The Income Tax Appellate Tribunal (ITAT) held that one-time payment of annual lease rent paid does not lose the character of the annual rent, so it considers as revenue expenditures and not capital in nature.
The petitioner, Multitude Infrastructure Pvt. Ltd. purchased a hotel constructed on leased land obtained from Jaipur Development Authority (JDA) from Vishnu Apartments Pvt. Ltd. vide agreement dated 05.11.2008 and as per clause 28 of the sale agreement, the petitioner was under an obligation to pay to the seller Government rate taxes and cess, etc. from the date of agreement. Vide letter dated 22.06.2011, JDA required Vishnu Apartment Pvt. Ltd. to pay a cumulative sum of Rs.1,35,34,794/- (Rs.62,15,978 on account of Annual Lease Rent up to the Year 2011-12 and lumpsum payment of Annual Lease Rent of Rs.73,18,816/). Proportionately the share of the petitioner out of that payment was computed at Rs.42,11,495/-. These facts were not at all disputed by the Revenue expenditures at any point in time. In the present case, Annual Lease Rent payable per annum is approximately that of 1% to 1.25% and such payment, if paid annually is to be treated as revenue expenditure.
The Tribunal Bench comprising of Vice President G S Pannu and Judicial Member Suchithra kamble allowed the appeal on three grounds:
The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in passing the order dated 02.03.2017 under section 250 of the Income Tax Act, 1961
The Ld Commissioner of income tax (Appeals) erred in law and on facts in confirming the disallowance of Rs.42,11,415/- on account of Leasehold rent paid by Appellant treating the same as capital expenditure. The appellant contends that the amount was paid by the appellant as per the terms of the agreements between the Appellant and Vishnu Apartments Pvt. Ltd. and not as leasehold rent, therefore no disallowance in this regard should be made.
The appellant prays that he may be allowed to add, amend, alter or forego any of the above grounds of appeal as the circumstances may warrant.”
While allowing the appeal ITAT also observed that onetime payment of the annual rent as per the lease deed is rightly claimed by the petitioner as revenue expenditure. The Assessing Officer was not right in holding that the payment during the year relates to land which is capital in nature. In fact, the petitioner is running the mall and hotel constructed on the leased land of Jaipur Development Authority which was given to Vishnu Apartments Private Ltd. In fact, the mall and hotel were constructed by the Vishnu Apartments Private Ltd. The CIT(A) also ignored this fact. Therefore, the order of the CIT(A) is set aside.
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