No tax on lump sum rent premium paid to landlord

Q: I have a property in Bengaluru which I wish to lease out to a reputed company, which wants the lease for a very long period. I have, therefore, demanded a lumpsum lease premium which is almost equal to the amount I invested in the property. Will the company be liable to deduct tax from the lumpsum premium? A: A lessee or tenant is required to deduct tax at source at the time of payment of rent to the landlord under section 194-I of the Income-tax Act. This provision defines the term ‘rent’ as any payment under any lease, sublease, tenancy or any other agreement or arrangement for use of land or building or plant or machinery or equipment or furniture or fittings. There are several court decisions where it has been held that lumpsum lease premium or one-time non-refundable upfront charges paid for acquisition of long-term leasehold rights are not in the nature of rent under section 194-I. The Central board of Direct Taxes has also issued a circular with a view to avoid litigation on this point. In this circular, it has been stated that no tax is to be deducted at source under section 194-I when payment made to a landlord is by way of a lumpsum premium or one-time lease charges in respect of long-term leasehold rights. However, this circular applies only where the lumpsum lease premium is not adjustable against monthly or periodic rent payable under the lease agreement. Q: My father had land in a residential area in Madhya Pradesh which I inherited upon his death. As there was nobody to look after the plot, it has been encroached upon by many unauthorised persons who have constructed temporary houses on the land. As I am in the Gulf, I have entered into an arrangement with a builder who will relocate the unauthorised occupiers and construct a building on the land. He has offered me a reasonable amount. I want to know when will I be liable to pay capital gains tax? At present, I have only received an advance. A: Under section 45 of the Income-tax Act, capital gains are chargeable for the financial year in which the capital asset has been transferred. The word ‘transfer’ has been defined under section 2(47) of the Act to include any transaction under which possession of any immovable property is given in part performance of a contract. Therefore, your agreement with the builder should clearly stipulate the time when you will hand over the possession of the land. Assuming that the possession is given by you to the builder only after he obtains all permissions and approvals for commencing the construction of new buildings, the transfer would be deemed to take place in the financial year in which such approvals are obtained from the appropriate authorities. Therefore, though you have received a part of the consideration as an advance, you will not be liable to pay capital gains tax in the financial year in which you have received such advance. The tax would be payable only in the financial year in which you part with possession in favour of the builder. Tax would be payable on the full capital gains, irrespective of whether you have received the full sale consideration or not. Q: An assessment order was passed in my case about one-anda-half years ago and I had filed an appeal to the Commissioner of Income Tax (Appeals). However, my appeal has still not been heard. Is there any time limit prescribed by law for disposal? A: Unfortunately, there is no time limit prescribed under the law for disposal of an appeal. However, the government is now keen to monitor cases which have been pending before appellate commissioners. nearly 260,000 cases are pending for adjudication before the first appellate authority. The tax department has now advised all appellate commissioners to upload the data in respect of all pending appeals as on February 29, 2016. Further, details of the number of cases disposed have to be furnished to the statistics wing of the tax department by the 7th of every month. The Central board of Direct Taxes will review the performance of each appellate commissioner every month and take remedial action wherever necessary. Further, since your appeal was pending on February 29, 2016, you may take advantage of the Direct Tax Dispute resolution Scheme 2016. Under this scheme, if you make a declaration that you agree to pay the whole of the disputed tax and interest on such tax up to the date of assessment, your appeal would be deemed to be withdrawn. This benefit is available where the disputed tax does not exceed rs1 million. Where it exceeds rs1 million, the dispute can be resolved by paying the whole of the disputed tax, plus 25 per cent of the minimum penalty leviable and interest on the disputed tax.