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TMI Blog2020 (12) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... l lease expenditure of ₹ 1,14,86,544/- is capital expenditure or not is squarely covered by the above decision of the Tribunal. Thus, respectfully following the same, we direct the learned Assessing Officer to work out the net disallowable expenditure in view of the direction of the Tribunal (supra) in assessment year 1992-93 to 2010-11. - ITA No.651/Del./2017 - - - Dated:- 11-8-2020 - Shri Bhavnesh Saini, Judicial Member And Shri O.P. Kant, Accountant Member For the Appellant : Shri S. Krishnan, Adv. For the Respondent : Shri H.K. Choudhary, CIT(DR) ORDER PER O.P. KANT, AM: This appeal by the assessee is directed against order dated 22/11/2016 passed by the learned CIT(Appeals)-8, New Delhi [in short the Learned CIT(A) ] for assessment year 2012-13 raising following ground: On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in confirming the action of Assessing Officer in disallowing lease rent in a sum of ₹ 55,41,611/-. The order being arbitrary, erroneous and unlawful must be quashed with directions for appropriate relief. 2. Both the parties appeared through videoconferencing facility and filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 3.1 The assessee in compliance to the order of the Hon ble High Court attributed different percentage of enhanced lease rentals towards revenue expenditure and worked out nil expenditure towards capital expenditure. Computation of the enhanced rent attributable to revenue nature and capital nature made by the assessee for the different years is reproduced as under: Computation of rent attributable to revenue nature and capital in nature AY Lease Charges Paid (A) Part of Lease rend fee for surrendering the right to purchase @15% on average purchase of Khair Wood (B) Fixed Amount of Lease Rent Normal escalation in fixed lease rent @11% plus basic lease charges Rend attributable to improvement and modernization of plant and machinery during assessment years 1990- 91 to 1995-96 @ 18% (D1) Normal escalation on (D1) @9.5% plus basic rent amount (D) Sum of rent attributable to revenue nature (E) {(E)=(B)=(C)=(D) Balance amount of rent attributable to capital nature [(F)=(A)-(E)] 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,83,945 6,34,683 2002-03 1,09,39,560 26,99,251 12,00,000 46,59,936 13,82,514 31,60,777 1,05,19,964 4,19,506 2003-04 1,14,86,544 26,99,251 12,00,000 51,72,529 13,82,514 34,61,051 1,13,32,831 1,53,713 2004-05 1,14,86,544 26,99,251 12,00,000 57,41,507 13,82,514 37,89,851 1,22,30,609 (7,44,065) 2005-06 1,14,86,544 26,99,251 12,00,000 63,73,072 13,82,514 41,49,887 1,32,22,210 (17,35,666) 2006-07 1,14,86,544 26,99,251 12,00,000 70,74,110 13,82,514 45,44,126 1,43,17,487 (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment years 1990-91 to 1995-96 12% {D) Sum of enhanced, lease rent to be taken as revenue in nature (E) [(E} - (B)+-(C)+(D)] Amount of rent enhanced lease to be treated as capita: nature (F) [(F) = (A)-(B)] 1992-93 17,25,000 4.49,875 15,000- 3,49,373 8,14,248 9,10,752 1993-94 69.00,000 17,99,501 75,750 7,38,541 26,13,792 42,86,208 1994-95 69,00,000 17.99.501 1,39,538 8,21,683 27,60,722 41,39,278 1995-96 69,00,000 17,99.501 2,06,514 9,21,676 29,27,691 39,72,305 1996-97 69,00,000 17.99,501 2,76,840 9,21,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010-11 1,02,86,544 17,99,501 17,24,042 9,21,676 44,45,219 58,41,325 2011-12 1,02,86,544 17,99.501 18,70,244 9,21,676 45,91,421 56,95,123 2012-13 1,02,86,544 17,99,501 20,23,756 9,21,676 47,44,933 55,41,611 3.2 We find that for the relevant assessment year 2012-13 the assessee has computed negative figure of ₹ 1,22,77,352/- towards capital expenditure whereas the Assessing Officer has worked out amount of ₹ 55,41,611/- towards capital expenditure. In the year under consideration, the Ld. CIT(A) has followed finding of his predecessor for assessment year 2011-12. In assessment year 2011-12 the authorities have followed their finding in earlier years. This dispute of attribution of enhanced lease rentals towards revenue and capital expenditure following the tests laid down by the Hon ble High Court f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um of the last year, whereas the learned Assessing Officer has held that it would be reasonable to adopt lease rental @5% per year. 15. Before us, the learned counsel submitted that the normal appreciation in rent in the case of commercial property is more than 10%, whereas the learned DR submitted that assessee could not produce any evidence from any competent local authority which can supply input, and therefore, such an escalation of 10% or 11% is not supported by any proper evidences. 16. From the judgment of the Hon'ble High Court, it is seen that the Hon'ble High Court held that the portion attributable to normal appreciation in line the lease rental prevailing in the market should be allowed for which the assessee has claimed should be 10% to 11% of the lease rent charged on last year as a escalation and Assessing Officer has restricted to 5%. Since, it is lease of a commercial property; therefore, the annual escalation would normally be more than the residential property. The assessee has given a comparison of property taken on lease with HPMC to show that comparatively assessee is paying more HPMC, and therefore, keeping in that benchmark the escalation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76 76,80,631 17.1 Assessee has claimed 18% of its investment done by the Trust for modernization and improvement of plant and machinery, building, etc. out of lease rent, whereas the Assessing Officer has restricted it to 12% on the ground that 12% of interest on investment is the proper benchmark. 18. Before us, the ld. counsel for the assessee had given SBI BPLR to point out that 1992-93 when lending rate was 12% and in Assessment Year 2010-11 it was 13%. He pointed out that if the wholesale price index is taken into consideration then annual variation of 18% is very reasonable. 19. The learned Department Representative on the other hand submitted that PLR takes into account inflation and devaluation of rupees taken on account and WPI cannot be made applicable here in this case. Thus, rent attributed by the Assessing Officer @12% is reasonable. 20. After considering the rival submissions and on perusal of the material facts on record, we find that the Hon'ble High Court has directed that enhancement of lease rent which is attributable to improvement and modernization of plant and machinery, building, etc. by the Trust has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure, because it is in the nature of intangible asset, we find substance in such a contention because part of the lease rent has been held to be on account of payment made to the Trust for not indulging in competition, i.e., it is in the form of non-compete fees and such a non-compete fee ostensibly falls in the category of commercial rights as defined in Section 32(1)(i), therefore, assessee is liable for depreciation from 1st April, 1998. In so far as the claim for entire non compete fee should be treated as revenue expenditure because of amendment brought w.e.f. 01.04.2003 in Section 28(va), we direct the Assessing Officer to examine this aspect and what is allowable as per the statute in respect of certain payment then the same needs to be allowed. 24. In view of the finding given above, our direction to the Assessing Officer is summarized hereunder:- i. Part of the enhanced lease rent paid for surrendering the rise to purchase the khair wood should be taken @15% of the average purchases price. ii. The normal escalation on fixed rent should be taken @10% of the lease charges per year. iii. The rent attributable to modernization and improvement pl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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