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2012 (7) TMI 526 - HC - Income TaxAmortization of lease premium paid by the appellant - whether a capital expenditure or revenue expenditure ? - Whether lease premium paid Noida Authority is to be treated as advance rent? - held that - the payment of premium was separate and distinct from rent, and for the purpose of securing the land, a capital asset, for use of the assessee for a long period with certain proprietary right including the right over any asset found under the land - The amount was not refundable as in this case and, therefore, the same could not be considered to be advance payment of rent - against assessee. Rule of consistency - for the period of about 15 years, the income tax authorities had accepted the assesse s submissions and permitted annual amortization of the initial lease consideration, as advance rent. - held that - This Court notices that there cannot be a wide application of the rule of consistency. In Radhasaomi (1991 (11) TMI 2), the Supreme Court acknowledged that there is no res judicata, as regards assessment orders, and assessments for one year may not bind the officer for the next year.
Issues Involved:
1. Whether the amortization of lease premium paid by the appellant was capital expenditure or revenue expenditure. 2. Applicability of the principle of consistency in tax assessments. Analysis: 1. Nature of Lease Premium: Capital or Revenue Expenditure The primary issue was whether the lease premium paid by the appellant should be classified as capital expenditure or revenue expenditure. The appellant claimed a deduction of Rs. 2,75,045/- for the amortized lease premium paid to NOIDA, arguing that it was revenue in nature since it did not confer ownership rights but allowed the use of land for office construction. Tribunal's Findings: - The lease agreement with NOIDA was for 90 years, with a premium of Rs. 2,53,96,993/- paid upfront and annual rent at 2.5% of the premium. - The Tribunal held that the lease conferred a benefit of enduring nature and thus was capital expenditure. The premium paid was not advance rent but a one-time payment securing a long-term asset. CIT (Appeals) and ITAT Rulings: - The CIT (Appeals) and ITAT both upheld the assessment, stating that the lease premium was capital in nature. They referenced similar cases like Mukund Limited, where long-term lease premiums were treated as capital expenditure. - The ITAT distinguished the appellant's case from others like Gemini Arts (P) Ltd. and Madras Auto Service (P) Ltd., where lump sum payments were treated as advance rent due to specific lease terms and circumstances. Court's Analysis: - The Court examined the lease terms, noting the substantial payment made upfront and the nominal annual rent. It found no evidence to support the claim that the premium was advance rent. - The Court referenced the Supreme Court's decisions in Assam Bengal Cement Co. Ltd. and Panbari Tea Co. Ltd., which clarified that payments for acquiring long-term benefits or interests in property are capital expenditures. - The Court concluded that the lease premium created an enduring asset and thus was capital expenditure, not amortizable as revenue expenditure. 2. Principle of Consistency The appellant argued that the principle of consistency should apply since the amortization of the lease premium had been accepted for over 15 years. Tribunal's Position: - The ITAT rejected the principle of consistency, citing that it is not universally applicable, especially when previous assessments were contrary to law. Court's Analysis: - The Court acknowledged the principle of consistency as outlined in Radhasaomi Satsang but emphasized that it is not absolute and does not override legal correctness. - The Court highlighted that erroneous views in previous assessments do not bind tax authorities to repeat them, as consistency must yield to the correct application of law. Conclusion The Court upheld the Tribunal's decision, concluding that the lease premium paid by the appellant was capital expenditure and not revenue expenditure. The principle of consistency was deemed inapplicable in this case due to the legal correctness of treating the lease premium as capital expenditure. The appeals were dismissed, affirming the revenue's stance.
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