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August 2017

25 Business expenditure – Capital or revenue – Section 37 – A. Y. 2005-06 – Lease rent paid for plot allotted for period of 10 years by Gujarat Maritime Board – Allowable as revenue expenditure

By K. B. Bhujle, Advocate
Reading Time 1 mins

CIT vs. Mahavir Inductomelt P. Ltd.; 394 ITR 50(Guj):

For the A. Y. 2005-06, the assessee claimed deduction of a
sum of Rs. 18,66,450 as premium paid on plot allotted by the Gujarat Maritime
Board as expenditure in its business of ship breaking. The assessee paid this
amount as premium on leasehold property. According to the Assessing Officer,
the assessee acquired this plot from the Board under lease and the lease
agreement was for 10 years and accordingly, this was a capital asset and
payment made for acquiring capital asset was capital expenditure. The Assessing
Officer allowed deduction only of one tenth of the expenditure. The
Commissioner (Appeals) and the Tribunal deleted the addition.

On appeal by the Revenue, the Gujarat High Court upheld the
decision of the Tribunal and held as under:

“i)   The amount paid by
the assessee with respect to plot allotted by the Board was allowable as
revenue expenditure.

ii)   The
appeal is dismissed.“

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