Once composite installment made in regard of 90 years rent is suitable over time of rent in equivalent extent

  • Income Tax
  • High Court
  • Supreme Court

Assessee took a plot on lease for a term of 90 years. It had an option to pay the advanced annual rent on an annual basis or commuted one-time lease lease for the period of lease. Assessee opted for second option and paid commuted one-time lease rent and claimed same as revenue expenditure.  

Assessment Officer (AO) said that rental fees were capital expenditures not allowed under 37th.On appeal, Delhi ITAT held that the expenditure was to be incurred on year-to-year basis for the period of 90 years. Lesser gave assessee two options either to pay rent on year-to-year basis or to pay a composite amount for the period of lease as a one-time payment.  

Assessee chose the option to pay entire lease rent of 90 years as composite onetime payment. Thus, 90 years' liability was paid in one year only. 

In such circumstances, the lease rent relatable for relevant year would be 1/90 of the amount paid and balance would be prepaid in advance only. Thus, the assessee was entitled to claim 1/90 of the amount every year till the period of lease of 90 years as revenue expenditure. 

Even in accordance with the matching principles of income and spending, the whole expenditure was not justified for allowance in one year when the corresponding income will be reflected in later years alone. Thus, spending not related to a year could not be permitted as revenue expenses in that year.