2022 (9) TMI 54 - HC - Income Tax

Nature of expenditure - expenditure incurred towards lease deed registration - revenue or capital expenditure - whether the Tribunal was justified in law in not directing the lower authorities to allow depreciation / amortization on the expenditure treated by them as a capital expenditure? - HELD THAT - There is no dispute with regard to the fact that monthly rent payable by any assessee is to be treated as revenue expenditure. Law requires that if the period is more than one year, the lease deed must be registered under Section 17B of the Registration Act, 1908. Further, based on the monthly rent and the security deposit, ad valorem stamp duty will have to be paid. Thus, the intention of the parties namely, lessor and lessee are clear that the lessee shall take premises by paying rents every month for a certain period. In the case of PLANTATION CORPORATION 1993 (6) TMI 46 - KERALA HIGH COURT following the decision of Bombay High Court in CINCIETA PVT. LTD. 1982 (2) TMI 58 - BOMBAY HIGH COURT has recorded that the Allahabad, Calcutta and Karnataka High Courts, while rendering the decisions in United Commercial Corporation V. CIT 1970 (8) TMI 10 - ALLAHABAD HIGH COURT , Gobind Sugar Mills Ltd. 1978 (8) TMI 65 - CALCUTTA HIGH COURT and Hotel Rajmahal 1984 (3) TMI 24 - KARNATAKA HIGH COURT did not have the advantage of the liberal and pragmatic approach made by the Supreme Court in three decisions which we have referred to above and held that the stamp duty and registration charges as revenue expenditure. Thus question of law raised by the assessee is answered in favour of the assessee by holding that the expenditure made towards stamp duty and registration charges as revenue expenditure and against the revenue.

Summary

Issues:
1. Whether the expenditure incurred towards lease deed registration is revenue or capital in nature?
2. Whether depreciation/amortization should be allowed on the expenditure treated as capital expenditure?

Analysis:

Issue 1:
The appellant, a doctor, entered into a lease agreement for a building and claimed stamp duty and registration fee as revenue expenditure for the Assessment Year 2010-11. The Assessing Officer rejected the claim, which was upheld by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. The appellant argued that the expenditure should be treated as revenue since it was incidental to taking the premises on monthly rent. The appellant cited precedents where similar expenditures were treated as revenue. The Revenue contended that each case should be decided based on its facts, referencing a Supreme Court decision. The court examined the lease deed, noted the monthly rent, and confirmed that monthly rent is revenue expenditure. It also highlighted the legal requirement for registration of lease deeds lasting over a year. Referring to precedents, the court found in favor of the appellant, holding that the stamp duty and registration charges were revenue expenditure.

Issue 2:
The court considered whether depreciation/amortization should be allowed on the expenditure treated as capital. Citing precedents, the court noted that there is no fixed formula to determine the nature of expenditure and each case must be decided based on its facts. Since the court found the expenditure to be revenue in nature, the question of allowing depreciation/amortization on capital expenditure did not survive for consideration. Consequently, the court allowed the appeal, holding that the expenditure on stamp duty and registration charges should be treated as revenue expenditure. No costs were awarded in the case.