Appeal details
Counselvise Citation
[2022] 103 COUNSELVISE.COM (IT) 8724 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 5 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
09-11-2022
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
C
Next Hearing Date
11-09-2022
Assessment Year
2016-2017
Appeal Filed On
04-11-2019
Judgement Text
आयकर अपीलȣय अͬधकरण, कोलकाता पीठ ‘सी’, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH KOLKATA Įी संजय गग[, ÛयाǓयक सदèय एवं Įी ͬगरȣश अĒवाल, लेखा सदèय के सम¢ Before Shri Sanjay Garg, Judicial Member and Shri Girish Agrawal, Accountant Member I.T.A. No.2398/Kol/2019 Assessment Year: 2016-17 ACIT, Circle-5(2), Kolkata............................................................Appellant vs. M/s Balmer Lawrie & Co. Ltd......................................................Respondent Balmer Lawrie House, 21, Netaji Subhas Road, Kolkata-1. [PAN: AABCB0984E] Appearances by: Shri Akkal Dudhwewala, FCA, appeared on behalf of the appellant. Smt. Ranu Biswas, Addl. CIT-DR, appeared on behalf of the Respondent. Date of concluding the hearing : September 12, 2022 Date of pronouncing the order : November 10, 2022 आदेश / ORDER संजय गग[, ÛयाǓयक सदèय ɮवारा / Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the Department against the order dated 11.06.2019 of the Commissioner of Income Tax (Appeals)-2, Kolkata [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’). The Revenue in this appeal has taken the following grounds of appeal: “ 1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in considering the expenses of lease hold premium amounting to Rs.1,86,70,945/- as revenue expenses. 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in considering the expenditure of lease hold premium amounting to Rs.1,86,70,945/- as capital expenditure as this spent for long period. I.T.A. No.2398/Kol/2019 Assessment Year: 2016-17 M/s Balmer Lawrie & Co. Ltd 2 3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law in considering the issue that the benefit available to the assessee due to the aforesaid lease hold right in enduring in nature. 4. That the appellant craves for leave to add, delete and modify any of the grounds of appeal before or at the time of hearing.” 2. At the outset, the ld. counsel for the assessee inviting our attention to the above reproduced grounds of appeal has submitted that the issue, in this case, is relating to the advance payment/lease premium paid to the lessors in respect of different lands taken on lease by the assessee for the purpose of business and further said lease premium amortised over the lease period on pro rata basis and claimed as revenue expenditure for the respective year. At the outset, the ld. counsel for the assessee has submitted that the issue is squarely covered in the case of the assessee by the decision of the Tribunal in earlier years pertaining to assessment year 2007-08 and assessment year 2009-10, wherein, the Tribunal has decided the identical issue in favour of the assessee. The ld. counsel has further invited our attention to the impugned order of the CIT(A) to submit that the ld. CIT(A) has deleted the additions made by the Assessing Officer while relying upon the decision of the Tribunal in the own case of the assessee for the assessment year 2003-04 and further that the CIT(A) has also relied upon the decisions in subsequent years of his predecessors, wherein, the identical claim of the assessee has been allowed as revenue expenditure as against the observation of the Assessing Officer, holding the same as capital expenditure. The ld. counsel has further invited our attention to the decision of the Hon'ble Jurisdictional Calcutta High Court in the own case of the assessee titled as Balmer Lawrie & Co. Ltd. vs. CIT reported in (2019] 111 taxmann.com 316 (Calcutta) to submit that for the assessment year I.T.A. No.2398/Kol/2019 Assessment Year: 2016-17 M/s Balmer Lawrie & Co. Ltd 3 2008-09, the Tribunal did not follow its earlier decision and had decided the issue against the assessee vide its order dated 30 th April 2012 passed in ITA No.1481/Kol/2011, the assessee preferred appeal against the said order of the Tribunal before the Hon'ble High Court and wherein the Hon'ble High Court has decided the issue in favour of the assessee. The ld. counsel has further submitted that even the Tribunal has decided the issue in favour of the assessee in assessee's own case for assessment year 2014-15 in ITA No.2264&2483/Kol/2017. The ld. counsel has further submitted that the Tribunal taking note of the decision of the Calcutta High Court and also of the decision of the Tribunal for assessment year 2014-15 (supra) has decided the issue in favour of the assessee vide common order dated 23.08.2019 passed in No.227/Kol/2011 and ITA No.1021/Kol/2012 for A.Y 2007-08 & A.Y 2009-10. The relevant part of the said order of the Tribunal dated 23.08.2019 (supra) is reproduced as under: 5. We have heard both the parties and perused the records. We note that the issue under dispute now stands decided by the Hon’ble Calcutta High Court in assessee's own case in ITA No.117 of 2012 dated 01.08.2019 for AY 2008-09 wherein on identical facts and circumstances the Hon’ble High Court held as under “The appeal was admitted on 3rd September, 2012 when following substantial question of law was framed for answer: “Whether the learned Tribunal has committed error in not following its earlier order dated 11th April, 2008 passed in assessee company’s own case in ITA 348/Kol/2007 while interpreting the fiveyears lease deeds to hold that proportionate premium on lease hold 2 lands was nothing but advance payment of rent and the same was not a capital expenditure and as such, the business deduction should be allowed under Section 37(1) of the Income Tax Act, 1961.” .... I.T.A. No.2398/Kol/2019 Assessment Year: 2016-17 M/s Balmer Lawrie & Co. Ltd 4 Mr. Jhunjhunwala also relies on a Division Bench judgment of High Court of Karnataka in CIT versus H.M.T. Ltd., reported in (1993) 67 Taxman 506 (Karnataka), paragraphs 6 and 7. On query from Court he demonstrates from page 34 in the paper book that aggregate annual rent under six leases is Rs.106/-. The leases are for periods between 60 and 95 years. Maximum rent under one lease is Rs.100/- per annum while five others have Rs.1/- or Rs.2/- per annum as rent reserved. On further query from Court he draws attention to sub- clause (n) in clause 3 and clause 5 of one of the leases, on submission that terms in all are identical. Subclause (n) provides for delivery of possession after expiration whereunder lessee is, subject to provisions therein, entitled to remove and appropriate all buildings erections and structures and materials forming part of the demise premises. Reentry clause 5 in the lease provides for reentry on default of payment of rent reserved, upon granting opportunity to lessee to make good the default. .... Special Bench of the Tribunal gave its view regarding advance payment of rent to be capital expenditure on findings, inter alia, that there was termination clause, by which premature termination did not provide for refund of premium, claimed to be advanced rent, there was no clause in the agreement to show that the amount of Rs.2.04 crore was paid by the assessee as advance rent for all future years and the lump sum payment of future years rent had been paid to avail some concession for advance payment of rent or for some other business consideration. It is clear from our perusal of terms of leases between assessee and its lessors, such terms are not there between them. We are unable to appreciate that fact of rent being depressed rent can only be appreciated as such if there is recital about it in the lease rent. That substantial amount of money was paid as premium, claimed and shown by assessee to be advance rents and where rents reserved are as above, it follows there was no contention raised before the Tribunal regarding the rents reserved corresponding to market rate of rent. We have no hesitation to infer that rents reserved are depressed rents. Finding by the Tribunal that assessee’s agreements are exactly similar with the agreements before Special Bench, considered and dealt with in Mukund Ltd. (supra) is perverse as based on no material or contrary to material before it. 8 For reasons aforesaid we answer the question in the affirmative and in favour of assessee. The appeal is disposed of. 6. This Tribunal had also expressed the same view in assessee’s own case for AY 2014-15 in ITA No.2264 & 2483/Kol/2017 dated 01.07.2019, the relevant extracts of the decision is reproduced below: I.T.A. No.2398/Kol/2019 Assessment Year: 2016-17 M/s Balmer Lawrie & Co. Ltd 5 6. We have heard both the parties and perused various judicial decisions relied upon as well as the applicable legal provisions. From the facts narrated before us, we find that the assessee has been claiming amortization of lease premium payments since earlier years and ITA Nos. 2264 & 2483/Kol/2017 Balmer Lawrie & Co. Ltd., AYs- 2014-15 till AY 2002-03 no dispute arose between the parties. In the assessment for the AY 2003-04 the AO however disallowed the assessee's amortization claim holding it to be capital in nature and in support of this conclusion, he relied on the judgment of the Hon'ble Supreme Court in the case of Aditya Minerals Pvt Ltd Vs CIT (239 ITR 817). The AO's order was upheld by the Ld. CIT(A) but on further appeal the 'B' Bench of this Tribunal in ITA No.348/Kol/2007 dated 11.04.2008 upheld the assessee's claim. In arriving at its decision the Tribunal had considered the judgment of the Hon'ble Karnataka High Court in the case of CIT Vs HMT Ltd (203 ITR 803) which in turn was based on the decision of the Hon'ble Supreme Court in the case of CIT Vs Panbari Tea Co. Ltd (57 ITR 422). In the said judgment the Hon'ble Supreme Court had observed that the use of the word 'premium' in respect of advance rent did not render the payment anything more than rent paid in advance, instead of paying the same in future periodically. The coordinate bench of this Tribunal also took note of the judgment of the Hon'ble Supreme Court in the case of CIT Vs Associated Cement Co Ltd (172 ITR 257) wherein it was held that entire premium paid in lumpsum was deductible as business expenditure in the very first year because such payment obviated the need of making periodical payments of higher rent. The Tribunal also noted that the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd Vs CIT (supra) had held that the facts of the case may justify an assessee to spread and claim the expenditure incurred in a particular year over a period of ensuing years if allowing the entire expenditure in one year gives distorted picture of profits of that particular year. Keeping in mind these decisions, the coordinate bench of this Tribunal allowed the assessee's claim for amortization of lump-sum lease premium paid. It is true that in a later decision dated 30.04.2012 in ITA No. 1481/Kol/2011 for AY 2008-09 the 'B' Bench of this Tribunal declined to follow the ratio laid down in the appellate order passed in assessee's own case for AY 2003-04. On perusal of the said order we however find that decision of the Tribunal in AY 2008-09 was influenced more by the fact that while deciding the appeal for AY 2003-04 on 11.04.2008 the Bench had not considered the decision of the Special Bench, Mumbai in the case of Mukund Limited (supra) which was pronounced on 15.02.2007 and was binding on the Division Bench. In the considered view of the Tribunal therefore the order of the coordinate Bench for AY 2003-04 was per in curium because the decision of ITA Nos. 2264 & 2483/Kol/2017 Balmer Lawrie & Co. Ltd., AYs- 2014-15 the Special Bench was not I.T.A. No.2398/Kol/2019 Assessment Year: 2016-17 M/s Balmer Lawrie & Co. Ltd 6 considered even though the facts of the assessee's case and the facts involved in the case of Mukund Limited (supra) were identical. We therefore find that the decision of the coordinate Bench in the assessee's case for AY 2008-09 was rendered solely on the basis of the decision of the Special Bench, Mumbai rendered in the case of Mukund Limited (supra). 7. On perusal of the decision in the case of Mukund Limited (supra), we note that in arriving at its finding the Special Bench of this Tribunal had relied on various decisions inter alia including the decision of the Khimline PumpsPvt Ltd Vs CIT (258 ITR 429) wherein the Hon'ble Bombay High Court had held that expenditure on account of lease premium was capital in nature and therefore no deduction was permissible in respect of such expenditure either in one lump- sum or by amortization over the tenure of the lease. Since the Special Bench was constituted at Mumbai, the judgment of the Hon'ble Bombay High Court was binding being the decision of the jurisdictional High Court. We however find that on the identical facts the Hon'ble Gujarat High Court in its later judgment dated 23.03.2009 in the case of Dy. CIT Vs Sun Pharmaceuticals Industries Ltd (supra) took the view, which was contrary to the view taken by the Hon'ble Bombay High Court. In the decided case the Hon'ble Gujarat High Court noted that the lease rent paid annually was very nominally and by obtaining by way of lease the capital structure of the assessee had not changed. It was therefore noted that, by making such payment, the assets of the assessee company had not increased because the land continued to belong to GIDC. The Hon'ble High Court noted that the only benefit, which the assessee got, was the advantage of carrying on the business more profitably by paying nominal rent on land. The Hon'ble High Court therefore did not find any reason to interfere with the order of the Tribunal wherein the Tribunal had allowed the deduction for upfront lease premium of Rs.42,02,616/- paid to GIDC holding it to be revenue expenditure. We therefore find that in the decision rendered in March 2009 the Hon'ble Gujarat High Court concurred with the view expressed by the Hon'ble Karnataka High Court in the case of CIT Vs HMT Ltd (supra). In both these decisions the Hon'ble High Courts had held that the lease premium paid did not constitute Capital expenditure but it was a revenue expenditure because by incurring such expenditure the assessees did not acquire any asset but only facilitated carrying on the business more profitably by paying ITA Nos. 2264 & 2483/Kol/2017 Balmer Lawrie & Co. Ltd., AYs- 2014-15 token rent. In arriving at such conclusion the Hon'ble Gujarat High Court had relied on the judgment of the Hon'ble Supreme Court in the case of CIT VsMadras Auto Service (233 ITR 468). We note that although the judgment of the Hon'ble Gujarat High Court was rendered on 23.03.2009, the coordinate bench of this Tribunal while deciding the I.T.A. No.2398/Kol/2019 Assessment Year: 2016-17 M/s Balmer Lawrie & Co. Ltd 7 Revenue's appeal in the assessee's case for AY 2008-09 had not taken note of the same and went on to hold the expenditure claimed to be capital in nature. We however find that in the decision the Hon'ble Gujarat High Court rendered subsequent to the decision of the Special Bench in Mukund Ltd (supra), it has been specifically held that the nature of lease premium paid was revenue in nature and therefore allowable in computing business income. In light of the foregoing and the later decision of the coordinate Bench of this Tribunal at Delhi in the case of ACIT Vs Delhi International Airport Pvt Ltd (supra) for reasons discussed in detail (infra), and also the CBDT Circular No. 9/2014 dated 23.04.2014 (infra), we are inclined to follow the later judgment of Hon'ble Gujarat High Court in the case of Dy. CIT Vs Sun Pharmaceuticals Industries Ltd (supra). 8. We also note that similar issue was considered by the coordinate Bench of this Tribunal at Delhi in the case of ACIT Vs Delhi International Airport Pvt Ltd (supra). In that case the assessee, incorporated as a Special Purpose Vehicle, obtained right to operate and maintain an international airport at New Delhi from Airport Authority of India. The assessee was granted airport concessionaire's right in consideration of the assessee making payment of non- refundable upfront fees of Rs.150 crores. Upon making such payment the assessee became entitled to use and occupy the airport property for a period of 30 years and after the expiry of lease the airport site was to the handed over back to the Airport Authority of India. In the assessee's books it had capitalized the upfront fees of Rs.150 crores paid. In the computation of total income the assessee however claimed the deduction for the entire upfront lease premium paid on the plea that it was revenue in nature and since by making payment assessee did not acquire any asset, the deduction was permissible for the upfront payment in such year itself. The assessee's plea was rejected by the AO on the ground that the payment of Rs.150 crores permitted the assessee right to use the airport premises for a period of thirty years and therefore applying the ratio laid down in the judgment of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd Vs ITA Nos. 2264 & 2483/Kol/2017 Balmer Lawrie & Co. Ltd., AYs- 2014-15 CIT (supra) the AO held that the assessee was entitled to claim the expenditure on prorate basis i.e.1/30th of the premium amount in each year during the tenure of the lease. On appeal the Ld. CIT(A) agreed with assessee's contention and allowed the deduction for entire upfront fee of Rs.150 crores paid to Airport Authority of India in the initial year. On appeal the Revenue relying on the decision of the Special Bench of this Tribunal at Mumbai in the case of Jt.CIT Vs Mukund Ltd (supra) and decision of the Hon'ble Supreme Court in the case of Enterprising Enterprises Vs DCIT (293 ITR 437) claimed that such expenditure was capital in nature and therefore not permissible. Rather it was I.T.A. No.2398/Kol/2019 Assessment Year: 2016-17 M/s Balmer Lawrie & Co. Ltd 8 canvassed by the Revenue that in terms of the judgment of Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd Vs CIT (supra), the order of the AO be upheld. After considering the submissions of the parties and the judicial decisions relied upon, the Tribunal in Paras 30-31 of its order held as follows: "30. Thus, herein this case the test of enduring benefit in acquisition of capital asset as propagated by the revenue would fail for the reason that, for the lease of Airport site which was for 30 years, the payment of Rs. 150 crores was a onetime payment so that the annual lease rent was chargeable at a very nominal rate of Rs.100/- for a huge Airport area of more than 4609 acres. Such a miniscule annual rent of huge area and facility (entire Airport Site) definitely would defy all commercial parlances. Once the any recurring payment towards lease rent is reckoned or classified as revenue expenditure, then even the lump-sum payment or one-time payment for the same purpose has to be given the similar treatment as it partakes the same character. There could not be two different classification of same nature of expenditure. That apart, such onetime payment cannot be classified as creating any capital asset or any kind of profit making apparatus or giving any enduring advantage of a benefit of a trade. At the most the said payment can be reckoned as lease premium or licence fee for the Airport site taken on lease for a period of 30 years. In this case, such a payment cannot be reckoned for the purpose of acquisition of business also, because both the parties have agreed to transfer the right of operating, development and maintenance of the airport on revenue sharing basis which has been termed an 'annual fee' which is recurring in nature. Now if such a lump sum payment for the lease of the Airport Site for a period of 30 years can be reckoned as revenue or not, appears to be quite settled proposition in wake of the following judgements which has been highlighted and stressed upon by the Ld. Sr. Counsel for the assessee before us:- i. DCIT vs. Sun Pharmaceutical Ind. Ltd. - 329 ITR 479 (Guj HC) - In this case, the assessee was the lessee of land. The period of lease was 99 years. In addition to an annual lease rent of Rs.40 per annum, the assessee paid Rs.48 lakh to GIDC as advance rent. The AO disallowed the claim for the reason that the assessee obtained an enduring benefit for aITA Nos. 2264 & 2483/Kol/2017 Balmer Lawrie & Co. Ltd., AYs- 2014-15 period of 99 years in the form of use of the land and therefore he held that the payment was capital in nature. The High Court upheld the finding of the Tribunal that the land in question was not acquired by the assessee and that the lease rent was very nominal and the sum of Rs.48 lakh was in the nature of rent and the assessee only acquired a facility to carry on business profitably by paying a nominal lease rent together with lump sum amount of Rs.48 lakh. The fact that the lease deed was registered I.T.A. No.2398/Kol/2019 Assessment Year: 2016-17 M/s Balmer Lawrie & Co. Ltd 9 was irrelevant. Therefore, it was held that the payment was revenue in nature. ii. CIT vs. H.M.T Ltd - 203 ITR 820 (Kar HC) - A lease agreement was entered into with MIDC for the lease of the plot on which the assessee was mandatorily to construct a building within a period of 2 years for the use of the assessee. After the construction, the assessee was entitled to use both the land and building for 95 years. Under the agreement, the assessee paid a premium of Rs.12,09,200 for acquiring leasehold rights. The annual rent was fixed at a nominal sum of Re.1 per annum. The assessee made a claim for deduction of the premium paid for the reason that it was actually rent paid in advance and, therefore, was to be considered as revenue expenditure. It was held by the Karnataka High Court that what was termed as premium and paid in a lump-sum to MIDC was future rent payable by it and that is evident from the fact that the assessee was paying only Re. 1 per annum which is for the purpose of evidencing the character of the transfer of property as a lessee and not for, any other purpose. Apart from that certain other judgments were also referred and relied upon which has also has been taken note by the Ld. CIT (Appeals) in the impugned order. Thus, the amount of Rs. 150 crores paid as onetime payment for taking the airport site for 30 years on the facts of the present case has to be treated as revenue expenditure. 31. Here one very important fact which is not in dispute is that AO himself has treated the payment of 'upfront fees' as revenue expenditure, in the sense that he has allowed part of the expenditure in this year and it is not the case of AO that it is capital expenditure in which case no part could be allowed in terms of section 37(1) of the Act. This action of the AO itself exonerates the case of the assessee." 9. From the foregoing findings of the coordinate Bench we find that on the analogous facts where the assessee had paid upfront lease premium for obtaining 30 years lease, the Tribunal held the payment to be revenue in nature and negated the Revenue's contention that the expenditure was capital in nature and hence not permissible in computing business income. In arriving at this conclusion the coordinate Bench had taken note of the decision of Special Bench of this Tribunal at Mumbai in the case of Jt. CIT Vs Mukund Ltd (supra) as also the judgments of the Hon'ble Gujarat & Karnataka High Courts expressing contrary ITA Nos. 2264 & 2483/Kol/2017 Balmer Lawrie & Co. Ltd., AYs- 2014-15 view. We find that on the analogous facts the Tribunal held that the lease premium paid was nothing but in the nature of lease rent paid on lump sum basis and no capital I.T.A. No.2398/Kol/2019 Assessment Year: 2016-17 M/s Balmer Lawrie & Co. Ltd 10 asset was acquired by the assessee by making such payment so as to justify its characterization as capital expenditure. Once the nature of the expenditure in question is held to be in the revenue field then the question which needs to answered in the present appeal is whether the assessee's plea for amortization of the lease premium over the tenure of the lease can be allowed particularly when in the case decided by the coordinate Bench at Delhi, it was held that whole of the expenditure was eligible for deduction in the year in which the upfront lease premium was paid. In this regard we find that before the Delhi Bench of this Tribunal the Revenue itself had canvassed the proposition that payment of upfront fee was revenue expenditure but the deduction therefore was required to be allowed on pro-rata basis by following the ratio laid down in the judgment of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd (supra). We find that in the grounds of appeal taken before us the AO has stated that the claim of the assessee was for proportionate write off for advance rent to the lessors in respect of different lands taken on lease for the purposes of business. We therefore find that in principle the AO did not dispute the assessee's contention that the amount paid by the assessee at the time of obtaining lease was in the nature of lease rent paid in advance and by making such payment the assessee had obtained right to use such land for carrying on its business. In the circumstances once the nature of payment is found to be for the purpose of carrying on business and not to acquire capital asset then such expenditure has to be considered to be in the revenue field and therefore allowable as per the method of accounting followed by the assessee. 10. It is no doubt true that in the case of ACIT Vs Delhi International Airport Pvt Ltd (supra) the coordinate Bench allowed the deduction for the entire upfront fee paid for obtaining lease in the year of payment itself even though the lease period was 30 years. Similarly theHon'ble Karnataka High Court in the case of HMT Ltd (supra) and Hon'ble Gujarat High Court in the case of Sun Pharmaceuticals Industries Ltd (supra) allowed the deduction for entire upfront lease premium in the year of payment itself though the lease periods were more than 90 years. In the present case however the assessee has not made ITA Nos. 2264 & 2483/Kol/2017 Balmer Lawrie & Co. Ltd., AYs- 2014- 15 claim for the deduction in the year of payment of upfront fees but has sought spread over of such lease premium over the effective life of the lease. The assessee's claim for amortization over the lease period is supported by the judgment of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd (supra). The following observations in that judgment support the assessee's methodology of claiming pro-rata deduction for the upfront lease premium over the lease period. I.T.A. No.2398/Kol/2019 Assessment Year: 2016-17 M/s Balmer Lawrie & Co. Ltd 11 "15. The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs.3,00,000 in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus in the case of Hindustan Aluminium Corporation Ltd. vs. CIT, ( 1982) 30 CTR (Cal) 363: (]983) 144 ITR 474 (Cal) the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the accounting year in question. 16. Issuing debentures at a discount is another such instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures." 11. We may also gainfully refer to the observations of the Hon'ble Supreme Court made in the case of Taparia Tools Ltd Vs Jt. CIT (372 ITR 605) which are as follows: "17. Thus, the first thing which is to be noticed is that though the entire expenditure was incurred in that year, it was the assessee who wanted the spread over. The Court was conscious of the principle that normally revenue expenditure is to be allowed in the same year in which it is incurred, but at the instance of the assessee, who wanted spreading over, the ITA Nos. 2264 & 2483/Kol/2017 Balmer Lawrie & Co. Ltd., AYs- 2014-15 Court agreed to allow the assessee that benefit when it was found that there was a continuing benefit to the business of the company over the entire period. 18. What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that I.T.A. No.2398/Kol/2019 Assessment Year: 2016-17 M/s Balmer Lawrie & Co. Ltd 12 expenditure in that year, the IT Department cannot deny the same. However, in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of 'Matching Concept' is satisfied, which upto now has been restricted to the cases of debentures." 12. From the foregoing observations it is evident that in the opinion of the Hon'ble Supreme Court in certain cases where the assessees themselves opt to spread the expenditure over a period of ensuing years then such a claim of the assessee can be allowed only if the principle of matching concept is satisfied. In the present admittedly the assessee has obtained leases from Governmental autonomous bodies such as CIDCO, KPT etc. for the purpose of carrying on assessee's business and used these lease hold lands for setting up industrial undertakings/infrastructure facilities thereon. As such the benefit of the lease is being enjoyed by the assessee over the lease period. The assessee therefore is assured of deriving revenue from the business carried from these leased premises over the tenure of lease and therefore the corresponding cost in the form of pro-rata lease premium is required to be netted off against revenues generated from the business, applying the principle of matching of cost with revenue so as to disclose true & fair amount of operating profits of each year. We therefore find that since in the present case the assessee has satisfied the matching concept test, as prescribed by the Hon'ble Supreme Court, the assessee's claim for amortization of lease premium is allowable. 13. We also note that the assessee's claim for amortization of lease premium principally related to leases of four plots of land at Mumbai & Kolkata which are used for setting up Container Freight Stations (CFS), considered as 'infrastructure facility' for the purposes of Section 80IA of the Act. With the permissions obtained from the Ministry of Finance, Dept. of Revenue, the assessee has set up devel CFSs on the leased premises. The issue of allowability of amortization of lease premium paid in respect of leased land on which CFS was set up, was considered by the coordinate bench of this Tribunal in the case of Dy.CIT ITA Nos. 2264 & 2483/Kol/2017 Balmer Lawrie & Co. Ltd., AYs- 2014-15 Vs Century Plyboards India Ltd (supra). In that case also the assessee had paid lease premium of Rs.156 lacs for obtaining lease of land from Kolkata Port Trust for a period of 15 years. In its books as well as in the return of income the assessee claimed amortization of the lease premium over the period of 15 years. This claim was rejected by the AO. On appeal the Ld. CIT(A) allowed the deduction by following the CBDT Circular No. 9/2014 dated 23.04.2014. On appeal relying on the judgment of the Hon'ble Supreme Court in the case of Enterprising Enterprises Vs CIT (supra) the Revenue claimed that such expenditure being capital in I.T.A. No.2398/Kol/2019 Assessment Year: 2016-17 M/s Balmer Lawrie & Co. Ltd 13 nature was not allowable in computing business income of the assessee. The Tribunal however noted that the judgment of the Hon'ble Supreme Court was rendered on 04.12.2006 but thereafter the CBDT issued the Circular on 23.04.2014 wherein expenditure of such nature was permitted to be spread over the lease period after the commencement of business. The relevant findings of the coordinate Bench of this Tribunal was as follows: 16. We have heard rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. The issue in the instant case revolves to the amount of the lease premium amortized by the assessee over a lease period as discussed above. The assessee after the commencement of the business has claimed the proportionate deduction of the aforesaid expenditure pertaining to the year under consideration. Undisputedly the proportionate deduction was claimed by assessee u/s 37(1) of the Act after the commencement of its business. 16.1. Indeed, case law relied on by Ld DR as discussed above is against the assessee wherein it has been held by the Hon'ble Madras High Court in the case of Enterprising enterprise (supra) and aforesaid judgement was delivered by the Hon'ble Madras High Court vide order dated 01.04.2004 which was subsequently affirmed by Hon'ble Supreme Court vide order dated 04.12.2006. However, subsequent to the aforesaid judgment, we find that the CBDT has issued a Circular 9/2014 dated 23.04.2014 wherein the impugned expenditure was allowed over the lease period after the commencement of business and relevant extract of the Circular is reproduced below:- 2. In such project, the developer (hereinafter referred to as "assessee"), in terms of concessionaire agreement with Government or its agencies is required to construct, develop and maintain the infrastructural facility of roads/highways which, inter-alia, includes laying of roads, bridges, highways, approach roads, culverts, public amenities etc. at its own cost and its utilization thereof for a specified period. In lieu of consideration of the expenditure incurred on construction, operation and maintenance of the infrastructure facility covered by ITA Nos. 2264 & 2483/Kol/2017 Balmer Lawrie & Co. Ltd., AYs- 2014-15 the period of the agreement, the assessee is accorded a right to collect toll from users of such facility. The expenditure incurred by such assessee on development and construction of such infrastructural facility are capitalized in the accounts. It is seen that in returns-of-income, assessee are generally claiming depreciation on such capitalized expenditure treating it as an 'intangible asset' in terms of section 32(1)(ii) of the Act while in I.T.A. No.2398/Kol/2019 Assessment Year: 2016-17 M/s Balmer Lawrie & Co. Ltd 14 assessments, such claims are being disallowed by the Assessing Officer on the grounds that such infrastructural facility is not owned, wholly or partly, by the tax payer which is an essential condition for claiming depreciation and further right to collect toll does not fall in an of the categories of 'intangible assets' specified in sub-clause (ii)of sub-section (1) of section 32 of the Act. 3. In BOT arrangements for development of roads/highways, as a matter of general practice, possession of land is handed over to the assessee by the Government/notified authorityfor the purposes of Construction of the project without any actual transfer of ownership and such assessee has only a right to develop and maintain such asset. It also enjoys the benefits arising from use of asset through collection of Toll for a specified period without having actual ownership over such asset. Therefore, the rights in the land remain vested with the Government or its agencies. Thus, as assessee does not hold any rights in the project except recovery of toll fee to recoup the expenditure incurred, it cannot therefore be treated as an owner of the property, either wholly or partly, for purposes of allowability of depreciation under section 32(1)(ii) of the Act. Thus, present provisions of the Act do not allow claim of depreciation on Toll ways due to non fulfilment of ownership criteria in such cases. 4. There is no doubt that where the assessee incurs expenditure on a project for development of roads/highways, he is entitled to recover cost incurred by him towards development of such facility (comprising of construction cost and other pre-operative expenses) during the constructions cost and other pre-operative expenses) during the construction period. Further, expenditure incurred by the assessee on such BOT projects brings to it an enduring benefit in the form of right to collect the toll during the period of the agreement. Hon'ble Supreme Court in the case of Madras Industrial Investment Corporation Ltd. Vs. CIT in 225 ITR 802= 2002-TIOL-290-SC-IT-LB allowed spreading over of liability over a number of years on the ground that there was continuing benefit to the company over a period. Therefore, analogously, expenditure incurred on an infrastructure project for development of roads/highways under BOT agreement may be treated as having been made/incurred for the purposes of business or profession of the assessee and same may be allowed to be spread during the tenure of concessionaire agreement. 5. In view of above, Central Board of Direct Taxes, in exercise of the powers conferred under section 119 of the Act hereby clarifies that the cost of construction on development of infrastructure facility of roads/highways under BOT projects may be amortized and claimed as allowable business expenditure under the Act. I.T.A. No.2398/Kol/2019 Assessment Year: 2016-17 M/s Balmer Lawrie & Co. Ltd 15 6. The amortization allowable may be computed at the rate which ensures that the whole of the cost incurred in creation of infrastructural facility of road/highway is amortized evenly ITA Nos. 2264 & 2483/Kol/2017 Balmer Lawrie & Co. Ltd., AYs- 2014-15 over the period of concessionaire agreement after excluding the time take for creation of such facility. 7. In the case where an assessee has claimed any deduction out of initial cost of development of infrastructure facility of roads/highways under BOT projects in earlier year, the total deduction so claimed for the Assessment Years prior to the Assessment Year under consideration may be deducted from the initial cost of infrastructure facility of roads/highways and the cost 'so reduced' shall be amortized equally over the remaining period of toll concessionaire agreement. 8. It is hereby clarified that this Circular is applicable only to those infrastructure projects for development of road/highways on BOT basis where ownership is not vested with the assessee under the concessionaire agreement. 9. This, may be brought to the notice of all concerned. The aforesaid Circular was issued on 23.04.2014 and subsequent to the judgment of Hon'ble Madras High Court as well as Hon'ble Supreme Court. The Circular being beneficial to the assessee is binding on the lower authorities. In our considered view, the AO before making any disallowance should have referred to the aforesaid Circular. In the background of the above discussion and precedent of the cases we do not find any infirmity in the order of Ld. CIT(A) and accordingly we uphold the same. This ground of Revenue is dismissed. 14. We thus find that the on identical facts the coordinate Bench of this Tribunal by applying the CBDT Circular No. 9/2014 dated 23.04.2014 granted the assessee's claim for amortization of lease premium over the effective life of lease. For the reasons discussed in the foregoing therefore we do not find any infirmity in the order of the Ld. CIT(A) granting amortization of lease premium of Rs.79,68,169/- in computing business income of the assessee. In the result, the appeal of the Revenue fails.” 7. The facts in the year under dispute are analogous to that involved in the decisions (supra) and since no change in law or facts was pointed out by the revenue so respectfully following the binding judgment of the Hon’ble Calcutta High Court and this Tribunal as well, we find no infirmity I.T.A. No.2398/Kol/2019 Assessment Year: 2016-17 M/s Balmer Lawrie & Co. Ltd 16 in the impugned order of Ld. CIT(A), in this regard. Accordingly Ground No. 1 raised by the Revenue is dismissed. 3. Since, the facts and issues involved for the assessment year under consideration are identical, hence respectfully following the decision of the Jurisdictional High Court as well as decision of the Coordinate Bench of the Tribunal in the own case of the assessee for earlier year, the issue is accordingly decided in favour of the assessee. The appeal of the department is hereby dismissed. 4. In the result, the appeal of the Revenue stands dismissed. Kolkata, the 10 th November, 2022. Sd/- Sd/- [ͬगरȣश अĒवाल /Girish Agrawal] [संजय गग[ /Sanjay Garg] लेखा सदèय/Accountant Member ÛयाǓयक सदèय/Judicial Member Dated: 10.11.2022. RS Copy of the order forwarded to: 1. ACIT, Circle-5(2), Kolkata 2. M/s Balmer Lawrie & Co. Ltd 3. CIT(A)- 4. CIT- , 5. CIT(DR), //True copy// By order Assistant Registrar, Kolkata Benches
