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TMI Blog2012 (7) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... officer for the next year. - ITA No. 205/2010, ITA 163/2011, ITA 1215/2011 & ITA 1216/2011 - - - Dated:- 12-7-2012 - MR. JUSTICE S. RAVINDRA BHAT, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Mr. S.Ganesh, Sr. Advocate with Ms. Surekha Raman and Mr. Anuj Sharma, Advocates For Respondent : Mr.Sanjeev Sabharwal, Sr. Standing Counsel with Mr. Puneet Gupta, Jr. Standing Counsel MR. JUSTICE S. RAVINDRA BHAT 1. The following question of law was framed for consideration by this Court: Did not the Tribunal commit a patent error of law in holding that the amortization of lease premium paid by the appellant was capital expenditure and not revenue expenditure? 2. The facts necessary to decide this case are that this appeal pertains to the assessment year 2004-05 for which the order of assessment was framed by the Deputy Commissioner of Income Tax, Circle 24(1), New Delhi, in terms of Section 143 (3) of the Income-tax Act, 1961 ( the Act ) on 26.12.2006. The assesse claimed a deduction of Rs. 2,75,045/-, being the amount written off towards premium paid to the NOIDA. It was urged that the expenditure did not confer any ownership right to the assesse, and allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. 5. The assesse appealed to the CIT (Appeals) before whom assesse relied on the decision of the Supreme Court in the case of CIT vs. Madras Auto Service (P) Ltd. (1998) 233 ITR 468. The CIT(Appeals) considered the facts of the case and submissions made before him. The order of the CIT (A) mentions that a similar issue was considered by a Special Bench of the Mumbai Tribunal in Mukund Limited (2007) 291 ITR (AT) 249. There, the assessee entered into an agreement with Maharastra Industrial Development Corporation (MIDC) to set up its factory. The lease period was 99 years; the assessee had paid a sum of Rs. 2.04 crores as premium to the MIDC. It was allowed to construct a factory building on the land and utilize it for 99 years. Apart from the premium, the assesse also had to pay rent at Re. 1/- per annum. The premium was non-refundable. The Court concluded that the premium was not advance payment of rent and there was no material on record to show that the payment was made for securing reduction in rent payable in coming years. The expenditure was treated to be capital in nature. The CIT (Appeals) relied on the judgments of this Court in Dabur India Ltd. vs. CIT (2008) 13 DTR (D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Co. Ltd. vs. CIT (1980) 124 ITR 1, relied upon by the learned counsel, the facts are that a time arrangement was entered into between members and the association to restrict the number of working hours per week. The members were entitled to transfer wholly or partly their allotted hours to any other member for a consideration. The question was whether the expenditure was of capital nature or revenue nature. The Hon‟ble Court held that the allotment of loom hours was not any right conferred on any mill, but it was only a contractual limitation on the use of loom hours, so that the transferee mill could work its looms for longer period. The expenditure was incurred for removing the restriction with a view to increase its profits. No new asset was created and there was no expansion or addition to the profit making apparatus of the assessee. Thus, the expenditure was revenue in nature. The Court also held that there may be instances where the expenditure may be incurred for obtaining an advantage of enduring nature, but nonetheless the expenditure is on revenue account and this test may fail. It is not every advantage of enduring nature which leads to an advantage in the capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above the payment of premium. The assessee also obtained certain ownership rights in land. Thus, it is held that the expenditure is revenue in nature. 4.1 Coming to the issue of consistency, it may be mentioned that the same is not applicable in every case, more so when the point of view of the Revenue was contrary to law in earlier year, although in favour of the assessee. In the case of Jyoti Apparels (supra), the jurisdictional High Court did not accept this argument as it was found contrary to its own decision in the case of Shri Ram Honda Power Equip Ors. (2007) 207 CTR (Del) 689. Therefore, the principle of consistency cannot be taken to be of universal applicability and it may fail where the earlier decision taken by the Revenue was not correct in law. 4.2 In the result, these grounds are dismissed. 7. Mr. S. Ganesh, learned senior counsel for the assesse relied on the terms of the lease deed between NOIDA and the assesse. The agreement stipulated payment of premium of Rs.2,53,96,993/-. The assesse also had to pay annual lease rent @ 2.5 per cent of the total premium amount payable, which was subject to enhancement every 12 years; however that the rent could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructing a building which belonged to somebody else and spending money for such construction? The assessee got a long lease of a newly constructed building suitable to its own business at a very concessional rent. The expenditure, therefore, was made in order to secure a long lease of new and more suitable business premises at a lower rent. In other words, the assessee made substantial savings in monthly rent for a period of 39 years by expending these amounts. The saving in expenditure was saving in revenue expenditure in the form of rent. Whatever substitutes for revenue expenditure should normally be considered as revenue expenditure. Moreover, assessee in the present case did not get any capital asset by spending the said amounts. The assessee, therefore, could not have claimed any depreciation. Looking to the nature of the advantage which the assessee obtained in a commercial sense, the expenditure appears to be revenue expenditure. It was argued that the test for distinguishing between capital expenditure and revenue expenditure had been evolved in Assam Bengal Cement Co. Ltd. v Commissioner of Income Tax, West Bengal [1955] 27 ITR 34(SC), a decision noticed and applied in M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and use it in accordance with the land use, i.e. industrial/commercial purpose. If it desired to transfer its rights, the conditions precedent were minimal, and in accord with state policies uniformly applied to all. The counsel for revenue submitted that the annual amounts sought to be amortized could not be permitted, as the lump sum lease premium secured an asset of enduring value. Counsel submitted that as regards the argument that the Tribunal should have followed the rule of consistency is concerned, the decision in Radhasaomi Satsang itself is authority that there is no res judicata in tax matters. The rule indicated in that case, would have extremely limited application, and cannot be relied on in this case. Counsel relied on the judgment of the Special Bench of the ITAT in Jt. Commissioner of IT v Mukund Ltd 2007 (291) ITR 249 (Mum) and urged that payment of lease premium creates an asset of enduring value, which cannot be amortized as the assesse seeks to do in this case. 11. In the earliest decision of the Supreme Court, i.e. Assam Bengal Cement Co. Ltd (supra) the proper test applicable in such cases, to determine whether an expenditure is capital or revenue in natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 latter 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 others 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. Bearing the said principles in mind let us scrutinize the lease deed dated March 31, 1950. Under that document interest in two large tea estates comprising 320 acres and 305 acres respectively under tea, along with the bungalows, factory buildings, houses, godowns, cooly lines and other erections and structures, was parted by the lessor to the lessee for a period of 10 years; and during that period the lessee could enjoy the said tea estates in the manner prescribed in the document. Under the document, therefore, there was a transfer of substantive intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was demised for 30 years. The lessees agreed to pay Rs. 55,200 towards cost of erecting cinema and also pay monthly rent. The Income tax authorities treated the amount as assessee's income, since the lease was not permanent and the premium (salami) had been fixed as advance payment of rent and therefore, was treated as revenue receipt. The Supreme Court reversed the findings, holding that there was no material to show that the amount was paid by way of advance rent and that decision of departmental authorities was based on conjectures and circumstances of case disclosed that the amount in question had all characteristics of capital payment and was not revenue. It was held that: 5. It seems to us that the departmental authorities as well as the High Court were in error in treating the amount of Rs. 55,200/- as advance payment of rent. The lease by which the cinema house was demised did not contain any condition or stipulation from which it could be inferred that the aforesaid amount had been paid by way of advance rent. The transaction embodied in the indenture of lease was clearly business-like. The lessees wanted the building for running it as a cinema house and the lessor agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. As pointed out by Sir George Lowndes in the Commissioner of Income Tax, Bengal v. Messrs. Shaw Wallace Company, income in the Indian Income tax Act connotes a periodical monetary return, coming in with some sort of regularity or expected regularity from definite sources. The premium of salami which is paid once for all and is not recurring payment hardly satisfies this test. I concede that in some cases where the rent is ridiculously low and the premium abnormally high, it may be possible to argue that the premium includes advance rent....‟ It has not been even remotely suggested in the present case that the rent of Rs. 2100 per month was ridiculously low as compared with the amount of Rs. 55,200 paid in lump sum. It is true that the question whether premium is a capital or a revenue receipt cannot be decided as a pure question of law. Its decision necessarily depends upon the facts and circumstances of each case. It would not, however, be wrong to say that prima facie premium or salami is not income and it would be for the income tax authorities to show that facts exist which would make it a revenue receipt. There is another factor which is of substantial importance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is very nominal and by obtaining this land by lease the capital structure of the company has not been changed. . . . . . Thus, by this payment the assets of the assessee-company had not been increased because the land continued to be the land of GIDC. The benefit the assessee got is only of an advantage of carrying on the business more profitably by paying nominal rent on the land. The issue can be considered in another angle. It cannot be disputed that if the land is not obtained by the assessee it would not be possible for it to carry on the business . . " Facially, the High Court s judgment discloses that the reasoning of the Tribunal was affirmed. The Court held that: By obtaining the land on lease the capital structure of the assessee did not undergo any change. The assessee only acquired a facility to carry on business profitably by paying nominal lease rent. In the light of the aforesaid findings of fact and the ratio of the apex court decisions, the court does not find this to be a case which warrants interference. Even the Assessing Officer has recorded that the payment was for use of land. There is no legal infirmity committed by the Tribunal. The above extracts bea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 19. On these reasonings in the absence of any material change justifying the Revenue to take a different view of the matter-and if there was not change it was in support of the assesses-we do not think the question should have been reopened and contrary to what had been decided by the Commissioner of Income-Tax in the earlier proceedings, a different and contradictory stand should have been taken. This Court notices that there cannot be a wide application of the rule of consistency. In Radhasaomi itself, 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. This is consistent with the view of the Supreme Court that "there is no such thing as res judicata in income-tax matters" (Visheshwara Smgh v. Commissioner of Income Tax AIR 1961 SC 1062). Similarly, erroneous or mistaken view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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