2014 (4) TMI 486

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....11,050 sq.mts., on lease from Maharashtra Industrial Development Corporation and paid a sum of Rs.20,00,000/-, pursuant to the agreement dated 29.10.1993. The assessee claimed the said amount as payment of rental in one lumpsum and therefore, a revenue expenditure. The Assessing Officer rejected the stand taken by the assessee holding that the amount paid by the assessee was for the purpose of acquiring the land for a period of 80 years, which renders enduring advantages to the assessee. The Assessing Officer also took note of the fact that the assessee had paid further amount of Rs.5.04 lakhs towards the enhancement cost to the land. Therefore, the Assessing Officer found that the expenditure to be a capital expenditure. 3. Aggrieved by the such finding, the assessee preferred an appeal to the Commissioner of Income Tax (Appeal) by contending that M/s.Indian Filter Manufacturers Pvt., Ltd., (IFML) had taken the land on lease from the Maharashtra Industrial Development Corporation (MIDC), who is the absolute owner of the land and the lease is valid upto 31.03.2077 and IFML offered the said land to the assessee for enjoyment and the assessee has paid a sum of Rs.20,00,000/-, bein....

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....cision of the Hon'ble Supreme Court in the case of R.K.Palshikar (HUF) vs. CIT, M.P., Nagpur & Bhandara reported in 1988 (172) ITR 311. 6. Mr.C.V.Rajan, learned counsel appearing for the assessee sought to sustain the order passed by the Tribunal by contending that the agreement between the assessee and the IFML was infact a lease transaction and the payment of the lease rent in one lumpsum does not alter the nature of the transaction and the payment is essentially towards the lease rental, which qualifies for being treated as a revenue expenditure. Merely because, the lease rent is paid in one lumpsum does not alter the character of the expenditure and the observation made by the Tribunal in this regard, is perfectly justified. Apart from referring to the decisions, which were relied on by the Tribunal in the case of Madras Auto Services, (supra) and Gemini Arts Pvt., Ltd., (supra), the learned counsel also placed reliance on the decision of this Court in the case of the Commissioner of Income-tax v. Ucal Fuel Systems Ltd. reported in (2008) 296 ITR 702. 7. We have heard the learned counsels appearing for the parties and perused the materials placed on record. 8. The ....

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....oved by the appropriate authority under the Income Tax Act 1961 and on or before the Registration of the Assignment Deed or on mutually agreed upon. 5. IFML shall handover possession of the property, on or before 3rd November, 1993. IFML further covenants that after giving over possession, subject to cancellation of this agreement due to refusal of MIDC to approve this transaction, IFML or anybody deriving any rights from IFML, shall have no further rights, interest or claims in any manner whatsoever on the scheduled mentioned property or against RBL in respect of this transaction.   9. The nature purport and intent of the assignment deed could be culled out from the above referred clauses. It is seen that the transfer in favour of the assessee was absolute i.e., all rights, title and interest, which were derived by IFML were absolutely transferred in favour of the assessee. The period of lease was from 31.03.1997 to 31.03.2007 being the unexpired period of lease between IFML and MIDC. The conditions further stipulate that the assessee would be entitled to a further period of eighty years on the expiry of the period mentioned in the original lease dated 29.04.1982. Thus,....

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....s followed by this Court in the case of Commissioner of Income-tax vs. Ucal Fuel Systems Ltd reported in 296 ITR 702, which was relied upon by the learned counsel appearing for the assessee, the nature of transaction was that the assessee therein had taken a land on lease for twenty years for setting up a new unit at an Industrial Estate at Pondicherry. The Assessing Officer in the said case treated the amount paid by the assessee as an advance in the nature of discounted value of lease amount otherwise payable over a period of twenty years and the assessee had treated the said payment as capital in its books of account in order to project a boosted profit to impress the shareholders. Consequently, the said payment was treated as a capital expenditure. Aggrieved by such order of the Assessing Officer, the assessee preferred appeal to the Commissioner of Income Tax (Appeals), who held that the entire expenditure could not be treated as revenue in nature for the purpose of deduction under the Income-Tax Act, when the assessee has treated the same as a capital in the books of account. On further appeal by the assessee to the Tribunal, the Tribunal allowed the appeal by relying upon th....

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....Bengal Cement Co. Ltd. (supra), which means being extracted hereunder:- Whether by spending the money any advantage of an enduring nature has been obtained or not will depend upon the facts of each case. Moreover, as the above passage itself provides, this test would not apply if there are special circumstances pointing to the contrary. This court in the above case summarised the tests as follows : "1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment. 2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade. . . If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. 3. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incu....

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....t for 99 years on payment of a premium and as to whether capital gain tax levyable in respect of the said transaction. After analyzing the scope of the transaction in question, the Hon'ble Supreme Court pointed out that the lease is for a long period namely 99 years and hence, it would appear that under the lease in question, the assessee has parted with an asset of an enduring nature, namely, the rights to possession and enjoyment of the properties leased for a period of 99 years subject to certain conditions on which the respective lease could be terminated. Further, a premium has been charged by the assessee in all the leases. In such circumstances, the Hon'ble Supreme Court held that the grant of leases in question amounts to a transfer of capital assets as contemplated under section 12B of the Income Tax Act, 1922. The said decision would squarely apply to the facts of the case on hand and we have no hesitation to hold that the nature of transaction amounts to a transfer of a capital assets. 20. The learned counsel appearing for the assessee submitted that the assignment deed is more in the nature of sub-lease, as such, the same is covered by the decision of the Hon....