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2021 (1) TMI 27 - AT - Income TaxDisallowance of Lease Deed Registration Charges - registration charge for a leased property - allowable expenditure u/s 37(1) or not? - HELD THAT - For the purpose of the payment of lease deed registration charges and stamp duty, Alok Industries will bring in the money into the joint venture. However, that does not mean that liability of the assessee does not exists for payment of stamp duty. In fact the source of the fund for payment of the stamp duty is by way of share capital and share premium from M/s. Alok Industries Ltd. Liability to pay the above sum remains with the assessee. Therefore, the above expenditure has to be incurred by the assessee and not by Alok Industries. Only the source of the funds in the joint venture company is to be provided by Alok Industries. When the leased premises are to be used for the purposes of business of the assessee, necessary lease registration charges are also liability of the assessee. Merely because Joint venture partners decides about who puts in money in J V for what purposes, it is merely that they are deciding about the sources of the funds, expenditure of J V may be financed out of that , but that does not make it the liabilities of J V partners, Instead of J V Itself. Therefore, in view of this we hold that the expenditure is incurred by the assessee for registration of lease deed. Therefore, such expenditure is allowable in the hands of the assessee under Section 37(1) of the Act. Hence the orders of the lower authorities are reversed and the Assessing Officer is directed to allow and delete the disallowance - Decided in favour of assessee.
Issues Involved:
1. Disallowance of ?12,08,861/- incurred towards Lease Deed Registration Charges. Issue-wise Detailed Analysis: 1. Disallowance of ?12,08,861/- incurred towards Lease Deed Registration Charges: The appeal was filed by the assessee company against the order confirming the disallowance of ?12,08,861/- incurred towards Lease Deed Registration Charges for the Assessment Year 2013-14. The assessee is a joint venture company engaged in trading and manufacturing of garments, with 51% shareholding by National Textile Corporation and 49% by Alok Industries Ltd. The assessee filed its return of income declaring a total income of ?5,37,36,880/-. The assessment under Section 143(3) of the Income Tax Act, 1961 was completed, determining the total taxable income at ?5,49,45,741/-, with the only addition being the disallowance of registration charges of ?12,08,861/- for a leased property. The assessee appealed to the CIT (Appeals), who confirmed the disallowance. The CIT (Appeals) noted that the assessee had claimed depreciation of ?47,72,435/-, including ?12,08,861/-, which was not allowable as per the Auditor’s report. The CIT (Appeals) observed that the stamp duty paid by the assessee was recoverable from Alok Industries Ltd. as per the Share Subscription and Shareholders’ Agreement, and therefore, the expenditure on stamp duty could not be considered the assessee’s liability. The CIT (Appeals) referenced the tripartite agreement, which stated that all government and statutory duties, including stamp duties, were to be borne by the strategic partner, Alok Industries Ltd. Consequently, the liability for stamp duty did not accrue to the assessee but to Alok Industries Ltd., leading to the disallowance of the ?12,08,861/- claimed by the assessee. Despite notice, none appeared on behalf of the assessee during the appellate proceedings. The Departmental Representative supported the lower authorities' order. Upon reviewing the facts, it was found that the National Textile Corporation provided its factory premises to the assessee at a yearly rent of ?100/-, and Alok Industries was to bring additional funds into the company for registration payments, treated as share premium and share capital. The lower authorities held that the payment of registration charges and stamp duty was Alok Industries’ liability, thus disallowing the sum. However, the Tribunal found that while Alok Industries provided the funds, the liability to pay the stamp duty remained with the assessee. The source of funds being share capital and share premium from Alok Industries did not negate the assessee's liability. The Tribunal concluded that the expenditure was incurred by the assessee for registration of the lease deed, making it allowable under Section 37(1) of the Act. Therefore, the Tribunal reversed the orders of the lower authorities and directed the Assessing Officer to allow the expenditure and delete the disallowance of ?12,08,861/-. The appeal of the assessee was allowed. Conclusion: The Tribunal allowed the appeal, holding that the expenditure on Lease Deed Registration Charges was incurred by the assessee and was allowable under Section 37(1) of the Income Tax Act, 1961. The disallowance of ?12,08,861/- was deleted, and the appeal was decided in favor of the assessee.
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