THE issues before the Bench are - Whether the amortization of lease premium paid by the assessee for a period of 90 years is revenue expenditure and Whether the rule of consistency is applicable in every case, more so when the point of view of the Revenue was contrary to law in earlier year, although in favour of the assessee. And the answers to these questions go against the assessee.
Facts of the case
The assesse entered into a lease agreement with NOIDA on 06.01.1989 for by which the land in question was demised for a period of 90 years. The assesse was entitled to construct an office complex on the land. The assesse was required to pay 2002-TIOL-745-SC-IT).This Court notices that there cannot be a wide application of the rule of consistency. In Radhasaomi itself, the Supreme Court acknowledged that there is no res judicata, as regards assessment orders, and assessments for one year may not bind the officer for the next year. This is consistent with the view of the Supreme Court that "there is no such thing as res judicata in income-tax matters" (Visheshwara Singh v. Commissioner of Income Tax AIR 1961 SC 1062). Similarly, erroneous or mistaken views cannot fetter the authorities into repeating them, by application of a rule such as estoppel, for the reason that being an equitable principle, it has to yield to the mandate of law. A deeper reflection would show that blind adherence to the rule of consistency would lead to anomalous results, for the reason that it would engender the unequal application of laws, and direct the tax authorities to adopt varied interpretations, to suit individual assesses, subjective to their convenience, - a result at once debilitating and destructive of the rule of law. A previous Division Bench of this Court, in Rohitasava Chand v Commissioner of Income Tax 2008 (306) ITR 242(Del) had held that the rule of consistency cannot be of inflexible application;
++ in view of the above reasons, this court is of opinion that the reasoning and conclusions of the Tribunal do not call for interference. The question of law framed is answered accordingly, against the appellant, and in favour of the revenue.
The assesse entered into a lease agreement with NOIDA on 06.01.1989 for by which the land in question was demised for a period of 90 years. The assesse was entitled to construct an office complex on the land. The assesse was required to pay 2002-TIOL-745-SC-IT).This Court notices that there cannot be a wide application of the rule of consistency. In Radhasaomi itself, the Supreme Court acknowledged that there is no res judicata, as regards assessment orders, and assessments for one year may not bind the officer for the next year. This is consistent with the view of the Supreme Court that "there is no such thing as res judicata in income-tax matters" (Visheshwara Singh v. Commissioner of Income Tax AIR 1961 SC 1062). Similarly, erroneous or mistaken views cannot fetter the authorities into repeating them, by application of a rule such as estoppel, for the reason that being an equitable principle, it has to yield to the mandate of law. A deeper reflection would show that blind adherence to the rule of consistency would lead to anomalous results, for the reason that it would engender the unequal application of laws, and direct the tax authorities to adopt varied interpretations, to suit individual assesses, subjective to their convenience, - a result at once debilitating and destructive of the rule of law. A previous Division Bench of this Court, in Rohitasava Chand v Commissioner of Income Tax 2008 (306) ITR 242(Del) had held that the rule of consistency cannot be of inflexible application;
++ in view of the above reasons, this court is of opinion that the reasoning and conclusions of the Tribunal do not call for interference. The question of law framed is answered accordingly, against the appellant, and in favour of the revenue.
premium of Rs 2,53,96,993/- to NOIDA at the time of the allotment, or demise. In addition, under the lease deed, the assesse had to pay annual lease rent @ 2.5 per cent of the premium. The lease rent could be enhanced after 12 years. The assesse amortized the expenditure by way of premium over the period of lease, and claimed deduction of Rs. 2,75,045/- in the assessment year 2004-05. The land had been earlier acquired by the NOIDA under Land Acquisition Act, 1896, for setting up an urban and industrial township. In terms of the lease, the assesse was not entitled to transfer the land before erection of the building without the permission of the NOIDA. There were other restrictions on the lessee’s right to transfer, assign or alienate the land. The assesse could borrow, by mortgaging the land. In case of non-fulfilment or violation of terms and conditions of the lease agreement, building rules or any other rules prescribed by the authority, the lease could be cancelled and possession of the premises could be taken over by NOIDA.
The assessee was required to show cause as to why this expenditure may not be considered to be capital in nature, particularly in the light of the definition of the expression "immovable property" furnished in section 269UA(d)(i). The assessee urged that the expenditure did not confer any ownership right to the assesse, and allowed it to use the land for the purpose of construction of its office. The assesse contended that the expenditure was revenue in character. The assesse also urged that similar amounts were allowed in earlier years – right from inception of the lease, i.e. 1989 and, argued that it should have been allowed in the relevant year too following the principle of consistency.
The Assessing Officer did not accept the submissions and found that the facts of the said case were distinguishable. It was held that lease of land for 90 years conferred a benefit of enduring nature to the assesse and, consequently, it was in the nature of capital expenditure. This amount was, as a result not allowed as deduction. Both the CIT(A) and the Tribunal dismissed the appeals of the assessee.
On further appeal, the High Court held that,
++ what is apparent is that the lessee (assesse) 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% of the said amount as annual rent, which is subject to increase periodically. No doubt, the assesse 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 crore paid over 23 years ago did not constitute the true and real consideration for creating an interest in the property. It is also noticed that the terms of the lease agreement stipulated that the registration and stamp duty and charges were borne by the lessee (assesse). In this background, the restrictions imposed on the lessee, i.e. enjoining 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. lease hold 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 assesses’ 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;
++ it is now necessary to take up the submission that the Tribunal erred in departing from the “consistency” rule. This is based on the fact that for the period of about 15 years, the income tax authorities had accepted the assessee’s submissions and permitted annual amortization of the initial lease consideration, as advance rent;
++ the assesse here relied on the “consistency” rule enunciated in Radhasaomi Satsang (
The assessee was required to show cause as to why this expenditure may not be considered to be capital in nature, particularly in the light of the definition of the expression "immovable property" furnished in section 269UA(d)(i). The assessee urged that the expenditure did not confer any ownership right to the assesse, and allowed it to use the land for the purpose of construction of its office. The assesse contended that the expenditure was revenue in character. The assesse also urged that similar amounts were allowed in earlier years – right from inception of the lease, i.e. 1989 and, argued that it should have been allowed in the relevant year too following the principle of consistency.
The Assessing Officer did not accept the submissions and found that the facts of the said case were distinguishable. It was held that lease of land for 90 years conferred a benefit of enduring nature to the assesse and, consequently, it was in the nature of capital expenditure. This amount was, as a result not allowed as deduction. Both the CIT(A) and the Tribunal dismissed the appeals of the assessee.
On further appeal, the High Court held that,
++ what is apparent is that the lessee (assesse) 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% of the said amount as annual rent, which is subject to increase periodically. No doubt, the assesse 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 crore paid over 23 years ago did not constitute the true and real consideration for creating an interest in the property. It is also noticed that the terms of the lease agreement stipulated that the registration and stamp duty and charges were borne by the lessee (assesse). In this background, the restrictions imposed on the lessee, i.e. enjoining 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. lease hold 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 assesses’ 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;
++ it is now necessary to take up the submission that the Tribunal erred in departing from the “consistency” rule. This is based on the fact that for the period of about 15 years, the income tax authorities had accepted the assessee’s submissions and permitted annual amortization of the initial lease consideration, as advance rent;
++ the assesse here relied on the “consistency” rule enunciated in Radhasaomi Satsang (
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