Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1994-95 Where assessee took a land on lease for 99 years at a nominal rent of Rs. 40 per year and paid a sum of above Rs. 48 lakhs as advance rent, as land was not acquired by assessee, advance rent was allowable as revenue expenditure and could not be treated as capital expenditure [In favour of assessee] The assessee-company claimed deduction of a sum of Rs. 48,02,616 being payment to Gujarat Industrial Development Corporation (GIDC). The Assessing Officer called upon the assessee to substantiate the said claim. It was contended that the lease rent in respect of the land allotted to the assessee-company being very nominal. i.e., at the rate of Rs. 40 per year, the said payment was nothing else but advance rent and, hence, allowable as revenue expenditure. After going through the lease agreement the Assessing Officer disallowed the claim holding that the assessee had acquired a benefit of enduring nature in the form of use of land for a period of 99 years; that the land had been transferred through a registered deed involving transfer of immovable property; and, thus, the assessee had acquired a fixed asset in the form of a parcel of land. The Tribunal held that the land in question was not acquired by the assessee and that merely because the deed was registered the transaction in question would not assume a different character. The Tribunal observed that the lease rent was very nominal; by obtaining the land on lease the capital structure of the assessee did not undergo any change; the assessee only acquired a facility to carry on the business profitably by paying nominal lease rent. Therefore, the Tribunal allowed the assessee's claim. Held that, it was a case which warranted no interference. Even the Assessing Officer had recorded that the payment was for use of land. There was no legal infirmity committed by the Tribunal. Thus, the Tribunal was justified in holding that the lease rent paid by the assessee to GIDC was allowable as revenue expenditure. KM. Parikh for the Appellant. S.N. Soparkar, Ms. Niti P. Sheth and Ms. Paurami B. Sheth for the Respondent.…

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