ARINDAM SINHA,J. - (1.) The Court: Assessee has appealed against order dated 30th April, 2012 made by Income Tax Appellate Tribunal "B" Bench: Kolkata in ITA 1481/Kol/2011 pertaining to assessment year 2008-09. 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 five- years lease deeds to hold that proportionate premium on lease hold 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." Mr. Jhunjhunwala, learned advocate appears on behalf of appellant. He submits, judgment of the Tribunal has given rise to question formulated for answer. Advance rent paid by his client-assessee and thereafter amortized each year, has been disallowed. This was done in relying on Special Bench judgment of Tribunal in JCIT versus Mukund Ltd. reported in (2007) 106 ITD 231 (MUM)(SB).
(2.) It is noticed from extract of Special Bench judgment in impugned judgment that Special Bench, on facts, found, inter alia, as follows:- ". . . . . . but also considering the terms of the agreement dated 5-3- 1992 as a whole it was clear that the amount of Rs.2.04 crore was paid as 'premium' for acquisition of leasehold rights in the premises. Clause 5(b)(i)of the said agreement dated 5-3-1992 provided that in case of termination of lease, the 'premium' is non-refundable. It provided that in case the licensee failed to complete the said factory building within the time aforesaid and in accordance with the stipulations provided therein, the MIDC without making any compensation or allowance to the licensee for the same and without making any payment to the licensee for refund or repayment of the premium aforesaid or any part thereof, could resume the land in question. Thus, in case of termination of lease, the 'premium' was non-refundable and, therefore, the same could not be considered as advance payment of 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. The land in question was inheritable also as per the terms and conditions of the agreement with the MIDC. Therefore, the consideration of Rs.2.04 crore was paid to the MIDC as a price for obtaining the leasehold rights for a period of 99 years from the MIDC in favour of the assessee." Assessee relies on judgment of Supreme Court in CIT versus Madras Auto Service (P.) Ltd. reported in (1998) 99 Taxman 575 (SC), paragraphs 6, 7 and 13. Paragraph 13 is reproduced below: "13. All these cases have looked upon expenditure which did bring about some kind of an enduring benefit to the company as a revenue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expense has been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully. In the present case also, since the asset created by spending the said amounts did not belong to the assessee but the assessee got the business advantage of using modern premises at a low rent, thus, saving considerable revenue expenditure for the next 39 years, both the Tribunal as well as the High Court have rightly come to the conclusion that the expenditure should be looked upon as revenue expenditure." 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.
(3.) 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. Sub- clause (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. Re- entry 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. Mr. Bhowmik, learned advocate appears on behalf of revenue and relies on Division Bench judgment of Delhi High Court in Krishak Bharati Co-operative Ltd. versus Deputy Commissioner of Income Tax reported in (2013) 350 ITR 24 (Delhi). He submits, the Division Bench considered Madras Auto Service (P.) Ltd. (supra) and found therein assessee's case to be distinguishable from it. He relies on paragraph 18 in the judgment, which is set out below: "In the present case, what is apparent is that the lessee (assessee) paid a substantial amount (Rs.2.53 crores) in 1989 at the time of entering into the transaction. It was a precondition for securing possession; the amount was one-time consideration in terms of the lease condition. In addition, the lessee has to pay 2.5 per cent. Of the said amount as annual rent, which is subject to increase periodically. No doubt, the assessee argues that the annual rent is depressed, and does not reflect the market rent. However, there is no material to support this submission. Nor is there any material to support the argument that the amount of Rs.2.53 crores paid over 23 years ago did not constitute the true and real consideration for creating an interest in the property. We also notice that the terms of the lease agreement stipulated that the registration and stamp duty and charges were borne by the lessee (assessee). In this background, the restrictions imposed on the lessee, i.e., enjoying it not to transfer for a particular period, and granting liberty to transfer the right subject to certain conditions, and other restrictions regarding land use, are consistent with the nature of interest created, i.e., leasehold rights. The court is also conscious of the fact that the tenure of the lease is quite substantial, and virtually creates ownership rights in favour of the lessee, who is at liberty to construct upon the plot. Exclusive possession was handed over to the assessee at the time of creation of the lease. Having regard to all these factors this court is un- persuaded by the assessees' submission that the amount of Rs.2.53 crores paid in 1989 had to be treated as advance rent, which could be amortized annually, in equal instalments, as is urged on its behalf." Perusal of impugned order reveals assessee had relied upon H.M.T. Ltd. (supra) in the Tribunal. In considering submissions based on this judgment, the Tribunal said as follows: ". . . . . it seems to us that use of the term premium in the agreement in respect of advance rent paid does not render the payment anything more than rent paid in advance instead of paying the same in future periodically. There is absolutely no indication in the agreement with the amount paid by the assessee as a consideration paid by it for being let into possession of the premises while reserving a separate or economic rate of rent to be paid periodically. . . . ." It appears, pursuant to this finding the Tribunal said what it did in paragraph 7 of impugned order, following judgment of Special Bench of the Tribunal. Relevant passage in paragraph 7 is set out below: "7. We find that the assessee has entered into several agreements with different authorities like City and Industrial Development Corporation [CIDCO], Maharashtra Industrial Development Corporation [MIDC], Kolkata Port Trust [KPT] for obtaining land on long term lease towards setting up of industrial undertakings, thereon and lease period varies from 10 years to 95 years, depending upon each agreement. Even, the issue before Special Bench in the case of Mukund Ltd. (supra), the assessee company entered into exactly similar agreement with MIDC as in the present case before us." 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. 8. 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. For reasons aforesaid we answer the question in the affirmative and in favour of assessee. The appeal is disposed of. ;