2019 (7) TMI 1498 - HC - Income Tax

Proportionate rent in respect of amortization of payment for acquisition of leasehold rights - HELD THAT - As decided in MUKUND LTD. 2007 (2) TMI 358 - ITAT MUMBAI in case of termination of lease, the premium was non-refundable and, therefore, the same could not be considered as advance payment of rent. There was no clause in the agreement to show that the amount of ₹ 2.04 crore was paid by the assessee as advance rent for all future years and the lump sum payment of future years rent had been paid to avail some concession for advance payment of rent or for some other business consideration. The land in question was inheritable also as per the terms and conditions of the agreement with the MIDC. Therefore, the consideration of ₹ 2.04 crore was paid to the MIDC as a price for obtaining the leasehold rights for a period of 99 years from the MIDC in favour of the assessee. Parties will be heard whether this is a case for restoration of the matter to the Tribunal for finding on facts.

Summary

Issues: Disallowance of advance rent payment amortized each year based on Special Bench judgment of Tribunal.

In this case, the High Court of Calcutta addressed the issue of disallowance of advance rent payment made by the client-assessee and subsequently amortized each year. The Tribunal had disallowed the deduction based on a Special Bench judgment in a previous case. The Court noted that the Special Bench found that the amount paid was a 'premium' for acquisition of leasehold rights, which was non-refundable in case of lease termination. The Court observed that there was no clause indicating that the amount was paid as advance rent for future years. The consideration was deemed a price for obtaining leasehold rights for 99 years. The Court directed the parties to present arguments on whether the matter should be restored to the Tribunal for factual determination. The case was listed for further hearing on 1st August, 2019.

This judgment highlights the importance of the specific terms of agreements in determining the nature of payments made, particularly in the context of leasehold rights. It underscores the significance of contractual language in distinguishing between advance rent payments and non-refundable premiums for specific rights. The decision indicates the need for a thorough examination of the contractual provisions to ascertain the true nature of payments and their tax treatment. The Court's direction for a potential restoration of the matter to the Tribunal emphasizes the importance of factual findings in such cases to ensure a fair and accurate assessment based on the specifics of each situation.