TMI Blog2019 (8) TMI 1318X X X X Extracts X X X X X X X X Extracts X X X X ..... the effective life of lease. For the reasons discussed in the foregoing therefore we do not find any infirmity in the order of the CIT(A) granting amortization of lease premium in computing business income of the assessee. - Decided against revenue Deduction u/s 80IA - other income - HELD THAT:- We note that for allowing the deduction u/s80IA as well as Section 80IB the income must be derived from the operation of the eligible undertaking/facility. In the assessee s case the nature of other income in respect of CFS facility as well as industrial undertakings eligible u/s 80IB was same. In the context of Section 80IB deduction, the Revenue has accepted that such other income had first degree nexus with the operations of the industrial undertakings and therefore no second appeal was filed in this year. We therefore see no reason to take a different view in the context of allowing deduction u/s 80IA. We also find before us no material was brought by the Revenue to controvert the CIT(A) s findings that such other income was derived from the CFS facility of the assessee. We therefore see no reason to interfere with the order of ld. CIT(A). Ground No. 2 is accordingly dismisse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 692/-. Briefly stated the facts of the case are that in its Profit Loss Account the assessee, by way of amortization debited a sum of ₹ 26,39,692/- being pro-rata amount of lease premium which the appellant had paid in respect of several plots of land obtained for setting up industrial / infrastructure undertakings. The lease period varied from 15 to 99 years and the proportionate amount of lease premium, spread over the lease period, was claimed as deduction in arriving atits business income on the plea that the lease premium paid was nothing but upfront payment of lease rent. In the assessment order, the AO following the identical reasoning given by his predecessors in the assessment orders for AYs 2003-04 to 2006-07, held that the amount claimed as amortization of lease premium was capital expenditure and therefore not allowable as deduction in computation of business income. On appeal the Ld. CIT(A) deleted the disallowance following the order of the coordinate Bench of this Tribunal in assessee's own case for AY 2003-04 in ITA No.348/Kol/2007 dated 11.04.2008. Being aggrieved by the said order, the Revenue is now in appeal before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Jhunjhunwala also relies on a Division Bench judgment of High Court of Karnataka in CIT versus H.M.T. Ltd., reported in (1993) 67 Taxman 506 (Karnataka), paragraphs 6 and 7. On query from Court he demonstrates from page 34 in the paper book that aggregate annual rent under six leases is ₹ 106/-. The leases are for periods between 60 and 95 years. Maximum rent under one lease is ₹ 100/- per annum while five others have ₹ 1/- or ₹ 2/- per annum as rent reserved. On further query from Court he draws attention to sub-clause (n) in clause 3 and clause 5 of one of the leases, on submission that terms in all are identical. Subclause (n) provides for delivery of possession after expiration whereunder lessee is, subject to provisions therein, entitled to remove and appropriate all buildings erections and structures and materials forming part of the demise premises. Reentry clause 5 in the lease provides for reentry on default of payment of rent reserved, upon granting opportunity to lessee to make good the default. . Special Bench of the Tribunal gave its view regarding advance payment of rent to be capital expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) but on further appeal the 'B' Bench of this Tribunal in ITA No.348/Kol/2007 dated 11.04.2008 upheld the assessee'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 in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's books it had capitalized the upfront fees of ₹ 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 ₹ 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 Vs ITA Nos. 2264 2483/Kol/2017 Balmer Lawrie Co. Ltd., AYs- 2014-15 CIT (supra) the AO held that the assessee was entitled to claim the expenditure on prorate basis i.e.1/30th of the premium amount in each year during the tenure of the lease. On appeal the Ld. CIT(A) agreed with assessee's contention and allowed the deduction for entire upfront fee of ₹ 150 crores paid to Airport Authority of India in the initial year. On appeal the Revenue relyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 aITA Nos. 2264 2483/Kol/2017 Balmer Lawrie Co. Ltd., AYs- 2014-15 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnataka High Courts expressing contrary ITA Nos. 2264 2483/Kol/2017 Balmer Lawrie Co. Ltd., AYs- 2014-15 view. We find that on the analogous facts the Tribunal held that the lease premium paid was nothing but in the nature of lease rent paid on lump sum basis and no capital asset was acquired by the assessee by making such payment so as to justify its characterization as capital expenditure. Once the nature of the expenditure in question is held to be in the revenue field then the question which needs to answered in the present appeal is whether the assessee's plea for amortization of the lease premium over the tenure of the lease can be allowed particularly when in the case decided by the coordinate Bench at Delhi, it was held that whole of the expenditure was eligible for deduction in the year in which the upfront lease premium was paid. In this regard we find that before the Delhi Bench of this Tribunal the Revenue itself had canvassed the proposition that payment of upfront fee was revenue expenditure but the deduction therefore was required to be allowed on pro-rata basis by following the ratio laid down in the judgment of the Hon'ble Supreme Court in the case of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who 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 ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. As such the benefit of the lease is being enjoyed by the assessee over the lease period. The assessee therefore is assured of deriving revenue from the business carried from these leased premises over the tenure of lease and therefore the corresponding cost in the form of pro-rata lease premium is required to be netted off against revenues generated from the business, applying the principle of matching of cost with revenue so as to disclose true fair amount of operating profits of each year. We therefore find that since in the present case the assessee has satisfied the matching concept test, as prescribed by the Hon'ble Supreme Court, the assessee's claim for amortization of lease premium is allowable. 13. We also note that the assessee's claim for amortization of lease premium principally related to leases of four plots of land at Mumbai Kolkata which are used for setting up Container Freight Stations (CFS), considered as 'infrastructure facility' for the purposes of Section 80IA of the Act. With the permissions obtained from the Ministry of Finance, Dept. of Revenue, the assessee has set up devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt vide order dated 04.12.2006. However, subsequent to the aforesaid judgment, we find that the CBDT has issued a Circular 9/2014 dated 23.04.2014 wherein the impugned expenditure was allowed over the lease period after the commencement of business and relevant extract of the Circular is reproduced below:- 2. In such project, the developer (hereinafter referred to as assessee ), in terms of concessionaire agreement with Government or its agencies is required to construct, develop and maintain the infrastructural facility of roads/highways which, inter-alia, includes laying of roads, bridges, highways, approach roads, culverts, public amenities etc. at its own cost and its utilization thereof for a specified period. In lieu of consideration of the expenditure incurred on construction, operation and maintenance of the infrastructure facility covered by ITA Nos. 2264 2483/Kol/2017 Balmer Lawrie Co. Ltd., AYs- 2014-15 the period of the agreement, the assessee is accorded a right to collect toll from users of such facility. The expenditure incurred by such assessee on development and construction of such infrastructural facility are capitalized in the accounts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there was continuing benefit to the company over a period. Therefore, analogously, expenditure incurred on an infrastructure project for development of roads/highways under BOT agreement may be treated as having been made/incurred for the purposes of business or profession of the assessee and same may be allowed to be spread during the tenure of concessionaire agreement. 5. In view of above, Central Board of Direct Taxes, in exercise of the powers conferred under section 119 of the Act hereby clarifies that the cost of construction on development of infrastructure facility of roads/highways under BOT projects may be amortized and claimed as allowable business expenditure under the Act. 6. The amortization allowable may be computed at the rate which ensures that the whole of the cost incurred in creation of infrastructural facility of road/highway is amortized evenly ITA Nos. 2264 2483/Kol/2017 Balmer Lawrie Co. Ltd., AYs- 2014-15 over the period of concessionaire agreement after excluding the time take for creation of such facility. 7. In the case where an assessee has claimed any deduction out of initial cost of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0IA to the extent of ₹ 45,10,547/-. Briefly stated the facts of the case are that the assessee had developed, maintained and operated Container Freight Station (CFS), profits of which was claimed by way of deduction u/s 80IA of the Act. There is no quarrel with regard to the fact that the CFS activity is an infrastructure facility and is entitled for deduction u/s 80IA of the Act. Before the AO, the assessee filed the break-up of the various streams of income derived by CFS. From the said break-up, the AO noted that there were certain items like interest on delayed payment by customers, charges towards warehousing of cargo, profit on disposal of fixed assets, sale of tender documents, sale of scrap etc. According to AO the said receipts did not have first degree nexus with the CFS activity of the eligible industrial undertaking of CFS activity and therefore the deduction u/s 80IA of the Act to the extent of ₹ 45,10,547/- was denied. On appeal the Ld. CIT(A) deleted the disallowance on the ground that the impugned receipts were derived from the operation of CFS and therefore eligible for deduction u/s 80IA of the Act. Being aggrieved by the said order, the Revenue is now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 80IA as well as Section 80IB the income must be derived from the operation of the eligible undertaking/facility. In the assessee s case the nature of other income in respect of CFS facility as well as industrial undertakings eligible u/s 80Ib was same. In the context of Section 80IB deduction, the Revenue has accepted that such other income had first degree nexus with the operations of the industrial undertakings and therefore no second appeal was filed in this year. We therefore see no reason to take a different view in the context of allowing deduction u/s 80IA of the Act. We also find before us no material was brought by the Revenue to controvert the ld. CIT(A) s findings that such other income was derived from the CFS facility of the assessee. We therefore see no reason to interfere with the order of ld. CIT(A). Ground No. 2 is accordingly dismissed. 11. Ground No. 3 of the Revenue s appeal and the grounds taken in the cross objection No. 18/Kol/2011 filed by the assessee relate disallowance u/s 14A of the Act. Briefly stated the facts of the case are that the assessee held investments in PSU joint ventures and similar companies. The assessee derived d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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