Coforge Limited (Formerly Known AS NIIT Technologies Ltd) Vs ACIT (Delhi High Court)
Conclusion: Commuted value of lease rent at 11 times the rent payable for 90 years @ Rs 708913/- which amounted to Rs 7798042/- was deductible as expenditure in the year of payment as assessee chose to incur the liability of a crystallised amount in the period relevant to the AY in issue i.e. AY 2007-2008, and therefore, it was entitled to seek deduction of the amount subject to fulfillment of specified conditions.
Held: The issue arose for consideration was whether the Company which had opted to pay the commuted value of lease rent at 11 times the rent payable for 90 years @ Rs 708913/- which amounted to Rs 7798042/- was deductible as expenditure in the year of payment. Revenue argued that the expenditure was for the purpose of enduring benefit and Tribunal allowed this expenditure to be divided into 90 years to be allowed in each year. It was held that Tribunal was wrong in applying the matching principle and directing that one-time lease rent should be spread equally over the tenure of the lease. As indicated hereinabove, the annual lease rent that assessee was required to pay if it had chosen the said route, was Rs. 7,08,913/-. The commuted and discounted value of the one-time lease rent was eleven (11) times the annual rent; which in absolute terms was much lower than the amount that would have accrued as rent over the entire tenure of the lease i.e. 99 years. This was the option exercised by assessee. As was evident, taking the present value or time value of the money into account, a lumpsum figure was proposed to assessee for securing leasehold rights for 90 years. The lumpsum amount paid by assessee was far less than the amount that it would have to pay if it were to choose the other option i.e. pay the lease rent on an annual basis for 90 years at the rate of Rs. 7,08,913/-. Assessee chose to incur the liability of a crystallised amount in the period relevant to the AY in issue i.e. AY 20072008, and therefore, it was entitled to seek deduction of the amount which fulfilled the following attributes- i. The expenditure was not in the nature of capital expenditure or a personal expense; ii. It was expended fully and exclusively for the purposes of the business and; iii. it did not fall within the realm of any provision of the Act which prohibited assessee from claiming this deduction.
FULL TEXT OF THE JUDGMENT/ORDER of DELHI HIGH COURT
Preface: –
1. The above-captioned appeals are directed against a common order dated 28.01.2020, passed by the Income Tax Appellate Tribunal [in short “Tribunal”] Pertinently, ITA 213/2020 and ITA 215/2020 concern assessment year [AY] 2007-2008 while ITA 214/2020 concerns AY 2008-2009.
1.1. On 13.01.2021, all three appeals were admitted and the following questions of law were framed.
Questions of law framed in ITA 213/2020 and 214/2020
“(i) Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in upholding the disallowance of Rs.44,00,739/- claimed under section 35DD of the Act, being l/5th of expenses incurred in [the] assessment year 2004-05 on [the] demerger of certain units of NIIT and vesting of the same in the Appellant, on the incorrect premise that such deduction is allowable only in the hands of the demerged company (NIIT) and not the resulting company (Appellant)?
(ii) Whether on the facts and in the circumstances of the case, the Tribunal erred in law in sustaining and not deleting the disallowance under Section 14A of the Act, to the extent of 0.5% of [the] average value of investments which yielded exempt income during the year?”
Questions of law framed in ITA 215/2020
“(i) Whether on the facts and in the circumstances of the case, the Tribunal erred in law in not deleting in-toto the disallowance of one-time commuted/discounted lease rent amounting to Rs. 77,98,042/- (equivalent to 11 times annual rent) made by the assessing officer?
(ii) Whether the Tribunal erred in law in travelling beyond the scope of the appeal and the case set-up by the assessing officer/CIT(A) and argued by the Revenue, contrary to the mandate of Section 254 of the Act, and that too, without confronting the said reasoning/basis to the Appellant (through its counsel) at the time of hearing?”
Background facts: –
2. Before we proceed further to adjudicate upon the questions of law framed in the captioned appeals, the following broad facts are required to be noticed in each of the appeals.
ITA 213/2020
3. The appellant/assessee had filed its return for AY 2007-2008, on 30.10.2007, declaring its taxable income as Rs.1,03,47,200/-. Via this return, deduction of Rs. 1,06,43,88,624/- was claimed under Section 10B of the Income Tax Act, 1961 [in short “Act”].
3.1. The assessment concerning the appellant/assessee was framed under Section 143(3) of the Act. An order to that effect was passed on 30.12.2010, wherein the appellant/assessee‟s taxable income was assessed at Rs. 36,28,88,570/-. The assessing officer [in short “AO”] while passing the assessment order, inter alia, made the following disallowances.
i. The amortised legal and professional expenses amounting to Rs.44,00,739/-; being 1/5th of the total amount incurred under this head i.e. Rs.2,20,03,694/- in the AY 2004-05, in connection with demerger. The deduction was claimed by the appellant/assessee under Section 35DD of the Act.
ii. Disallowance of Rs. 1,79,17,211/-; this disallowance was ordered by the AO based on the provisions of Section 14A of the Act and Rule 8D of the Income Tax Rules, 1962 [in short “Rules”]. Although, the appellant/assessee suo motu disallowed an amount of Rs. 5,62,842/-, no findings were returned by the AO qua the same in the assessment order. The break-up of the said figure is detailed out hereafter.
