TMI Blog2019 (1) TMI 488X X X X Extracts X X X X X X X X Extracts X X X X ..... p the land. Such supplies are essential for construction of the civil structure on the piece of land - The Applicant will admittedly capitalize the lease premium. The property is, therefore, admittedly being constructed on the Applicant’s own account and treated as fixed asset, including the lease rental paid. Whether the lease rental paid for the pre-operative period is capitalized under the head ‘Leasehold Land’ or ‘Building Block’ is of little significance in this context. The lease rental paid during the pre-operative period should be treated as part of the cost of goods and services received for the purpose of constructing an immovable property (other than plant and machinery) on the Applicant’s own account - Input tax credit is, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Applicant, stated to be a subsidiary of Ambuja Neotia Holdings Private Limited, is in the hospitality and real estate business since 1997. Bengal Housing Infrastructure Development (hereinafter referred to as WBHIDCL /Lessor) has leased a piece of land measuring 20,039.75 sq meters in New Town Area for a period of 32 years to the Applicant (also referred to, at times, as the Lessee) for a lease premium of Rupees Seventeen Crores Twenty Lakhs only. As per the Indenture of Lease dated 21.08.2013, (hereinafter referred to as the Agreement) the Applicant is liable to pay annual lease rent at the rate of 10% of the aforesaid premium for the first and second year, and the same would be escalated at the rate of 5% per annum, in the subse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. (b) Section 17 of the GST Act deals with Apportionment of Credit and Blocked Credit Sub-section 5(d) of the said Section states Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely: goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng an immovable property (other than plant and machinery) on the Applicant s own account. Para 23 of AS10 is relevant. It says that the cost of a self-constructed asset should be determined using the same principles as for an acquired asset, and it is usually the same as the cost of constructing an asset for sale. When an immovable property like a building is sold the profit is computed after deducting from the sale proceeds the cost of the property, including the land. The cost of constructing the immovable asset, therefore, includes the lease rental paid for right to use the land on which the asset is built. Being an integral part of the cost of the immovable property the lease rental paid for the service of right to use the land is a sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as fixed asset, including the lease rental paid. Whether the lease rental paid for the pre-operative period is capitalized under the head Leasehold Land or Building Block is of little significance in this context. In the light of the above discussion, it is held that the lease rental paid during the pre-operative period should be treated as part of the cost of goods and services received for the purpose of constructing an immovable property (other than plant and machinery) on the Applicant s own account. Input tax credit is, therefore, not admissible on such lease rental in terms of section 17(5)(d) of the GST Act. In view of the foregoing we rule as under RULING Input Tax Credit is not available to the Applicant for le ..... X X X X Extracts X X X X X X X X Extracts X X X X
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