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31-10-2019, Balmer Lawrie, Section 37(1), 80IA, 32(1 )(ii), 32, Tribunal Kolkata

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5 days 4 hours ago #11335 by amit
Section - 37(1), 80IA, 32(1 )(ii), 32, 119, 2
Order Date - 31-10-2019
Favouring - Assessee Partly
Court - Tribunal Kolkata
Appellant - Balmer Lawrie & Co. Ltd.
Respondent - DCIT
Justice - A. T. Varkey, JM & Dr. A.L. Saini, AM
Citation - 1119Taxpundit71
Appeal No. - I.T.A. No. 111/Kol/2018
Asstt. Year - 2012-13

Order

PER : A.T.Varkey, JM

These are cross appeals preferred by the assessee and the Revenue against the action of the Ld. CIT(A)-6, Kolkata dated 27.10.2017 for Assessment Year (hereinafter ‘AY’) 2012-13.

2. Ground no. 1 of the assessee’s appeal is as under:

“1. That the Learned CIT (Appeals) erred in Law and in fact, in upholding the action of the Assessing Officer in considering the proportionate amount of advance rent amounting to ₹79,68,169/- paid by it to the lessor in respect of different lands taken on lease for the purpose of business, as capital expenditure and hence not allowable as business expenditure and thereby enhanced the taxable income of the appellant by an amount of ₹79,68,169/-.”

3. At the outset, the Ld. Counsel for the assessee Sh. D.S. Damle pointed out that this issue is no longer res integra since the Tribunal has already adjudicated this issue for AY 2014-15 on the identical facts and identical ground as under:

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 as essee’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 n 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 and claim the expenditure incurred in a particular year over a period of ensuing years if allowing the entire expenditure in one year gives distorted picture of profits of that particular year. Keeping in mind these dec sions, the coordinate bench of this Tribunal allowed the assessee’s claim for amortization of lump-sum lease premium paid. It is true that in a later decision dated 30.04.2012 in ITA No. 1481/Kol/2011 for AY 2008-09 the ‘B’ Bench of this Tribunal declined to follow the ratio laid down in the appellate order passed in assessee’s own case for AY 2003-04. On perusal of the said order we however find that decision of the Tribunal in AY 2008-09 was influenced more by the fact that while deciding the appeal for AY 2003-04 on 11.04.2008 the Bench had not considered the decision of the Special Bench, Mumbai in the case of Mukund Limited (supra) which was pronounced on 15.02.2007 and was binding on the Division Bench. In the considered view of the Tribunal therefore the order of the coordinate Bench for AY 2003-04 was per in curium because the decision of the Special Bench was not considered even though the facts of the assessee’s case and the facts involved in the case of Mukund Limited (supra) were identical. We therefore find that the decision of the coordinate Bench in the assessee’s case for AY 2008-09 was rendered solely on the basis of the decision of the Special Bench, Mumbai rendered in the case of Mukund Limited (supra).

7. On perusal of the decision in the case of Mukund Limited (supra), we note that in arriving at its finding the Special Bench of this Tribunal had relied on various decisions inter alia including the decision of the KhimlinePumpsPvt 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 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 paid did not constitute Capital expenditure but it was a revenue expenditure because by incurring such expenditure the assessees did not acquire any asset but only facilitated carrying on the business more profitably by paying token rent. In arriving at such conclusion the Hon’ble Gujarat High Court had relied on the judgment of the Hon’ble Supreme Court in the case of CIT VsMadras Auto Service (233 ITR 468). We note that although the judgment of the Hon’ble Gujarat High Court was rendered on 23.03.2009, the coordinate bench of this Tribunal while deciding the Revenue’s appeal in the assessee’s case for AY 2008-09 had not taken note of the same and went on to hold the expenditure claimed to be capital in nature We however find that in the decision the Hon’ble Gujarat High Court rendered subsequent to the decision of the Special Bench in Mukund Ltd (supra), it has been specifically held that the nature of lease premium paid was revenue in nature and therefore allowable in computing business income. In light of the foregoing and the lat r decision of the coordinate Bench of this Tribunal at Delhi in the case of ACIT Vs Delhi International Airport Pvt Ltd (supra) for reasons discussed in detail (infra), and also the CBDT Circular No. 9/2014 dated 23.04.2014 (infra), we are inclined to follow the later judgment of Hon’ble Gujarat High Court in the case of Dy. CIT Vs Sun Pharmaceuti als Industries Ltd (supra).

8. We also note that similar issue was considered by the coordinate Bench of this Tribunal at Delhi in the case of ACIT Vs Delhi International Airport Pvt Ltd (supra). In that case the assessee, incorporated as a Special Purpose Vehicle, obtained right to operate and maintain an 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 VsCIT (supra) the AO held that the assessee was entitled to claim the expenditure on prorate basis i.e.l/30th of the premium

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