THE issue before the Bench is - Whether mere payment of lumpsum consideration in relation to lease rent and maintenance of a pipeline, is required to be apportioned over entire period of lease, for claiming deduction on the same. NO is the verdict.
Facts of the case
The assessee company is engaged in the business of manufacturing and selling petrochemicals. The assessee entered into an agreement to terminate the build, own, operate, transfer contract with M/s. Dodsal Ltd. for its Dahej to Vadodra Pipeline Project by making one time payment of Rs.102,03,43,311/-. Subsequently, the assessee purchased a commercial right to operate and maintain the pipeline. The assessee thereafter, while filing its return, had claimed expenditure incurred in respect of registration fees and stamp duty paid on lease transactions entered between assessee with ICICI Ltd. The AO after verification, apportioned it and spread it over entire lease period of 25 years. The AO was of the view that the expenditure on payment of lease rent and maintenance of the pipeline as per the original BOOT agreement with Dodsal Ltd. had resulted in commercial advantage or benefit of enduring nature to the assessee in the form of operation and maintenance of the pipeline. The AO was of the further view that after termination of the agreement with M/s. Dodsal Ltd. and making one time payment of Rs.102,03,43,311/-, the rights which were vital for operation and functioning had been acquired. The assessee was held to be entitled to only benefit of depreciation at half of the eligible rate and the balance sum was added back to the total income of assessee. On appeal, the CIT(A) confirmed the order of AO. On further appeal, the Tribunal however, reversed the order of CIT(A) and allowed the entire expenditure of Rs.1,07,02,2000/-.
Having heard the parties, the High Court held that,
++ it was observed by the Tribunal that the assessee, as per the agreement was obliged to pay Rs.2.47 crores per month minimum guaranteed amount to Dodsal as the charges in terms of the agreement. The agreement could have been terminated in ordinary course after 15 years from the date of commissioning. It can also be terminated if there was a breach of the contract or taking over of the assets after 5 years of commissioning based on a mutual understanding. Nothing of this nature transpired and the agreement continued. The pipeline was vital for the operations and functions of the assessee and, hence, when the assessee stepped in it decided to take a commercial decision, it made a lump sum payment. This payment was made in three F.Ys. The Tribunal held that there is no dispute that the payments were allowed as revenue expenditure in respect of these assessment years. However, the assessee pointed out to the AO as also the CIT(A) that over a period of 9 years from 2003-04 to 2011-12, the assessee was obliged to pay in terms of the earlier agreement, minimum Rs.266.76 crores to M/s. Dodsal. However, the payment as per the reconstructed agreement comes to Rs.104.45 crores. The Tribunal found that even when the earlier agreement with M/s. Dodsal was in force, the assessee had never claimed ownership of the pipeline. Even after reconstructing of the agreement, the ICICI Ltd. stepped in, and the position has not changed. Now the ICICI Ltd. claimed the ownership rights and the assessee only got control of the operation and maintenance of the pipeline which is stated to be vital for its operation and functioning. In these circumstances, therefore, this court does not find that merely making a lump sum payment alters the factual position. Once the undisputed facts and the legal principles which have been consistently applied and followed, are being relied upon by the Tribunal, then, this question can neither be termed as perverse nor vitiated by any error of law apparent on the face of the record;
++ as regards the payment of registration charges and stamp duty, it seems that it was difficult for the Tribunal to have sustained the revenue's view point. If the registration fees and stamp duty are nothing but a duty on the instrument and not on the transaction covered by the instrument, then, there was no necessity to apportion the expenditure in that behalf. The registration fees and stamp duty are on the lease transactions entered by the assessee with M/s. ICICI Ltd. The expenditure in that regard has been allowed in the first year itself and the Tribunal has in any manner deviated from the settled principles. The Tribunal's discussion in that regard finally holding that this expenditure is revenue in nature and could have been, therefore, allowed in the first year itself raises no question of law.
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