The Commissioner Of Income Tax-3 v. M/S Reliance Industrial Infrastructure Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 3611 OF 2010 The Commissioner of Income Tax-3 ..Appellant Vs. M/s Reliance Industrial Infrastructure Ltd...Respondent .... Mr. A.R. Malhotra, Advocate for Appellant.Mr. J.D. Mistri, Senior Advocate a/w P.C. Tripathi, Advocate i/b RajDarak for Respondent. .... CORAM : M.S. SANKLECHA & N.M. JAMDAR, JJ.DATED : 17 AUGUST 2015 P.C.: This appeal challenges the impugned order dated 12 March 2007 passed by the Income Tax Appellate Tribunal (the'Tribunal'). The appeal relates to the Assessment Year 1999-00. 2.The following questions of law are raised for ourconsideration: “(A)Whether in the facts and circumstances ofthe case and in law, the Tribunal was right inholding that the assessee was engaged in the S.S.DESHPANDE 1 / 12 business of letting out assets on hire and upholdingCIT(A)'s order allowing higher rate of depreciation@ 40%? (B)Whether in the facts and circumstances ofthe case and in law the Tribunal was right indismissing Revenue's ground of appeal no.2 holdingthat the lease equalization credited to P&L Accountover and above the lease rental cannot beconsidered as income and thereby upholdingreducing of assessee's total income by leaseequalization of Rs.2,06,21,580/-, credited to P&LAccount? (C)Whether in the facts and circumstances ofthe case and in law, the Tribunal was right inallowing entire expenditure of Rs.23,42,560/-incurred on stamp duty paid for acquisition ofleasehold land for 30 years, as revenueexpenditure?” 3.Regarding Question A: The learned Counsel for the parties are agreed that theissue arising herein stands covered against the appellant-revenueand in favour of the respondent-assessee. This by the decision ofthis Court in Income Tax Appeal No. 2330/2010 in respect of theS.S.DESHPANDE2 / 12 same respondent-assessee decided on 17 June 2012 filed by therevenue against the same respondent-assessee. In view of theabove, Question (A) does not give rise to any substantial question oflaw and hence not entertained. 4.Regarding Question B: (a)The respondent-assessee had in the subject assessmentyear, in its computation of income reduced lease equalizationamount of Rs.2.6 crores after having credited the same to it's Profitand Loss Account. The respondent-assessee carried out the aboveexercise to be in accord with the Guidance Note issued by theChartered Accountants of India. The Assessing Officer in theassessment order held that the above method adopted by therespondent-assessee in respect of lease equalization fund as per theGuidance Note on Accounting for Leases issued by Institute ofChartered Accountants of India is not acceptable as the same is notmandatory. It is further recorded in the order that the lease rentreceived is being credited in the books as per the lease agreement.This further credit of the lease acquisition fund according to the Assessing Officer could not be allowed to be deducted whilecomputing the income subject to tax. Assessing Officer could not be allowed to be deducted whilecomputing the income subject to tax. (b)In appeal, the CIT(A) after considering the submissionsinteralia records that the Assessing Officer has misunderstood theclaim of the respondent with regard to the lease equalization fund.It records that the lease equalization fund is merely a bookadjustment entry. It also reiterate that lease rent received by therespondent-assessee has been credited to the Profit and LossAccount and offered to tax. The further credit of the leaseequalization fund in the Profit and Loss Account in accordance withthe accounting guidelines prescribed by the Institute of CharteredAccountants of India was only for the purposes of meeting withrequirements of accounting standards and reflected the value of theassets in the books corresponding to the period of time it takes towrite off the assets completely. Thus the CIT(A) allowed therespondent-assessee's claim/appeal. (c)On further appeal by the revenue, the Tribunal in theimpugned order upheld the order of the CIT(A). It held that in the earlier years the debit claim for lease equalization fund was notallowed as an expenditure while computing the income chargeableto tax. Therefore on the principle of consistency the Tribunal took aview that when debits on account of lease equalization fund was notallowed as expenditure to arrive at the taxable profits the samecannot be included in determining the taxable income. (d)The grievance of the revenue with regard to theimpugned order of the Tribunal is that there is nothing on record toindicate that in the earlier years, the authorities had not allowed thedebit of the lease equalization fund in the Profit and Loss Accountas an expenditure. It could be a case where an assessee may nothave made a claim for the same and thus there was no reason forthe authorities under the Act not to examine the issue and disallowthe deduction made while computing the taxable issues in thesubject assessment year. Further it is contended that Guidance Noteof the Institute of Chartered Accountants of India being relied uponby the respondent-assessee has not been notified by the CentralGovernment under Section 145(2) of the Act. According to therevenue, this is a question which requires consideration.S.S.DESHPANDE5 / 12 (e)So far as the submission on behalf of the revenue isconcerned, nothing has been shown to us to indicate that thefinding of fact recorded by the Tribunal about the practice in theearlier assessment years is incorrect. In fact no such ground is takenin appeal. Be that as it may, on merits we find that the AssessingOfficer has completely misunderstood the claim of the respondent-assessee in respect of the lease equalization fund. It is not disputedeven by the Assessing Officer that the lease rent which has beenreceived by the respondent/assessee has been offered to tax. Thislease equalization fund is a mere book entry made to comply withthe Guidance Note issued by the Institute of Chartered Accountantsof India so as to meet the Accounting Standards. Further even ifone accepts the submission on behalf of the revenue that theseguidelines have not been notified by the Central Government forunder Section 145(2) of the Act and thus cannot be accepted yetwhat follows is that the amount credited as a lease equalizationfund to Profit and Loss Account has to be ignored as it is not realincome. It is an amount which is completely notional and broughtinto the books only for complying with accounting standards and 6 / 12 6 / 12 has no relevance to determine the amount of net income chargeableto tax. In that view of the matter, the respondent-assessee wascompletely justified in reducing the amount of Rs.2.06 crorescredited to the Profit and Loss Account as lease equalization fundfor the purposes of determining the income chargeable to tax. Inthese circumstances, we find that Question (B) does not give rise toany substantial question of law for our consideration. Hence noadmitted. 5.Regarding Question (C): (a)The respondent-assessee has taken a land on lease for aperiod of 30 years. An amount of Rs.23.31 lacs was paid as stampduty in respect of the deed of lease executed by the respondent withits lessor viz. JNPT. The respondent-assessee treated the same asrevenue expenditure as according to it this expenditure wasincurred for the purpose of carrying on business. The AssessingOfficer did not in principle dispute that it is a revenue expenditure.However he held that the stamp duty paid for lease of assets shouldbe spread over the entire life of the lease i.e. 30 years as differedrevenue expenditure. S.S.DESHPANDE 7 / 12 (b)In appeal, the CIT(A) held that the view of the AssessingOfficer that the stamp duty paid on lease documents should betreated as differed revenue expenditure is not correct. However theCIT(A) also did not accept the respondent-assessee's contention thatthe expenditure is of the revenue nature. In his view, the stampduty had been paid on the lease deed was to acquire a capital asset.Therefore the stamp duty paid on the document to acquire theleasehold right of land/asset should be disallowed in its entiretybeing on capital account. (c)Being aggrieved, the respondent-assessee carried the issuefurther in appeal to the Tribunal. The Tribunal by the impugnedorder held that the payment of stamp duty towards the leaseholdland is allowable as revenue expenditure in view of binding decisionof this Court in CIT Vs. Hoechst Pharmaceuticals Ltd.[1], CIT Vs.Cinecita (P.) Ltd.[2] and Richardson Hindustan Ltd. Vs. CIT[3].Accordingly the impugned order allowed the amount paid towardsstamp duty of Rs.23.42 lacs as revenue expenditure in it's entiretyfor the subject Assessment Year. 1 113 ITR 877 2 137 ITR 652 3 169 ITR 516 8 / 12 (d)The grievance of the revenue as formulated in questionframed is that the entire expenditure of Rs.23.42 lacs on stamp dutycould not be allowed as revenue expenditure in the subjectassessment year It supports the order of the Assessing Officer. (e)We find that the CIT(A) had categorically given a findingthat the Assessing Officer was not correct in holding that theexpenses on account of stamp duty should be allowed as differedrevenue expenditure. The revenue did not file any appeal againstthe aforesaid finding not it made any claim of the stamp dutyexpenditure being allowed as differed revenue expenditure beforethe Tribunal. In fact during the hearing before the Tribunal, theonly issue which appears to have been in dispute was whether theamount of Rs.23.42 lacs paid as a stamp duty to take land on leaseis a capital expenditure or revenue expenditure. On the aforesaidfacts, the Tribunal by the impugned order placed reliance upon thedecisions of this Court, particularly in Cincita Pvt. Ltd. wherein it hasbeen observed that the period of lease for which the property hasbeen taken, cannot be regarded as a decisive test to determine thenature of the expenditure. In any case, it is not disputed beforeS.S.DESHPANDE9 / 12 us that the stamp duty amount has been paid on the lease deed forthe purposes of carrying on assessee's business. Once the aforesaidposition is accepted then the amount of stamp duty paid for has tobe allowed as revenue nature. us that the stamp duty amount has been paid on the lease deed forthe purposes of carrying on assessee's business. Once the aforesaidposition is accepted then the amount of stamp duty paid for has tobe allowed as revenue nature. (f)Before closing, we may point out that Mr. Malhotra, thelearned Counsel appearing for revenue emphatically urged that theamount of Rs.23.42 lacs incurred on stamp duty for acquisition ofleasehold land is to be allowed as differed revenue expenditure asheld by the Assessing Officer. This on the ground that the benefit ofleasehold land would be enjoyed by respondent-assessee for aperiod of 30 years. We do not accept the aforesaid submission forreasons more than one. Firstly the CIT(A) has very categoricallytaken a view that the Assessing Officer was incorrect in holding thatthe expenditure of Rs.23.42 lacs on stamp duty is to be allowed asdiffered revenue expenditure. The revenue did not challenge theabove finding in appeal. Before the Tribunal, the only contentionurged was that the amount cannot be allowed as revenueexpenditure and the revenue supported the order of CIT(A) thatamount of Rs.23.42 lacs paid as stamp duty is in fact a capitalS.S.DESHPANDE10 / 12 expenditure. Therefore the revenue having once accepted theCIT(A)'s finding that the expenditure on stamp duty cannot beconsidered to be differed revenue expenditure, it is not open to therevenue to now urge a new ground. The second reason is, aspointed out by the learned Counsel for the respondent-assessee isfound in the binding decision of the Apex Court in Taparia ToolsLtd. Vs. Joint Commissioner of Income Tax[4] wherein it has beenheld that there is no concept of differed revenue expenditure unlessso specified in the Act. The Apex Court in Taparia Tools Ltd.observed as under: “13.The High Court has also observed that it was acase of deferred interest option. Here again we do notagree with the High Court. It has been explained invarious judgments that there is no concept of differedrevenue expenditure in the Act except under the specifiedsection i.e. where amortisation is specifically provided,such as Section 35D of the Act. 14 to 16…...... 17.What follows from the above is that normallythe ordinary rule is to be applied, namely, revenueexpenditure incurred in a particular year is to be allowedin that year. Thus, if the assessee claims that expenditure 4 372 ITR 605 in that year, the Income-tax Department cannot deny thesame. However, in those cases where the assessee himselfwants to spread the expenditure over a period of ensuingyears, it can be allowed only if the principle of “matchingconcept” is satisfied, which up to now has been restrictedto the cases of debentures.” Therefore on both the aforesaid grounds, the contention of Mr.Malhotra, the learned Counsel for the revenue is not foundacceptable. Therefore Question (C) also does not give rise to anysubstantial question of law. 6.Accordingly, appeal is dismissed. No order as to costs. [N.M. JAMDAR, J] [M.S. SANKLECHA, J.]