TMI Blog2014 (4) TMI 486X X X X Extracts X X X X X X X X Extracts X X X X ..... pproved by MIDC and on approval, assessee had admittedly paid a further sum to the Corporation - it is difficult to draw inference of the agreement only to be treated as a sub-lease and not an assignment - the assignment deed itself does not say anything about the reversion of the property back to the hands of the assigner namely, IFML - On the other hand, the rights of the assignor on approval of the assignment comes to an end in toto - mere use of the word 'lease' or the fact that a long term is fixed would not by itself make the document in lease - there was no real distinction between mischief of such a transfer in perpetuity and a transfer for the long period of 96 years - a permanent lease is as much an alienation as a sale - the lump sum amount paid does not make a permanent lease any the less an alienation than a sale – thus, the order of the Tribunal is set aside – Decided in favour of Revenue. - Tax Case (Appeal) No. 1031 of 2007 - - - Dated:- 7-4-2014 - Chitra Venkataraman And T. S. Sivagnanam,JJ. For the Petitioner : Mrs. Hema Muralikrishnan For the Respondent : Mr. C. V. Rajan for M/s. Subbaraya Aiyar Padmanabhan ORDER (The Order of the Court was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was dismissed. Though there were other grounds, which were subject matter of the appeal, we are not concerned with those grounds in this appeal by the Revenue, which is confined only with regard the issue relating to the payment made by the assessee for the lease of the said land whether the same is a capital or a revenue expenditure. The assessee being aggrieved by the order passed by the first Appellate Authority, preferred an appeal to the Tribunal. 4. The Tribunal considered the appeal along with the appeals filed by the assessee raising various issues. The Tribunal by referring to the decisions of this Court in the case of CIT vs. Madras Auto Services, reported in 233 ITR 468 and the decision of this Court in the case of CIT vs. Gemini Arts Pvt., Ltd., reported in 254 ITR 201 held that to decide whether the expenditure is capital or revenue, one has to look at the expenditure from a commercial point of view and the fact that the payment made in lump sum for the entire duration of the lease does not alter the character of revenue expenditure. Accordingly, the appeal filed by the assessee was allowed. Aggrieved by the same, the Revenue has preferred this appeal. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were granted a lease on 29.04.1982, by MIDC in respect of a property at the Industrial Estate in the village Bhosari, Pune District, State of Maharashtra. Under the assignment deed, IFML stated that they are no longer in need of the said property and desirous of sub-leasing the same and the assessee had approached them for absolute transfer of the right, title and interest in the said property on the terms and conditions agreed upon and reduced into writing in the form of assignment deed. The assessee agreed to pay a lumpsum upfront to IFML being the value of the additional lease rent which would have been charged by IFML in a sub-lease. The following Clauses of the assignment deed would be relevant for the purpose of this case:- 1. IFML hereby transfers absolutely all the right, title and interest, it has derived under the said lease deed for all the residue now unexpired of the lease period into the Demised Premises as mentioned in the said lease deed absolutely to RBL subject to MIDC permitting RBL to hold the Demised Premises for all the residue now unexpired of the lease period and lease to RBL the Demised Premises for a further period of 80 years from the expiry of the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f termination nor does it contemplate a contingency by which IFML would be entitled to cancel the assignment deed under certain contingencies nor does the assignment deed speak of any contingency by virtue of which the so called leasehold property would revert back to IFML. In terms of clause 5, the only covenant being that the assignment requires to be approved by MIDC and if that has been done, then the assignment continues and it is in perpetuity and only when MIDC refuses to approve the said transaction, then alone the land shall revert back to MIDC and in any event not to the so called lessor of the assessee namely IFML. It is not in dispute that MIDC approved the transfer. Thus, on a cumulative reading of the conditions make it evidently clear that the nature of transaction in favour of the assessee is in perpetuity. 12. In the case of Madras Auto Services, (supra), in terms of the agreement between the assessee and the owner of the land, the assessee was entitled to spend certain amounts to construct a new building after demolishing the old building and the new building, from the inception was agreed to belong to the lessor and not to the lessee/assessee. However the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dras Auto Services, (supra), it was held that to decide whether expenditure is revenue or capital one has to look at the expenditure from a commercial point of view and whatever substitutes for revenue expenditure should normally be considered as revenue expenditure. Further, it was held that merely because that the payment was made in a lumpsum for the entire duration of the lease does not alter the character of it being a revenue expenditure. Firstly, it has to be pointed out that the nature of transaction in the case of Ucal Fuel Systems Ltd (supra), was entirely different from that of the transaction in the case on hand. 14. Admittedly, it was a case of lease of a land for a period of 20 years and the assessee therein having paid the lease rent for a first year, paid the remaining amount in one lumpsum, whereas the case on hand is entirely different and we have seen that the transfer in favour of the assessee was by IFML, who themselves were stated to be lessees under MIDC and the transfer in favour of the assessee was in perpetuity i.e., to be continued to be a period of 80 years beyond the unexpired lease period, which itself was in force till 2077. Therefore, these decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , thus saving considerable revenue expenditure for the next 39 years. Therefore, the observation of the Apex Court as to whether the expenditure or revenue expenditure or capital expenditure has to be looked at as a commercial point of view is a test, which has to be seen herein to on the facts has already been given in the preceding paragraphs as to the terms of the assignment deed, we have no hesitation in holding that even though that the expenditure in question is pure in a capital expenditure, the assessee does not deny the fact that the assignment of the lease in its favour had to be approved by the MIDC and there is no denial of the fact that once the assignment deed does not speak anything about the state of affairs which continued on the expiry of the so called lease, it is clear from the reading of the assignment deed that once the assignment is approved by the MIDC, the vendor had no interest at all in the so called lease property. 17. The Assessing Officer pointed out that MIDC had directed the assessee to pay a further sum of Rs.5.40,000/- being enhancement of the cost of land. The fact remains that on the approval of the assignment in favour of the assessee practic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se and not an assignment. Furthermore, the assignment deed itself does not say anything about the reversion of the property back to the hands of the assigner namely, IFML. On the other hand, the rights of the assignor on approval of the assignment comes to an end in toto. 24. Incidentally, we may also point out that as early as 1928 in the decision in the case of Archaka Sundara Raju Dikshatulu vs. Archaka Seshadri Dikshatulu reported in (1928) 54 MLJ 76, this Court held that the lease for 99 years or for a long term in consideration of a premium paid down is as much an alienation as a sale or mortgage. This Court pointed out that the mere use of the word 'lease' or the fact that a long term is fixed would not by itself make the document in lease. In this connection, this Court followed the decision in the case of Rama Varma Tambaran vs. Raman Nayar reported in (1882) ILR 5 M 89, holding that there was no real distinction between mischief of such a transfer in perpetuity and a transfer for the long period of 96 years. Thus, this Court took a view that a permanent lease is as much an alienation as a sale. In the background of what we have narrated about and the clauses in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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