Shankar Trading Company P. Ltd., New Delhi V. DCIT, New Delhi

ITA 651/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9178 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 06-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Charitable institution; Revenue expenditure; Capital expenditure
• Section: 201; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: G, NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.651/DEL./2017 ASSESSMENT YEAR: 2012-13 M/S. SHANKAR TRADING COMPANY P. LTD., A-55, GROUP INDUSTRIAL AREA, WAZIRPUR, NEW DELHI VS. DCIT, CIRCLE-23(1), NEW DELHI PAN :AAACS9302A (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORD ER DATED 22/11/2016 PASSED BY THE LEARNED CIT(APPEALS)-8, NE W DELHI [IN SHORT THE LEARNED CIT(A)] FOR ASSESSMENT YEAR 201 2-13 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 ASSESS ING OFFICER IN DISALLOWING LEASE RENT IN A SUM OF RS.55,41,611/-. THE ORDER BEING ARBITRARY, ERRONEOUS AND UNLAWFUL MUST BE QUASHED W ITH DIRECTIONS FOR APPROPRIATE RELIEF. APPELLANT BY SHRI S. KRISHNAN, ADV. RESPONDENT BY SHRI H.K. CHOUDHARY, CIT(DR) DATE OF HEARING 06.08.2020 DATE OF PRONOUNCEMENT 11.08.2020 2 ITA NO. 651/DEL./2017 2. BOTH THE PARTIES APPEARED THROUGH VIDEOCONFERENCIN G FACILITY AND FILED PAPER-BOOK(S) ELECTRONICALLY. AT THE OUT SET, THE LEARNED CONSUL OF THE ASSESSEE SUBMITTED THAT ISSUE IN DISP UTE INVOLVED IS SQUARELY COVERED BY THE ORDER DATED 24/10/2018 OF T HE INCOME- TAX APPELLATE TRIBUNAL (IN SHORT THE TRIBUNAL) IN ITA NO. 2244, 2245 & 5126 TO 5141/DEL/2014 FOR ASSESSMENT YEAR 19 92-93 TO 2010-11. THE LEARNED DR ALSO COULD NOT CONTROVERT T HIS FACT BUT RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 3. WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON REC ORD. IN THE INSTANT CASE THE ASSESSEE WAS ENGAGED IN THE BUSINE SS OF MANUFACTURING AND SALE OF KATHA AND CUTCH. THE ASSESSEE HAS TAKEN FACTORY ON LEASE FROM MEHTA CHARITABLE P RAJNALAYA TRUST (IN SHORT MCPT). THIS TRUST WAS ALSO ENGAG ED IN SAME BUSINESS, HOWEVER, SURRENDERED ITS CERTAIN BUSINESS RIGHTS IN FAVOUR OF THE ASSESSEE. PAYMENT FOR SURRENDER OF SU CH BUSINESS RIGHTS WAS NOT PAID SEPARATELY BY THE ASSESSEE AND IT WAS PAID IN THE FORM OF ENHANCED LEASE RENTALS PER MONTH. THE A SSESSEE TREATED ENTIRE LEASE RENTAL PER MONTH AS REVENUE EX PENDITURE WHEREAS THE REVENUE TREATED PART OF THE ENHANCED LE ASE RENTAL AS CAPITAL EXPENDITURE. IN EARLIER YEARS, THIS DISPUTE WENT BEFORE THE HONBLE DELHI HIGH COURT. THE HONBLE COURT LAID DO WN TEST FOR TREATING PART OF THE ENHANCED LEASE RENTAL AS REVEN UE EXPENDITURE AND BALANCED PART FOR TREATING CAPITAL EXPENDITURE. THE FINDING OF THE HONBLE HIGH COURT IN THEIR CONSOLIDATED ORDER DATED 09.07.2012 FOR AY 1992-93 TO 2007-08 IS REPRODUCED AS UNDER: 1. THAI PART OF THE ENHANCEMENT OF LEASE RENT, WH ICH IS ATTRIBUTABLE TO MEHTA CHARI TABLE TRUST SURRENDERING ITS RIGHT T O PURCHASE KHAIR 3 ITA NO. 651/DEL./2017 WOOD IN FAVOUR OF THE ASSESSEE COMPANY CONSTITUTES REVENUE EXPENDITURE. 2. THAT PART OF THE ENHANCEMENT OF LEASE RENT, WHI CH IS ATTRIBUTABLE TO IMPROVEMENT AND MODERNIZATION OF PLANT AND MACHI NERY CARRIED OUT BY THE TRUST IN THE YEAR 1989-90, CONSTITUTES R EVENUE EXPENDITURE. 3. THE ENHANCEMENT IN LEASE RENT, IF ANY, WHICH IS ATTRIBUTABLE TO NORMAL APPRECIATION, IF ANY, IN LINE WITH THE LEASE RENTALS PREVAILING IN THE MARKET CONSTITUTES REVENUE EXPEND ITURE. 4. THE ENHANCEMENT IN LEASE RENT, WHICH IS ATTRIBU TABLE TO MEHTA CHARITABLE TRUST AGREEING NOT TO INDULGE IN COMPETI TION WITH THE ASSESSEE WITHIN A RADIUS LESS THAN 1000 KMS FROM TH E DEMISES PROPERTY, CONSTITUTES CAPITAL EXPENDITURE. 3.1 THE ASSESSEE IN COMPLIANCE TO THE ORDER OF THE HON BLE HIGH COURT ATTRIBUTED DIFFERENT PERCENTAGE OF ENHANCED L EASE RENTALS TOWARDS REVENUE EXPENDITURE AND WORKED OUT NIL EXPE NDITURE TOWARDS CAPITAL EXPENDITURE. COMPUTATION OF THE ENH ANCED RENT ATTRIBUTABLE TO REVENUE NATURE AND CAPITAL NATURE M ADE BY THE ASSESSEE FOR THE DIFFERENT YEARS IS REPRODUCED AS U NDER: 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. 2. 3. 4. 5. 6. 7. 8. 9. 1992-93 29,25,000 6,74,813 12,00,000 16,41,157 5,24,059 5,24,059 28,40,029 84,971 1993-94 81,00,000 26,99,251 12,00,000 18,21,684 11,07,812 11,57,598 56,78,533 24,21,467 1994-95 81,00,000 26,99,251 12,00,000 20,22,070 12,32,524 13,92,281 61,13,602 19,86,398 1995-96 81,00,000 26,99,251 12,00,000 22,44,497 13,82,514 16,74,538 66,18,286 14,81,714 1996-97 81,00,000 26,99,251 12,00,000 24,01,332 13,82,514 18,33,619 70,24,262 10,75,756 1997-98 81,00,000 26,99,251 12,00,000 27,65,445 13,82,514 20,07,813 74,72,509 6,22,491 1998-99 81,00,000 26,99,251 12,00,000 30,09,644 13,82,514 21,98,555 79,67,450 1,32,550 1999-00 94,50,000 26,99,251 12,00,000 34,07,305 13,82,514 24,07,418 85,13,974 9,36,026 2000-01 99,22,500 26,99,251 12,00,000 37,82,108 13,82,514 26,36,123 91,17,482 8,05,018 2001-02 1,04,18,628 26,99,251 12,00,000 41,98,140 13,82,514 28,86,554 97,83,945 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 (28,30,943) 2007-08 1,14,86,544 26,99,251 12,00,000 78,52,263 13,82,514 49,75,818 1,55,27,332 (40,40,788) 2008-09 1,14,86,544 26,99,251 12,00,000 87,16,011 13,82,514 54,48,521 1,68,63,783 (53,77,239) 2009-10 1,14,86,544 26,99,251 12,00,000 96,74,773 13,82,514 59,66,130 1,83,40,154 (68,53,610) 2010-11 1,14,86,544 26,99,251 12,00,000 1,07,38,998 13,82,514 65,32,913 1,99,71,162 (84,84,618) 4 ITA NO. 651/DEL./2017 2011-12 1,14,86,544 26,99,251 12,00,000 1,19,20,287 13,82,514 71,53,539 2,17,73,077 (1,02,86,533) 2012 - 13 1,14,86,544 26,99,251 12,00,000 1,32,31,519 13,82,514 78,33,126 2,37,63,896 (1,22,77,352) 3.2 HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT HIS ATTRIBUTION OF THE PERCENTAGE TOWARDS COMPONENT OF THE ENHANCED LEASE RENTAL AND COMPUTED CERTAIN AMOUNT AS NON-COMPETE F EE CONSTITUTING CAPITAL EXPENDITURE. THE COMPUTATION M ADE BY THE ASSESSING OFFICER IS REPRODUCED AS UNDER: COMPUTATION OF LEASE RENT ATTRIBUTABLE TO REVENUE N ATURE AND CAPITAL NATURE ASSESSMENT YEAR ENHANCED LEASE RENT PAID AFTER ALLOWING RS. 12,00,000/- AS BASIC RENT (A) PART OF ENHANCED LEASE RENT FEE FOR SURRENDERING THE RIGHT TO PURCHASE 10% OF AVERAGE PURCHASE PRICE OF KHAIR WOOD (B) NORMAL ESCALATION IN FIXED LEASE RENT @5% BASIC LEASE CHARGES I,E 5% INCREASE ON RS. 12,00,000/* ON YEARLY BASIS WHICH PAID PRIOR TO ENHANCEMENT (C) RENT ATTRIBUTABLE TO IMPROVEMENT AND MODERNIZATION OF PLANT AND MACHINERY DURING ASSESSMENT 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 9,21,676 29,96,017 39,01,983 I 997-98 69,00,000 17,99,501 3,50,682 9,21,676 30,71,859 38,28,141 1998-99 69,00,009 17,99,50.1 4,28,216 9,21,676 31,49,393 37,50,607 1999-00 82,50,000 17,99,501 5,09,627 9,21,676 32.30,804 50,19,196 2000-01 87,22,500 17,99.501 5,95,108 9,21,676 33,16.285 54,06,215 2001 -02 92,18,628 17,99,501 6,84,864 9,21,676 34,06,041 58,17,587 9002-03 97,39,560 17,99,501 7,79,107 9,21,676 35,00,284 62,39,276 2003-04 1,02,06,544 5 7,99.501 8,78,062 9,21,676 35,99,239 66,87,305 2004-05 1,02,86,544 17,99,501 9,81,965 9,21,676 37,03,142 65,83,402 2005-06 1,02,86,544 17,99,501 10,91,064 9,21,676 38,12,241 64,74,303 2006-07 1,02,86,544 17,99,501 12,05,617 9.21,676 39,26,794 63,59,750 5 ITA NO. 651/DEL./2017 2007-08 1,02,85,544 17.99.501 13,25,898 9.21,676 40,47,075 62,39,469 2008-09 1,02.86.544 17.99,501 14,52,193 9,21,676 41,73,370 61,13,174 2009-10 1,02,86,544 17,99,501 15,84,802 9,21.676 43,05,979 59,80,565 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 H AS WORKED OUT AMOUNT OF 55,41,611/- TOWARDS CAPITAL EXPENDITURE. IN THE YE AR UNDER CONSIDERATION, THE LD. CIT(A) HAS FOLLOWED FI NDING OF HIS PREDECESSOR FOR ASSESSMENT YEAR 2011-12. IN ASSESSM ENT YEAR 2011-12 THE AUTHORITIES HAVE FOLLOWED THEIR FINDING IN EARLIER YEARS. THIS DISPUTE OF ATTRIBUTION OF ENHANCED LEA SE RENTALS TOWARDS REVENUE AND CAPITAL EXPENDITURE FOLLOWING T HE TESTS LAID DOWN BY THE HONBLE HIGH COURT FOR ASSESSMENT YEAR 1992-93 TO 2010-11 HAS BEEN ADJUDICATED BY THE TRIBUNAL (SUPRA ) AS UNDER: 12. AFTER CONSIDERING THE ENTIRE FACTS AND THE SUB MISSIONS MADE BY THE PARTIES, WE FIND THAT ASSESSING OFFICER HAS APP LIED RATE OF 10% OF THE AVERAGE PURCHASES ON RIGHT TO PURCHASE OF KHAIR WOOD SURRENDERED IN FAVOUR OF THE ASSESSEE BY THE TRUST. THE ASSESSING OFFICER HAS NOT GIVEN ANY REASON AS TO WHY ALLOWANC E @10% OF THE AVERAGE PURCHASES SHOULD BE GIVEN. ON THE CONTRARY, THE ASSESSEE BEFORE US HAS DEMONSTRATED THAT IN THE CASE OF THE TRUST THE GROSS PROFIT RATE ON SIMILAR PRODUCT WAS MORE THAN 17%. T HE ASSESSEE HAS CLAIMED RATE OF 15% OF THE AVERAGE PURCHASES AS ITS COMPENSATION FOR THE PURPOSE OF ALLOCATION OF ENHANCED RENT TOWA RDS CAPITAL EXPENDITURE. SUCH A RATE OF 15% IS INCONSONANCE WIT H THE AVERAGE GP RATE IN THE CASE OF THE TRUST, THEREFORE, ALLOWA NCE OF 15% IS HELD TO BE QUITE REASONABLE. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO TREAT PART OF THE LEASE RENT FEE FOR SURRENDERIN G THE RIGHT TO PURCHASE @15% OF AVERAGE PURCHASES OF KHAIR WOOD. 13. AS REGARDS ENHANCEMENT OF THE LEASE RENT IN LIN E OF THE PREVAILING MARKET RATE, THE ASSESSEE BEFORE THE ASS ESSING OFFICER AS WELL AS BEFORE THE LD. CIT(A) HAS SUBMITTED THAT IT HAS TAKEN SIMILAR 6 ITA NO. 651/DEL./2017 LEASE OF A PROCESSING UNIT FROM HIMACHAL PRADESH MA RKETING CORPORATION WHICH IS AN UNDERTAKING OF GOVERNMENT O F HIMACHAL PRADESH, TO WHOM ASSESSEE HAS PAID SUM RS.30 LAC PE R ANNUM BY WAY OF LEASE RENTAL TO THE SAID GOVERNMENT UNDERTAK ING WHICH IS MUCH SMALLER IN SIZE AND IF SAME IS COMPARED THEN I T IS AT ARMS LENGTH TRANSACTION. FOLLOWING COMPARABILITY ANALYSI S OF THE AREA OF LAND AND SALE OF ANNUAL PRODUCT WAS GIVEN: MCPT HPMC (1) INVESTMENT IN FIXED ASSETS 56,18,414 6,49,1 77 (2) AREA OF LAND 21800 SQ. MT. 2000 SQ. MT. (3) SALE OF ANNUAL PRODUCT IN F.Y. 1993-94 14.82 CRORE 2.98 CRORE 14. BASED ON THIS COMPARABILITY ANALYSIS, IT WAS CO NTENDED THAT LEASE RENT CANNOT BE HELD TO BE EXCESSIVE. THE ASSE SSEE HAD REQUESTED TO ALLOW NORMAL ESCALATION IN THE FIXED L EASE RENT @11% PER ANNUM OF THE LAST YEAR, WHEREAS THE LEARNED ASS ESSING OFFICER HAS HELD THAT IT WOULD BE REASONABLE TO ADOPT LEASE RENTAL @5% PER YEAR. 15. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT T HE NORMAL APPRECIATION IN RENT IN THE CASE OF COMMERCIAL PROP ERTY IS MORE THAN 10%, WHEREAS THE LEARNED DR SUBMITTED THAT ASSESSEE COULD NOT PRODUCE ANY EVIDENCE FROM ANY COMPETENT LOCAL AUTHO RITY 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 ATTRIBUTAB LE TO NORMAL APPRECIATION IN LINE THE LEASE RENTAL PREVAILING IN THE MARKET SHOULD BE ALLOWED FOR WHICH THE ASSESSEE HAS CLAIMED SHOUL D BE 10% TO 11% OF THE LEASE RENT CHARGED ON LAST YEAR AS A ESC ALATION AND ASSESSING OFFICER HAS RESTRICTED TO 5%. SINCE, IT I S LEASE OF A COMMERCIAL PROPERTY; THEREFORE, THE ANNUAL ESCALATI ON 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, AN D THEREFORE, KEEPING IN THAT BENCHMARK THE ESCALATION OF 10% TO 11% IS REASONABLE. THOUGH, BOTH THE PARTIES HAVE BEEN UNAB LE TO GIVE ANNUAL RATE PREVAILING IN THE MARKET, HOWEVER, ON T HE FACTS AND CIRCUMSTANCES OF THE CASE AND LOOKING TO THE FACT T HAT ASSESSEE IS PAYING PERCENTAGE- WISE MORE RENT TO THE GOVERNMENT UNDERTAKING ON A SIMILAR LEASE OF COMMERCIAL PROPERTY, THEREFORE, WE HOLD THAT 10% OF ANNUAL ESCALATION WOULD BE REASONABLE FROM ASSES SMENT YEAR 1992-93 ONWARDS. 7 ITA NO. 651/DEL./2017 17. NOW COMING TO THE ISSUE OF ENHANCEMENT WHICH IS ATTRIBUTED TO IMPROVEMENT AND MODERNIZATION OF PLANT AND MACHINER Y CARRIED OUT BY TRUST, WE FIND THAT ASSESSEE HAS GIVEN DETAIL OF EXPENDITURE MADE BY THE LESSOR TRUST FOR THE MODERNIZATION AND IMPROVEMENT TOWARDS PLANT AND MACHINERY WHICH HAS BEEN TABULATE D IN THE FOLLOWING MANNER: SL. NO. NAME OF THE ASSETS F.Y. 1998-90 F.Y. 1990-91 F.Y. 1991-92 F.Y. 1992-93 F.Y. 1993-94 F.Y 1995- 96 TOTAL 1. BUILDING 2,34,664 3,26,545 - 4,28,176 4,58,383 30,605 14,78,373 2. MACHINERY 2,34,664 9,43,530 1,92,701 6,65,001 57,598 - 21,84,644 3. SHED 1,06,863 5,04,255 45,296 6,61,751 1,34,842 6,86,671 21,39,67 8 4. LAND - 2,31,722 - - 42,021 1,16,000 3,89,793 5. REFRIGERATION PLANT - - - 14,88,143 - - 14,88,143 TOTAL 6,67,341 20,06,102 2,37,997 32,43,071 6,92,844 8,33,276 76,80,631 17.1 ASSESSEE HAS CLAIMED 18% OF ITS INVESTMENT DON E BY THE TRUST FOR MODERNIZATION AND IMPROVEMENT OF PLANT AND MACH INERY, BUILDING, ETC. OUT OF LEASE RENT, WHEREAS THE ASSES SING OFFICER HAS RESTRICTED IT TO 12% ON THE GROUND THAT 12% OF INTE REST 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 T HEN ANNUAL VARIATION OF 18% IS VERY REASONABLE. 19. THE LEARNED DEPARTMENT REPRESENTATIVE ON THE OT HER HAND SUBMITTED THAT PLR TAKES INTO ACCOUNT INFLATION AND DEVALUATION OF RUPEES TAKEN ON ACCOUNT AND WPI CANNOT BE MADE APPL ICABLE HERE IN THIS CASE. THUS, RENT ATTRIBUTED BY THE ASSESSING O FFICER @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 AT TRIBUTABLE TO IMPROVEMENT AND MODERNIZATION OF PLANT AND MACHINER Y, BUILDING, ETC. BY THE TRUST HAS TO BE WORKED OUT. THE BASIS G IVEN BY THE ASSESSING OFFICER THAT 12% ON INTEREST ON INVESTMEN T SHOULD BE GIVEN INTO ACCOUNT. IF ONE GOES BY SBI PRIME LENDIN G RATE RIGHT FROM THE ASSESSMENT YEARS 1992-93 TO 2010-11, IT IS SEEN THAT IT RANGES BETWEEN 10.25 TO 17%. THE AVERAGE OF WHICH WORKED O UT TO MORE THAN 15%, BECAUSE UP TILL ASSESSMENT YEAR 1998-99 T HE PLR RATE WAS MORE THAN 13% AND AFTER 2006-07 ALSO IT IS RANG ING BETWEEN 12 TO 14%. THUS, 12% RATE AS TAKEN BY THE ASSESSING OF FICER SEEMS TO BE ON A VERY LOWER SIDE EVEN THOUGH THIS COULD NOT BE PROPER BASE. SINCE SUBSTANTIAL INVESTMENT WAS DONE BY THE TRUST IN VARIOUS YEARS, THEREFORE, LOOKING TO QUANTUM OF INVESTMENT MADE AND ESCALATION OVER THE PERIOD OF TIME THE RATE OF 18% CLAIMED BY THE 8 ITA NO. 651/DEL./2017 ASSESSEE SEEMS TO BE QUITE REASONABLE AND ACCORDING LY, WE DIRECT THE ASSESSING OFFICER TO TAKE RENT ATTRIBUTABLE TO IMPROVEMENT AND MODERNIZATION OF PLANT AND MACHINERY, BUILDING, ETC DURING THE ASSESSMENT YEARS 1989-90 TO 1995-96 @18%. 21. ANOTHER VERY IMPORTANT SUBMISSION MADE BY MR. K . SAMPATH BEFORE WAS THAT THE CAPITAL EXPENDITURE ATTRIBUTABL E TO NONCOMPETE FEE OR AMOUNT RECEIVED FOR NOT CARRYING OUT ANY AC TIVITY IN RELATION TO BUSINESS OR PROFESSION COMES WITHIN THE AMBIT OF CE RTAIN KMS. AMOUNTS TO COMMERCIAL RIGHTS BEING INTANGIBLE ASSET S, AND THEREFORE, DEPRECIATION U/S. 32(1)(II) WHICH IS APPLICABLE W.E .F. 01.14.1998 SHOULD BE ALLOWED @25% PER ANNUM. APART FROM THAT, AFTER 01.04.2003 THE NON COMPETE FEE OR MONEY RECEIVED FOR NOT CARRYING OUT ANY ACTIVITY IN RELATION TO ANY BUSINESS IS TRE ATED AS REVENUE RECEIVED IN THE HANDS OF THE PERSON RECEIVING THE S AME WHICH INTER ALIA MEANS THAT IT HAS TO BE TREATED AS REVENUE EXP ENDITURE IN THE HANDS OF THE ASSESSEE-COMPANY, THEREFORE, HE SUBMIT TED THAT DIRECTION MAY BE GIVEN TO THE ASSESSING OFFICER TO ALLOW SUCH STATUTORY CLAIM ON THE CAPITAL EXPENDITURE AND/OR A LLOW SUCH NON- COMPETE FEE TO BE REVENUE EXPENDITURE. 22. LEARNED DEPARTMENT REPRESENTATIVE STRONGLY OBJE CTED TO SUCH A PROPOSITION AND SUBMITTED THAT ONCE THE HON'BLE HIG H COURT HAS HELD THAT CERTAIN PORTION OF LEASE RENT IS TO BE TREATED AS CAPITAL EXPENDITURE, NOW THE SAME CANNOT BE HELD TO BE ALLO WABLE AS REVENUE EXPENDITURE. 23. AFTER CONSIDERING THE AFORESAID SUBMISSIONS, WE FIND THAT IN SO FAR AS THE CLAIM OF THE LEARNED COUNSEL THAT DEPREC IATION SHOULD BE ALLOWED ON SUCH A CAPITAL EXPENDITURE, BECAUSE IT I S IN THE NATURE OF INTANGIBLE ASSET, WE FIND SUBSTANCE IN SUCH A CONTE NTION BECAUSE PART OF THE LEASE RENT HAS BEEN HELD TO BE ON ACCOU NT 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 DEFIN ED IN SECTION 32(1)(I), THEREFORE, ASSESSEE IS LIABLE FOR DEPRECI ATION 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 B E ALLOWED. 24. IN VIEW OF THE FINDING GIVEN ABOVE, OUR DIRECTI ON TO THE ASSESSING OFFICER IS SUMMARIZED HEREUNDER:- I. PART OF THE ENHANCED LEASE RENT PAID FOR SURREN DERING THE RISE TO PURCHASE THE KHAIR WOOD SHOULD BE TAKEN @15% OF THE AVERAGE PURCHASES PRICE. 9 ITA NO. 651/DEL./2017 II. THE NORMAL ESCALATION ON FIXED RENT SHOULD BE TAKEN @10% OF THE LEASE CHARGES PER YEAR. III. THE RENT ATTRIBUTABLE TO MODERNIZATION AND IM PROVEMENT PLANT AND MACHINERY SHOULD BE TAKEN @18%. IV. THE ASSESSING OFFICER SHOULD ALLOW DEPRECIATION W.E.F. 01.04.1998 ON THE PORTION OF THE RENT WHICH IS HELD TO BE CAPITAL IN NATURE IN ACCORDANCE WITH LAW AND ALSO E XAMINE THE ASSESSEES CONTENTION THAT WHETHER THE NON COMPETE FEE CAN BE ALLOWED AS AN EXPENDITURE IN TERMS OF AMENDMENT IN THE STATUTE W.E.F. 01.04.2003. 3.3 THE DISPUTE IN THE YEAR UNDER CONSIDERATION OF WHE THER THE SUM OF 55,41, 611/-OUT OF TOTAL LEASE EXPENDITURE OF 1,14,86,544/- IS CAPITAL EXPENDITURE OR NOT IS SQUA RELY COVERED BY THE ABOVE DECISION OF THE TRIBUNAL. THUS, RESPECTFU LLY FOLLOWING THE SAME, WE DIRECT THE LEARNED ASSESSING OFFICER T O WORK OUT THE NET DISALLOWABLE EXPENDITURE IN VIEW OF THE DIRECTI ON OF THE TRIBUNAL (SUPRA) IN ASSESSMENT YEAR 1992-93 TO 2010 -11. THE GROUND OF THE APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH AUGUST, 2020. SD/- SD/- ( BHAVNESH SAINI ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11 TH AUGUST, 2020. RK/- (D.T.D.S.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI