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TMI Blog2007 (2) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... eal by the Revenue as well as the assessee for decision thereof and the entire appeals are referred to the Special Bench for disposal. ITA No. 3488/M/99 (Revenue's appeal) 3. The ground of Appeal No. 1 of the Revenue is as under :- "1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the addition of Rs. 6,04,137 on account of provision for doubtful debts." The Ld. Counsel for the assessee fairly conceded that in view of the retrospective amendment to section 36(1)(vii) of the Act, the ground is to be decided in favour of the Department. The Ld. CIT Departmental Representative has supported the contention of the Ld. Counsel for the assessee. We have considered the rival submissions. The issue of provision of doubtful debts is decided in favour of the Revenue in view of the retrospective amendment to the relevant provision of section 36(1)(vii) of the Act and accordingly the ground of Appeal No. 1 of the Revenue is allowed. 4. The ground of Appeal No. 2 of the revenue is as under :- "2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing to allow as business expenditure the foreign tour expenses o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Act." The Ld. Counsel for the assessee fairly conceded that the issue is covered in favour of the Revenue with the decision of Hon'ble Supreme Court in the case of Britannia Industries Ltd. v. CIT [2005] 278 ITR 546. The Ld. CIT Departmental Representative has supported the contention of the Ld. Counsel for the assessee. We have considered the rival submissions. The issue being covered with the decision of the Hon'ble Apex Court cited supra, is decided in favour of the Revenue and the Ground of Appeal No. 3 of the Revenue is allowed. 7. The ground of Appeal No. 4 of the Revenue is as under :- "4. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the disallowance of Rs. 57,250 can be made for the assessment year 1992-93 without specifying with any detail as to how many years representations were carried out by the A.R. in assessment year 1992-93." The Ld. Counsel for the assessee submitted that the disallowance under section 40A(12) of the Act was made by the Assessing Officer by observing that a sum of Rs. 10,000 is only allowable in respect of the assessment year under consideration. The CIT(A) has taken a view that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Allana Sons (P.) Ltd. (supra) and accordingly is decided in favour of the assessee and the ground of Appeal No. 5 of the revenue is dismissed. 9. The Ground of Appeal No. 6 of the revenue is as under : "6. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing to allow the project development expenses of Rs. 6,41,829 disallowed by the Assessing Officer." The Ld. CIT (Departmental Representative) has relied on the order of the Assessing Officer. He submitted that the expenses incurred in obtaining the feasibility report and the consultation fees etc. paid are capital in nature. The Ld. Counsel for the assessee submitted that the details of project development expenses were submitted before the Assessing Officer. He submitted that the issue is covered in favour of the assessee with the decision of the Mumbai Tribunal in assessee's own case for the earlier assessment years 1990-91 and 1991-92 and also by the order of Mumbai Tribunal in the case of Excel Industries Ltd., assessment year 1989-90 [IT Appeal No. 8601 (Bom.) of 1992]. We have considered the rival submissions and have perused the details of Project Development expenses. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition in respect of under valuation of closing stock on account of MODVAT credit is covered in favour of the assessee with the decision of the Hon'ble Apex Court in the case of CIT v. Indo Nippon Chemicals Co. Ltd. [2003] 261 ITR 275 and accordingly the issue is decided in favour of the assessee and the ground of Appeal No. 8 of the revenue is dismissed. 12. The Ground of Appeal No. 9 of the revenue is as under :- "9. On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing to allow the expenses incurred on discount on issue of commercial paper of Rs. 1,31,70,489 disallowed by the Assessing Officer." The Ld. CIT (Departmental Representative) has relied on the order of the Assessing Officer. He submitted that the assessee-company has taken short term loan from Allahabad Bank by issuing commercial papers. The discount and finance charges were incurred for raising the additional capital of the company and therefore, the expenses are capital in nature. He referred to para 15 of the assessment order in support of his argument. The Ld. Counsel for the assessee submitted that the issue is covered in favour of the assessee with the decision of Mumba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as "premium on leasehold land". The assessee claimed this amount as revenue expenditure and the Assessing Officer disallowed the same by holding it as being of capital nature. The reasoning of the Assessing Officer while holding the expenditure of Rs. 2.04 crores as that of capital in nature as recorded in the assessment order is that the assessee did not claim the amount as a revenue expenditure in the original return of income and only claimed this in the revised return of income. As per the terms and conditions of the agreement dated 5-3-1992 of the assessee-company with MIDC, the assessee was permitted to construct factory building therein and was permitted to utilize the property and building for 99 years. The rent fixed as per the agreement dated 5-3-1992 with MIDC is Re. 1 per annum. The premium of Rs. 2.04 crores is over and above the rent fixed in the agreement which means that the lessor had differentiated between the rent and premium in the agreement itself. The Assessing Officer referred to the decision of the Hon'ble Karnataka High Court in the case of CIT v. H.M.T. Ltd. [1993] 203 ITR 820 , relied upon by the assessee and observed that the decision of Hon'ble Karnatak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of enduring nature. He submitted that the lease of 99 years is a perpetual lease and therefore, benefit of enduing nature is conferred in this case on the assessee and therefore, the expenditure shall be treated as capital in nature. He submitted that in the case of CIT v. HMT Ltd. [1993] 203 ITR 820 (Kar.), the finding of the Tribunal as a matter of fact was that the amount paid by the assessee in lump sum to MIDC was the future rent payable by it and which the assessee had to pay periodically and therefore, the decision of the Hon'ble Karnataka High Court is not applicable to the facts of the case of the assessee. He submitted that the premium of Rs. 2.04 crores paid to MIDC is over and above the rent fixed in the agreement dated 5-3-1992 meaning thereby that the lessor had differentiated between rent and premium in the agreement itself. The Ld. CIT (Departmental Representative) submitted that Pune Bench of the Tribunal in the case of Devi Construction Co. v. Asstt. CIT [IT Appeal No. 1769 (Pune) of 1990] has considered this very issue and also the decision of the Hon'ble Karnataka High Court in CIT v. HMT Ltd. [1993] 203 ITR 820 . In the case of Devi Construction Co. (supra) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital in nature. He submitted that facts being identical with the case of the assessee, the issue be decided in favour of the revenue and the amount of Rs. 2.04 crores paid by the assessee as premium for acquisition of leasehold rights for 99 years may be held as capital in nature. The Ld. CIT (Departmental Representative) submitted that the decision of Hon'ble Supreme Court in the case of CIT v. Madras Auto Service (P.) Ltd. [1998] 233 ITR 468 relied upon by the assessee has been distinguished by the Hon'ble Bombay High Court in the case of CIT v. Khimline Pumps Ltd. [2002] 258 ITR 459. 18. The Ld. Counsel for the assessee has opposed the submission of the Ld. CIT (Departmental Representative). He submitted that in the subsequent assessment years 1995-96 and 1996-97, the Assessing Officer has allowed proportionate deduction of 1/99th of the sum of Rs. 2.04 crores being proportionate rent in respect of amortization of the payment for acquisition of leasehold rights. He referred to various clauses of terms and conditions of the agreement dated 5-3-1992 entered into between the assessee-company and the MIDC, copy of which is filed in the compilation before the Tribunal. He submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the revenue. 20. We have considered the rival submissions carefully. We have perused the various copies of documents filed by the parties in the compilation filed before us. The material facts of the case are not in dispute. The assessee has entered into an agreement with MIDC on 5-3-1992 by which it was given 50 acres of land by MIDC in the Kalva Industrial Area, Thane, for the purpose of factory plant and the period of lease is 99 years. The amount of Rs. 2.04 crores were paid by the assessee and the said payment was styled as "premium on leasehold land". The rent was fixed at Re. 1 per annum and the premium of Rs. 2.04 crores is over and above rent fixed in the agreement. We find that to decide that whether amount paid by the assessee for requisition of leasehold rights in the premises is capital in nature or revenue in nature or an advance payment of rent, one has to examine all the facts and circumstances of the respective case. In case it is found that as a matter of fact the amount paid for acquisition of leasehold rights of the premises was in the nature of advance payment of rent for future years and is revenue in nature, then the same has to be allowed on propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant terms of the agreement dated 5-3-1992 with Government concern MIDC, but also considering the terms of the agreement dated 5-3-1992 as a whole it is clear that the amount of Rs. 2.04 crores was paid as "premium" for acquisition of leasehold rights in the premises. The clause 5(b)( i) of the said agreement dated 5-3-1992 provides that in case of termination of lease, the "premium" is non-refundable. It provides that in case the licensee fails to complete the said factory building within the time aforesaid and in accordance with the stipulations provided therein, the MIDC without making any compensation or allowance to licensee for the same and without making any payment to the licensee for refund or repayment of the premium aforesaid or any part thereof, can resume the land in question. Thus, in case of termination of lease, the "premium" is non-refundable and therefore, the same cannot be considered as advance payment of rent. There is no clause in this agreement to show that the amount of Rs. 2.04 crores was paid by the assessee as advance rent for all future years and the lump sum payment of future year's rent has been paid to avail some concession for advance payment of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd.'s case (supra) is distinguishable on facts since in the case before the Hon'ble Supreme Court the old construction was dilapidated and the assessee could not have carried on business in the old structure and under the lease the old structure was permitted to be demolished and the demolition was at the cost of the assessee and the assessee put up a new construction at its own cost and under the lease the lessee had no right, title and interest in the new construction, whereas in the case before the Hon'ble Bombay High Court in the case of Khimline Pumps Ltd. (supra), the assessee was entitled to take away the building on the expiry of the lease. In the case of Sudershan Chemicals Ltd. [IT Appeal No. 37 (Pune) of 1997], the Pune Tribunal in similar facts decided the issue in favour of the Revenue and held that considering the entire agreement as a whole, the expenses incurred by the assessee for obtaining the leasehold rights were capital in nature and therefore not allowable as deduction. The facts of the case of Sudershan Chemicals Ltd. (supra) are similar to the facts of the case of the assessee before us. In the case of Sudershan Chemicals Ltd. (supra), the lump sum payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Durga Das Khanna (supra) is in favour of the Revenue wherein the payment of Rs. 55,200 was held as premium or salami and capital in nature. In the case of the assessee before us, there is no condition or stipulation in the agreement dated 5-3-1992 from which it could be inferred that the sum of Rs. 2.04 crores had been paid by way of advance rent, nor was there any provision for its adjustment towards rent or for its repayment to the assessee. In the facts of the case before us, the ratio of the decision of Hon'ble Supreme Court in the case of Durga Das Khanna ( supra) applies and the amount of Rs. 2.04 crores paid by the assessee is in the nature of premium and as such capital in nature. 23. In the case of CIT v. Project Automobiles [1987] 167 ITR 7811 (MP), the issue was whether the premium paid to obtain land on lease can be claimed as revenue expenditure. The assessee in this case had taken a plot of land for a period of 30 years on lease and a premium of Rs. 62,500 was payable in 12 equal monthly instalments. The Hon'ble Madhya Pradesh High Court held that it is apparent that the assessee obtained a right of enduring nature in the plot in question and in order to obta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... others rent is deferred price. It is not the form but the substance of the transaction that matters. The nomenclature used may not be decisive or conclusive but it helps the court, having regard to the other circumstances, to ascertain the intention of the parties." The Hon'ble Supreme Court in this case has discussed the provision of section 105 of the Transfer of Property Act and has observed that "Under section 105 of the Transfer of Property Act, a lease of immovable property is a transfer of a right to enjoy the property made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent. The section, therefore, brings out the distinction between a price paid for a transfer of a right to enjoy the property and the rent to be paid periodically to the lessor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the whole unit for Rs. 75 lakhs and out of the said amount for Rs. 75 lakhs, Rs. 45 lakhs related to the acquisition of leasehold land and Rs. 27.81 lakhs related to the building and the balance related to the machinery purchased by the assessee. The assessee contended before the Assessing Officer that Rs. 45 lakhs were paid as advance rent since APV Equipments Ltd. was entitled to use and occupy the property for 95 years for payment of Re. 1 per annum. The assessee contended that an expiry of the lease period of 95 years, the plot with building had to be surrendered to MIDC since the assessee is merely substituting itself in the place of APV Equipments Ltd. The Assessing Officer held that the payment of Rs. 45 lakhs to the official liquidator was for the purchase of leasehold rights and therefore capital in nature. Alternatively, the Assessing Officer observed that at the highest, proportionate rent attributable to the assessee would be allowed. The Assessing Officer finally disallowed Rs. 45 lakhs as capital expenditure in the hands of the assessee. The Tribunal was of the view that since benefits of these expenditure of Rs. 45 lakhs would be exhausted in 71 years, the proporti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights for 99 years in the land as capital in nature are present. The benefit conferred on the assessee of lease rights is for 99 years against the lump sum payment of Rs. 2.04 crores is of enduring nature. There is no material on record to suggest that the sum of Rs. 2.04 crores had been paid by way of advance rent nor was there any provision for its adjustment towards rent or for its re-payment to the assessee. We find that in case, the assessee terminates the lease agreement and hand over the vacant position of the land to MIDC (Lessor) prior to the expiry of lease period of 99 years, it shall not be entitled to any refund out of the amount of Rs. 2.04 crores paid by the assessee. There is also no material on record to show that the assessee has made the advance payment of rent for future years to secure any reduction in the rent payable for the future years or for any other business consideration. Considering the totality of the facts and circumstances of the case and the terms of the agreement dated 5-3-1992 entered into between the assessee-company and MIDC as a whole, we hold that the consideration of Rs. 2.04 crores paid by the assessee-company for obtaining the leasehold r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered the rival submissions. The issue of addition of sundry credit balances written back is covered with the decision of the Mumbai Tribunal in assessee's own case for the earlier assessment years 1990-91 and 1991-92. We have also perused the details of credit balances appropriated by the assessee filed in the compilation before the Tribunal. We find that the Tribunal in assessee's own case for the assessment year 1990-91 in C.O. No. 327/M/99 (in ITA No. 3486/M/97) has decided the issue in favour of the assessee by following the decision of Hon'ble Supreme Court in the case of CIT v. Kesaria Tea Co. Ltd. [2002] 254 ITR 434 . Accordingly, the issue being covered in favour of the assessee with the decision of the Mumbai Tribunal in assessee's own case for the assessment year 1990-91, is decided in its favour and the addition made is deleted and the ground No. 2 of C.O. of the assessee is allowed. 30. The Ground No. 3 of C.O. of the assessee is as under :- "Premium on leasehold land : Rs. 2,04,00,000 3.1 On the facts and in the circumstances of the case and in law, the CIT(A) erred in rejecting the claim made by the respondent for deduction of the sum of Rs. 2,04,00,000 being the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee. In the facts of the case, we admit the additional grounds of C.O. preferred by the assessee. 34. The Ld. Counsel for the assessee submitted that in view of retrospective amendment to section 36(1)(vii) of the Act with effect from 1-4-1989, the ground of appeal No. 1 in the revenue's appeal for the assessment year 1992-93 has to be decided in favour of the revenue and accordingly the debts written off against the provision in the subsequent years ought to be allowed in the respective years. He submitted that the issue is covered in favour of the assessee with the decision of Mumbai Tribunal in assessee's own case for the assessment years 1990-91, 1991-92 and 1995-96. The Ld. CIT (Departmental Representative) submitted that the subsequent assessment years 1993-94 and 1994-95 are not pending before the Tribunal and therefore, no direction can be given for the allowability of the debts written off against the provision in the subsequent assessment years 1993-94 and 1994-95. 35. We have considered the rival submissions. The issue of direction for allowing the debts written off against the provision in the subsequent assessment years is covered in favour of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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