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REPORTABLE

 IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.15613 OF 2017

M/S. NEW OKHLA INDUSTRIAL  DEVELOPMENT AUTHORITY  … APPELLANT(S)

VERSUS

COMMISSIONER OF  INCOME TAX – APPEALS & ORS.              … RESPONDENT(S)

WITH

CIVIL APPEAL NO.9365 OF 2017

GREATER NOIDA INDUSTRIAL  DEVELOPMENT AUTHORITY  … APPELLANT(S)

VERSUS

ASSISTANT COMMISSIONER OF  INCOME TAX (TDS) & ORS.                  … RESPONDENT(S)

WITH

CIVIL APPEAL NO.12750 OF 2017

NEW OKHLA INDUSTRIAL  DEVELOPMENT AUTHORITY  … APPELLANT(S)

VERSUS

UNION OF INDIA & ORS.                    … RESPONDENT(S) WITH

CIVIL APPEAL NO.9199 OF 2017

NEW OKHLA INDUSTRIAL  DEVELOPMENT AUTHORITY  … APPELLANT(S)

VERSUS COMMISSIONER OF  INCOME TAX (APPEALS) 41 & ORS.           … RESPONDENT(S)

WITH

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CIVIL APPEAL NO.15615 OF 2017

M/S. NEW OKHLA INDUSTRIAL  DEVELOPMENT AUTHORITY  … APPELLANT(S)

VERSUS

COMMISSIONER OF  INCOME TAX – APPEALS & ORS.              … RESPONDENT(S)

WITH

CIVIL APPEAL NO.15614 OF 2017

NEW OKHLA INDUSTRIAL  DEVELOPMENT AUTHORITY  … APPELLANT(S)

VERSUS

INCOME TAX OFFICER & ORS.                … RESPONDENT(S)

WITH

CIVIL APPEAL NO.15130 OF 2017

COMMISSIONER OF INCOME  TAX (TDS)­II & ORS.                      … APPELLANT(S)

VERSUS

RAJESH PROJECTS (INDIA) PVT. LTD. & Anr. … RESPONDENT(S)

WITH

CIVIL APPEAL NO.51 OF 2018

INCOME TAX OFFICER & ORS.                … APPELLANT(S)

VERSUS

UNITED BANK OF INDIA & ANR.              … RESPONDENT(S)

WITH

CIVIL APPEAL NO.6115  OF 2018 (Diary No. 29273/2017)

COMMISSIONER OF INCOME  TAX (TDS)­II & ORS.                      … APPELLANT(S)

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VERSUS

RAJESH PROJECTS (INDIA) PVT. LTD. & Anr. … RESPONDENT(S) AND

CIVIL APPEAL NO. 6113  OF 2018 (@ SLP NO.16703 2018 @ DIARY NO(S). 9061/2018)

COMMISSIONER OF INCOME TAX(TDS)   ….APPELLANT (S) KANPUR AND ANR

VERSUS

HDFC BANK LTD., GREATER NOIDA  …..RESPONDENT

J U D G M E N T

ASHOK BHUSHAN, J.

Delay condoned.

2. These appeals have been filed against the common judgment

of Delhi High Court dated 16.02.2017 by which the Delhi High

Court has allowed the writ petitions filed by the private

respondents herein.  The appeals have been filed by New Okhla

Industrial Development Authority, Greater Noida Industrial

Development Authority, Commissioner of Income Tax as well as

Income Tax Officer and others.  The facts and issues in all

the appeals being common, it shall be sufficient to refer the

facts and pleadings in Civil Appeal No. ­ 15130 of 2017 –

Commissioner of Income Tax (TDS) – II & Ors. Vs. Rajesh

Projects (India) Pvt. Ltd. & Anr. for deciding this batch of

appeals.

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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 respondent­company entered into a long­term

lease for 90 years with the Greater Noida Industrial

Development Authority for Plot No. GH­07A 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 non­deduction of tax at source under Section 194­I

of the Income Tax Act from the annual lease rent paid to

Greater Noida.   The respondent­company replied 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 Year 2010­2011 and 2011­2012, the

respondent was held as “assessee­in­default” for

non­deduction/non­deposit of TDS on account of payment of

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lease rent and interest made to Greater Noida.   Consequent

demand was raised against the respondents. Aggrieved by

assessment order, the respondent­company filed an appeal

before the Commissioner of Income Tax­Appeals.   Respondents

prayed to stay the demand which was refused and recovery

proceedings were initiated.   Aggrieved by assessment and

recovery proceedings emanating therefrom, the

respondent­company filed a Writ Petition No. 8085 of 2014

praying for various reliefs including the relief that

respondent­company be not treated as “assessee­in­default”

under the Income Tax Act for non­deduction/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

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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.   

4. 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, the respondent­company was

liable to deduct the tax on payment of interest, no income­tax

was deducted by the respondent­company while paying rent to

Noida and Greater Noida, hence they are “assessee­in­default”.

The 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

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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,  the  respondent­company  was  liable  to deduct

income tax at source.  The High Court recorded its conclusions

in Para 20 of the judgment, which is to the following effect:­

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“20. In view of the above analysis, the court hereby concludes as follows:(1) Amounts paid as part of the lease premium in terms of the time­schedule(s) to the Lease Deeds executed between the petitioners and GNOIDA, or bi­annual or annual payments for a limited/specific period towards acquisition of lease hold rights are not subject to TDS, being capital payments;

(2) Amounts constituting 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 to TDS.

(3) Amounts which are payable towards interest on the payment of lump sum lease premium, in terms of the Lease which are covered by Section 194­A are covered by the exemption under Section 194A(3)(f) and therefore, not subjected to TDS.

(4) For the 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.”

5. Aggrieved by the aforesaid judgment of Delhi High Court,

Greater Noida, Noida as well as Revenue has filed these

appeals.  

6. Learned counsel appearing for the Noida and Greater Noida

contended that Noida and Greater Noida have been constituted

under Section 3 of the Uttar Pradesh Industrial Area

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Development Act, 1976 and is a local authority within the

meaning of Section 10(20) of the Income Tax Act, 1961.

Reliance on notification dated 24.12.2001 issued by the

Governor of the State of Uttar Pradesh under the proviso to

Article 243Q(1) has also been placed to contend that by virtue

of said notification both Greater Noida and Noida are

municipalities and are covered by the local authorities as

explained under the explanation to Section 10(20) of the

Income Tax Act.  It is further contended that interest income

of the authorities is exempted under the notification issued

under Section 194A(3)(iii)(f). Further reliance has been

placed on Circular No. 35/2016 dated 13.10.2016 wherein it has

been clarified that provision of Section 194­I of the Income

Tax Act, 1961 on lump­sum lease premium paid for acquisition

of long­term lands is not applicable.   

7. It is further submitted that the question as to whether

Noida/Greater Noida is local authority is engaging attention

of this Court in Civil Appeal No. 792­793 of 2014, in which

judgment has already been reserved. On tax deduction at

source, it is further submitted that the said issue is also

pending consideration of this Court in Special Leave Petition

(Civil) No. 33260 of 2016, in which judgment has also been

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reserved.   With regard to tax deduction at source on the

payment of lease rent, reliance has been placed on Circular

dated 30.01.1995.   

8. Learned counsel for the revenue in support of its appeal

submits that Noida and Greater Noida are not covered by the

definition of local authority as contained under Section

10(20) and their income is not exempted under Section 10(20).

Judgment of Allahabad High Court dated 28.02.2011 in Writ

Petition Tax No. 1338 of 2005 was also relied by the revenue

against which appeal has already been filed by Noida and has

been heard.   With regard to income tax deduction at source

under Section 194A, the revenue has referred to its appeal in

Special Leave Petition (C) No.34530 of 2016  Commissioner of

Income Tax – TDS – Kanpur Vs. Central Bank of India, where the

arguments has already been concluded and judgment is reserved.

9. Learned counsel for the revenue submits that

Noida/Greater Noida is not entitled for the benefit of Section

194A(3)(iii)(f).   

10. We have considered the submissions of the learned counsel

for the parties and perused the records.  

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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.

792­793 of 2014.  By our judgment of the date in Civil Appeal

No. 792­793 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.

12. Now coming to the appeals filed by the revenue, insofar

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

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Noida/Greater Noida is entitled for the benefit of Section

194A(3)(iii)(f) has to be approved.  

13. Now coming to the direction of the High Court regarding

deduction of tax at source on the payment of lease rent as per

Section 194­I of the Income Tax Act, 1961, the authority has

relied on Circular dated 30.01.1995.   Section 194­I of the

Income Tax Act provides as follows:­

“Section 194­I : 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 income­tax 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] :

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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 income­tax 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;]

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(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 194­I, 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

194­I.  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

income­tax at source under Section 194­I applies in case of

payment by way of rent to Government, statutory authorities

referred to in Section 10(20A) and local authorities whose

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income under the head “Income from house property” or “Income

from other sources” is exempt from income­tax.”   

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 income­tax 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 income­tax 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 income­tax at source from income by way of rent if the person responsible for paying it is satisfied about their tax­exempt 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.

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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

194­I.  Thus, deduction at source is on payment of rent under

Section 194­I, which is clearly the statutory liability of the

respondent­company.  The High Court has adjusted the equities

by recording its conclusion in Paragraph 20 and issuing a

direction in Paragraph 21.   

17. In view of what has been stated above, we do not find any

error in the judgment of the High Court dated 16.02.2017.  In

result, all the appeals are dismissed.      

..........................J. ( A.K. SIKRI )

..........................J.      ( ASHOK BHUSHAN )

NEW DELHI, JULY 02, 2018.