INCOME TAX ACT, 1961

Section 4 r/w Section 5

Income - Matching principle - Construction and infra cost of land leased to leasee -

The issue raised before Tribunal was the application of matching principle in case the lease premium was to be treated as income of assessee in the year in which the assessee entered into agreement with the lessee. The assessee had offered 99 years premium spread over the entire life of lease agreement period of 99 years, i.e., 1/99th of amount was offered in its hands. Since it was only offering 1/99th of lease premium in each of the year, the assessee had not claimed any land cost, constructed area cost or infra cost and also depreciation on various items. Undoubtedly, the assessee had purchased the piece of land in earlier years, i.e., the years of regime of 10(20A) exemption. The assessee had developed part of the land for establishing a township in the area and out of balance part, some plots of lands were carved out and sold to individual lessees; on other portion of land, the assessee had constructed tenements which were again leased to various lessees. Held: The concept of matching principle requires that when the revenue is assessed in the hands of assessee, then corresponding expenditure needs to be appropriated and allowed as deduction, as what is to be taxed in the hands of assessee is 'income' and not the 'total revenue' earned by it. There was merit in the plea of assessee in application of matching principle of claim of expenditure on account of various items. Even after 1-4-2002 in the return of income, the assessee had not claimed any such land cost or constructed cost, since it had offered the lease premia in the form of rent in its hands from year to year. It was only after the order passed under section 263, lease premia in totality was assessed in the hands of assessee in the year in which the assessee had entered into agreement of lease. The corresponding fall out to which is that the concept of matching principle has to be applied and where the assessee had entered into agreement to lease, then the cost of said assets needs to be allowed as deduction in its hands.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2003-04 to 2005-06 & 2008-09

INCOME TAX ACT, 1961

Section 11(1)(a) r/w Section 32(4)

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