Multitude Infrastructure Pvt. Ltd. Vs DCIT (ITAT Delhi)
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 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.
FULL TEXT OF THE ITAT JUDGEMENT
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 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 taxguru.in Officer made the following disallowances while passing Assessment Order dated 18.03.2015 u/s 143(3) of the Act:
