TaxTMI 
TaxTMI 
2019 (7) TMI 177
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.... premium which the appellant had paid in respect of several plots of land obtained for setting up industrial / infrastructure undertakings. The lease period varied from 15 to 99 years and the proportionate amount of lease premium, spread over the lease period, was claimed by as deduction in arriving atits business income on the plea that the lease premium paid was nothing but upfront payment of lease rent. In the assessment order the AO held that the amount was spent to acquire leasehold right for a long period, which was capital asset, and the benefit enjoyed by the appellant in the form of leasehold right was enduring in nature. Relying on the decision of the Hon'ble Delhi High Court in GAIL India Ltd Vs Jt.CIT (211 Taxman 387) the AO held that the amount claimed as amortization of lease premium was capital expenditure and therefore not allowable as deduction in computation of business income. On appeal the Ld. CIT(A) deleted the disallowance following the order of the coordinate Bench of this Tribunal in assessee's own case for AY 2003-04 in ITA No.348/Kol/2007 dated 11.04.2008. Being aggrieved by the said order, the Revenue is now in appeal before us. 3. At the time of hearin....
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....he Special Bench, Mumbai in its order dated 15.02.2007 in the case of Jt.CIT Vs Mukund Ltd (supra) had taken a contrary view. In the said decision the Tribunal had held that the lumpsum lease premium paid for obtaining long-term lease constituted capital expenditure and therefore no deduction therefore was permissible either in lump-sum in the year of payment or on prorata basis over the duration of lease. The Ld. AR however drew our attention to the decision of the Hon'ble Gujarat High Court in the case of DCIT Vs Sun Pharmaceuticals Industries Ltd (329 ITR 479) wherein the Hon'ble Gujarat High Court took a view contrary to the decision of the Special Bench and allowed the deduction for the entire upfront lease premium paid in single year, holding that the expenditure incurred was revenue in nature and therefore fully allowable in the year of its incurrence. The Ld. AR also brought to our attention the decision of the coordinate Bench of this Tribunal at Delhi in the case of ACIT Vs Delhi International Airport Pvt Ltd dated 14.12.2017 in ITA Nos. 2720/Del/2011 wherein this Tribunal similarly allowed the assessee's claim for deduction of upfront lease premium of Rs. 150 crores paid....
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.... Tribunal was rendered in assessee's case for AY 2008-09 and the said Circular being beneficial in nature, the deduction for pro-rata write off for lease premium paid be upheld. 6. We have heard both the parties and perused various judicial decisions relied upon as well as the applicable legal provisions. From the facts narrated before us, we find that the assessee has been claiming amortization of lease premium payments since earlier years and till AY 2002-03 no dispute arose between the parties. In the assessment for the AY 2003-04 the AO however disallowed the assessee's amortization claim holding it to be capital in nature and in support of this conclusion, he relied on the judgment of the Hon'ble Supreme Court in the case of Aditya Minerals Pvt Ltd Vs CIT (239 ITR 817). The AO's order was upheld by the Ld. CIT(A) but on further appeal the 'B' Bench of this Tribunal in ITA No.348/Kol/2007 dated 11.04.2008 upheld the assessee's claim. In arriving at its decision the Tribunal had considered the judgment of the Hon'ble Karnataka High Court in the case of CIT Vs HMT Ltd (203 ITR 803) which in turn was based on the decision of the Hon'ble Supreme Court in the case of CIT Vs Panbari....
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....ng the Special Bench of this Tribunal had relied on various decisions inter alia including the decision of the Khimline PumpsPvt Ltd Vs CIT (258 ITR 429) wherein the Hon'ble Bombay High Court had held that expenditure on account of lease premium was capital in nature and therefore no deduction was permissible in respect of such expenditure either in one lump-sum or by amortization over the tenure of the lease. Since the Special Bench was constituted at Mumbai, the judgment of the Hon'ble Bombay High Court was binding being the decision of the jurisdictional High Court. We however find that on the identical facts the Hon'ble Gujarat High Court in its later judgment dated 23.03.2009 in the case of Dy. CIT Vs Sun Pharmaceuticals Industries Ltd (supra) took the view, which was contrary to the view taken by the Hon'ble Bombay High Court. In the decided case the Hon'ble Gujarat High Court noted that the lease rent paid annually was very nominally and by obtaining by way of lease the capital structure of the assessee had not changed. It was therefore noted that, by making such payment, the assets of the assessee company had not increased because the land continued to belong to GIDC. The H....
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....n international airport at New Delhi from Airport Authority of India. The assessee was granted airport concessionaire's right in consideration of the assessee making payment of non-refundable upfront fees of Rs. 150 crores. Upon making such payment the assessee became entitled to use and occupy the airport property for a period of 30 years and after the expiry of lease the airport site was to the handed over back to the Airport Authority of India. In the assessee's books it had capitalized the upfront fees of Rs. 150 crores paid. In the computation of total income the assessee however claimed the deduction for the entire upfront lease premium paid on the plea that it was revenue in nature and since by making payment assessee did not acquire any asset, the deduction was permissible for the upfront payment in such year itself. The assessee's plea was rejected by the AO on the ground that the payment of Rs. 150 crores permitted the assessee right to use the airport premises for a period of thirty years and therefore applying the ratio laid down in the judgment of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd Vs CIT (supra) the AO held that the ....
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....s been termed an 'annual fee' which is recurring in nature. Now if such a lump sum payment for the lease of the Airport Site for a period of 30 years can be reckoned as revenue or not, appears to be quite settled proposition in wake of the following judgements which has been highlighted and stressed upon by the Ld. Sr. Counsel for the assessee before us:- i. DCIT vs. Sun Pharmaceutical Ind. Ltd. - 329 ITR 479 (Guj HC) - In this case, the assessee was the lessee of land. The period of lease was 99 years. In addition to an annual lease rent of Rs. 40 per annum, the assessee paid Rs. 48 lakh to GIDC as advance rent. The AO disallowed the claim for the reason that the assessee obtained an enduring benefit for a period of 99 years in the form of use of the land and therefore he held that the payment was capital in nature. The High Court upheld the finding of the Tribunal that the land in question was not acquired by the assessee and that the lease rent was very nominal and the sum of Rs. 48 lakh was in the nature of rent and the assessee only acquired a facility to carry on business profitably by paying a nominal lease rent together with lump sum amount of Rs. 48 lakh. The fac....
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....t. CIT Vs Mukund Ltd (supra) as also the judgments of the Hon'ble Gujarat & Karnataka High Courts expressing contrary view. We find that on the analogous facts the Tribunal held that the lease premium paid was nothing but in the nature of lease rent paid on lump sum basis and no capital asset was acquired by the assessee by making such payment so as to justify its characterization as capital expenditure. Once the nature of the expenditure in question is held to be in the revenue field then the question which needs to answered in the present appeal is whether the assessee's plea for amortization of the lease premium over the tenure of the lease can be allowed particularly when in the case decided by the coordinate Bench at Delhi, it was held that whole of the expenditure was eligible for deduction in the year in which the upfront lease premium was paid. In this regard we find that before the Delhi Bench of this Tribunal the Revenue itself had canvassed the proposition that payment of upfront fee was revenue expenditure but the deduction therefore was required to be allowed on pro-rata basis by following the ratio laid down in the judgment of the Hon'ble Supreme Court in the case of ....
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....ar. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus in the case of Hindustan Aluminium Corporation Ltd. vs. CIT, ( 1982) 30 CTR (Cal) 363: (]983) 144 ITR 474 (Cal) the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the accounting year in question. 16. Issuing debentures at a discount is another such instance where, although the assessee has incurred the liability to pay the di....
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....e netted off against revenues generated from the business, applying the principle of matching of cost with revenue so as to disclose true & fair amount of operating profits of each year. We therefore find that since in the present case the assessee has satisfied the matching concept test, as prescribed by the Hon'ble Supreme Court, the assessee's claim for amortization of lease premium is allowable. 13. We also note that the assessee's claim for amortization of lease premium principally related to leases of four plots of land at Mumbai & Kolkata which are used for setting up Container Freight Stations (CFS), considered as 'infrastructure facility' for the purposes of Section 80IA of the Act. With the permissions obtained from the Ministry of Finance, Dept. of Revenue, the assessee has set up devel CFSs on the leased premises. The issue of allowability of amortization of lease premium paid in respect of leased land on which CFS was set up, was considered by the coordinate bench of this Tribunal in the case of Dy.CIT Vs Century Plyboards India Ltd (supra). In that case also the assessee had paid lease premium of Rs. 156 lacs for obtaining lease of land from Kolkata Port Trust for a ....
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....ads/highways which, inter-alia, includes laying of roads, bridges, highways, approach roads, culverts, public amenities etc. at its own cost and its utilization thereof for a specified period. In lieu of consideration of the expenditure incurred on construction, operation and maintenance of the infrastructure facility covered by the period of the agreement, the assessee is accorded a right to collect toll from users of such facility. The expenditure incurred by such assessee on development and construction of such infrastructural facility are capitalized in the accounts. It is seen that in returns-of-income, assessee are generally claiming depreciation on such capitalized expenditure treating it as an 'intangible asset' in terms of section 32(1)(ii) of the Act while in assessments, such claims are being disallowed by the Assessing Officer on the grounds that such infrastructural facility is not owned, wholly or partly, by the tax payer which is an essential condition for claiming depreciation and further right to collect toll does not fall in an of the categories of 'intangible assets' specified in sub-clause (ii)of sub-section (1) of section 32 of the Act. 3. In BOT arrangements....
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....expenditure under the Act. 6. The amortization allowable may be computed at the rate which ensures that the whole of the cost incurred in creation of infrastructural facility of road/highway is amortized evenly over the period of concessionaire agreement after excluding the time take for creation of such facility. 7. In the case where an assessee has claimed any deduction out of initial cost of development of infrastructure facility of roads/highways under BOT projects in earlier year, the total deduction so claimed for the Assessment Years prior to the Assessment Year under consideration may be deducted from the initial cost of infrastructure facility of roads/highways and the cost 'so reduced' shall be amortized equally over the remaining period of toll concessionaire agreement. 8. It is hereby clarified that this Circular is applicable only to those infrastructure projects for development of road/highways on BOT basis where ownership is not vested with the assessee under the concessionaire agreement. 9. This, may be brought to the notice of all concerned. The aforesaid Circular was issued on 23.04.2014 and subsequent to the judgment of Hon'ble Madras High Court as well....
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....ance. Being aggrieved the appellant is in appeal before us. 16. Assailing the order of the Ld. CIT(A), the Ld. AR argued that the authorities below did not understand the basic jurisdictional facts nor understood the entries made in the audited accounts of the eligible undertaking furnished in prescribed Form 10CCB. He submitted that the both the authorities failed to note the basic fact that the sum of Rs. 2,90,26,398/- was never credited in the stand-alone P&L A/c of the eligible undertaking. Rather the said amount represented net interest debited to the P&L A/c of the eligible undertaking and therefore on this material fact alone the decisions of the Hon'ble Supreme Court relied upon by the AO had no application. Drawing attention to the submissions filed before the Ld. CIT(A) extracted at Pages 6 to 8 of the impugned order and also the audited accounts of the company and of the eligible undertaking, the Ld. AR submitted that in the accounts of the eligible undertaking only memorandum entries relating to interest were made both on the credit and debit side. Ld. AR explained that both the interest amounts represented notional interest on the funds transacted between the eligibl....
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....derstood the said amount to be interest income credited in the P&L A/c of the eligible undertaking. The Ld. AR submitted that in arriving at the operating profit of CFS undertaking, eligible for deduction u/s.80IA, the net notional interest charge of Rs. 2,90,26,398/- was rightly ignored. He therefore prayed that the disallowance made by the AO be deleted. Per contra the Ld. DR strongly relied on the orders of the authorities below. 17. We have heard the submissions of both parties and gone through the documents placed on record. On scrutiny of the audited P&L A/c of the CFS undertaking we find merit in the Ld. AR's initial contention that disallowance by the AO was made on assumption of incorrect facts. In the impugned order the AO proceeded on the premise that in the P&L A/c of the eligible undertaking the assessee had credited interest income of Rs. 2,90,26,398/- in respect of current account balance. Based on assumption of such fact the AO invoked the ratio laid down in the decisions of the Hon'ble Apex Court wherein it has been held that interest income is not eligible to be included in the profits of the undertakings which are eligible for claiming profit-based deductions u....