporting Standards (IFRS), Interpretations by International Financial Reporting Interpretation Committee (IFRIC), Significant differences vis-a-vis Indian Accounting Standards. Understanding of US GAAPs, Applications of IFRS and US GAAP.
Intermediate (IPC)	Paper       5      : Advanced Accounting	Financial Reporting of Electricity Companies

Inclusion in the syllabus with effect from May, 2016 examination

Level	Paper	Topic
Final	Paper 1:    Financial Reporting	Introduction of Indian Accounting Standards (Ind AS); Comparative study of ASs vis-a-vis Ind ASs; Carve outs/ins in Ind ASs vis-à-vis International Financial Reporting Standards (IFRSs).

No disallowance U/s. 43B for Service Tax not debited to Profit & Loss Account

No disallowance U/s. 43B for Service Tax not debited to Profit & Loss Account

In our opinion since the assessed did not debit the amount to the Profit & Loss Account as an expenditure nor did the assessed claim any deduction in respect of the amount and considering that the assessed is following the mercantile system of accounting, the question of disallowing the deduction under section 43B  not claimed would not arise.

Delhi High Court

Cit vs Noble And Hewitt (I) (P) Ltd.

[2008] 305 ITR 324 (Delhi)

Date- 10 September, 2007

Author: Madan B. Lokur, J.

Bench: M B Lokur, S Muralidhar

 ORDER

1. The revenue is aggrieved by an order dated 17-11-2006 passed by the Income Tax Appellate Tribunal (‘Tribunal’), Delhi Bench “D”, New Delhi in ITA No. 2910/Delhi/2004 relevant for the assessment year 1999-2000.

2. The assessed maintains a mercantile system of accounting. It had collected service tax during the previous year relevant to the assessment year in question. Out of the service tax so collected the assessed had deposited part of the amount but an amount of Rs. 14.40 lakhs was not deposited by the assessed with the concerned authorities. The assessed did not claim any deduction in this regard nor did it debit the amount as an expenditure in the Profit & Loss Account. The assessing officer as well as the Commissioner (Appeals) (‘Commissioner (Appeals)’) nevertheless disallowed the amount and added it back to the income of the assessed.

3. The Commissioner (Appeals) was of the view that the assessed had not followed the correct accounting procedure. If it had done so, the amount would have had to be debited to Profit & Loss Account and thereafter the assessed could claim a deduction thereon. The Commissioner relied upon decision of the Calcutta High Court in Chowringhee Sales Bureau (P) Ltd. v. CIT .

4. In appeal, the Tribunal was of the opinion that in view of the provisions of Section 43B of the Income Tax Act, 1961 (‘Act’), since the assessed had not claimed a deduction there was no question of disallowing the deduction which was not even claimed. The relevant extract of Section 43B of the Act reads as follows:

Certain deductions to be only on actual payment.Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of

(a) any sum payable by the assessed by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force,

(b) to (f) ** ** ** shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessed according to the method of accounting regularly employed by him) only in computing the income referred to in Section 28 of that previous year in which such sum is actually paid by him.

5. Learned Counsel for the revenue urges that the decision of the Calcutta High court in Chowringhee Sales Bureau (P.) Ltd. ‘s case (supra) covers the point in its favor. We are unable to agree. In that case it was held that the liability to pay sales tax arose the moment a sale or purchase was effected and if an assessed was maintaining accounts on the mercantile system it would be entitled to deduction of the estimated liability of sales tax, even though such sales tax had not been paid to the sales tax authorities. The question there concerned was the entitlement of the assessed to deduction under Sections 10(1)and 10(2)(xv) of the Indian Income Tax Act, 1922.The decision is clearly distinguishable in its application to the present case. Here we are concerned with an assesse who has not even claimed any deduction on the ground of service tax and has not debited the amount to its Profit & Loss Account. Moreover the provisions of Section 43B of the Act are quite clear in this regard. The decision of the Calcutta High Court in Chowringhee Sales Bureau (P) Ltd. s case (supra) was not in the context of the applicability of Section 43B of the Act.

6. In our opinion since the assessed did not debit the amount to the Profit & Loss Account as an expenditure nor did the assessed claim any deduction in respect of the amount and considering that the assessed is following the mercantile system of accounting, the question of disallowing the deduction not claimed would not arise.

7. Learned Counsel for the revenue submits that the assessed has sought to evade tax under the mercantile system of accounting. We are of the view that it is not for the revenue authorities to tell the assessed how to maintain its accounts.

8. We cannot find any fault in the view taken by the Tribunal and find no merit in this appeal

9. No substantial question of law arises.

10.The appeal is dismissed.

Service tax on long term lease of Immovable property inconsistent with other laws

Service tax on long term lease of Immovable property inconsistent with other laws

Service tax payable on long term lease of Immovable property under Renting of Immovable Property – not in sync with Service tax Act, Accounting Standard, Bombay Stamp Act & Income Tax Act

A) Service is defined under section 65B(44) of the Finance Act, 1994 as introduced w.e.f. 01-07-2012. as under

“service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—

(a) an activity which constitutes merely,––

(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner

; or

(ii) a transaction in money or actionable claim;

(b) a provision of service by an employee to the employer in the course of or in relation to his employment;

(c) fees taken in any Court or tribunal established under any law for the time being in force.

Hence based on above definition of Service, a transfer of title in goods or immovable property by way of sale, gift or in any other manner is excluded from the ambit of Service hence the same is also excluded from the net of service tax.

One important think to be kept in mind is transfer by way of sale, gift or in any other manner is excluded. Any other manner is not defined but according to my view long term lease of 30 years or more can also be considered as akin to sale.

B) The said conclusion I have made based on the following;

As per Accounting Standard 19 – Leases issued by the Institute of Chartered Accountants of India there are two types of lease:

1) Finance Lease &

2) Operating Lease

A finance lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset and An operating lease is a lease other than a finance lease.

One of the examples of situations which would normally lead to a lease being classified as a finance lease is mentioned in para 8 ( C ) of the said standard which is as under:

8 (c) the lease terms is for the major part of the economic life of the asset even if title is not transferred.

Here again major part of the economic life of the asset is not defined.

As per stamp duty on immovable property in Maharashtra (governed by the Bombay Stamp Act, 1958),

where the lease purports to be for a term more than 29 years or in perpetuity or does not purports for any definite period, or lease for a term more than 29 years with a renewal clause contingent or otherwise The same duty as is leviable on a Conveyance under clause (a), (b),(c) or (d), as the case may be, of Article 25, on 90 % of the market value of the property

Hence based on above one can conclude that lease of an immovable property equal to or more then 30 years can be considered as akin to sale.

C) As per para 11 of Accounting Standard 19 – Leases:

At the inception of a finance lease, the lessee should recognize the lease as an asset and a liability. A finance lease gives rise to a depreciation expense for the asset as well as a finance expense for each accounting period. The depreciation policy for a leased asset should be consistent with that for depreciation assets which are owned.

Hence based on above it is clear that if lease is classified as finance lease than in the books of lessee the lease should be recognized as an asset & depreciation can be claimed as if the assets are owned.

D) As per section 50 C (1) of the Income Tax Act 1961, Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed [or assessable] by any authority of a State Government (hereafter in this section referred to as the “stamp valuation authority” ) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed  [or assessable] shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

As per Section 2(47) of the Income Tax Act 1961, transfer is defined as under,

  “transfer”, in relation to a capital asset, includes,—

(i) the sale, exchange or relinquishment of the asset ; or

(ii) the extinguishment of any rights therein ; or

(iii) the compulsory acquisition thereof under any law ; or

(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ;]  [or]

[(iva) the maturity or redemption of a zero coupon bond; or]

[(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or

(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.

Hence based on above one can come to know that Section 50C is applicable on transfer of a Capital Assets being land or building or both & as per Section 2(47) transfer in relation to a Capital Assets includes the sale, exchange or relinquishment of the asset.

Therefore there have been conflicting decisions by courts/Tribunal on whether transfer of tenancy/leasehold right is a transfer of a capital asset, and would fall within the ambit of Section 50 C of the Act.

The Lucknow Bench of the Income tax Appellate tribunal (the Tribunal) in the case of Shri Hari Om Gupta (the taxpayer) held that the leasehold right of a land for 99 years is a Capital asset to which the provisions of section 50 C of the Act are applicable. Therefore the capital gain on transfer of such leasehold right is to be computed in accordance with the provisions of section 50 C of the Act.

Hence based on above one can conclude that as per Service tax act, Accounting Standards, as per Stamp duty on Immovable property in Maharashtra (governed by the Bombay Stamps Act, 1958) & also as per the Income tax act, long term lease can be considered as akin to sale.

E) As per section 194I of the Income Tax Act 1961:

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— [(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:]]

Explanation.—For the purposes of this section,—

[(i) “rent” means any payment, by whatever name called, under any lease, sub-lease, 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;

Very often, when land is taken on lease for a long period of time, say for 30 years, 50 years or 99 years, a premium is paid for such grant of lease (such a onetime premium to acquire leasehold rights is called salami payment by several courts in the Income Tax Act), particularly also when the lease is being taken from a Government Authority, such as an Industrial Development Corporation or a Regional Development Authority. In addition to the premium, annual rent may also be charged, which at times may be a nominal amount. The payment of such a premium has been the subject matter of several controversies, under the tax laws, including the liability of the payer to deduct tax at source u/s. 194-I and his eligibility to claim deduction for such payment in computing his total income.

One of the issues is whether such a premium i.e. salami payment is really in the nature of rent for the purposes of section 194-I, and whether tax is deductible at source from such premium, or whether such premium is in the nature of a capital expenditure for the grant of lease of the land and no tax is deductible from such payment.

Chennai Tribunal in the case of Foxconn India Developers Pvt Ltd v/s ITO 53 SOT 213 held that the definition of rent under section 194 I cover the payment made for long term lease arrangements also. Therefore taxes have to be withheld under section 194 I of the Act on long term lease arrangement also.

Similar kind of judgment is also delivered by Mumbai Tribunal in the case of ITO v/s Navi Mumbai SEZ (P) Ltd., 147 ITD 261.

Above said decisions are contradicting i.e. how can salami payment on long term lease be treated as Rent but actually the said expenditure is a capital expenditure hence TDS on rent should not be deducted but on salami payment TDS @ 1% under section 194 – IA, TDS on Transfer of Certain Immovable Property other than Agricultural land can be deducted.

F) In Greater Noida Industrial Development Corporation v/s CCE (2014) 45 GST 185 = 44 taxmann.com 271 (CESTAT) (order dated 08-11-2012) a prima facie view was held (while granting stay) that long term lease is akin to sale of immovable property. It is not renting & not subject to service tax.

However in New Okhla Industrial Development Authority v/s CCE (2014) 45 GST 187 = 44 taxmann.com 287 (CESTAT) (order dated 11-12-2013), it has been held that even a long term lease of 99 years is renting & subject to service tax.

According to my view the said decision of New Okhla is against service tax act, against accounting standard, against stamp duty on Immovable property in Maharashtra (governed by the Bombay Stamps Act, 1958) & also against the Income tax Act 1961.

Conclusion:  

1) According to my view long term lease should be treated as akin to sale & therefore on salami payment i.e. onetime payment to acquire long term lease rights of land or buildings or both, no service tax should be payable because the same is falling clearly under exclusions given to the definition of service under section 65B(44) of the Finance Act, 1994. Therefore the same should be clearly outside the ambit of service tax net. Hence according to my view the said decision of New Okhla Industrial Development Authority should be reversed by the high court.

2) Similarly on salami payment i.e. onetime payment to acquire long term lease rights of land or building or both TDS on rent u/s 194 I @ 10% should not be deducted but TDS u/s 194 – IA @ 1% , TDS on transfer of Certain Immovable Property other then Agricultural Property can be deducted. Hence decisions of Chennai Tribunal of Income tax namely Foxconn India Developers Pvt Ltd & Mumbai Tribunal of Income Tax, Navi Mumbai SEZ (P) Ltd should be reversed by the high courts.

3) Now with the introduction of Goods & Service tax Act (GST Act) in near future Central taxes like Central Excise duty, Service Tax, Customs duty & also state taxes like VAT, Entertainment tax (unless it is levied by local bodies), luxury tax, taxes on lottery including betting & gambling, entry tax etc will be merged under GST Act. Hence it is the time to integrate all direct, indirect taxes & Accounting Standards in such a fashion that no single law/discipline should contradict other laws/discipline i.e. all laws should be in sync with each other. Then only litigation will reduce significantly.