2011 (3) TMI 1710 - AT - Income Tax

Tribunal rules against assessee on retention money, but in favor on leasehold premium deduction

The Tribunal upheld the decision against the assessee on the retention money issue due to prior adverse rulings. However, the Tribunal ruled in favor of ... Accrual of income - retention money - precedent and consistency of Tribunal decisions - deductibility of leasehold premium as revenue expenditure - leasehold rights not amounting to acquisition of capital asset - finality of judicial decisionAccrual of income - retention money - precedent and consistency of Tribunal decisions - Claim that retention money does not accrue until expiry of performance guarantee was rejected. - HELD THAT: - The Tribunal considered the assessee's contention regarding non-accrual of retention money until the period of the performance guarantee expired, but found the point to be covered by earlier Tribunal orders in the assessee's own cases (ITA Nos.1139-1140/Mum/2003 and ITA No.6291/Mum/2003) decided against the assessee. Applying the principle of consistency with its prior decision, the Tribunal followed that precedent and declined to accede to the assessee's claim. [Paras 3, 4]Ground concerning retention money dismissed; claim rejected following earlier Tribunal decisions.Deductibility of leasehold premium as revenue expenditure - leasehold rights not amounting to acquisition of capital asset - finality of judicial decision - Proportionate leasehold premium claimed as deduction under section 37(1) was held allowable as revenue expenditure. - HELD THAT: - The Tribunal examined the nature of the payment for leasehold rights and accepted the assessee's contention that payment did not effect acquisition of the land or change in capital structure, the land remaining the property of the lessor. Relying on the Gujarat High Court decision in DCIT v. Sun Pharmaceutical Ind. Ltd., which held that such lease payments were for use of land and allowable as revenue expenditure, and noting that the Revenue's SLP was dismissed by the Supreme Court (thereby rendering the High Court decision final), the Tribunal followed that binding authority and allowed the deduction. [Paras 5]Deduction of proportionate leasehold premium allowed in favour of the assessee, following the Gujarat High Court decision and its finality.Final Conclusion: Appeal partly allowed: ground on retention money dismissed following earlier Tribunal precedent; ground on deduction of proportionate leasehold premium allowed by following the final Gujarat High Court decision in DCIT v. Sun Pharmaceutical Ind. Ltd. Issues involved: Appeal against CIT(A) order for assessment year 2005-06 regarding rejection of claim for retention money and deduction of proportionate leasehold premium.Retention Money Issue:The Tribunal noted that the issue of retention money had been previously decided against the assessee in a different case. Citing consistency, the Tribunal decided the issue against the assessee. The ground related to retention money was dismissed.Proportionate Leasehold Premium Issue:The AO disallowed the deduction claimed by the assessee for proportionate leasehold premium. The CIT(A) upheld the AO's decision. The assessee argued that the issue was covered by a decision of the Hon. Gujarat High Court in a specific case. The Tribunal referred to the findings of the Hon. Gujarat High Court, which concluded that the lease rent paid by the assessee was allowable as revenue expenditure. The Tribunal also mentioned that the Special Leave Petition filed by the Revenue was dismissed by the Hon. Supreme Court, affirming the decision of the Gujarat High Court. Consequently, the Tribunal decided this issue in favor of the assessee.Conclusion:The Tribunal upheld the decision against the assessee regarding the retention money issue, as it had been previously decided against them. However, the Tribunal ruled in favor of the assessee regarding the deduction of proportionate leasehold premium, based on the decision of the Hon. Gujarat High Court and the dismissal of the Special Leave Petition by the Hon. Supreme Court.