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TMI Blog2004 (7) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... cer be restored. 5. The appellant craves leave to add, amend, or alter any of the above grounds of appeal." 2. As far as ground No. 1 is concerned, the issue is whether the lump sum payment made by the assessee to Maharashtra Industrial Development Corpn. (MIDC) as per the lease agreement is to be considered as capital expenditure being the payment for acquisition of lease-hold rights in the land for a period of 99 years or to be considered as advance rent in the nature of revenue expenditure. 3. Briefly stated the facts are these: In the year under consideration, the assessee had obtained MIDC land at Mahad on 99 years lease after payment of Rs. 14,40,000. This amount was shown in the Balance Sheet under the head "fixed assets" as leasehold land. In the original return, no claim was made by the assessee for any deduction on this amount, but in the revised return filed by the assessee on 28-3-1995 claimed the deduction of Rs. 14,40,000 as revenue expenses considering the same as advance rent relying on the judgment of Karnataka High Court in the case of CIT v. HMT Ltd. [1993] 203 ITR 820. The Assessing Officer rejected the claim of the assessee by observing that the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther, reliance was placed by him on the Madras High Court judgment in the case of CIT v. Gemini Arts (P.) Ltd. [2002] 254 ITR 201 wherein lump sum payment made for taking premises on lease for 48 years was held to be revenue expenditure. In the course of hearing a query was also raised from the Bench to the effect that if it is assumed that lump sum payment was advance rent than why proportionate amount relateable to the year under consideration only should not be allowed as deduction. In response to the same, the ld. counsel for the assessee submitted that there is no concept of deferred revenue expenditure under Income-tax Act in view of the Allahabad High Court judgment in the case of Hindustan Commercial Bank Ltd., In re [1952] 21 ITR 353. Lastly it was contended that even assuming that two views are possible then the view in favour of the assessee should be accepted in view of the Supreme Court judgment in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. 6. In the rejoinder, ld. DR stated that for all purposes, it was a case of acquisition of leasehold rights and all responsibilities of the owner were conferred on the lessee since the assessee was required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions to the transferor by the transferee, who accepts the transfer on such terms. The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent. The section, therefore, brings out the distinction between a price paid for a transfer of a right to enjoy the property and the rent to be paid periodically to the lessor. When the interest of the lessor is parted with for a price, the price paid is premium or salami. But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. The former is a capital income and the later a revenue receipt. There may be circumstances where the parties may camouflage the real nature of the transaction by using clever phraseology. In some cases, the so-called premium is in fact advance rent and in other rent is deferred price. It is not the form but the substance of the transaction that matters. The nomenclature used may not be decisive or conclusive but it helps the court, having regard to the other circumstances, to ascertain the intention of the parties." 11. Again the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eates only a license in favour of the assessee to enter upon the piece of land for the purpose of building and executing works thereon within a period of two years. This is provided in clause (1) of the agreement. The building is to be constructed on such land must be in accordance with the building rules. According to clause 5(II) if, the assessee fails to complete the construction of the building within a period of two years or fails to observe the stipulation provided in the agreement, the MIDC has right to terminate the agreement without making any refund or repayment of the premium paid by the assessee. However, if the assessee fulfils the conditions of the agreement, the parties are under obligation to enter into an agreement of lease, the specimen of which is provided in the Fourth Schedule to the agreement against the payment of yearly rent of Rs. 1 for a period of 95 years. Clause (2) of the agreement specifically provides that unless lease agreement is executed, nothing contained in this agreement shall be construed as demise of the land and the assessee shall only have a license to enter upon the land for the purpose of the agreement." 13.1 In that case also the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e High Court also took into consideration the confession by the revenue that the agreement created a lease in favour of the assessee, but in the present case, we have found that the agreement itself does not create any lease in favour of the assessee. It is merely agreement of license for a specified purpose. In fact, the lease Agreement is executed later on, on the format provided in the fourth schedule of the agreement if conditions provided in the agreement of license are fulfilled. The High Court has also referred to the decision of the Supreme Court in the case of Empire Jute Co. Ltd. Their Lordships in that case have held at page 10 that sometimes test of enduring benefit may break down, if such payment facilities, the trading operation or the management of the business. It has also beep held that if the advantage is in the capital field, then it cannot be allowed as revenue expenditure. If this test is applied, then the assessee cannot succeed because the payment of premium does not help the assessee either in the trading operation or in the management of the assessee's business. On the contrary, the enduring benefit is in the capital field. 8. The learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see of the mineral rights and after deducting this amount from the salami, he assessed the balance to tax as capital gains under section 12B of the said Act. It was held by the Patna High Court that the gains arising from the said transaction were rightly taxed. This decision has been cited without comment by Kanga and Palkhivala in their Commentary on the Law and Practice of Income-tea (7th Edition) at page 550, and no case to the contrary has been cited in the said text book or has been brought to our attention. It is true that the decision of the Patna High Court in Traders and Miners Ltd v. CIT [1955] 27 ITR 314. It relates to the cased of mining lease, but, to our mind, the principle laid down in that case can well be applied to the case before us. In the first place, the lease is for a long period, namely, 99 years, and hence it would appear that under the leases in question, the assessee has parted with an asset of an enduring nature, namely, the rights to possession and enjoyment of the properties leased for a period of 99 years subject to certain conditions on which the respective leases could be terminated. A premium has been charged by the assessee in all the leases. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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