9911796707
TMI Blog2012 (7) TMI 526X X X X Extracts X X X X X X X X Extracts X X X X ..... s premium paid to the NOIDA. It was urged that the expenditure did not confer any ownership right to the assesse, and allowed it to use the land for the purpose of construction of its office. The assesse contended that the expenditure was revenue in character. The assesse also urged that similar amounts were allowed in earlier years - right from inception of the lease, i.e. 1989 and, argued that it should have been allowed in the relevant year too following the principle of consistency. 3. The assesse had entered into a lease agreement with NOIDA on 06.01.1989 for by which the land in question was demised for a period of 90 years. The assesse was entitled to construct an office complex on the land. The assesse was required to pay premium of Rs. 2,53,96,993/- to NOIDA at the time of the allotment, or demise. In addition, under the lease deed, the assesse had to pay annual lease rent @ 2.5 per cent of the premium. The lease rent could be enhanced after 12 years. The assesse amortized the expenditure by way of premium over the period of lease, and claimed deduction of Rs. 2,75,045/- in the assessment year. The land had been earlier acquired by the NOIDA under Land Acquisition Act, 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be capital in nature. The CIT (Appeals) relied on the judgments of this Court in Dabur India Ltd. vs. CIT (2008) 13 DTR (Del) 34 and CIT vs. Jyoti Apparels (2007) 209 CTR (Del) 288 to say that the principle of consistency was inapplicable. Therefore, it was held that the expenditure was capital in nature not deductible in computing the income. 6. The assesse appealed to the Income Tax Appellate Tribunal, and reiterated its contentions, citing all the judgments it had relied on before the CIT (Appeals). After analyzing them, and also considering the terms of the lease with NOIDA the ITAT rejected the assesse's appeal. It was held, inter alia, in the impugned order, that: "4. We have considered the facts of the case and rival submissions. We may briefly state the terms and conditions of the lease deed dated 06.01.1989 entered into between the NOIDA and the assessee. The assessee was required to pay premium of Rs. 2,53,96,993/- and annual rent @ 2.5 per cent of the premium amount. The lease commenced w.e.f. 06.01.1989 and it was for a period 90 years. The assessee was entitled to set up an office complex on the land and make arrangements to lay water main and electricity wiring. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue account and this test may fail. It is not every advantage of enduring nature which leads to an advantage in the capital field. If the advantage is merely for facilitating the trading operation, the same is in the revenue field. We are of the view that the ratio of that decision is also not applicable to the facts of this case. There are many reasons for the same. First of all, in this case, the land was taken on a long-term lease for setting up the business of the assessee. It had nothing to do with the number of hours for which the assessee could work its office. The expenditure not only brought a benefit of enduring nature but also conferred proprietary rights on the assessee as the land could be transferred to a third party with the payment of 50 per cent of unearned increase to NOIDA. The land could also be mortgaged for raising loan. In such an eventuality the pre-emptive right to purchase was vested in NOIDA. The payment was not by way of rent as the rent was to be paid separately, which could also be increased. Thus, the payment of premium was separate and distinct from rent, and for the purpose of securing the land, a capital asset, for use of the assessee for a long pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent of the total premium amount payable, which was subject to enhancement every 12 years; however that the rent could not exceed 50 per cent of the rent last fixed. The assesse was entitled to construct an office complex, but had limitations in respect of the right to lay water mains, drainage sewerage and electrical wire under or above the premises. It did not have title to all mines and minerals in and under the demised premises or any part thereof. The assesse was not entitled to transfer the plot of land before erection of building without prior permission of the NOIDA. In case of transfer, 50 per cent of the difference between the premium paid and market value thereof at the time of transfer was payable to NOIDA. The assesse could borrow monies by mortgaging the land. NOIDA had pre-emptive right to purchase the mortgaged property after deducting such percentage (as decided by it) as unearned increase. NOIDA was also entitled to determine the lease if any of the conditions stipulated in the lease, or the prevailing bye-laws, regulations, etc were violated. Counsel argued that the lease agreement stipulated payment of premium and rent. The premium was amortized over the period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssam Bengal Cement Co. Ltd. v Commissioner of Income Tax, West Bengal [1955] 27 ITR 34(SC), a decision noticed and applied in Madras Auto . 9. Counsel argued that the initial lease premium was in reality towards advance rent, and the amount payable as annual rent every year, having regard to the totality of circumstances, was a pittance. The said annual amount was highly depressed, because the advance lease amount had been paid up front, in 1989. Such expenditure therefore would have to be treated as revenue expenditure. If the payment is made in lump sum for the entire period of lease, the nature of the payment does not change and it remains revenue expenditure. Learned counsel also relied on the judgment reported as Madras Industrial Investment Corporation Ltd. vs. CIT (1997) 225 ITR 802. There the assesse raised debentures at discount which amounted to Rs.3.00 lakhs. The assesse wrote off a proportionate amount (of the discount in its books of account) and claimed it as revenue expenditure. The court held that the liability to pay the discounted amount over and above the amount received was incurred for generating funds for the business of the assesse. This expenditure was reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd (supra) the proper test applicable in such cases, to determine whether an expenditure is capital or revenue in nature, was described as follows: "If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset (or) advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure." In Commissioner of Income Tax v. Panbari Tea Co. Ltd. (1965) 57 ITR 422 (SC), the Supreme Court had occasion to consider precisely a question of the kind sought to be urged in this case. The assesse had acquired, by a registered lease deed two tea estates with machinery and buildings for a period of 10 years. The lease was executed in consideration of a sum of Rs. 2,25,000 as and by way of premium and an annual rent of Rs. 54,000 to be paid by the lessee to the lessor. The premium was payable in Rs. 45,000 as one lump sum at the time of the execution of the lease deed and the balance of Rs. 1,80,000 in 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... states in the manner prescribed in the document. Under the document, therefore, there was a transfer of substantive interest of the lessor in the estates to the lessee and a conferment of a right on the lessee to use the said estates by exploiting the same. Under clause 4 of the lease deed for the transfer of the right a premium of Rs. 2,25,000 had to be paid to the lessor and for using the estates the lessee had to pay an annual rent of Rs. 54,000. Both the premium and the rent were payable in installments in the manner provided in the document. The parties were businessmen presumably wellversed in the working of tea estates. They must be assumed to have known the difference between the two expressions "premium" and "rent"; and they had designedly used those two expressions to connote two different payments. The annual rent fixed was a considerable sum of Rs. 54,000 and the premium, when spread over 10 years, would work out to Rs. 22,500 a year. There is no reason, therefore, to assume that the parties camouflaged their real intention and fixed a part of the rent in the shape of premium. The mere fact that the premium was made payable in installments cannot obviously be decisive o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of lease was clearly business-like. The lessees wanted the building for running it as a cinema house and the lessor agreed to give it to them but apparently represented that he did not have enough money to complete it in accordance with' the suggestions and requirement of the lessees. The lessees agreed to pay him the aforesaid amount by way of a lump sum without making any provision for its adjustment towards the rent or re-payment by the lessor. The essential question, however, is whether on the terms of the lease and in the absence of any other material or evidence could it be held that the sum of Rs. 55,200/-was paid by way of advance rental ? The view which has been expressed by the Tribunal as also the High Court that the lease was for a comparatively short period of thirty years and that the aforesaid amount had to be spread over that period by way of rent in addition to a rental of Rs. 2,100/- per month cannot be sustained as no foundation was laid for it by any cogent evidence. The departmental authorities can well be said to have based their decision on mere conjectures as there was nothing whatsoever to substantiate the suggestion that the real rental value of the cinema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o show that facts exist which would make it a revenue receipt. There is another factor which is of substantial importance in the present case. According to the terms of the lease the payment of rent was to commence not from the date of the lease which was February 23, 1946, but with effect from June 1, 1946. It is also not disputed that the lessees entered into possession after the cinema house had been completed which was subsequent to the date of the lease. These facts coupled with the payment of a lump sum which was of a non-recurring nature showed that the amount in question had all the characteristics of a capital payment and was not revenue. This would be in accord with the principles laid down by this Court in Member for the Board of Agricultural Income tax v Sindhurani Chaudhurani and Ors. [1957] 32 ITR 169 (SC) which was a case of settlement of agricultural land but in which the principles governing the payment of premium or salami have been fully discussed. 7. For the reasons given above we hold that the question which was referred to the High Court ought to have been answered in the negative and in favour of the assessee. The appeal is accordingly allowed with costs in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded that the payment was for use of land. There is no legal infirmity committed by the Tribunal." The above extracts bear out the previous observation of this Court that the reasoning in the judgments cited by the assesse were fact dependent, and contextual. 14. In the present case, what is apparent is that the lessee (assesse) paid a substantial amount (Rs. 2.53 crores) in 1989 at the time of entering into the transaction. It was a precondition for securing possession; the amount was one-time consideration in terms of the lease condition. In addition, the lessee has to pay 2.5% of the said amount as annual rent, which is subject to increase periodically. No doubt, the assesse argues that the annual rent is depressed, and does not reflect the market rent. However, there is no material to support this submission. Nor is there any material to support the argument that the amount of Rs. 2.53 crore paid over 23 years ago did not constitute the true and real consideration for creating an interest in the property. We also notice that the terms of the lease agreement stipulated that the registration and stamp duty and charges were borne by the lessee (assesse). In this background, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ta in income-tax matters" (Visheshwara Smgh v. Commissioner of Income Tax AIR 1961 SC 1062). Similarly, erroneous or mistaken views cannot fetter the authorities into repeating them, by application of a rule such as estoppel, for the reason that being an equitable principle, it has to yield to the mandate of law. A deeper reflection would show that blind adherence to the rule of consistency would lead to anomalous results, for the reason that it would engender the unequal application of laws, and direct the tax authorities to adopt varied interpretations, to suit individual assesses, subjective to their convenience, - a result at once debilitating and destructive of the rule of law. A previous Division Bench of this Court, in Rohitasava Chand v Commissioner of Income Tax 2008 (306) ITR 242(Del) had held that the rule of consistency cannot be of inflexible application.
16. In view of the above reasons, this court is of opinion that the reasoning and conclusions of the Tribunal do not call for interference. The question of law framed is answered accordingly, against the appellant, and in favour of the revenue. The appeals are dismissed, with no order as to costs. X X X X Extracts X X X X X X X X Extracts X X X X
|
