INCOME TAX ACT, 1961

Section 37(1)

Capital or revenue expenditure - Lease payment in advance - Leased period varied from 15 to 99 years -

Assessee had made payment for lease period varied from 15 to 99 years and the proportionate amount of lease premium, spread over the lease period, was claimed by it as deduction in arriving at its business income on the plea that the lease premium paid was nothing but upfront payment of lease rent. In the assessment order the AO held that the amount was spent to acquire leasehold right for a long period, which was capital asset, and the benefit enjoyed by the assessee in the form of leasehold right was enduring in nature. CIT(A) deleted the disallowance. Held: The lease premium paid did not constitute capital expenditure but it was a revenue expenditure because by incurring such expenditure the assessees did not acquire any asset but only facilitated carrying on the business more profitably by paying token rent. Nature of lease premium paid was revenue in nature and therefore allowable in computing business income. In the circumstances once the nature of payment is found to be for the purpose of carrying on business and not to acquire capital asset, then such expenditure had to be considered to be in the revenue field and therefore, allowable as per the method of accounting followed by the assessee.

Relied:Jt. CIT v. Mukund Ltd. (2007) 291 ITR 249 (Mum) : 2007 TaxPub(DT) 1600 (Mum-Trib), Dy. CIT v. Sun Pharmaceuticals Industries Ltd. (2010) 329 ITR 479 (Guj) : 2010 TaxPub(DT) 420 (Guj-HC), Asstt. CIT v. Delhi International Airport (P) Ltd, dated 14-12-2017 in ITA Nos. 2720/Del/2011 and CIT v. HMT Ltd. (1993) 203 ITR 820 (Karn) : 1993 TaxPub(DT) 915 (Karn-HC). Followed:CIT v. Madras Industrial Investment Corporation (1997) 225 ITR 802 (SC) : 1997 TaxPub(DT) 1209 (SC) and CIT v. Madras Auto Service (1998) 233 ITR 468 (SC) : 1998 TaxPub(DT) 1407 (SC).

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