TaxTMI 
TaxTMI 
2019 (8) TMI 1318
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.... premium paid to the lessors in respect of different lands taken on lease for the purpose of business amounting to Rs. 26,39,692/-. Briefly stated the facts of the case are that in its Profit& Loss Account the assessee, by way of amortization debited a sum of Rs. 26,39,692/- being pro-rata amount of lease 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 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 following the identical reasoning given by his predecessors in the assessment orders for AYs 2003-04 to 2006-07, 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/200....
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.... .... Mr. Jhunjhunwala also relies on a Division Bench judgment of High Court of Karnataka in CIT versus H.M.T. Ltd., reported in (1993) 67 Taxman 506 (Karnataka), paragraphs 6 and 7. On query from Court he demonstrates from page 34 in the paper book that aggregate annual rent under six leases is Rs. 106/-. The leases are for periods between 60 and 95 years. Maximum rent under one lease is Rs. 100/- per annum while five others have Rs. 1/- or Rs. 2/- per annum as rent reserved. On further query from Court he draws attention to sub-clause (n) in clause 3 and clause 5 of one of the leases, on submission that terms in all are identical. Subclause (n) provides for delivery of possession after expiration whereunder lessee is, subject to provisions therein, entitled to remove and appropriate all buildings erections and structures and materials forming part of the demise premises. Reentry clause 5 in the lease provides for reentry on default of payment of rent reserved, upon granting opportunity to lessee to make good the default. .... Special Bench of the Tribunal gave its view regarding advance payment of rent to be capital expenditure on findings, inter a....
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....is 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 Tea Co. Ltd (57 ITR 422). In the said judgment the Hon'ble Supreme Court had observed that the use of the word 'premium' in respect of advance rent did not render the payment anything more than rent paid in advance, instead of paying the same in future periodically. The coordinate bench of this Tribunal also took note of the judgment of the Hon'ble Supreme Court in the case of CIT Vs Associated Cement Co Ltd (172 ITR 257) wherein it was held that entire premium paid in lumpsum was deductible as business expenditure in the very first year because such payment obviated the need of making periodical payments of higher rent. The Tribunal also noted that the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd Vs CIT (supra) had held that the facts of the case may justify an assessee to spread a....
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.... 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 Hon'ble High Court noted that the only benefit, which the assessee got, was the advantage of carrying on the business more profitably by paying nominal rent on land. The Hon'ble High Court therefore did not find any reason to interfere with the order of the Tribunal wherein the Tribunal had allowed the deduction for upfront lease premium of Rs. 42,02,616/- paid to GIDC holding it to be revenue expenditure. We therefore find that in the decision rendered in March 2009 the Hon'ble Gujarat High Court concurred with the view expressed by the Hon'ble Karnataka High Court in the case of CIT Vs HMT Ltd (supra). In both these decisions the Hon'ble High Courts had held that the lease premium ....
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....e 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 ITA Nos. 2264 & 2483/Kol/2017 Balmer Lawrie & Co. Ltd., AYs- 2014-15 CIT (supra) the AO held that the assessee was entitled to claim the expenditure on prorate basis i.e.1/30th of the premium amount in each year during the tenure of the lease. On appeal the Ld. CIT(A) agreed with assessee's contention and allowed the deduction for entire upfront fee of Rs. 150 crores paid to Airport Authority of India in the initial year. On appeal the Revenue relying on the decision of the Special Bench of this Tribunal at Mumbai in the case of Jt.CIT Vs Mukund Ltd (supra) and decision of th....
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....he 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 aITA Nos. 2264 & 2483/Kol/2017 Balmer Lawrie & Co. Ltd., AYs- 2014-15 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 fact that the lease deed was registered was irrelevant. Therefore, it was held that the payment was revenue in nature. ii. CIT vs. H.M.T Ltd - 203 ITR 820 (Kar HC) - A lease agreement was entered into with MIDC for the lease of the plot on which the assessee was mandatorily to construct a building within a period of 2 years for the use of the assessee. After the constructi....
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....ump 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 Madras Industrial Investment Corporation Ltd (supra). We find that in the grounds of appeal taken before us the AO has stated that the claim of the assessee was for proportionate write off for advance rent to the lessors in respect of differe....
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....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 discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing bene....
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.... 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 ITA Nos. 2264 & 2483/Kol/2017 Balmer Lawrie & Co. Ltd., AYs- 2014-15 Vs Century Plyboards India Ltd (supra). In that case also the assessee h....
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....erms of concessionaire agreement with Government or its agencies is required to construct, develop and maintain the infrastructural facility of roads/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 ITA Nos. 2264 & 2483/Kol/2017 Balmer Lawrie & Co. Ltd., AYs- 2014-15 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 condi....
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....Direct Taxes, in exercise of the powers conferred under section 119 of the Act hereby clarifies that the cost of construction on development of infrastructure facility of roads/highways under BOT projects may be amortized and claimed as allowable business 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 ITA Nos. 2264 & 2483/Kol/2017 Balmer Lawrie & Co. Ltd., AYs- 2014-15 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 ....
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....n items like interest on delayed payment by customers, charges towards warehousing of cargo, profit on disposal of fixed assets, sale of tender documents, sale of scrap etc. According to AO the said receipts did not have first degree nexus with the CFS activity of the eligible industrial undertaking of CFS activity and therefore the deduction u/s 80IA of the Act to the extent of Rs. 45,10,547/- was denied. On appeal the Ld. CIT(A) deleted the disallowance on the ground that the impugned receipts were derived from the operation of CFS and therefore eligible for deduction u/s 80IA of the Act. Being aggrieved by the said order, the Revenue is now in appeal before us. 9. The Ld. AR brought to our attention that the assessee had similarly claimed deduction u/s 80IB in respect of profits of eligible undertakings. He pointed out that similar items of 'other income' were credited to the respective stand-alone accounts of such eligible units. He submitted that the Ld. CIT(A) in the impugned appellate order, on similar reasoning, had deleted the disallowance and allowed the claim of u/s 80IB in respect of 'other income', against which no appeal was preferred by the Revenue. The ld. AR als....
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....of the Act. We also find before us no material was brought by the Revenue to controvert the ld. CIT(A)'s findings that such 'other income' was derived from the CFS facility of the assessee. We therefore see no reason to interfere with the order of ld. CIT(A). Ground No. 2 is accordingly dismissed. 11. Ground No. 3 of the Revenue's appeal and the grounds taken in the cross objection No. 18/Kol/2011 filed by the assessee relate disallowance u/s 14A of the Act. Briefly stated the facts of the case are that the assessee held investments in PSU joint ventures and similar companies. The assessee derived dividend aggregating to Rs. 1,76,34,900/-. Such dividend comprised of four dividend warrants which were encashed by the assessee at par. According to AO the assessee did not disallow any expenditure in relation to earning of such exempt income and therefore applied Rule 8D notified in AY 2008-09 retrospectively. The AO made disallowance of Rs. 23,57,060/- being 0.5% of the average value of investments, towards administrative expenses u/s 14A in terms of Rule 8D(2)(iii). On appeal the Ld. CIT(A) following the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg Co....