13 [2019] 112 taxmann.com 66 (Trib.)(Del.) NIIT Ltd. vs. DCIT (CPC – TDS) ITA No. 376/Del/2014 A.Y.: 2009-10 Date of order: 1st November, 2019
Section 37 – Lease rent paid for taking on
lease infrastructure assets under a finance lease, which lease deed provided
that the assessee would purchase them upon expiry of the lease period, was
allowable as a deduction since the assets were used exclusively for the purpose
of the business of the assessee
FACTS
The assessee, a public limited company
engaged in the business of Information Technology Education and Knowledge
Solutions, filed its return of income on 29th September, 2009
declaring Rs. 25.81 crores, which was processed u/s 143(1) of the I.T. Act,
1961. The assessee had taken certain infrastructure / movable assets on lease
which were located at three places, i.e., Malleswaram Centre, Bangalore;
Mehdipatnam Centre, Hyderabad; and Mylapore Centre, Chennai. The said lease, in
accordance with the mandatory prescription of AS-19, was recognised as a
finance lease. Accordingly, in the books of accounts, the present value of
future lease rentals was recognised as capital asset with a liability of
corresponding amount.
Lease rents payable over the period of the
lease were divided into two parts, i.e., (a) principal payment of its cost of
asset, which was reduced from the liability recognised in the books, and (b)
finance charges, which was recognised as expense and debited to the P&L
account. Accordingly, in the books of accounts, out of the total lease rent of
Rs. 56,73,765 paid by the assessee during the relevant previous year, an amount
of Rs. 50,09,835 was adjusted against the principal repayments towards the cost
of asset and the balance amount of Rs. 6,63,930 was recognised as interest and
debited to P&L account.
The AO noticed that in the return of income,
the assessee has claimed deduction of Rs. 50,09,835 in respect of payment of
principal amount of finance lease. The AO asked the assessee to explain as to
how this amount is allowable as revenue expenditure. After considering the
reply filed by the assessee, the AO held that though the interest on such
finance lease is allowable as revenue expenditure, payment of principal amount
cannot be allowed as revenue expenditure because it is capital expenditure in
nature in respect of the value of leased assets. The AO, following the order of
ITAT, Delhi Bench in the case of Rio Tinto India (P) Ltd. vs. Asstt. CIT
[2012] 24 taxmann.com 124/52 SOT 629 disallowed the deduction claimed
by the assessee on account of principal amount of finance lease.
Aggrieved, the assessee preferred an appeal
to the CIT(A) who dismissed the appeal by relying on the decision of the
Tribunal in the case of Rio Tinto India (P) Ltd. (Supra).
Aggrieved, the assessee preferred an appeal
to the Tribunal.
HELD
The Tribunal noted that it is pursuant to
lease agreements dated 1st September, 2006, 1st April,
2008 and 1st June, 2009 that the assessee was provided
infrastructure assets on lease. The assets provided on lease and also the terms
and conditions for granting lease have been recorded in these agreements. The
agreements provided that after termination, the assessee would buy the
infrastructure assets. It observed that the infrastructure assets are required
for the purpose of business of the assessee. Therefore, the assessee paid finance
lease rentals to the lessor for the purpose of business. Thus, the assessee is
not the owner of these infrastructure facilities provided on rent.
It also noted that a similar claim of the
assessee on the basis of the same agreements have been allowed in favour of the
assessee in preceding A.Ys. 2007-08 and 2008-09 in the scrutiny assessments u/s
143(3) of the I.T. Act, 1961. In A.Ys.
2012-13 and 2014-15 also, the Tribunal has allowed the claim of the assessee of
a similar nature vide order dated 26th July, 2019.
The Tribunal held that –
(i) it is a well-settled law that rule of
consistency does apply to the income tax proceedings. Therefore, the AO should
not have taken a different view in the assessment year under appeal, when
similar claims of the assessee have been allowed as revenue expenditure in
earlier years;
(ii) since the assessee used these items wholly and
exclusively for the purpose of business and was not the owner of the same,
therefore, the assessee rightly claimed the same as revenue expenditure and
rightly claimed the deduction of the same;
(iii) it is also well settled law that the liability
under the Act is governed by the provisions of the Act and is not dependent on
the treatment followed for the same in the books of accounts;
(iv) Further, it is also well settled that
whether the assessee was entitled to a particular deduction or not would depend
upon the provisions of law relating thereto, and not on the view which the
assessee might take of his right, nor could the existence or absence of entries
in the books of accounts be decisive or conclusive in the matter.
The Tribunal set aside the orders of the
authorities below and deleted the entire addition. The appeal filed by the
assessee was allowed.
