TMI Blog2017 (12) TMI 1214X X X X Extracts X X X X X X X X Extracts X X X X ..... d order of the Ld. CIT (A) allowing such expenditure is affirmed and grounds taken by the revenue is dismissed. Nature of expenses - repair and maintenance of building, plants and others - revenue or capital expenditure - Held that:- Since, AO has himself has not classified or distinguished as to which repairs is for new infrastructure or for construction of new structure, therefore, we are unable to give any finding that any of the expenditure as noted above pertains to new construction. As he himself has treated to be revenue, then in that case, we hold that the entire expenditure under the head repair and maintenance is allowable as revenue expenditure in the year in which it is claimed. The judgements relied upon by the Ld. CIT DR would not apply under such facts and circumstances of the case. However, we agree with one of the contentions of the Ld. CIT DR that an amount debited under this head cannot be treated as expenditure on repair and maintenance and therefore, AO is directed to remove this expenditure from the head ‘repair and maintenance of building etc. With this direction, ground No. 2 as raised by the revenue is partly allowed. Disallowance u/s 14A to the tune ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , order of the Ld. CIT (A) on this score is affirmed and the ground raised by the assessee is dismissed. Penalty proceedings u/s 271(1)(c) - Held that:- Merely because assessee has made a claim for revenue expenditure which later on has been held to be capital in nature does not mean that assessee is guilty of either furnishing of inaccurate particulars of income or concealment of income. Though the finding in the quantum proceedings are of great pervasive value, however such a finding alone in the quantum side does not leads to conclusion that penalty is to be levied or confirmed automatically. What is to be seen is, whether the assessee’s claim was otherwise allowable under the law or not. Here in this case at the stage of AO itself, part of the expenditure has been treated as revenue, therefore, in such a situation it cannot be held that assessee has furnished any inaccurate particulars of income or assessee’s explanation has been found to be false or unsustainable in law. The finding of the Ld. CIT (A) that assessee has made full disclosure and merely because the claim has been found to be unsustainable by the appellate authorities it does not mean that assessee has furnishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C) was incorporated as a Joint Venture Company in the year 2006, between a consortium (comprising of GMR Group, Fraports Malaysia Airports and Air Authority of India) as part of modernization and privatization program of the Government of India (GOI) for Indira Gandhi International Airport, at Delhi under Public- Private Partnership (PPP) model. The Airport Authority of India (AAI) had established the Indira Gandhi International Airport at Delhi and was running the same. With a view to effectuating better and modern facilities to the airlines using the airport and the passengers using the airlines for their travel, the GOI through AAI invited offers from persons interested in modernising, running and developing the Airport at Delhi. The bid submitted by the aforesaid Consortium was accepted and with a view to implement the said task, a company by the name Delhi International Airport Private Ltd (DIAL) was incorporated on 01/03/2006 and was initially owned 100% by AAI. Only AAI and high Government Officials were the signatories to the Memorandum of Association. Following the award, an agreement named as Operation, Management and Development Agreement (hereinafter referred to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easehold rights would be in the nature of future rent payable and the amount incurred on structure of doing any work in or in relation to improvement to the building which is put up in property taken on lease for carrying on business on a land taken on lease would be revenue expenditure. As per terms of OMDA capital work in progress incurred from the effective date will be shown under CWIP till suck time the work is completed. As the reimbursement of work in progress are made after taking over of the airport pertaining to the period prior to effective date, these have been shown under intangible assets. But as said above the same is claimed as revenue expenditure for income tax purpose. In view of the settled legal position available the entire amount of ₹ 1955044000 is claimed as revenue expenditure in the return of income though the same is amortised in the books of a/c for the propositions that the entire in the books of a/c are not conclusive of claim of any item as revenue deduction the reliance in this respect is placed on the decision of Supreme Court in the case of CIT vs. Kedarnath Jute Mills (82 ITR 363) The AO from the aforesaid note deduced that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment in respect of capital workin- progress at the airport from 30th August, 2005 till the effective date. Since, on the completion of the work the abovementioned asset shall become the property of AAI and no right those mentioned in the OMDA would get vested in assessee s company, therefore, the amount was incurred on CWIP being in the nature of an asset not belonging to the assessee, the same was claimed as revenue expenditure. In support the reliance was placed on following decisions:- 1) CIT vs. Associated Cement Companies Ltd (1988) 172 ITR 257 (SC); 2) CIT vs. Saw Pipes Ltd. (2007) 208 CTR (Del) 476; 3) Hindustan Times Ltd. vs. CIT (1980) 122 ITR 977. 6. The AO first of all held that, the judgments relied upon by the assessee are not applicable on the facts of the assessee s case, because in these cases the issue was regarding payment of advance rent, whereas, in the case of assessee the amount has been paid as upfront fees which is a kind of licence fees for carrying out the business for the period of 30 years. The assessee has started its business during the year and was sharing profit on monthly basis with AAI. Merely because the assessee has deducted T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rights, privileges and benefits set forth in this Lease Deed, the Lessee shall pay to the Lessor, throughout the Term, an annual lease rent of ₹ 100/- payable in advance on April 1 of every year (the Due Date '') by cheque/demand draft drawn in favour of the Lessor ( Lease Rent'). Clause 11.1 of the OMDA required the assessee to pay an upfront fee , after obtaining the contract for Operation, Management and Development of the Delhi Airport. The term of the agreement is for a specified period of 30 years and upon end of the term of the OMDA, the land alongwith all the rights and properties would be transferred to AAI. The lump-sum payment of upfront fees was considered by the assessee as being in the nature of rent. Accordingly, tax was deducted under section 194-I of the Act, and the entire Upfront Fees was claimed as allowable revenue expenditure in the Return of Income filed by the assessee. 8. The Ld. CIT (Appeals) in order to determine the true nature of the payment, required the assessee to explain with documents and evidences, firstly, the treatment by AAI of the Upfront Fee in their books of accounts/ return of income; and seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its books of accounts, however in the return of income, the entire receipt has been offered as revenue receipt by the AAI and in support, the copy of computation of income and relevant extract of return of income alongwith annual financial statement of AAI for the assessment year 2007-08 was filed. ii) Reliance was placed on the decision of Hon ble Supreme Court in the case of Empire Jute (124 ITR 1) and CIT vs. Madras Auto Service Pvt. Ltd. (233 ITR 468). Apart from these judgments reliance was also placed on the decision of Karnataka High Court in the case of CIT vs. HMT Ltd. (203 ITR 820); CIT vs. Gemini Arts P. Ltd. (254 ITR 201); Gujarat High Court judgement in the case of DCIT vs. Sun Pharmaceuticals Limited (329 ITR 479); and Delhi High Court judgment in the case of CIT vs. J.K. Synthetics Ltd. (309 ITR 371). iii) The assessee after referring to the various clauses of the agreement given in the OMDA pointed out that, firstly, the tenure of the agreement was limited to 30 years; secondly, the right acquired from the OMDA were not transferable in favour of any third party; thirdly, on the expiry of lease the assessee was obliged to return back the asset specified in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Assets' in books of account to be amortized over the concession period of the concessionaire. However, for income tax purposes, amounts claimed as revenue expenditure. Upfront fees is in the nature of license fees for carrying out business over a period of 30 years. Payment of TDS under section 194I by treating this payment as rent does not change the real nature of the payment. This amount is refundable in case of termination of agreement (Para 11.1.1 of Article 3.3). JVC shall be liable for making all payments in respect of other capital work in addition to aforementioned CWIP incurred by AAI at the Airport (Ref. Clause 5.4 of Agreement). This payment of ₹ 50 crore was made by Agreement). Thus, payment of ₹ 50 crore was made b y assessee for capital work done. Depreciation not to be allowed on these assets in the light of the order of Mumbai High Court in CIT vs. Techno Shares Stocks Ltd. 225 CTR 337 (Mumbai). 12. She then drew our attention to provisions of section 37(1) and submitted that section 37(1) expressly forbids the claim of expenses that are capital in nature. The payment of upfront fee was in the nature of licence fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment of Hon ble Supreme Court in the case of Madras Industrial Investment Corporation, reported in 225 ITR 802, wherein the concept of expenditure which can be deferred for the period of lease has been upheld. However, her main contention was that the entire expenditure has to be treated as capital expenditure and even though AO may have allowed 1/30th of the expenditure, but looking to the very nature of the payment, which was to acquire the whole business and operation of the airport for a substantial period of 30 years, it has to be treated as capital in nature only, because it is a clear cut case of deriving enduring benefit for acquisition of business and to draw her point she has also referred to certain clauses of the agreement. 14. On behalf of the assessee, Ld. Sr. Counsel Mr Soli Dastur after explaining the entire facts and background of the case, submitted that in the terms of Request For Proposal (RFP) dated 1.4.2005, two kinds of payment was required to be made, firstly, the bidder had to pay nominal lease rent which was determined in the lease deed at ₹ 100 per annum alongwith the Upfront Fee of ₹ 150 crores; and secondly, an annual fee which later o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure over the period of 29 years and in support of this treatment, the AO as well as the Ld. CIT (DR) has strongly relied upon the judgment of Hon ble Supreme Court in the case of Madras Industrial Investment Corporation (supra). Mr Dastur submitted that it is not the case of the AO that the said payment is in the nature of capital, albeit, he has treated it as some kind of deferred revenue expenditure. However, under the Income Tax Act, there is no concept of deferred revenue expenditure and this proposition he submitted that is now well settled by the Hon ble Supreme Court in the case of Taparia Tools Ltd vs. JCIT (372 ITR 605), wherein the Hon ble Supreme Court has distinguished and explained the judgment of Madras Industrial Investment Corporation. In this case, the assessee had made a claim for deduction of interest expense paid upfront to debenture holders. The tenure of the debenture was 5 years and certain holders were given an option to receive interest for the entire period upfront. Even though the assessee had amortised the expense in its books of accounts over 5 years, it claimed the entire sum as revenue in nature in the year in which it incurred the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the reason that there was an enduring benefit. The ITAT reversed the order of the CIT (A) and the same was upheld by the HC for the reason that once it is held that the payment is revenue in nature, it has to be allowed in the year in which it is incurred. In the instant case, that the liability to pay Rs. l50 crores has not only been incurred but discharged during the year. Mr Dastur submitted that the aforementioned judgments clearly enunciate two propositions; firstly, the concept of deferred revenue expenditure which has been adopted by the Assessing Officer in the instant case is contrary to the scheme of income-tax law and that the expenditure has to be allowed in the year in which it is incurred; and secondly, the manner of treatment of an expenditure in the books of account cannot defeat the assessee's claim for deduction in its tax assessment. He further submitted that, when the AO himself has treated the payment on revenue account, then same cannot be held that it is deductible on deferred basis, spread over the period of 30 years. 17. Coming to the argument of the Ld. CIT (DR) that assessee has acquired any kind of right by making such payment of upfront fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, payment is revenue in nature. 18. Mr Dastur further submitted that the sum of ₹ 150 crores cannot be seen as an independent payment, because it is linked with the nominal rent of ₹ 100 per annum and if the annual fees of 45.99% of gross revenue is reckoned on revenue account by the Department and same is deductible, then one of the payments which has been paid on lump-sum basis cannot be given different colour. 19. Countering the argument of the Ld. CIT (DR) that the entry in the books of accounts by the assessee is decisive, as here in this case the assessee has itself treated the said expenditure capital in nature and also claimed depreciation thereon, Mr Dastur submitted that now it is a well settled proposition of law that the treatment in the books of account is not conclusive or relevant for the purpose of income tax and in support he relied upon the following judgements:- ( i) Kedarnath Jute Mfg. Co. Ltd. 82 ITR 363 (SC) ( ii) Sutlej Cotton Mills Ltd. vs. CIT 116 ITR 1 (SC) ( iii) Tuticorin Alkali Chemicals b Fertilizers Ltd. 227 ITR 172 (SC). 20. Lastly, Mr Dastur submitted that from the perusal of all t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the depreciation can be allowed in the said payment or not. Thus, this judgement will not impinge upon whether the payment of upfront fees is of revenue in nature or not and we agree with him that this decision does not lead to any persuasive inference on the issue involved before us. 22. We have carefully considered the rival submissions, perused the relevant finding given in the impugned orders as well as the material referred to before us at the time of hearing. First of all, we would like to draw the summary of events and the reasons of the AO for disallowing part of the expenditure claimed by the assessee: * On 1.04.2005, a Request for Proposal (RFP) was issued by AAI calling for applications to bid for organisation, management, development, construction, etc., of Delhi Airport. * On 04.04.2006, OMDA was entered into between assessee and AAI. * On 24.04.2006, lease agreement was signed between assessee and AAI for the lease of Airport Site admeasuring 4609.33 acres to the assessee at a nominal lease rent of ₹ 100/- per annum for a period of 30 years, which was though extendable for another period of 30 years at the option of the assessee. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GVL Investments Pvt. Ltd. 09.0% 6. India Development Fund 03.9% 7. AAI 26.0% 23. Pursuant to OMDA, a lease deed was simultaneously entered into between AAI and DIAL for the lease of Airport site which had an area of more than 4609 acres, at a very nominal lease rent of ₹ 100 per annum for a period of 30 years and this was further extendable for another period of 30 years at the discretion of the parties. Apart from that, the assessee was also required to pay Upfront Fees of ₹ 150 crores; and also Annual fees expressed in the terms of percentage of revenue, which was determined at 45.99% of the gross revenue for allowing the assessee to carry on the function of development, operation and management of the Delhi Airport. The AO treated the amount of ₹ 150 crores paid as license fee for acquiring the licence in the nature of enduring benefit and accordingly, held that it is to be allowed as deduction to the assessee on spread over basis, that is, over the period of 30 years and consequently he allowed 1/30th of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest of various entities have been highlighted above. Another key feature was that under the State Support Agreement the JVC will have right of first refusal (ROFR) with regard to the second airport in the vicinity on the basis of competitive bidding process in which JVC can also participate and in the event JVC is not the bidder it will have ROFR by matching the first ranked bid in terms of selection criteria for the second airport, provided the JVC has satisfactory performance when any material default at the time of exercising the ROFR. It was further stipulated that the JVC for the airport will have a lease over the land and assets of the Airport for the tenure of the OMDA. The most crucial feature with regard to the payment was as under:- Over the tenure of the OMDA, the Joint Venture Company will pay both a nominal lease rental and a fee (consisting of an upfront fee of ₹ 1,500 million (Rupees one thousand five hundred million) an annual fee expressed as a percentage of gross revenue of the Airport for the right to operate, manage and develop the Airport. The fee will be calculated annually in advance on projected revenue, paid monthly and with an adjust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was stipulated as under:- AAI hereby grants to the JVC, the exclusive right and authority during the term to undertake some of the functions of the AAI being the functions of operation, maintenance, development, design, construction, upgradation, modernization, finance and management of the Airport and to perform services and activities constituting Aeronautical Services, and Non-Aeronautical Services (but excluding 'Reserved Activities ) at the airport and the JVC hereby agrees to 'undertake the functions of operation. maintenance, development, design, construction, upgradation, modernization, finance and management of the Airport and at all times keep in good repair and operating condition the Airport and to perform services and activities constituting Aeronautical Services and Non- Aeronautical Services (but excluding Reserved Activities) at the Airport., in accordance with the terms and conditions of this Agreement (the Grant ). Without prejudice to the aforesaid, AAI recognizes the exclusive right of the JV C during the Term, in accordance with the terms and conditions of this Agreement, to: i. develop, finance, design, construct, modernize, operate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed Premises, hereditaments or premises or any part thereof belonging to or in any way appurtenant thereto or enjoyed therewith, for the duration of the term hereof for the purposes permitted under this Agreement. In the event at any time during the Term, the JVC requires the hundred (100) hectares of land (or any part thereof) as identified in the Initial Development Plan and deducted for determining the Demised Premises (the Excluded Premises ), for the purposes or provision of Aeronautical Services, then JVC may request AA1 to lease such Excluded Premises, or part thereof, as the case be, and upon such request the Parties shall enter into a lease deed for grant of such lease It is expressly clarified that the leasehold rights agreed to be granted hereunder shall terminate forthwith upon the expiry or early termination of this Agreement for any reason. The transfer of rights in relation to the airport on the effective date and transaction was highlighted in the following manner:- Upon satisfaction or waiver, as the case may be of the Conditions Precedent, on and from the Effective Date, the rights and obligations associated with the operation and management of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provided however that in the event this Agreement is terminated by AAI for non-fulfilment of the JVC Conditions Precedent, the AAI shall be entitled to encash the Bid Bond/Performance Bond (as the case may be) Provided further that upon any such termination, each Party shall return to the other Party, any monies (other than the termination payments mentioned above) received from such Party prior to such termination. Neither Party shall be entitled to terminate this Agreement for nonfulfilment of the JVC Conditions Precedent, or the AAI Conditions Precedent, or the Common Conditions Precedent, as the case may be, to the extent that such non fulfilment is the result and/or consequence of any event of Force Majeure. Further under the OMDA, the JVC was entitled to collect charges for aeronautical services in accordance with the provisions of State support agreement and charges for non-aeronautical services and passenger services which were to be held in fiduciary capacity. Lastly, the term of OMDA was 30 years with an option to the JVC to renew the agreement for further period of 30 years. On the expiry or the earlier termination of OMDA, the pre OMDA position wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny tangible or intangible assets. The rights as envisaged has been granted by the AAI to the assessee to undertake some of the functions of AAI in connection with the operation, management and development of the airport for which the consideration paid is by way of annual fees . The entire airport site with the facilities has been handed over to the assessee to perform the activity which was earlier carried out by the AAI under revenue sharing basis. One of the key proposition urged by Mr Dastur was that for granting lease of the airport site comprising of more than 4609 acres of land for a period of 30 years, annual lease rent of ₹ 100 per annum is too miniscule and this is so, because the assessee had to pay ₹ 150 crores as a onetime payment over the entire period of 30 years. Such a payment can be reckoned as lease premium or licence fee as held by the AO. In other words, it has to be construed that it is towards the lease payment only and once that is so, then in terms of various judicial pronouncements as relied upon by him it has to be treated as revenue in nature. From the facts and circumstances of the case as discussed hereinabove in detail, we are at tandem w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lopment of Airport and is part of the lease consideration. As regard the test of enduring benefit or the expenditure being of enduring nature as canvassed by the Ld. CIT DR before us, it would be relevant to refer to the judgment of Hon ble Supreme Court in the case of Empire Jute Company (1980) 124 ITR 1, wherein the Hon ble Supreme Court has repelled the theory of expenditure of enduring nature in very elucidate manner. The Hon ble Supreme Court after taking note of various judicial decisions and various tests evolved for distinguishing the capital and revenue expenditure, held that no test is paramount or conclusive as every case has to be decided on its facts keeping in mind the broad picture of whole operation in respect of which the expenditure has been incurred. Hon ble Apex Court has also added a caution in such cases in the following manner: ... There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettled proposition in wake of the following judgements which has been highlighted and stressed upon by the Ld. Sr. Counsel for the assessee before us:- i. DCIT vs. Sun Pharmaceutical Ind. Ltd. 329 ITR 479 (Guj HC) - In this case, the assessee was the lessee of land. The period of lease was 99 years. In addition to an annual lease rent of ₹ 40 per annum, the assessee paid ₹ 48 lakh to GIDC as advance rent. The AO disallowed the claim for the reason that the assessee obtained an enduring benefit for a 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 ₹ 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 ₹ 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 enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in that case were as under:- The assessee-company had obtained premises on lease for a period of 39 years. Under the terms and conditions of the lease, the lessee (the assessee-company) had demolished the existing construction and constructed a new building thereon to suit the purposes of their business as per the plan approved by the lessors, and used to pay rents lower than the rents prevailing in vicinity. The lease deed provided that the new construction shall, right from the commencement of the work, be the property of the lessors; and upon completion of the work of construction the lessee will have only the right to be a tenant for a period of 39 years under the existing lease subject to the payment of rent and observation of other terms and conditions of the lease. The lessee shall not be entitled under any circumstances for any compensation whatsoever on account of its putting up the new const- ruction in the place of the old. The assessee claimed that the expenditure spent on construction was revenue expenditure. The Assessing Officer rejected its claim and treated the said expenditure as capital expenditure. The Tribunal held that the expenditure of the amounts f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of using modern premises at a low rent, thus, saving considerable revenue expenditure for the next 39 years, both the Tribunal as well as the High Court have rightly come to the conclusion that the expenditure should be looked upon as revenue expenditure. 33. The aforesaid judgment first of all, in no way support the case of the Revenue, because in this case the Hon ble Supreme Court has categorically held that, since the asset created by the assessee by spending the amounts did not belong to it but only business advantage of using modern premises at a low rent thus saving considerable revenue expenditure for next 39 years, then the said expenditure should be treated as revenue expenditure. Nowhere the Hon ble Apex Court has laid down the proposition that, under the Income Tax law there is a concept of deferred revenue expenditure . In fact this concept was discussed in the case of Madras Industrial Corporation Ltd. vs. CIT (1997) in 225 ITR 802, which too has been referred by Ld. CIT (DR) to justify the action of the AO in deferring the expenditure for the period of 30 years. This judgement of the Hon ble apex court had come up for consideration before the Hon ble Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures. 17. Thus, the first thing which is to be noticed is that though the entire expenditure was incurred in that year, it was the assessee who wanted the spread. The Court was conscious of the principle that normally reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sifying the said payment as capital, i.e., it has been capitalised in the books will not at all be determinative as it has to be seen on the facts whether such a payment or expenditure falls in the capital filed or revenue field. 35. One more important aspect in this case is that, if the assessee had acquired any right by making payment of ₹ 150 crores, then under the terms of OMDA it is clearly stipulated that the payment of annual fee of 45.99% of the gross revenue of the year is not made continuously then the OMDA agreement will come to an end. On this fact also the assessee has not acquired any licence or right by making the payment of ₹ 150 crores. Thus, on this count also it cannot be held that the said sum is for acquiring any licence or right. In view of the aforesaid discussion and analysis we are of the opinion that the payment of ₹ 150 crores is to be treated as revenue expenditure and order of the Ld. CIT (A) allowing such expenditure is affirmed and grounds taken by the revenue is dismissed. 36. The next issue raised in ground No. 2 is with regard to deletion of addition of ₹ 24 crores which according to the AO was capital expenditure an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bldg., behind J block: 491217.00 SS cladding to columns doorways: 836890.00 Installation of ACP at TIB: 823714.00 Renovation of TIB facade upgradation: 4099618.00 Purchase of road studs safety product at Delhi Airport: 182280.00 Installation road studs safety product at Delhi Airport: 77000.00 Interior work: 39510.00 Purchase of decorative poles for street light: 88268.00 Purchase of magnetic white board pin up: 50100.00 Do 15488.00 Light fixture for udaan Bhawan: 1247162.00 Carpet setting up at Airport office: 302473.00 Development of landscape pockets at terminal: 331981.00 Interior work: 215250.00 Renovation work of external area of terminal 1B: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble as revenue expenditure. The expenditure incurred did not result in creation/acquisition of any capital asset. Besides this, various decisions were also relied upon in support of the contentions that the expenditure has been incurred on lease terms same cannot be treated as capital. It was also brought to the notice of the Ld. CIT (A) that in various years the assessee has incurred expenditure on repair and maintenance on buildings as per the following chart:- Financial Years Amount of Repair and maintenance on Buildings(Rs.In crores) 2006-07 24.3 2007-08 15.52 2008-09 19.08 2009-10 24.01 39. After considering the entire explanation as well as the various judgments which has been incorporated by the Ld. CIT(A) in the impugned order, he held that the said expenditure are allowed u/s 30/31 and 37 being in the nature of repair and maintenance of expenditure. 40. Before us the Ld. CIT (DR), first of all pointed out that, nowhere the Ld. CIT (A) has properly addresse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad over basis over 30 years. It is a settled law that the concept of deferred revenue expenditure does not exist under the Incometax Act and that the expenditure has to be allowed in the year in which it is incurred. Reliance was placed upon the following decisions which have been discussed above also:- a. Taparia Tools Ltd vs. JCIT - 372 ITR 605 (SC) b. CIT vs. Jai Parabolic Springs Ltd - 306 ITR 42 (Del HC) c. CIT vs. Citi Financial Consumer Fin Ltd - 335 ITR 29 (Del HC). d. CIT vs. Vodafone Essar South Ltd - 55 taxmann.com 289 (Del HC). 42. We have heard the rival submissions and also perused the relevant finding given in the impugned orders as well as the judgements referred and relied upon by the parties. Here in this case as noted above the nature of expenditure is on account of renovation and repairs for improving the existing infrastructure. The Ld. AO has not pointed out as to which expenditure is for construction of new structure. In fact he has classified all the expenditure as revenue and that is why he has allowed it in a deferred manner, that is, as deferred revenue expenditure. If AO himself has accepted that expenditure is revenue and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions which worked out to ₹ 85.22 lacs. Out of which 72.28 lacs consisted of disallowance of interest only under Rule 8D 2 (ii). 44. The Ld. CIT(A) so far as interest expenditure is concerned, held that same cannot be disallowed, because assessee had owned interest free funds sufficient to cover the investment made and therefore, no apportionment of any interest expenses can be made for the purpose of disallowance u/s 14A. He further held that provision of Rule 8D were not applicable in assessment year 2007-08 as the same has been made applicable for the assessment year 2008-09 and this view is well supported by the decision of Hon ble Bombay High Court in the case of Godrej Boyce Manufacturing vs. DCIT 328 ITR 81. However, he held that on account of indirect expenses certain disallowances should be called for on reasonable basis as certain amount of administrative effort is required. Following the decisions of ITAT Mumbai Bench in the case of; VFC Securities Pvt. Ltd. vs. ITO, CITA 5523/M/2009; and Godrej Agrovet Ltd. vs. ACIT (2010) TIOL-616- ITAT-Mum), wherein disallowance of 5% to 2% of the dividend income were held to be reasonable. Accordingly, he made the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s borrowed from the bank has been utilised for the purpose of making the investment. Once that is so, then no disallowance of interest can be made while attributing the disallowance u/s 14A. Even otherwise also if the assessee has both borrowed and surplus funds and assessee s own funds or interest free funds are sufficient to cover the investment made which has yielded exempt income, then in view of various judicial pronouncements as relied upon by the Ld. Sr. Counsel above, which carves out the proposition that in such a situation it can be presumed that such an investment has been made out of own funds/interest free funds and therefore, on this count also, we do not find any reason for any disallowance of interest. Coming to the reasonableness of disallowance made by the Ld. CIT (A) who had disallowed 5% of the dividend income out of indirect expenditure, we find that the said conclusion of the Ld. CIT (A) is not only reasonable but also is in consonance with the certain judicial precedent and therefore, we do not find any reason to interfere in such a finding and same is affirmed accordingly ground No. 3 as raised by the revenue is dismissed. 48. Lastly, with regard to the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection of the Ld. CIT (A) to the AO is in accordance with the law and no interference is called. 50. In the result appeal of the revenue is party allowed in the manner indicated above. 51. Now we will take assessee s cross objection. In ground no.1, assessee has made an alternative claim of allowing the depreciation, if Upfront fees is treated as capital expenditure. In ground no. 2, assessee has challenged the conclusion of the Ld. CIT (A) that payment of ₹ 45,50,00,000/- in respect of CWIP is capital in nature instead of revenue expenditure claimed by the assessee. In ground no. 3, assessee made an alternative claim qua the expenditure of ₹ 24 crores under the head repair and maintenance , that in case it is held as capital in nature, then depreciation should be allowed on capitalisation. Lastly, in ground no.4, assessee has made the alternative claim of allowing the deduction of section 80IA in case there is positive income. 52. So far as ground nos. 1, 3 , 4, are concerned, the same stands answered while dealing the appeal of the revenue and therefore, in view of our finding given therein, the ground nos. 1, 3 4 have become partly academic. 53. Now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f in the subsequent years has capitalised the similar amount incurred by it on the construction of new terminals and when assessee itself had capitalised the expenditure incurred for same construction activity in the subsequent years, then it cannot be permitted to take a contrary stand for initial capital work in progress acquired from AAI under OMDA and therefore, the payment of ₹ 45.50 crores cannot be held as revenue. 55. After hearing both the parties and on perusal of the relevant finding given in the impugned orders, we find that the payment has been made by the assessee in the capital work done by the AAI and under the terms of OMDA agreement, the assessee was required to make the payment on capital-work-in-progress which was incurred by the AAI while taking over the operation management and development of the airport. This is evident from clause 5.2 (B)(ii) of OMDA. In the said agreement it was clarified that CWIP is part of mandatory capital project to be undertaken by the JVC and the treatment of capital work in progress in the accounts of AAI and the expenditure incurred by the JVC from the effective date will continue to be shown by the JVC in its books as cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the return of income with regard to the CWIP reimbursement which was came as revenue expenditure:- a. In the return of income, both Upfront fees and the CWIP were disclosed in the Return of Income separately in Schedule BP at Sr. No. 11/30 as other expenditure claimed allowable. b. In the audited accounts: the accounting treatment followed with respect to the amount of Upfront fees and the CWIP were disclosed in the Fixed assets schedule-S and Schedule 17 dealing with significant accounting policies. c. In the Tax audit report, a detailed note was provided explaining the treatment in accounts and the contention of the Appellant as regards allowbility of said expense for tax purposes. d. In the computation of income filed before the Assessing Officer, the stand of the Appellant was once again disclosed suo-motto. e. In the course of the assessment proceedings, complete disclosure was made, explanation provided and the relevant documents, submissions in support of the claim made by the Appellant as regards the payment to AAI and the judicial pronouncements relied on by the Appellant in support of its claim were also submitted and based upon which the learned Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot treated this expenditure completely as capital albeit has gone ahead to allow 1/30th of expenditure to be spread over the period of 30 years. Ld. CIT (A) as well as this Tribunal (as above) in the quantum proceedings has confirmed the entire disallowance made by the AO as capital expenditure, but such an addition has not been confirmed on the ground that either the assessee s explanation has found to be false or the claim made by the assessee is unsubstantiated. 61. In deciding the cases whether a particular expenses is capital in nature or falls in revenue field is always a very vexed question of facts and law and there is very thin line of demarcation between the two and there is no sure shot test to decide the same. Such a nature of controversy between capital and revenue had even perplexed the judicial forums including the Hon ble Supreme Court and High Court. Merely because assessee has made a claim for revenue expenditure which later on has been held to be capital in nature does not mean that assessee is guilty of either furnishing of inaccurate particulars of income or concealment of income. Though the finding in the quantum proceedings are of great pervasive value, ho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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