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April 2008

Expenditure on lease rent : S. 37 : Lease rent paid in lump sum for 20 years : Revenue expenditure

By K. B. Bhujle, Advocate
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3 Expenditure on lease rent : Capital or revenue : S. 37 of
Income-tax Act, 1961 : A.Y. 1997-98 : Lease rent for premises paid in lump sum
for 20 years : Revenue expenditure.


[CIT v. UCAL Fuel Systems Ltd., 296 ITR 702 (Mad.)]

For the A.Y. 1997-98, the assessee claimed as revenue
expenditure sums of Rs.30 lakhs and Rs.8 lakhs paid for taking land and building
on lease for 20 years for the purpose of setting up the new unit at an
industrial estate at Pondichery. The Assessing Officer disallowed the claim
treating it as capital expenditure. Tribunal allowed the claim.

On appeal by the Revenue, the Madras High Court upheld the
decision of the Tribunal and held :

“Had the assessee chosen to pay the rent annually for each
and every year of lease, such expenditure would have to be regarded as revenue
expenditure. The fact that the payment was made in a lump sum for the entire
duration of the lease did not alter the character of its being a revenue
expenditure.”


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