Lease Premium is capital expenditure & not allowable as “advance rent”

Krishak Bharati Cooperative Ltd. vs. ACIT (Delhi High Court)

 

The assessee entered into a lease agreement with NOIDA pursuant to which it acquired land on a 90 year lease. The assessee paid Rs. 2.53 crores as premiumand agreed to pay annual lease rent of 2.5% of the premium. The assessee was not entitled to transfer the land before erection of the building without NOIDA’s permission NOIDA. There were other restrictions on the assessee’s right to transfer, assign or alienate the land. It was entitled to mortgage the land. Non-fulfillment or violation of terms and conditions of the lease agreement could result in cancellation of the lease. The assessee amortized the premium over the period of the lease and claimed the proportionate part as a revenue deduction. The AO accepted the assessee’s claim for 15 years. Thereafter, the AO, CIT(A) & Tribunal rejected the claim on the ground that the lease conferred an enduring advantage and the premium was capital expenditure as held in Mukund Limited 291 ITR (AT) 249 (SB). On appeal by the assessee, HELD dismissing the appeal.