TaxTMI 
TaxTMI 
2018 (10) TMI 1862
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....was also engaged in business of manufacturing of the same products. From time to time vide separate lease deed executed between the assessee company and the Trust, a lease rental were regularly increased. Earlier it was Rs. 25,000/- per month and prior to year 1989, it was enhanced to Rs. 50,000/-. Later on vide lease deed dated 01.04.1989, the monthly lease rent was increased to Rs. 1 lac and after 18.01.1992 again, the lease rent were enhanced to Rs. 6,75,000/- per month and finally w.e.f. 01.04.1997 lease rent was further enhanced to Rs. 7,50,000/- within annual increment. The lease rental paid by the assessee company was claimed as expenditure in the P&L account. The Assessing Officer was of the opinion that, firstly, the assessee company had claimed benefit of an enduring nature and accordingly, disallowed the increase amount of rent on the ground that it is in the nature of capital expenses; secondly, he also invoked provision of Section 40A(2). Similar disallowances were made in the all the years. 3. Ld. CIT (A) has confirmed the said action of the Assessing Officer on the ground that unusual increase in the rent was primarily for the purpose of reducing the tax incident ....
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....aken on lease would be a revenue expenditure, since it would have the effect of enhancing the lease rent of the plant and machinery in the open market. However, how much of the enhancement in the lease rent is attributable to the modernization and improvement in the plant and machinery is a matter which the Assessing Officer has to decide after giving the opportunity to that of the assessee to the lease agreement in this regard. 4.3 After examining the nature of agreement amongst the parties and discussing various judgments on the issue of capital expenditure vs. revenue expenditure and applying the test laid down therein, the Hon'ble High Court held that:- "1. That part of the enhancement of lease rent, which is attributable to Mehta Charitable Trust surrendering its right to purchase khair wood in favour of the assessee company constitutes revenue expenditure, 2. That part of the enhancement of lease rent, which is attributable to improvement and modernization of plant and machinery carried out by the Trust in the year 1989-90, constitutes revenue expenditure. 3. The enhancement in lease rent, if any, which is attributable to normal appreciation,....
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....plus basic lease charges (C) Rent attributable to improvement and modernization of plant and machinery during the AY 1990-91 to 1995-96 a, 18% Normal escalation on (A) @ 9.5% for 17 years plus basic rent amount (D) Sum of rent attributable to revenue nature (E) [(EMB) +(C) -(D)] Balance amount of rent attributable to capita! nature (F) 1(F) = (A)- (E)] 1992-93 2,925.000 6.74.813 1.200,000 1.641,157 524.059 524.059 2,840.029 84.971 1993-94 8,100,000 2,699,251 1.200.000 1.821.684 1.107,812 1.157,598 5,678,533 2,421,467 1994-95 8,100.000 2,699,251 1.200,000 2.022.070 1,232,524 1,392.281 6.113.602 1,986,398 1995-96 8,100,000 2.699,251 1.200.000 2,244,497 1,382,514 1.674.538 6,618,286 1,481,714 1996-97 8.100.000 2,699,251 1,200,000 2,491,392 1,382.514 1,833,619 7,024.262 1,075,738 1997-98 8,100.000 2,699,251 1,200,000 2,765,445 1.382,514 2.007.813 7,472,509 627,491 1998-99 8.100.000 2,699,251 1,200,000 3,069.644 1,382,514 2,198.555 7,967,450 132,550 1999-00 9,450,000 2,699.251 ....
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.... Amount 1989-90 1,50,11,600.00 1990-91 2,12,01,081.00 1991-92 1,77,72,354.00 Total Amount 5,39,85,035.00 Average 1,79,95,012.00 7.1 The assessee vide its reply dated 10.12.2013 has made a claim of 15% of the average purchases as its compensation. This amount comes out to be 1.79,95,012 x 15% = 26,99,251/-. The claim of the assessee seems to be on, higher side. However it seems be reasonable and acceptable to allow a fixed percentage of the lease rent After considering the request of the assessee company in this regard an allowance d 10% of the average purchases of M/s Mehta Charitable Trust for the three immediate preceding financial years ' is considered to be reasonable. 10% of 1,79,95,012/- comes out to Rs. 17.99,501/- or Rs. 17,99,500/-. Since the lease deed was executed in the month of January 1992, this allowance will be l/4th of 17,99,500/- for AY. 1992-93 which comes out to Rs. 4,49,875/-. For subsequent assessment years this allowance would be uniformly at Rs. 17,99,500/- @l 10%. II.Enhancement of lease rent in ....... line ...... prevailing in the market." 8. Hon'ble high court has directed to allow n....
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.... III. Enhancement in Plant & Machinery for the purpose modernization done by leaser. 9.Hon'ble High Court has directed vide para 17 of its order (page No. 13 of the order). In particulars, the Assessing Officer will have to ascertain ... what lease rent modernized and improved plant and machinery would had fetched in the market, as on 1.4.1992 when the revised lease commenced and the rent which such plant and machinery would have fetched in the open market prior to its modernization and improvement in the year 1989-90. The details of expenditure made by the lessor M/s Mehta Charitable Trust on the request of Lessee M/s Shanker Trading Company for the modernization and improvement towards plant and machinery are tabulated on the basis of Balance sheets of M/s Mehta Charitable Trust supplied by the assessee." 8. Ld. CIT (A) has confirmed the action of the Assessing Officer holding that Assessing Officer has applied his mind properly in allocating the lease rent under the different heads and the working given by the assessee is not correct because the total revenue expenditure from Assessment Year 2004-05 onwards is more than the actual payment of lease char....
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....rom Assessment Year 2004-05 onwards the amount of rent attributable to capital expenditure has gone into negative which is against the mandate and the direction of the Hon'ble High Court, therefore, the working given by the Assessing Officer needs to be upheld. 12. After considering the entire facts and the submissions made by the parties, we find that Assessing Officer has applied rate of 10% of the average purchases on right to purchase of khair wood surrendered in favour of the assessee by the Trust. The Assessing Officer has not given any reason as to why allowance @10% of the average purchases should be given. On the contrary, the assessee before us has demonstrated that in the case of the Trust the gross profit rate on similar product was more than 17%. The assessee has claimed rate of 15% of the average purchases as its compensation for the purpose of allocation of enhanced rent towards capital expenditure. Such a rate of 15% is inconsonance with the average GP rate in the case of the Trust, therefore, allowance of 15% is held to be quite reasonable. Accordingly, we direct the Assessing Officer to treat part of the lease rent fee for surrendering the right to purchase....
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....ate prevailing in the market, however, on the facts and circumstances of the case and looking to the fact that assessee is paying percentage- wise more rent to the government undertaking on a similar lease of commercial property, therefore, we hold that 10% of annual escalation would be reasonable from Assessment Year 1992-93 onwards. 17. Now coming to the issue of enhancement which is attributed to improvement and modernization of plant and machinery carried out by Trust, we find that assessee has given detail of expenditure made by the lessor Trust for the modernization and improvement towards plant and machinery which has been tabulated in the following manner: SI. No. Name of the Assets FY 1989-90 FY 1990- 91 FY 1991-92 FY 1992- 93 FY 1993-94 FY 1995-96 Total 1 Building 2,34,664 3,26,545 - 4,28,176 4,58,383 30,605 14,78,373 2 Machinery 3,25,518 9,43,530 1,92,701 6,65,001 57,598 - 21,84,644 3 Shed 1,06,863 5,04,255 45,296 6,61,751 1,34,842 6,86.671 21,39,678 4 Land - 2.31,772 - - 42.021 1,16,000 3,89,793 5 Refrigeration Plant - - ....
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....compete fee' or amount received for not carrying out any activity in relation to business or profession comes within the ambit of certain kms. Amounts to commercial rights being intangible assets, and therefore, depreciation u/s. 32(1)(ii) which is applicable w.e.f. 01.14.1998 should be allowed @25% per annum. Apart from that, after 01.04.2003 the 'non compete fee' or money received for not carrying out any activity in relation to any business is treated as revenue received in the hands of the person receiving the same which inter alia means that it has to be treated as revenue expenditure in the hands of the assessee-company, therefore, he submitted that direction may be given to the Assessing Officer to allow such statutory claim on the capital expenditure and/or allow such non- compete fee to be revenue expenditure. 22. Learned Department Representative strongly objected to such a proposition and submitted that once the Hon'ble High Court has held that certain portion of lease rent is to be treated as capital expenditure, now the same cannot be held to be allowable as revenue expenditure. 23. After considering the aforesaid submissions, we find that in so far as the cl....