Referred Sections:
Section 250 of the income Tax Act,, 1961
Referred Cases / Judgments:
Rajesh Projects India Pvt. Ltd. vs. CIT 392 ITR 483,
Okhla Industrial Development Authority vs. CIT 406 ITR 209 (SC).
Empire Jute Co. Ltd. vs. Commissioner of Income Tax 124 ITR1(SC)
Commissioner of Income-tax vs. Associated Cement CompaniesLtd. 172 ITR 257(SC)
Commissioner of Income-tax vs. Gemini Arts (P.) Ltd. 254 ITR 201 (Madras)
Deputy Commissioner of Income-tax vs. Sun Pharmaceutical India Ltd. 329 ITR 479
Commissioner of Income-tax vs. Madras Auto Service (P.) Ltd. [233 ITR 468 (SC)]
Commissioner of Income-tax vs. H.M.T. Ltd. 203 ITR 820
1 ITA No. 2722/Del/2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `E' NEW DELHI
BEFORE SH. G. S. PANNU, VICE PRESIDENT
AND
MS SUCHITRA KAMBLE, JUDICIAL MEMBER
I.T.A. No. 2722/DEL/2017 (A.Y 2012-13)
M/s. Multitude Infrastructure Vs Deputy Commissioner of
Pvt. Ltd., 1st Floor, ECE House, Income Tax,
28, Kasturba Gandhi Marg, Circle 17(1)
New Delhi 110 001. New Delhi
(PAN : AAFCM 5511 L)
(APPELLANT) (RESPONDENT)
Appellant by Sh. Vivek Bansal, Advocate
Respondent by Ms. Rakhi Vimal, Sr. D.R.
Date of Hearing 11.12.2019
Date of Pronouncement 13.12.2019
ORDER
PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against the order of the
Commissioner of Income Tax [Appeals]-6, Delhi dated 02.03.2017 for
Assessment Year 2012-13.
2. The Grounds of appeal are as under:-
"Ground No. 1:
The Ld. Commissioner of income Tax (Appeals) - 6, New Delhi (hereinafter
referred to as `CIT(A)') has erred on facts and in law in passing the order
dated 02.03.2017 under section 250 of the income Tax Act,, 1961
(hereinafter referred to as `The Act').
Ground No. 2:
The Ld CIT(A) erred in law and on facts in confirming the disallowance of
Rs.42,11,415/- on account of Lease hold rent paid by Appellant treating
the same as capital expenditure.
The appellant contends that the amount was paid by the appellant as per
the terms of the agreements between the Appellant and Vishnu
2 ITA No. 2722/Del/2017
Apartments Pvt. Ltd. and not as leasehold rent, therefore no disallowance
in this regard should be made.
Ground No. 3:
The appellant prays that he may be allowed to add, amend, alter or forego
any of the above grounds of appeal as the circumstances may warrant."
3. The assessee company is primarily engaged in the business of operating
hotels. Return declaring total loss of Rs.6,81,14,200/- was e-filed by the
assessee company on 28.09.2012. The return was processed u/s 143(1) of the
Act. As the case was selected for scrutiny under CASS, notice u/s 143(2) dated
07.08.2013 and 142(1) dated 13.07.2014 along with detailed questionnaire
were issued and served upon the assessee to complete necessary details. In
response thereto, CA & AR of the assessee company attended the proceedings
from time to time and furnished a requisite details/information. The necessary
details which were called for and obtained during the course of assessment
proceedings were examined by the Assessing Officer. The Assessing Officer
made the following disallowances while passing Assessment Order dated
18.03.2015 u/s 143(3) of the Act:
1. Disallowance u/s 14A r.w.r. 8D of the : Rs. 1,26,947/-
Income Tax Rules, 1962
2. Disallowance of rent paid : Rs.42,11,415/-
4. Being aggrieved by the assessment order the assessee filed appeal before
the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
5. The Ld. AR submitted that the assessee purchased a hotel constructed
on leased land obtained from Jaipur Development Authority (JDA) from Vishnu
Apartments Pvt. Ltd. vide agreement dated 05.11.2008 and as per clause 28 of
the sale agreement, the assessee was under an obligation to pay to the seller
Government rate taxes and cess etc. from the date of agreement. Vide letter
dated 22.06.2011, JDA required Vishnu Apartment Pvt. Ltd. to pay a
cumulative sum of Rs.1,35,34,794/- (Rs.62,15,978 on account of Annual Lease
Rent up to Year 2011-12 and lumpsum payment of Annual Lease Rent of
3 ITA No. 2722/Del/2017
Rs.73,18,816/- ). Proportionately the share of the assessee out of that payment
was computed at Rs.42,11,495/-. The assessee claimed the said payment of
Rs.42,11,495/- as rent paid by the assessee. The Assessing Officer disallowed
the same on the ground that it is a capital expenditure relating to land. The
CIT(A) confirmed the action of the Assessing Officer, however, held that the
depreciation on capitalized value is allowable. The Ld. AR submitted that the
hotel is constructed on Plot -1, 2 & 3 and the lease premium and annual lease
rent were described in the purchase deeds in respect of these 3 plots. The Ld.
AR further submitted that Annual Lease Rent payable per annum is in the
vicinity of 1% to 1.25% and such payment, if paid annually is to be deductible
as revenue expenditure. However, up to 2011, since it was unpaid, it was paid
as annual rate being in arrear which is a sum of Rs.12,29,977/- for the period
from 05.11.2008 to 31.03.2012 and to discharge the assessee from regular
annual rate payments for the entire period of lease lumpsum payment of
Rs.29,81,518/- was made. The aggregate of both the above amounts comes to
Rs.42,11,495/-. The Ld. AR submitted that in case of Rajesh Projects India Pvt.
Ltd. vs. CIT 392 ITR 483, it has been held that the rent generally 1% of the
total consideration payable annually are clearly rent and not capital. This
decision of the Hon'ble Delhi High Court was upheld by the Hon'ble Supreme
Court in case of New Okhla Industrial Development Authority vs. CIT 406 ITR
209 (SC). Thus, it is clear that the payment made on account of Annual lease
rent is on revenue account and cannot be considered as capital expenditure.
The Ld. AR relied upon the following decisions:
a) Empire Jute Co. Ltd. vs. Commissioner of Income Tax 124 ITR
1(SC)
b) Commissioner of Income-tax vs. Associated Cement Companies
Ltd. 172 ITR 257(SC)
c) Commissioner of Income-tax vs. Gemini Arts (P.) Ltd. 254 ITR 201
(Madras)
d) Deputy Commissioner of Income-tax vs. Sun Pharmaceutical India
Ltd. 329 ITR 479
e) Commissioner of Income-tax vs. Madras Auto Service (P.) Ltd. [233
ITR 468 (SC)]
f) Commissioner of Income-tax vs. H.M.T. Ltd. 203 ITR 820
4 ITA No. 2722/Del/2017
6. The Ld. DR submitted that the Assessing Officer has rightly held that the
payment during the year relates to land which is capital in nature and which
should have been capitalized by the assessee. The assessee is an owner of the
said land as per the terms of the lease deed and, therefore, the assessee's claim
in its P&L Account of lease rent is not allowable. The Ld. DR further submitted
that the amount has been paid to the party from which the property was
acquired and based on the nature of expenses it can be seen that the assessee
has acquired the property from the said party and had assumed the future
liability towards the same property. Thus, the Ld. DR relied upon the
assessment order as well as of the order of CIT(A).
7. We have heard both the parties and perused all the relevant materials
available on record. It is seen that the assessee purchased a hotel constructed
on leased land obtained from Jaipur Development Authority (JDA) from Vishnu
Apartments Pvt. Ltd. vide agreement dated 05.11.2008 and as per clause 28 of
the sale agreement, the assessee was under an obligation to pay to the seller
Government rate taxes and cess etc. from the date of agreement. Vide letter
dated 22.06.2011, JDA required Vishnu Apartment Pvt. Ltd. to pay a
cumulative sum of Rs.1,35,34,794/- (Rs.62,15,978 on account of Annual Lease
Rent up to Year 2011-12 and lumpsum payment of Annual Lease Rent of
Rs.73,18,816/- ). Proportionately the share of the assessee out of that payment
was computed at Rs.42,11,495/-. These facts were not at all disputed by the
Revenue at any point of time. In the present case, Annual Lease Rent payable
per annum is approximately that of 1% to 1.25% and such payment, if paid
annually is to be treated as revenue expenditure. The assessee paid the said
annual lease rent at one time, but that does not lose the character of the
annual rent. Thus, the expenditure incurred was for the business purpose only
and therefore, it cannot be held as capital in nature. The Ld. AR relied upon
the decision of the Hon'ble Apex Court in case of Commissioner of Income-tax
vs. Madras Auto Service (P.) Ltd. 233 ITR 468, wherein it is held that
5 ITA No. 2722/Del/2017
expenditure which bring about some kind of an enduring benefit to the
company as a revenue expenditure when the expenditure did not bring into
existence any capital asset for the company are expenditure of the said
company. The asset which was created belonged to somebody else and the
company derived an enduring business advantage by expending the amount.
The expenses have been looked upon as having been made for the purpose of
conducting the business of the assessee more profitably or more successfully.
Since the asset created by spending the amounts did not belong to the
assessee but the assessee got the business advantage of using modern
premises at a low rent, thus saving considerable revenue expenditure for
several years, such expenditure should be looked upon as revenue
expenditure. In the present assessee's case as well, the expenses have been
looked upon as having been made for the purpose of conducting the business
of the assessee. The onetime payment of the annual rent as per the lease deed
is rightly claimed by the assessee as revenue expenditure. The Assessing
Officer was not right in holding that the payment during the year relates to
land which is capital in nature. In fact, the assessee is running the mall and
hotel constructed on the lease land of Jaipur Development Authority which was
given to Vishnu Apartments Private Ltd. In fact, the mall and hotel was
constructed by the Vishnu Apartments Private Ltd. The CIT(A) also ignored this
fact. Therefore, the order of the CIT(A) is set aside. The Appeal of the assessee
is allowed.
8. In result, appeal of the assessee is allowed.
Order pronounced in the Open Court on 13th day of December, 2019.
Sd/- Sd/-
(G. S. PANNU) (SUCHITRA KAMBLE)
VICE PRESIDENT JUDICIAL MEMBER
Dated: 13/12/2019
Priti Yadav, Sr. PS *
6 ITA No. 2722/Del/2017
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
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