CA Aayush Jain
Introduction
When a lease is transferred it involves payment of some transfer charges to the lessor for the transfer of lease as well as payment of stamp duty on registration of lease in the name of the new lessee. The question here arises is that whether transfer charges and stamp duty paid for transfer of lease would be allowable as revenue deduction under the provisions of the Act.
Expenses on transfer of lease-Revenue or Capital Expenditure
The above issue has been dealt by the Bombay High Court in the case of CIT vs. Hoechst Pharmaceuticals Ltd. 113 ITR 877 (Bombay)wherein the assessee had incurred certain expenditure as brokerage and payment of stamp duty for the purpose of acquiring office premises on lease for a period of five years and claimed the same as business expenditure. The High Court in this case held that:
“……….The period of the lease which is only five years cannot be said to be such a long period that he assessee can be said to have acquired or brought into existence an advantage of an enduring character. The amount was obviously paid by the assessee to a third party with whose intervention the lease was secured. The office premises were obtained with a view to carry on the business activity of the assessee-company and the facility so obtained could not be said to be an advantage of any enduring nature. Besides, the terms of the lease are not on record and, therefore, no other considerations can be taken into account for finding out whether any asset of an enduring character was acquired. The brokerage was really in the nature of remuneration paid in order to avail of the services of the broker with a view to acquire the premises on rent. Similarly, the stamp duty was required to be paid in order to bring about the document of lease. Expenses so incurred for securing the premises on lease for a short period of five years were, therefore, clearly in our view, allowable as revenue expenditure…………”
Reference can also be made to the case of CIT vs. Cinecita (P) Ltd. 137 ITR 652, where the assessee incurred Rs.10,700 by way of registration fee, stamp duty and solicitors’ fees in connection with the drawing up of the lease deed and claimed deduction of the said amount as revenue expenditure. However the same disallowed by the assessing officer and the AAC and the Tribunal. On further appeal to High Court, it was held that:
“………….In the case before us, it is true that the period of the lease is for 20 years and there is an option for renewal, but at a higher rent. At the same time it must also be noticed that the expenditure claimed is the only expenditure required for drawing up a proper and effective deed of lease, namely, the expenditure in respect of stamp duty, registration charges and professional fees paid to the solicitors, who prepared and got registered the deed of lease. There is no element of premium in the amount claimed as expenditure. Moreover, this expenditure would have been the same even if the lease had been of a shorter duration provided the period of lease was more than one year.
In these circumstances, we fail to see why merely because the period of lease is a little longer than in the case of CIT vs. Bombay Cycle & Motor Agency Ltd.[1979] 118 ITR 42 (Bombay), we should take a different view of that matter. Had the amount claimed included any amount claimed, to have been paid by way of premium for acquiring the leasehold premises, we might have well taken a different view. As held in CIT vs. Bombay Cycle & Motor Agency Ltd.[1979] 118 ITR 42. The period of the lease could not be regarded as decisive of the circumstances as to whether the asset or advantage secured is of an enduring nature………” Therefore, the amount of Rs.10,700 shall be allowed as revenue expenditure.
To the same effect are the following decisions wherein the expenditure incurred by the assessee by way of stamp duty etc., in connection with a lease agreement was held to be allowable deduction, irrespective of the period of lease:
- CIT vs. Panyam Cements and Minerals Industries Ltd. 228 ITR 212(AP)
- CIT vs. Gopal Associates 222 CTR 307(HP)
- Richardson Hindustan Ltd. vs. CIT [1988] 169 ITR 516
- Gobind Sugar Mills Ltd. vs. CIT 1 Taxman 424 (Cal.)
- Shri Jitendra Nath Patnaik vs. DCIT in ITA No. 185/CTK/2010(Calcutta)
Conclusion
In conclusion, from the above judgments it can be safely concluded that transfer charges and stamp duty paid on transfer of lease is allowable as revenue expenditure.
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