ITC of leasehold rights and the shed standing upon it

[Narayan Pujar]

A humble request to the members to guide me on the following issue –

One of my clients is going to procure lease rights of a land under an ‘Agreement of assignment’ on ‘as is basis’ from one supplier [original grantor is MIDC] and an ‘Industrial shed’ standing upon it on ‘as is where is basis’ owned by another supplier vide a separate transfer agreement.

Will there be any issue while claiming ITC, particularly in terms of Section 17(5)(d)? I am of the view that credit is admissible. I found rulings denying ITC on assignment of lease rights, however, there the underlying reason being that lease rights are for construction of immovable property. And in the instant case of my client, there is no construction of immovable property, per se. So, will buying lease rights of land and industrial shed on the land on as is where is basis amount to ‘for construction of immovable property’?

AI Summary

Input tax credit on leasehold rights and existing sheds may be admissible unless treated as construction or capital expenditure.
ITC is generally admissible on acquisition of leasehold rights and an existing industrial shed acquired "as is where is" where no construction activity is involved. If modifications amount to construction, or costs are capitalised as part of an asset, the exclusion from ITC may apply. Determinative factors include lease term, asset useful life, payment structure (upfront acquisition versus periodic rent), and the accounting treatment (capital versus revenue expenditure), all of which influence whether the expenditure falls within the construction exclusion and thus affects ITC entitlement.