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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
PER AMIT SHUKLA, J.M.
The aforesaid appeal has been filed by the revenue and cross objection by the assessee against impugned order dated 28.2.2011, passed by Ld. CIT (Appeals) XVI New Delhi for the quantum of assessment passed u/s 143(3) for the assessment year 2007-08; and order dated 1.4.2017 passed by Ld. CIT (Appeals) XIII, New Delhi in relation to the penalty proceedings u/s 271(1)(c) for the same assessment year.
We will first take up revenue’s appeal in quantum proceedings, wherein following grounds have been raised:-
“On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition made by the AO on account of upfront fee. 2. On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in deleting the addition made by the AO of Rs. 24.00 crore which was proved to be capital expenditure in nature against assessee's claim on account of repair & maintenance of building, plants and others. 3. On the fads and circumstances of the case and in law, the Ld. CIT (A) has erred in restricting the disallowance u/ s 14A of the Act read with rule 8D of the Rules to the tune of 5% of dividend income. 4. On the facts and circumstances of the case and in law, the Ld. CIT (A) has erred in allowing the assessee to claim deduction u/s 80IA of the Act, for statistical purpose, if the assessed income would be positive.”
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
In ground No. 1, the revenue has challenged the finding of the Ld. CIT (A) in treating the “Upfront fees” of Rs. 150,00,00,000/- as revenue expenditure instead of capital expenditure treated by the AO. The brief facts and background qua the issue raised in ground No. 1 are that, ‘Delhi International Airport Limited’ (hereinafter referred to as ‘assessee’ or ‘DIAL’ or JVC) was incorporated as a Joint Venture Company in the year 2006, between a consortium (comprising of GMR Group, Fraports Malaysia Airports and Air Authority of India) as part of modernization and privatization program of the Government of India (GOI) for Indira Gandhi International Airport, at Delhi under Public- Private Partnership (PPP) model. The Airport Authority of India (AAI) had established the Indira Gandhi International Airport at Delhi and was running the same. With a view to effectuating better and modern facilities to the airlines using the airport and the passengers using the airlines for their travel, the GOI through AAI invited offers from persons interested in modernising, running and developing the Airport at Delhi. The bid submitted by the aforesaid Consortium was accepted and with a view to implement the said task, a company by the name ‘Delhi International Airport Private Ltd’ (DIAL) was incorporated on 01/03/2006 and was initially owned 100% by AAI. Only AAI and high Government Officials were the signatories to the Memorandum of Association. Following the award, an agreement named as “Operation, Management and Development Agreement” (hereinafter referred to as OMDA) was entered into between the assessee and AAI for; operation, management and development of the Airport on 4th of April 2006. Subsequently, in terms of OMDA, Equity share capital was infused by the Consortium in proportion to their shareholding in the assessee. After which, the consortium (comprising of GMR group and others ultimately own 74% with AAI's holding
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
reduced to 26%. Now in pursuance of OMDA agreement, the assessee has been operating and managing the Delhi International Airport.
Ld. Assessing Officer on a perusal of the computation of the income filed alongwith the return of income noted that the assessee has claimed deduction of Rs. 195.50 crores from its taxable income on account of payment to AAI for taking over the Delhi Airport. The reason for such claim was given by way of a note appended to tax audit report which reads as under:
"Airport Concessionaries right consists of (i) non-refundable upfront fees of Rs. 1,50,00,00,000/- and (ii) amount in relation to work in progress incurred authority of India prior to effective date i.e. taking over of Airport amounting Rs, 45,50,44000 reimbursed to AAI as per terms of operation management and development agreement (OMDA) under the OMDA, dial has been granted concession by AAI to carry out the function of operating, maintaining developing, designing and constructing, upgrading financing and managing the Airport for this purpose AAI has lease the premises constituting the Airport site to the DIAL. Thus in terms of OMDA, DIAL is required to perform various functions including construction of various structure on the airport site within prescribed period on the premises leased by AAI. DIAL is entitled to use and occupy the property with the building, structure therefore for a period of 30 years and further renewal for a period of another 30 years upon payment of Rs. 100 per annum, after the expiry of lease period the airport site with the building, therefore, had to be handed over to the AAI. Both the aforesaid amounts have been shown in a fixed assets schedule under head intangible assets in the books of a/c to be amortized spread over the concession period. However the income tax purpose both the aforesaid amounts are claimed as revenue expenditure. Based upon decision of the High Court wherein they have categorically held that the lump sum payment made to get leasehold rights would be in the nature of future rent payable and
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
the amount incurred on structure of doing any work in or in relation to improvement to the building which is put up in property taken on lease for carrying on business on a land taken on lease would be revenue expenditure. As per terms of OMDA capital work in progress incurred from the effective date will be shown under CWIP till suck time the work is completed. As the reimbursement of work in progress are made after taking over of the airport pertaining to the period prior to effective date, these have been shown under intangible assets. But as said above the same is claimed as revenue expenditure for income tax purpose. In view of the settled legal position available the entire amount of Rs. 1955044000 is claimed as revenue expenditure in the return of income though the same is amortised in the books of a/c for the propositions that the entire in the books of a/c are not conclusive of claim of any item as revenue deduction the reliance in this respect is placed on the decision of Supreme Court in the case of CIT vs. Kedarnath Jute Mills (82 ITR 363). “
The AO from the aforesaid note deduced that the assessee has taken over the operating charge of the airport under the agreement to carry out various functions like; operating, maintaining, developing, designing & constructing and management of the airport, etc., for which the assessee will enjoy benefits not in a year but during the whole period of 30 years for which the OMDA agreement was entered. The non-refundable ‘Upfront Fees’ of Rs. 1,50,00,00,000/- and reimbursement of Rs. 45,50,44,000/- to AAI was for taking the existing infrastructure facility and the amount for the facility in progress. Assessee has made this payment which is for enduring nature and accordingly, he issued show-cause notice to the assessee as to why the same may not be capitalised and benefit of 1/30th may only be allowed in the year under consideration and balance should be deferred to be allowed in the remaining period. In response to the show cause notice, the assessee submitted that the ‘Upfront Fee’ of
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
Rs. 150 crores paid by it was for grant of leasehold rights in the property, i.e., entire Delhi Airport by AAI for the term of the OMDA, which is in the nature of lump-sum rent paid in advance. After this payment the lease rent payable by the assessee to AAI was only a nominal sum of Rs. 100 per annum. Since, it was treated as an advance rent/ upfront payment for lease hold rights, therefore, the assessee has deducted TDS u/s 194I (i.e., by treating it as rent). In support of such a claim that it is in the nature of rent and allowable as revenue expenditure in the year in which it is claimed, the assessee relied upon the following decisions:-
i. Decision of Hon’ble Supreme Court in the case of Empire Jute’s case (124 ITR 1). ii. CIT v Madras Auto Services P. Ltd. (1998) 233 ITR 468. iii. Assam Bengal Cement Co. Ltd. v. CIT (1955) 27 ITR 34. iv. CIT V HMT Ltd. 203 ITR 820. v. CIT v. Gemini Arts P Ltd. (2002) 254 ITR 201 (Mad.) vi. CIT vs. Madras Auto Service P. Ltd. (1998) 233 ITR 468. vii. CIT vs. Ucal Fuel Systems Ltd. 296 ITR 702. viii. Amway India Enterprises v DCIT 111 ITD 112 (Del) (SB)
Regarding payment of sum of Rs. 45.5 crores to AAI in respect of capital work-in-progress (CWIP) under clause 5.4 of OMDA, the assessee submitted that under the terms of OMDA, assessee was liable for performance of all work-in-progress at the airport for which the assessee need to make all the payment in respect of capital work- in-progress at the airport from 30th August, 2005 till the effective date. Since, on the completion of the work the abovementioned asset shall become the property of AAI and no right those mentioned in the OMDA would get vested in assessee’s company, therefore, the amount was incurred on CWIP being in the nature of an asset not belonging to the
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
assessee, the same was claimed as revenue expenditure. In support the reliance was placed on following decisions:-
1) CIT vs. Associated Cement Companies Ltd (1988) 172 ITR 257 (SC); 2) CIT vs. Saw Pipes Ltd. (2007) 208 CTR (Del) 476; 3) Hindustan Times Ltd. vs. CIT (1980) 122 ITR 977.
The AO first of all held that, the judgments relied upon by the assessee are not applicable on the facts of the assessee’s case, because in these cases the issue was regarding payment of advance rent, whereas, in the case of assessee the amount has been paid as “upfront fees” which is a kind of “licence fees” for carrying out the business for the period of 30 years. The assessee has started its business during the year and was sharing profit on monthly basis with AAI. Merely because the assessee has deducted TDS u/s 194I, that does not make the payment as advance rent and the assessee’s version that it was a non refundable is not correct, because in terms of para 12.1 of the agreement, it has been provided that the amount is refundable on account of termination of agreement in accordance Article 3.3 of OMDA. Thereafter, he referred to clause 5.4 of OMDA whereby a payment of Rs. 50 crore was made by the assessee for capital work done by the AAI for operation of airport and this payment was in respect of CWIP. He observed that the assessee has failed to provide details of CWIP and since the assets was referred as capital in nature; therefore, the payment on this count was also capital in nature. After dealing with the various replies of the assessee he concluded in the following manner:-
3.9 “The above discussion certainly proves that the above payment of Rs. 150 crore on account of Upfront Fees is nothing but the licence fees to carry out business for 30 years and the 7
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
payment of Rs. 45.50 crores was on account of the capital work done by the AAI till Effective date. These investments are of capital nature which can at the most attributed to the expenses of 30 years paid in advance as the capital asset will not remain assets of the assessee but certainly it will be assets of capital nature. Therefore for 1/30th of this amount can be allowable to the assessee as an expense of the year and balance 29/30th has to be disallowed. Thus, expenses to the tune of Rs. 188,98,34,000/- is disallowed and added to the total income of the assessee.”
Before the Ld. CIT (A) the assessee highlighted the following important facts on this issue:- • For being awarded the contract under OMDA, the ‘Request for Proposal’ (RFP) was the basis. Para 3 of the RFP provided that:- "Over the tenure of the OMDA, the Joint Venture Company will pay both a nominal lease rental and a fee (consisting of an upfront fee of Rs. 1,500 million and an annual fee expressed as a percentage of gross revenue of the Airport... " • Pursuant to the above award, OMDA was entered into on April 4, 2006 which, inter-alia, provided for entering into a lease agreement. Accordingly, a Lease agreement was entered into on April 24, 2006.
• Para 4.1 of the Lease Agreement reads as under: "4.1 In consideration of the Lessor leasing the Demised Premises to the Lessee and granting the rights, privileges and benefits set forth in this Lease Deed, the Lessee shall pay to the Lessor, throughout the Term, an annual lease rent of Rs. 100/- payable in advance on April 1 of every year (the
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
"Due Date '') by cheque/demand draft drawn in favour of the Lessor ("Lease Rent')."
• Clause 11.1 of the OMDA required the assessee to pay an ‘upfront fee’, after obtaining the contract for Operation, Management and Development of the Delhi Airport. The term of the agreement is for a specified period of 30 years and upon end of the term of the OMDA, the land alongwith all the rights and properties would be transferred to AAI.
• The lump-sum payment of ‘upfront fees’ was considered by the assessee as being in the nature of rent. Accordingly, tax was deducted under section 194-I of the Act, and the entire ‘Upfront Fees’ was claimed as allowable revenue expenditure in the Return of Income filed by the assessee.
The Ld. CIT (Appeals) in order to determine the true nature of the payment, required the assessee to explain with documents and evidences, firstly, the treatment by AAI of the ‘Upfront Fee’ in their books of accounts/ return of income; and secondly, whether there was any mention of payment of ‘Upfront Fee’ and lease rentals in bid document issued by AAI. In response to the aforesaid query raised by the Ld. CIT (A), the assessee furnished following documents:-
i. Annual Report of the AAI for the period April 1, 2006 to March 31, 2007; ii. The Return of income of AAI for A.Y. 2007-08; iii. The Request For Proposal (“RFP”) being the bid document, issued by AAI; and iv. The Lease Deed between AAI and the Appellant dated April 25, 2006.
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
Since, these evidences were not available to the AO, the Ld. CIT (A) called for the remand report from the AO in order to give opportunity to him and to get his response/comments on the additional evidences as was required by him from the assessee and also on the written submission filed by the assessee. The AO duly responded to the same and filed his ‘remand report’ dated 19.11.2010 in which he offered no adverse comments in respect of the additional evidences, but reiterated the same reasoning as given in the assessment order. AO also objected that the additional evidence should not be admitted.
After calling for the rejoinder from the assessee, Ld. CIT (A) first of all, after giving detailed reasoning admitted the additional evidence; firstly, on the ground that under section 250(4), the CIT (Appeals) has power to make such further inquiry as he deems fit and can ask the AO to make further inquiry and to report the matter to him; and secondly, these documents are quite essential to decide the controversy. Therefore, there is no question of non admission of additional evidence as the same has been called by the CIT (A) in the course of making inquiry. Thereafter, he has incorporated and dealt with the detailed written submissions filed by the assessee which is appearing from pages 5 to 13 of the appellate order. In sum and substance the assessee’s submission before the Ld. CIT (A) can be summarised as under:- i) The ‘upfront fees’ in substance was paid for grant of lease hold rights in the property leased by AAI for the term of OMDA and was in the nature of lump-sum rent paid and because of this lump-sum payment, the assessee was required to pay a nominal rent of Rs. 100 per annum over the lease period of 30 years. In terms of para 3 of “Request For Proposal” (RFP) the
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
‘upfront fee’ received by the assessee though has been amortised by AAI in its books of accounts, however in the return of income, the entire receipt has been offered as revenue receipt by the AAI and in support, the copy of computation of income and relevant extract of return of income alongwith annual financial statement of AAI for the assessment year 2007-08 was filed.
ii) Reliance was placed on the decision of Hon’ble Supreme Court in the case of Empire Jute (124 ITR 1) and CIT vs. Madras Auto Service Pvt. Ltd. (233 ITR 468). Apart from these judgments reliance was also placed on the decision of Karnataka High Court in the case of CIT vs. HMT Ltd. (203 ITR 820); CIT vs. Gemini Arts P. Ltd. (254 ITR 201); Gujarat High Court judgement in the case of DCIT vs. Sun Pharmaceuticals Limited (329 ITR 479); and Delhi High Court judgment in the case of CIT vs. J.K. Synthetics Ltd. (309 ITR 371).
iii) The assessee after referring to the various clauses of the agreement given in the OMDA pointed out that, firstly, the tenure of the agreement was limited to 30 years; secondly, the right acquired from the OMDA were not transferable in favour of any third party; thirdly, on the expiry of lease the assessee was obliged to return back the asset specified in the OMDA back to AAI except for a few self-generated assets; and lastly, there is no acquisition of any confidential information and does not involve any sale of a secret process of manufacture. Thus, it was submitted that the test laid down by the Jurisdictional High Court in the case of J.K. Synthetics Ltd. 11
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
(supra) stands fulfilled and hence the payment of ‘upfront fees’ is to be allowed as revenue expenditure.
Ld. CIT (A), first of all, from the perusal of the relevant clause 11.1.1 read with clause 3.3 of the OMDA, noted that the refund of ‘upfront fee’ was possible only when certain conditions precedent were not satisfied within 3 months of the date of OMDA, that is, from 4th April, 2006. Thereafter the refund of the upfront fee was not possible and therefore, the contention of the AO that the payment was refundable is incorrect. Secondly, he observed that RFP clearly specified that assessee was required to pay nominal rent alongwith the ‘upfront fee’ of Rs. 150 crores to AAI and assessee had already deducted TDS on the payment of ‘upfront fee’ u/s 194I. From the document asked from the assessee by him regarding treatment of ‘upfront fee’ receipt by AAI, Ld. CIT (A) noted that AAI has offered this income as revenue receipt and therefore, same treatment should be followed in the case of the assessee. After taking note of the principle laid down by the Hon’ble Supreme Court in the case of CIT vs. Madras Auto Service P. Ltd. (supra) and other decisions relied upon by the assessee, he held that the ‘upfront fee’ is allowable as revenue expenditure. While coming to his conclusion that upfront fees is nothing but onetime payment of lease rent and therefore is allowable, he relied upon the judgment of Hon’ble Gujarat High Court in the case of DCIT vs. Sun Pharmaceuticals Limited (supra).
Before us, the Ld. CIT (DR) after referring to the various observations of the AO, she submitted that the assessee has claimed deduction of Rs 195.50 crore from its taxable income on account payment to AAI for taking over Airport, which includes:-
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
• Non-refundable upfront fee of Rs l50 crore and amount of Rs. 45,50,4000/- in relation to WIP reimbursed to AAI as per terms of OMDA (Operation, management & development Agreement) incurred prior to taking over of Airport. • Both amounts are shown in the fixed assets schedule under head, 'Intangible Assets' in books of account to be amortized over the concession period of the concessionaire. However, for income tax purposes, amounts claimed as revenue expenditure. • Upfront fees is in the nature of license fees for carrying out business over a period of 30 years. • Payment of TDS under section 194I by treating this payment as rent does not change the real nature of the payment. • This amount is refundable in case of termination of agreement (Para 11.1.1 of Article 3.3). • JVC shall be liable for making all payments in respect of other capital work in addition to aforementioned CWIP incurred by AAI at the Airport (Ref. Clause 5.4 of Agreement). This payment of Rs. 50 crore was made by Agreement). Thus, payment of Rs. 50 crore was made b y assessee for capital work done. • Depreciation not to be allowed on these assets in the light of the order of Mumbai High Court in CIT vs. Techno Shares & Stocks Ltd. 225 CTR 337 (Mumbai).
She then drew our attention to provisions of section 37(1) and submitted that section 37(1) expressly forbids the claim of expenses that are capital in nature. The payment of ‘upfront fee’ was in the nature of ‘licence fee’ to conduct business for the period of 30 years and is in the nature of expense incurred to obtain an enduring benefit 13
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
which has rightly been disallowed by the AO. She also submitted that the assessee itself has capitalised the said expenditure in the books of accounts and it is only in the return of income that it has claimed that it is revenue expenditure. Such a treatment in the books of accounts goes to show that onetime payment of ‘upfront fee’ was nothing but payment to obtain the entire airport for running of the business and therefore, such a payment was rightly be classified as capital by the assessee. In support, she relied upon following judgments on various proposition raised by her:- • Lease on permanent basis: Amount paid in instalments for obtaining a lease on permanent basis is a capital expenditure; CIT v Project Automobiles, (1987) 167 ITR 781. • Lump sum paid as premium for securing lease hold right held as capital expenditure; Joint CIT v Mukund Ltd. (2007) 291 ITR (AT) 249 (Mumbai) (SB). • Assessee firm acquired premises on lease from AAI. It paid certain amount to AAI towards renovation and alterations carried out in premises on its behalf. The expenditure being capital in nature not allowable. The AAI has offered the said amount as income is immaterial consideration for the assessee; ITO vs. Pritam Juice 124 ITD 237. • Rent paid by Lessee for acquiring leasehold right to extract minerals as one fixed amount for entire lease is Capital Expenditure, and proportionate amount of Rent not allowable as deduction; Enterprising Enterprises vs. DCIT 293 ITR 437 (SC). • Treatment in Books of Accounts vs. Nature of Expense: The treatment of particular expense or a provision in the Books of Accounts can never be conclusively determinative of the nature 14
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
of expense. An assessee cannot be denied claim for deduction which is otherwise tenable in law, on the ground that the Assessee had treated it differently in the books. The opposite is also true; CIT vs. Asahi India Safety Glass Ltd (Del.) • Book Entries are not decisive or conclusive in determining the allowbility or taxability of a particular item of expenditure or income; Bharat Carbon and Ribbon Mfg. Co. Pvt. Ltd. 239 ITR 505; Kedarnath Jute Mfg. Co. Ltd. 82 ITR 363 (SC)]147.
So far as the conclusion of the AO that only 1/30th should be allowed, she referred to the judgment of Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation, reported in 225 ITR 802, wherein the concept of expenditure which can be deferred for the period of lease has been upheld. However, her main contention was that the entire expenditure has to be treated as capital expenditure and even though AO may have allowed 1/30th of the expenditure, but looking to the very nature of the payment, which was to acquire the whole business and operation of the airport for a substantial period of 30 years, it has to be treated as capital in nature only, because it is a clear cut case of deriving enduring benefit for acquisition of business and to draw her point she has also referred to certain clauses of the agreement.
On behalf of the assessee, Ld. Sr. Counsel Mr Soli Dastur after explaining the entire facts and background of the case, submitted that in the terms of Request For Proposal (RFP) dated 1.4.2005, two kinds of payment was required to be made, firstly, the bidder had to pay nominal lease rent which was determined in the lease deed at Rs. 100 per annum alongwith the ‘Upfront Fee’ of Rs. 150 crores; and
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
secondly, an annual fee which later on was determined by the parties as 45.99% of gross revenue for allowing the assessee to carry out the function of development, operation and management of Delhi airport. On the said payment of ‘upfront fee’ the assessee had not only deducted TDS u/s 194I on the ground that the said payment constitutes rent, but also correspondingly, the AA1 had offered the said sum of Rs. 150 crores as rent and has claimed the credit of such TDS amount. The department has accepted this position in the assessment of AAI and whence that is so and in the return of income the assessee had made a claim for deduction of Rs. 150 crores towards advance rent on lump-sum basis, then same should also be treated in the similar manner. Mr Dastur after referring to various clauses of RFP as well as OMDA pointed out that the assessee has obtained a lease of airport site comprising of 4609.33 acres of land occupied and owned by AAI for the purpose of discharging the functions of development, operation and management of airport in terms of OMDA; and for taking such a huge area on lease lump-sum payment of Rs. 150 crores was made, which though has been classified as ‘upfront fee’, but in fact, it was in the nature of advance rent or as the AO himself has stated in the assessment order that it was a kind of ‘licence fee’. Once it is reckoned as ‘licence fee’ even though it has been paid up-front, then same cannot be treated as capital in nature. In support of the proposition that advance licence fee or advance rent can be allowed as revenue expenditure in the year in which it is claimed, he strongly relied upon the decision of Gujarat High Court in the case of DCIT vs. Sun Pharmaceuticals Limited (supra) and CIT vs. HMT Ltd. (supra).
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
Mr Dastur further submitted that, under the terms of OMDA there is no transfer of any right to the assessee, in fact all the rights and licences required for running of the airport including the fees/ tax collected from the passengers and airline etc., was to be obtained or to be collected by the assessee and it was not transferred by AAI to assessee. He stressed very heavily upon the point that, the AO himself has treated that the 1/30th of the said payment is to be regarded as revenue expenditure and only the balance amount has been held to be allowed over the balance period of 29 years and therefore, in this manner AO has deferred the revenue expenditure over the period of 29 years and in support of this treatment, the AO as well as the Ld. CIT (DR) has strongly relied upon the judgment of Hon’ble Supreme Court in the case of Madras Industrial Investment Corporation (supra). Mr Dastur submitted that it is not the case of the AO that the said payment is in the nature of capital, albeit, he has treated it as some kind of deferred revenue expenditure. However, under the Income Tax Act, there is no concept of deferred revenue expenditure and this proposition he submitted that is now well settled by the Hon’ble Supreme Court in the case of Taparia Tools Ltd vs. JCIT (372 ITR 605), wherein the Hon’ble Supreme Court has distinguished and explained the judgment of Madras Industrial Investment Corporation. In this case, the assessee had made a claim for deduction of interest expense paid upfront to debenture holders. The tenure of the debenture was 5 years and certain holders were given an option to receive interest for the entire period upfront. Even though the assessee had amortised the expense in its books of accounts over 5 years, it claimed the entire sum as revenue in nature in the year in which it incurred the expenditure. The AO treated the said expenditure as 'deferred revenue expenditure' and allowed the payment over 5 years.
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
It was held by the Hon’ble Supreme Court that by discharging the interest liability in the first year, the assessee was saved from the recurring liability of interest for the remaining life of the debenture. It was held in Para 14 of the judgment that there is no concept of deferred revenue expenditure in the Act except under specified sections where amortisation is specifically provided like section 35D of the Act. The Hon’ble Supreme Court also distinguished the decision in the case of Madras Industrial Investment Corporation (225 ITR 802) on the ground that in that case, it was the assessee who wanted the spread over of expenditure. It was noted and specifically stated by the Hon’ble Court that normally, revenue expenditure is to be allowed in the same year in which it is incurred and that if the assessee incurs an expenditure in a particular year, the IT Department cannot deny the same.
He also referred to various other decisions on this point for the sake of ready reference the judgements and ratio-decendi is as under:-
� CIT vs. Jai Parabolic Springs Ltd - 306 ITR 42 (Del HC) - The assessee made payment towards customer introduction charges, which was amortised in the books and claimed before CIT(A) as revenue expenditure for the first time. It was held by the HC that the deduction is to be allowed in the year in which it is incurred. Unlike in the instant case, where the claim for deduction has been made in the return of income, in that case, the claim was made for the first time before the appellate authorities.
� CIT vs. Citi Financial Consumer Fin Ltd - 335 ITR 29 (Del HC) - Payment of advertisement expenses was claimed as revenue in nature. According to the AO, benefit accrued from the advertisement campaign over a period of several years, and 18
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
therefore, he allowed the claim of the assessee on a spread over basis. It was held that under the Income-tax Act, the concept of 'deferred revenue expenditure did not exist and the expenditure had to be allowed in the year in which it was incurred.
� CIT vs. Vodafone Essar South Ltd - 55 taxmann.com 289 (Del HC) - The AO held the brand launch expenses to be revenue in nature but had deferred the same over a period of several years. The CIT (A) sustained the same for the reason that there was an enduring benefit. The ITAT reversed the order of the CIT (A) and the same was upheld by the HC for the reason that once it is held that the payment is revenue in nature, it has to be allowed in the year in which it is incurred.
In the instant case, that the liability to pay Rs. l50 crores has not only been incurred but discharged during the year. Mr Dastur submitted that the aforementioned judgments clearly enunciate two propositions; firstly, the concept of deferred revenue expenditure which has been adopted by the Assessing Officer in the instant case is contrary to the scheme of income-tax law and that the expenditure has to be allowed in the year in which it is incurred; and secondly, the manner of treatment of an expenditure in the books of account cannot defeat the assessee's claim for deduction in its tax assessment. He further submitted that, when the AO himself has treated the payment on revenue account, then same cannot be held that it is deductible on deferred basis, spread over the period of 30 years.
Coming to the argument of the Ld. CIT (DR) that assessee has acquired any kind of right by making such payment of ‘upfront fees’, Mr Dastur submitted that same is not correct at all, because assessee
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
has not acquired any right which is evident from the fact that assessee has to make separate payment of ‘annual fee’ of 45.99% of the gross revenue and if that is not made continuously, then the agreement itself will come to an end. No right is acquired by the assessee by payment of ‘upfront fees’, albeit, the assessee got the lease of entire airport premises to run the airport for the period of 30 years and for carrying out the activities parties have agreed for some kind of revenue sharing which is distinct from the lease of the premise. In support of his contention he further relied upon the following decision:-
i. Engineers India Ltd - 239 ITR 237 (Del HC) - Admission fee of Rs.90,000 paid to a research organisation to get information was claimed as revenue expenditure. Apart from the admission fee, the assessee was to make a yearly subscription payment, failing which the assessee would not be entitled to get the required information from the research organisation. The ITO disallowed the admission fee and treated it as capital in nature for the reason that it resulted in an asset of enduring nature. It was held by the HC that no asset of an enduring nature was obtained by the assessee by paying the admission fee as, if the annual subscription was not paid, the assessee would not have received any technical information from the said organisation and in the event of such default, the supply of further information may be stopped to the assessee even though it continues to be a member of the organisation. It was held that by the payment of initial membership fee, the assessee did not acquire an asset of enduring nature. The payment of Rs.150 crore in the instant case takes the same colour as the membership fee for the same reason.
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
ii. Neset Holdings Pvt Ltd - 282 ITR 601 (Del HC):- One-time non-refundable expenditure of Rs.3 lakh was incurred for obtaining OTCEI membership which gave a right to the assessee to access facilities. The assessee was also liable to pay different types of fees annually. It was held that the payment of Rs.3 lakh was revenue in nature as, unless the annual fees were paid, the assessee would have been regarded as an inactive member. Following Engineer's India's case (Supra), it was held that no enduring benefit was obtained and therefore, payment is revenue in nature.
Mr Dastur further submitted that the sum of Rs. 150 crores cannot be seen as an independent payment, because it is linked with the nominal rent of Rs. 100 per annum and if the annual fees of 45.99% of gross revenue is reckoned on revenue account by the Department and same is deductible, then one of the payments which has been paid on lump-sum basis cannot be given different colour.
Countering the argument of the Ld. CIT (DR) that the entry in the books of accounts by the assessee is decisive, as here in this case the assessee has itself treated the said expenditure capital in nature and also claimed depreciation thereon, Mr Dastur submitted that now it is a well settled proposition of law that the treatment in the books of account is not conclusive or relevant for the purpose of income tax and in support he relied upon the following judgements:- (i) Kedarnath Jute Mfg. Co. Ltd. – 82 ITR 363 (SC) (ii) Sutlej Cotton Mills Ltd. vs. CIT – 116 ITR 1 (SC) (iii) Tuticorin Alkali Chemicals &b Fertilizers Ltd. 227 ITR 172 (SC).
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
Lastly, Mr Dastur submitted that from the perusal of all the materials placed on record as well as relevant terms of the OMDA agreement it can be seen that there is no transfer of any license in favour of the assessee nor has the assessee acquired any licence in its name to carry on the functions of the Airport. He submitted that the assessee was formed on 01/03/2006 as a 100% subsidiary of Airport Authority of India. All the initial shareholders and subscribers to the Memorandum of Association were Government Officials holding high positions. The AAI decided to vest some of its functions in the assessee and consequently, OMDA was entered into subsequently on 04/04/2006. As a part of reorganisation, there was a change in the shareholding pattern by July 2006, wherein the AAI, from a 100% subsidiary became a 26% stake holder in the assessee company with other parties holding 74% stake. He pointed out that as per clause 3.1.3 (iii) of the OMDA the assessee was to obtain all the clearances for operation and management of the airport as set forth in Schedule 24. Thus, there is no transfer or acquisition of any licence by the assessee to run the airport under OMDA as the assessee was required independently to obtain all clearances to discharge the function of operation and management of in terms of OMDA. Further, he submitted that the assessee does not have the prerogative to fix the tariffs in respect of services on its own as it is to be determined as per the provisions of ‘State Support Agreement’ to be entered into with the State Government. Thus, it cannot be said that the assessee has obtained any license to carry out the operation and management of the airport and collect charges for the services as it deems fit in as much as the same are govern by the provisions of SSA and the applicable law.
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
During the course of hearing, Ld. CIT (DR) has also brought to our notice, the decision of ITAT Mumbai Bench in the case of Mumbai International Airport in ITA No. 7507/M/2011 (order dated 14.2.2014) to point out that Tribunal has taken a view that depreciation is to be allowed on the payment of one time ‘upfront fee’ which goes to show that, in that case also the ‘upfront fee’ has been treated as capital expenditure by the assessee. Countering this judgement, Mr Dastur submitted that in said case it was never an issue, whether the payment is to be regarded as capital or revenue, but the nature of controversy was, whether the depreciation can be allowed in the said payment or not. Thus, this judgement will not impinge upon whether the payment of upfront fees is of revenue in nature or not and we agree with him that this decision does not lead to any persuasive inference on the issue involved before us.
We have carefully considered the rival submissions, perused the relevant finding given in the impugned orders as well as the material referred to before us at the time of hearing. First of all, we would like to draw the summary of events and the reasons of the AO for disallowing part of the expenditure claimed by the assessee: � On 1.04.2005, a “Request for Proposal” (RFP) was issued by AAI calling for applications to bid for organisation, management, development, construction, etc., of Delhi Airport. � On 04.04.2006, OMDA was entered into between assessee and AAI.
� On 24.04.2006, lease agreement was signed between assessee and AAI for the lease of Airport Site admeasuring 4609.33 acres to the assessee at a nominal lease rent of Rs.100/- per annum
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
for a period of 30 years, which was though extendable for another period of 30 years at the option of the assessee. The assessee was also required to pay Rs. 150 crores as ‘upfront fees’ to AAI which was paid on 29.04.2006. � AO vide his order dated 29.12.2009 held that ‘upfront fees’ is allowable as deduction @ 1/30th by amortising the amount of ‘upfront fees’ over the period of 30 years, instead of revenue expenditure claimed entirely in this year in the return of income.
To reiterate the relevant facts in a succinct manner for the purpose of our adjudication as discussed above; the AAI had established the Indira Gandhi Airport at Delhi and was running the same. Later on with a view to efficaciously run better and modern facilities to the airline using the airport and effectuating and the passengers for the travellers, the Government of India invited offers from the persons interested in modernising, running and developing the airport at Delhi. In pursuance thereof, a ‘Request for Proposal’ was issued by AAI calling for application for bid for operating, management, development, construction, etc. of Delhi Airport. On such RFP a bid was submitted by consortium of 7 persons and Joint Venture Company was incorporated on 1.4.2005 accepting the RFP. With a view to implement the said proposal, a company was formed, named as “Delhi International Airport Pvt. Ltd.” which was incorporated on 1.3.2006 and was initially owned 100% by AAI. An agreement termed as “Operation, Management and Development Agreement”, (OMDA) was entered into between the DIAL and AAI on 4.4.2006. Later on, in terms of said OMDA, its equity share capital was infused by the consortium in proposition to their share holding which for the sake of ready reference is reproduced herein below:-
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
S. No. Shareholder Percentage shareholding
AAI 100%
As of the Effective Date: S.No. Shareholder Percentage of shareholding
GMR Infrastructure Ltd. 31.1%
GMR Energy Ltd. 10.0%
Fraport AG Frankfurt Airport 10.0% Services Worldwide
Malaysia Airports (Mauritius 10.0% Private Limited)
GVL Investments Pvt. Ltd. 09.0%
India Development Fund 03.9%
AAI 26.0%
Pursuant to OMDA, a lease deed was simultaneously entered into between AAI and DIAL for the lease of ‘Airport site’ which had an area of more than 4609 acres, at a very nominal lease rent of Rs. 100 per annum for a period of 30 years and this was further extendable for another period of 30 years at the discretion of the parties. Apart from that, the assessee was also required to pay “Upfront Fees” of Rs. 150 crores; and also ‘Annual fees’ expressed in the terms of percentage of revenue, which was determined at 45.99% of the gross revenue for allowing the assessee to carry on the function of development,
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
operation and management of the Delhi Airport. The AO treated the amount of Rs. 150 crores paid as ‘license fee’ for acquiring the licence in the nature of enduring benefit and accordingly, held that it is to be allowed as deduction to the assessee on spread over basis, that is, over the period of 30 years and consequently he allowed 1/30th of the said payment. Ld. CIT (A) has decided this issue in favour after noting following important facts:-
� Upfront fee was refundable only if certain conditions were not fulfilled within 3 months from the date of OMDA 4thApril 2006. � RFP clearly specified that the assessee was required to pay only a nominal rent of Rs.100 per annum along with an upfront fee of Rs.150 crore to AAI and that tax has been deducted from the payment of upfront fees under section 194-1 and AAI has offered the upfront fee to tax. � The payment of upfront fee has not resulted in acquisition/ creation of any capital asset. In fact, owing to the payment of upfront fee, the appellant was required to pay only a nominal annual lease rent � The tenure of the agreement was limited, i.e., for 30 years and the rights under the OMDA were not granted/transferred to the assessee and upon the termination of OMDA (after the expiry of 30 years), the assessee was obliged to Transfer back assets specified in OMDA to AAI (which would include the airport site leased to the assesse for operating and managing the airport.
The main issue before us is, whether the sum of Rs. 150 crores paid as “Upfront Fees” or as ‘licence fee’ (as classified by the AO), is capital in nature or is on revenue count. To decide such a vexed issue
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
it would be pertinent to refer to the some of the important clauses of RFP and OMDA. Firstly, in pursuance of the RFP, JVC was formed to restructure and modernised the Delhi Airport. RFP stipulated that: “AAI is offering a long term Operations, Management and Development Agreement to suitably qualified, experienced and resourced parties to design, construct, operate, maintain, upgrade, modernise, finance, manage and develop the Airport. The Successful Bidder will participate in a Joint Venture Company with the AAI (and other GOI public sector entities) and such JVC shall be awarded the right to operate, manage and develop the Airport.”
One of the key features of the OMDA was that, it would be for an initial period of 30 years with the JVC having the right to extend this by further period of 30 years in accordance with terms and conditions of the transaction document. The successful bidder was to have 74% equity interest and AAI along with the GOI and public sector entities will have 26% equity interest in the JVC. Already the ratios of equity interest of various entities have been highlighted above. Another key feature was that under the ‘State Support Agreement’ the JVC will have “right of first refusal” (ROFR) with regard to the second airport in the vicinity on the basis of competitive bidding process in which JVC can also participate and in the event JVC is not the bidder it will have ROFR by matching the first ranked bid in terms of selection criteria for the second airport, provided the JVC has satisfactory performance when any material default at the time of exercising the ROFR. It was further stipulated that the JVC for the airport will have a lease over the land and assets of the Airport for the tenure of the OMDA. The most crucial feature with regard to the payment was as under:-
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
“Over the tenure of the OMDA, the Joint Venture Company will pay both a nominal lease rental and a fee (consisting of an upfront fee of Rs. 1,500 million (Rupees one thousand five hundred million) an annual fee expressed as a percentage of gross revenue of the Airport for the right to operate, manage and develop the Airport. The fee will be calculated annually in advance on projected revenue, paid monthly and with an adjustment at the end of each quarter to reflect any difference between actual and projected revenue. Revenue for this purpose shall mean all pre-tax gross revenue of JVC, excluding the following (a) payments made by JVC, if any, for the activities undertaken by Relevant Authorities; (b) Insurance proceeds except insurance indemnification for loss of revenue; (c) any amount that accrues to JVC from sale of any capital assets or items; (d) Payments and/or monies collected by JVC for and on behalf of any governmental authorities under applicable law. It is clarified that annual fee payable to AAI and Employee Arrangement costs payable to AAI shall not be deducted from revenue.”
Thus, over the tenure of the OMDA, JVC was required to pay two kinds of payments, firstly, nominal lease rent and the fee consisting of ‘Upfront fee’ of Rs. 150 crores; and secondly, an ‘annual fee’ expressed as a percentage of gross revenue from the airport for the right to operate, manage and develop the airport. This was determined at 45.99% of the gross revenue. From this clause it is quite ostensible that the ‘annual fee’ was for the right to operate, manage and develop the Airport, whereas the lease part consisted of nominal lease rent and upfront fee.
As per the OMDA entered on 4th April, 2006, the recital in clause (B) again reiterated the same purpose which is as under:-
“(B) AAI, in the interest of the better management of the Airport (as defined herein) and/or overall public interest, is desirous of granting some of its functions, being the functions of operating, 28
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
maintaining, developing, designing, construction, upgrading, modernising, financing and managing the Airport to the JVC and for this purpose to lease the premises constituting the Airport Site (as defined herein), in accordance with the terms and conditions set forth herein.” Under the definition clause the ‘Airport site’ was meant as the underline land forming part of the demised premises (as defined in the lease deed) agreed to be demised by AAI in pursuance of OMDA. Under the lease deed all the land and airport was leased to the JVC during the tenure of the agreement, that is, the entire airport site was leased to the assessee. The lease deed was defined as “lease deed to be entered into between the parties for the demised premises”. The ground of function and the sole purpose of the JVC was stipulated as under:-
“AAI hereby grants to the JVC, the exclusive right and authority during the term to undertake some of the functions of the AAI being the functions of operation, maintenance, development, design, construction, upgradation, modernization, finance and management of the Airport and to perform services and activities constituting Aeronautical Services, and Non-Aeronautical Services (but excluding 'Reserved Activities’) at the airport and the JVC hereby agrees to 'undertake the functions of operation. maintenance, development, design, construction, upgradation, modernization, finance and management of the Airport and at all times keep in good repair and operating condition the Airport and to perform services and activities constituting Aeronautical Services and Non- Aeronautical Services (but excluding Reserved Activities) at the Airport., in accordance with the terms and conditions of this Agreement (the "Grant"). Without prejudice to the aforesaid, AAI recognizes the exclusive right of the JV C during the Term, in accordance with the terms and conditions of this Agreement, to:
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
i. develop, finance, design, construct, modernize, operate, maintain, use and regulate the use by third parties of the Airport;
ii. enjoy complete and uninterrupted possession and control of the Airport Site and the Existing Assets for the purpose of providing Aeronautical Services and Non Aeronautical Services; iii. determine, demand, collect, retain and appropriate charges from the users of the Airport in accordance with Article 12 hereto; and iv. Contract and/or sub contract with third parties to undertake functions on behalf of the JVC, and sub-lease and/or license the Demised Premises in accordance with Article 8.5.7.
2.2 Sole Purpose of the JVC: 2.2.1 The JVC having been set up for the sole purpose of exercising the rights and observing and performing its obligations and liabilities under this Agreement, the JVC or any of its subsidiaries shall not, except with the previous written consent of AA1, be or become directly or indirectly engaged, concerned or interested in any business other than as envisaged herein. Provided however that the JVC may engage in developing, constructing, operating or maintaining a second airport pursuant to exercise of the Right of First Refusal granted to the JVC under the State Support Agreement.”
Clause 2.6 further lays down the agreement to grant lease interest and additional land which read as under:- “In consideration of the Lease Rent this Agreement and the covenants and warranties on the part of the JVC herein, the AAI, in accordance with the AAI Act and the terms and conditions set forth herein, hereby, agrees to demise to the JVC under the Lease Deed, commencing from the Effective Date, all the land (along with any buildings, constructions or immovable assets, if any, thereon) which is described, delineated and shown in the Schedule 25 hereto, other than (i) any lands (along with any buildings, constructions or immovable assets, if any, thereon) granted to any third party under any Existing Lease(s) constituting the Airport on
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
the date hereof; and (ii) any and all of the Carved Out Assets and the underlying land together with any buildings, constructions or immovable assets thereon, on an "as is where is basis" together with all Encumbrances thereto, (hereinafter "Demised Premises") to hold the said Demised Premises, together with all and singular rights, liberties, privileges, casements and appurtenances whatsoever to the said Demised Premises, hereditaments or premises or any part thereof belonging to or in any way appurtenant thereto or enjoyed therewith, for the duration of the term hereof for the purposes permitted under this Agreement. In the event at any time during the Term, the JVC requires the hundred (100) hectares of land (or any part thereof) as identified in the Initial Development Plan and deducted for determining the Demised Premises (the "Excluded Premises"), for the purposes or provision of Aeronautical Services, then JVC may request AA1 to lease such Excluded Premises, or part thereof, as the case be, and upon such request the Parties shall enter into a lease deed for grant of such lease It is expressly clarified that the leasehold rights agreed to be granted hereunder shall terminate forthwith upon the expiry or early termination of this Agreement for any reason.”
The transfer of rights in relation to the airport on the effective date and transaction was highlighted in the following manner:-
“Upon satisfaction or waiver, as the case may be of the Conditions Precedent, on and from the Effective Date, the rights and obligations associated with the operation and management of the Airport would stand transferred to the JVC, who shall be solely responsible and liable for the performance of all Aeronautical Services, Essential Services and all other activities and services as presently undertaken at the Airport (other than Reserved Activities) JVC shall perform under all existing contracts and agreements between AAI or any Relevant Authority and any third party as relatable to the Airport from the Effective Date, as if JVC was an original party to such contracts and agreements instead of AAI and towards this end shall perform all responsibilities,
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
liabilities and obligations of AAI at JVC’s risk and cost (including payment obligations to counter parties). Provided however that in order to ensure smooth transfer of the Airport from the AAI to the JVC, AAI shall during the Transition Phase provide assistance to the JVC (on a best endeavour basis) in the manner provided herein below.”
Further in terms of OMDA, JVC was not to sub-contract the overall operation and maintenance of the airport and the JVC was to exercise and be responsible for overall management control and supervision of the airport through senior management staff, of any subject contract of any activity/ or service. It was clearly stipulated that the JVC can under no circumstances sublease or licence the whole airport. The main condition precedent which was to be satisfied with the JVC was that, the JVC shall have paid the full ‘upfront fee’ to AAI alongwith various other conditions which have been enshrined in clauses 3.1.1, 3.1.2 to 3.3, provided that in the event that any of the conditions set forth in article 3.1.1, 3.1.2 or 3.1.3 have not been fulfilled within three months from the date of the agreement, or such later date as may be mutually agreed by the parties, may terminate this agreement. The relevant clause reads as under:-
“3.3 Non-fulfilment of Conditions Precedent In the event that any of the conditions set forth in Articles 3.1.1, 3.1.2 or 3.1.3 have not been fulfilled within 3 months from the date of this Agreement, or such later date as may be mutually agreed by the Parties, the JVC (in case of non-fulfilment of any of the AAI Conditions Precedent), the AAI (in case of non-fulfilment of any of the JVC Conditions Precedent) and any of the Parties (in case of non-fulfilment of Common Conditions Precedent) may terminate this Agreement. Provided however that in the event this Agreement is terminated by AAI for non-fulfilment of the JVC Conditions Precedent, the AAI
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
shall be entitled to encash the Bid Bond/Performance Bond (as the case may be) Provided further that upon any such termination, each Party shall return to the other Party, any monies (other than the termination payments mentioned above) received from such Party prior to such termination. Neither Party shall be entitled to terminate this Agreement for non- fulfilment of the JVC Conditions Precedent, or the AAI Conditions Precedent, or the Common Conditions Precedent, as the case may be, to the extent that such non fulfilment is the result and/or consequence of any event of Force Majeure.”
Further under the OMDA, the JVC was entitled to collect charges for aeronautical services in accordance with the provisions of ‘State support agreement’ and charges for non-aeronautical services and passenger services which were to be held in fiduciary capacity. Lastly, the term of OMDA was 30 years with an option to the JVC to renew the agreement for further period of 30 years. On the expiry or the earlier termination of OMDA, the pre OMDA position would revive, i.e., AAI will carry on the function of the Airport and JVC cannot perform any of the function of operation and management of the airport.
From the OMDA agreement certain basic features can be culled out like:– � Firstly, the assessee has obtained the lease of Airport site, comprising of 4609.33 acres of land owned by AAI for the purpose of discharging the functions of development, operation and management of airport; � Secondly, the consideration for lease of airport site was nominal lease rent which as per the lease agreement was Rs. 100 per
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
annum plus a lump-sum amount termed as ‘upfront fees’ of Rs. 150 crores which was non-refundable after the period of 3 months from the effective date. � Thirdly, for the right to operate, manage and develop the airport, the only fee which was stipulated to be paid was on the projected revenue for the year which was agreed at 45.99% of the gross receipt. � Fourthly, upon the satisfaction of the conditions precedent on and from the effective date, i.e., 4.4.2006, the rights and obligation associated with operational and management of airport would stand transferred to the JVC and JVC was entitled to collect various charges; and � Lastly, the term of OMDA was for 30 years with an option to the JVC to renew the agreement for the further period of 30 years or otherwise after the expiry or earlier termination of OMDA it would revert back the airport activities and thereon the AAI would run the Delhi Airport and JVC will not have any function to perform or ascertain any right to operate and manage the airport.
The nature of dispute before us is, whether the lump-sum payment which was payable only once during the term of the agreement of Rs. 150 crores was; for the lease of the airport for 30 years; or was in lieu of transfer of any kind of rights to develop, operate and manage the airport. As can be deduced from the OMDA as well as the intention of the parties given in RFP, the parties have agreed for distinctly two kinds of payment, one for the lease of ‘Airport Site’ which leased on a nominal lease rent of Rs.100 per annum and ‘upfront fee’ of Rs. 150 crores; and second payment was for the rights 34
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
given to the assessee for development, operation and management of the airport. Nowhere in the OMDA agreement, is it borne out that the ‘upfront fee’ was for acquiring any tangible or intangible assets. The rights as envisaged has been granted by the AAI to the assessee to undertake some of the functions of AAI in connection with the operation, management and development of the airport for which the consideration paid is by way of ’annual fees’. The entire airport site with the facilities has been handed over to the assessee to perform the activity which was earlier carried out by the AAI under revenue sharing basis. One of the key proposition urged by Mr Dastur was that for granting lease of the airport site comprising of more than 4609 acres of land for a period of 30 years, annual lease rent of Rs. 100 per annum is too miniscule and this is so, because the assessee had to pay Rs. 150 crores as a onetime payment over the entire period of 30 years. Such a payment can be reckoned as lease premium or licence fee as held by the AO. In other words, it has to be construed that it is towards the lease payment only and once that is so, then in terms of various judicial pronouncements as relied upon by him it has to be treated as revenue in nature. From the facts and circumstances of the case as discussed hereinabove in detail, we are at tandem with such proposition of Mr Dastur and agree with him that sum of Rs. 150 crores which has been termed as “upfront fee” is nothing but onetime payment for lease of entire Airport site for a period of 30 years. On the other hand, the main contention of the Ld. CIT (DR) was that since it is a onetime payment given for acquisition of a business, therefore, it falls in the category of capital expenditure and or otherwise it is clearly a case where by making such a payment in enduring benefits had accrued to the assessee.
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
For making the distinction between the capital and revenue expenditure several ‘tests’ have come up for consideration before the judicial forums from time immemorial and way back in year 1955, Hon’ble Supreme Court in the case of Assam Bengal Cement Co. Ltd. v. CIT (1955) 27 ITR 34 had summarised following tests:-
“i. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment........ ii. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade...... If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. iii. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital.”
If we apply the aforesaid tests on the facts of the present case, then the payment of Rs. 150 crores is neither for initiation nor for extension of a business or for substantial replacement of equipment and nor it brings any capital asset. The expenditure can be neither be held to have been incurred which has brought any fixed capital of business or
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
is part of circulating capital. Albeit the payment here is for securing a lease period of 30 years of the airport for carrying out the operation and development of Airport and is part of the lease consideration. As regard the test of ‘enduring benefit’ or the expenditure being of enduring nature as canvassed by the Ld. CIT DR before us, it would be relevant to refer to the judgment of Hon’ble Supreme Court in the case of Empire Jute Company (1980) 124 ITR 1, wherein the Hon’ble Supreme Court has repelled the theory of expenditure of enduring nature in very elucidate manner. The Hon’ble Supreme Court after taking note of various judicial decisions and various tests evolved for distinguishing the capital and revenue expenditure, held that no test is paramount or conclusive as every case has to be decided on its facts keeping in mind the broad picture of whole operation in respect of which the expenditure has been incurred. Hon’ble Apex Court has also added a caution in such cases in the following manner:
" ... There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably white leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
without regard to the particular facts and circumstances of a given case.”
Thus, herein this case the test of enduring benefit in acquisition of capital asset as propagated by the revenue would fail for the reason that, for the lease of Airport site which was for 30 years, the payment of Rs. 150 crores was a onetime payment so that the annual lease rent was chargeable at a very nominal rate of Rs.100/- for a huge Airport area of more than 4609 acres. Such a miniscule annual rent of huge area and facility (entire Airport Site) definitely would defy all commercial parlances. Once the any recurring payment towards lease rent is reckoned or classified as revenue expenditure, then even the lump-sum payment or one-time payment for the same purpose has to be given the similar treatment as it partakes the same character. There could not be two different classification of same nature of expenditure. That apart, such onetime payment cannot be classified as creating any capital asset or any kind of profit making apparatus or giving any enduring advantage of a benefit of a trade. At the most the said payment can be reckoned as lease premium or licence fee for the Airport site taken on lease for a period of 30 years. In this case, such a payment cannot be reckoned for the purpose of acquisition of business also, because both the parties have agreed to transfer the right of operating, development and maintenance of the airport on revenue sharing basis which has been termed an ‘annual fee’ which is recurring in nature. Now if such a lump sum payment for the lease of the Airport Site for a period of 30 years can be reckoned as revenue or not, appears to be quite settled proposition in wake of the following judgements which has been highlighted and stressed upon by the Ld. Sr. Counsel for the assessee before us:-
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
i. DCIT vs. Sun Pharmaceutical Ind. Ltd. – 329 ITR 479 (Guj HC) - In this case, the assessee was the lessee of land. The period of lease was 99 years. In addition to an annual lease rent of Rs.40 per annum, the assessee paid Rs.48 lakh to GIDC as advance rent. The AO disallowed the claim for the reason that the assessee obtained an enduring benefit for a period of 99 years in the form of use of the land and therefore he held that the payment was capital in nature. The High Court upheld the finding of the Tribunal that the land in question was not acquired by the assessee and that the lease rent was very nominal and the sum of Rs.48 lakh was in the nature of rent and the assessee only acquired a facility to carry on business profitably by paying a nominal lease rent together with lump sum amount of Rs.48 lakh. The fact that the lease deed was registered was irrelevant. Therefore, it was held that the payment was revenue in nature.
ii. CIT vs. H.M.T Ltd - 203 ITR 820 (Kar HC) - A lease agreement was entered into with MIDC for the lease of the plot on which the assessee was mandatorily to construct a building within a period of 2 years for the use of the assessee. After the construction, the assessee was entitled to use both the land and building for 95 years. Under the agreement, the assessee paid a premium of Rs.12,09,200 for acquiring leasehold rights. The annual rent was fixed at a nominal sum of Re.1 per annum. The assessee made a claim for deduction of the premium paid for the reason that it was actually rent paid in advance and, therefore, was to be considered as revenue expenditure.
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
It was held by the Karnataka High Court that what was termed as premium and paid in a lump-sum to MIDC was future rent payable by it and that is evident from the fact that the assessee was paying only Re. 1 per annum which is for the purpose of evidencing the character of the transfer of property as a lessee and not for, any other purpose.
Apart from that certain other judgments were also referred and relied upon which has also has been taken note by the Ld. CIT (Appeals) in the impugned order. Thus, the amount of Rs. 150 crores paid as onetime payment for taking the airport site for 30 years on the facts of the present case has to be treated as revenue expenditure.
Here one very important fact which is not in dispute is that AO himself has treated the payment of ‘upfront fees’ as revenue expenditure, in the sense that he has allowed part of the expenditure in this year and it is not the case of AO that it is capital expenditure in which case no part could be allowed in terms of section 37(1) of the Act. This action of the AO itself exonerates the case of the assessee.
Another important contention which has been raised by the revenue which is also culled out from the order of the AO is that, even though the said payment is classified as revenue expenditure, then same has to be deferred and spread over the period of 30 years, i.e., for the term of the lease agreement and only 1/30th would be allowed in this year. In support of this proposition, the parties have strongly relied upon the judgement of Hon’ble Supreme Court in the case of CIT vs. Madras Auto Industries (Supra), wherein the Hon’ble Supreme Court has upheld the treatment given by the assessee in its
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
account spreading over the expenditure for a period of 39 years. The relevant facts in that case were as under:- The assessee-company had obtained premises on lease for a period of 39 years. Under the terms and conditions of the lease, the lessee (the assessee-company) had demolished the existing construction and constructed a new building thereon to suit the purposes of their business as per the plan approved by the lessors, and used to pay rents lower than the rents prevailing in vicinity. The lease deed provided that the new construction shall, right from the commencement of the work, be the property of the lessors; and upon completion of the work of construction the lessee will have only the right to be a tenant for a period of 39 years under the existing lease subject to the payment of rent and observation of other terms and conditions of the lease. The lessee shall not be entitled under any circumstances for any compensation whatsoever on account of its putting up the new const- ruction in the place of the old. The assessee claimed that the expenditure spent on construction was revenue expenditure. The Assessing Officer rejected its claim and treated the said expenditure as capital expenditure. The Tribunal held that the expenditure of the amounts for the construction of a new building was in the nature of business expenditure for proper carrying on of the business of the assessee and treated these amounts as revenue expenditure and allowed a deduction in that regard to the assessee. The High Court upheld the Tribunal's order.
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
The Hon’ble Supreme Court after discussing various judgements opined as under:-
“6. In order to decide whether this expenditure is revenue expenditure or capital expenditure, one has to look at the expenditure from a commercial point of view. What advantage did the assessee get by constructing a building which belonged to somebody else and spending money for such construction? The assessee got a long lease of a newly constructed building suitable to its own business at a very concessional rent. The expenditure, therefore, was made in order to secure a long lease of new and more suitable business premises at a lower rent. In other words, the assessee made substantial savings in monthly rent for a period of 39 years by expending these amounts. The saving in expenditure was a saving in revenue expenditure in the form of rent. Whatever substitutes for revenue expenditure should normally be considered as revenue expenditure. Moreover, the assessee in the present case did not get any capital asset by spending the said amounts. The assessee, therefore, could not have claimed any depreciation. Looking to the nature of the advantage which the assessee obtained a commercial sense, the expenditure appears to be revenue expenditure.” Thereafter, the Hon’ble Supreme Court after discussing the various propositions on the issue of capital and revenue expenditure, concluded in the following manner:-
“13. All these cases have looked upon expenditure which did bring about some kind of an enduring benefit to the company as a revenue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expense has been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully. In the present case also, since the asset created by spending the said amounts did not
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
belong to the assessee but the assessee got the business advantage of using modern premises at a low rent, thus, saving considerable revenue expenditure for the next 39 years, both the Tribunal as well as the High Court have rightly come to the conclusion that the expenditure should be looked upon as revenue expenditure.
The aforesaid judgment first of all, in no way support the case of the Revenue, because in this case the Hon’ble Supreme Court has categorically held that, since the asset created by the assessee by spending the amounts did not belong to it but only business advantage of using modern premises at a low rent thus saving considerable revenue expenditure for next 39 years, then the said expenditure should be treated as revenue expenditure. Nowhere the Hon’ble Apex Court has laid down the proposition that, under the Income Tax law there is a concept of ‘deferred revenue expenditure’. In fact this concept was discussed in the case of Madras Industrial Corporation Ltd. vs. CIT (1997) in 225 ITR 802, which too has been referred by Ld. CIT (DR) to justify the action of the AO in deferring the expenditure for the period of 30 years. This judgement of the Hon’ble apex court had come up for consideration before the Hon’ble Supreme Court in the case of Taparia Tools Ltd. vs. JCIT (supra), wherein it has been explained and discussed the said judgment in the following manner:-
“16. Judgment in Madras Industrial Investment Corpn. Ltd. v. CIT [1997]225 ITR 802/91 Taxman 340 (SC) was cited by the learned counsel for the Revenue to justify the decision taken by the courts below. We find that the Court categorically held even in that case that the general principle is that ordinarily revenue expenditure incurred wholly and exclusively for the purpose of business is to be allowed in the year in which it is incurred. However, some exceptional cases can justify spreading the expenditure and
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
claiming it over a period of ensuing years. It is important to note that in that judgment, it was the assessee who wanted spreading the expenditure over a period of time and had justifies the same. It was a case of issuing debentures at discount; whereas the assessee had actually incurred the liability tor-pay the discount in the year of issue of debentures itself. The Court found that the assessee could still be allowed to spread the said expenditure over the entire period of five years, at the end of which the debentures were to be redeemed. By raising the money collected under the said debentures, the assessee could utilise the said amount and secure the benefit over number of years. This is discernible from the following passage in that judgment on which reliance was placed by the learned counsel for the Revenue herself: "15. The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs.3,00,000 in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, therefore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirety in the year in which it is incurred. It cannot be spread over a number of years even if the assessee has written it off in his books over a period of years. However, the facts may justify an assessee who has incurred expenditure in a particular year to spread and claim it over a period of ensuing years. In fact, allowing the entire expenditure in one year might give a very distorted picture of the profits of a particular year. Thus in the case of Hindustan Aluminium Corporation Ltd. vs. CIT, ( 1982) 30 CTR (Cal) 363: (]983) 144 ITR 474 (Cal) the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
over a number of years and allowed a proportionate deduction in the accounting year in question.
Issuing debentures at a discount is another such instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years. There is a continuing benefit to the business of the company over the entire period. The liability should, therefore, be spread over the period of the debentures.” 17. Thus, the first thing which is to be noticed is that though the entire expenditure was incurred in that year, it was the assessee who wanted the spread. The Court was conscious of the principle that normally revenue expenditure is to be allowed in the same year in which it is incurred, but at the instance of the assessee, who wanted spreading over the Court agreed to allow the assessee that benefit when it was found that there was a continuing benefit to the business of the company over the entire period. 18. What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that year, the IT Department cannot deny the same. However, in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of 'Matching Concept' is satisfied, which upto now has been restricted to the cases of debentures. ”
Thus, in this judgment Hon’ble apex court has clearly held that if revenue expenditure has been found in a particular year then the same has to be allowed in that year and department cannot deny the same and it is only when the assessee himself wants to spread the expenditure over the period of ensuing years it can be allowed only if
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
the principle of matching concept is satisfied which upto now has been restricted to the cases of debentures. Thus, this judgement clearly negates the action of the AO in spreading over the revenue expenditure for a period of 30 years, when the assessee has claimed it in this year in its return of income. Accordingly, the contention of the Revenue is rejected.
So far as the contention of the Ld. CIT (DR) that, once the assessee itself has capitalised the amount of Rs. 150 crores in its account and has claimed depreciation being intangible assets, then assessee cannot change its stand and claim it as a revenue expenditure. In this regard, we agree with the contention of the Ld. Sr. Counsel Shri Dastur that, entries in the books of accounts are not determinative or conclusive and the matter has to be examined on the touchstone of provisions contained in the Act and this proposition is well settled by the decisions of Hon’ble Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. (supra); Sutlej Cotton Mills Ltd. vs. CIT (supra); and Tuticorin Alkali Chemicals & Fertilizers Ltd. (supra). In view of our finding given above, we hold that mere entry in the books of accounts and classifying the said payment as capital, i.e., it has been capitalised in the books will not at all be determinative as it has to be seen on the facts whether such a payment or expenditure falls in the capital filed or revenue field.
One more important aspect in this case is that, if the assessee had acquired any right by making payment of Rs. 150 crores, then under the terms of OMDA it is clearly stipulated that the payment of ‘annual fee’ of 45.99% of the gross revenue of the year is not made continuously then the OMDA agreement will come to an end. On this fact also the assessee has not acquired any licence or right by making 46
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
the payment of Rs. 150 crores. Thus, on this count also it cannot be held that the said sum is for acquiring any licence or right. In view of the aforesaid discussion and analysis we are of the opinion that the payment of Rs. 150 crores is to be treated as revenue expenditure and order of the Ld. CIT (A) allowing such expenditure is affirmed and grounds taken by the revenue is dismissed.
The next issue raised in ground No. 2 is with regard to deletion of addition of Rs. 24 crores which according to the AO was capital expenditure and assessee has claimed it on account of repair and maintenance of building, plants and others. The assessee has incurred an amount of Rs. 24 crores towards repair and maintenance of building etc. the details of which has been given at page 8 and 9 of the assessment order which for the sake of ready reference is reproduced herein below :- (Rs.) Renovation of Toilets at TIA: 489183.08
Renovation of Toilets at TIA: 3206349.95
Supply of vitrified ties: 2794958.00
Renovation of TIB faced upgradation: 5537359.00
Dismantling of park area in front of terminal: 408662.00 Supply of vitrified tiles: 41106.00
Interior work at residence of Ms PS Nair: 59641.00
Purchase of road safety products at Delhi: 461366.00
Purchase of electrical fitting for repair & main: 505643.00
Renovation of toilets at TIA: 6942786.00
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
Rehabilitation of distressed of portion of slabs
& Beams in the arrival terminal: 111425.00
Renovation of toilets at TIA: 896358.00
Renovation of toilets TIA: 4041566.00
Laying of verified tiles at terminal 1 B: 3357362.00
Supplying & stacking of bricks bats: 154370.00
Purchase of Cylindrical bollard: 27203.00
Painting work at terminal area: 73939.00
Interior work: 49223.00 Do 31325.00 Do 161843.00 Supply & apply of paint on exterior of Terminal: 123414.00
Renovation of toilets at TIA: 962785.00
Purchase of decorative poles for street lights: 3850854.97
Interior work: 225483.00
Dismantling of old bldg., behind J block: 491217.00
SS cladding to columns & doorways: 836890.00
Installation of ACP at TIB: 823714.00
Renovation of TIB facade upgradation: 4099618.00
Purchase of road studs safety product at Delhi Airport: 182280.00
Installation road studs safety product at Delhi Airport: 77000.00
Interior work: 39510.00
Purchase of decorative poles for street light: 88268.00 48
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
Purchase of magnetic white board & pin up: 50100.00
Do 15488.00
Light fixture for udaan Bhawan: 1247162.00
Carpet setting up at Airport office: 302473.00
Development of landscape pockets at terminal: 331981.00
Interior work: 215250.00
Renovation work of external area of terminal 1B: 1467440.01
Video conferencing shifting from office to Udaan Bhawan: 223313.00
Supply installation and transportation: 413697.00
Supply of Aluminium doors and shifting of: 113516.00
Renovation of Toilets at TIA: 6913999.69
Renovation of Toilets at TIA: 432276.79
Renovation of Toilets at TIA: 944121.04
Renovation of Toilets at TIA: 723051.41
Renovation of Toilets at TIA: 582157.63
Renovation of Toilets at TIA: 5516.40
Renovation of Toilets at TIA: 249912.12
Modification and creation of car parking: 340946.00
Light fixture for Uddan Bhawan: 620781.00
Purchase of painting and framing work: 173895.00
Installation and commissioning charges of AC: 325570.22
Advertisement charges for newspaper: 15461755.00
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
The AO held that since these expenses are going to give assessee a long term benefit for a period of 30 years, accordingly, he allowed 1/30th portion of the said expenditure and balance of 29/30 has been disallowed. He had also noted that assessee has dismantled many existing structures and constructed new ones and since these are the construction of new structures, therefore, it has to be treated as capital expenditure and accordingly, he added sum of Rs. 23.20 crores.
Before Ld. CIT (A) the main argument of the assessee was that the expenditure incurred towards repairs and maintenance is in the nature of current repairs as:- • The expenditure was incurred in modernizing the existing property and preserving and maintaining the already existing assets through repair work and towards day to day maintenance of the assets of the company; • Such expenditure was incurred on premises not owned by the Appellant and, therefore, was allowable as revenue expenditure. • The said expenditure did not result in any benefit of an enduring nature and, therefore, was allowable as revenue expenditure. • The expenditure incurred did not result in creation/acquisition of any capital asset.
Besides this, various decisions were also relied upon in support of the contentions that the expenditure has been incurred on lease terms same cannot be treated as capital. It was also brought to the notice of the Ld. CIT (A) that in various years the assessee has incurred
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
expenditure on repair and maintenance on buildings as per the following chart:-
Financial Years Amount of Repair and maintenance on Buildings( Rs. In crores)
2006-07 24.3 2007-08 15.52 2008-09 19.08 2009-10 24.01
After considering the entire explanation as well as the various judgments which has been incorporated by the Ld. CIT(A) in the impugned order, he held that the said expenditure are allowed u/s 30/31 and 37 being in the nature of repair and maintenance of expenditure.
Before us the Ld. CIT (DR), first of all pointed out that, nowhere the Ld. CIT (A) has properly addressed the finding of the AO and secondly, there is an expenditure on account of advertisement in newspaper amounting to Rs. 1,54,61,755/- which cannot be allowed under the head repair and maintenance. In support of the contention she relied upon following judgements: i) Arvind Mills Ltd. vs. Commissioner of Income-Tax 197 ITR 422 (SC). ii) Balimal Naval Kishore vs. CIT. 41. On the other hand, the Ld. Sr. Counsel Mr Dastur submitted that, here it is not a case that it is a capital expenditure or revenue expenditure, albeit the AO has allowed it on a deferred basis over a period of 30 years. He submitted that the case of the assessee before the revenue authorities were that:-
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
a. The assessee was under an obligation to keep the Airport in operating and good condition and in order to ensure that it met the requirements of an international world class airport, the assessee was to manage the airport in accordance with good industrial practice and in accordance with development standards and requirements and operation and maintenance standards and requirements and renew, replace and upgrade to the extent reasonably necessary. All maintenance, repair and other works were to be carried out in such a way as to minimise inconvenience to users of the Airport. b. By looking at the nature of repairs, it can never be said that the assessee has created a new infrastructural facility and dismantled existing structure and constructed new structures. The assessee did not obtain any new asset by carrying out the activities of repairs. It is also evident that the repairs were carried out in Terminal 1A/ 1B which ceased to be operative from May 2009 and July 2010 respectively. Therefore, there cannot be any question of an enduring benefit obtained by the assessee. Further, in any case, one has to look at the totality of the expenditure involved in running and maintaining the airport and one cannot pick up 2 or 3 items to say the same is having enduring benefit and hence are capital in nature. c. The Assessing Officer had amortised the expenditure over 30 years and thereby allowing only 1/30th of the expenditure for the year under appeal. It is submitted that the Assessing Officer having allowed 1/30th of the expenditure, has impliedly accepted that the expenditure is revenue in nature, but according to him, has to be deferred and allowed on spread over basis over 30 years. It is a settled law that the concept of 52
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
deferred revenue expenditure does not exist under the Income- tax Act and that the expenditure has to be allowed in the year in which it is incurred. Reliance was placed upon the following decisions which have been discussed above also:- a. Taparia Tools Ltd vs. JCIT - 372 ITR 605 (SC) b. CIT vs. Jai Parabolic Springs Ltd - 306 ITR 42 (Del HC) c. CIT vs. Citi Financial Consumer Fin Ltd - 335 ITR 29 (Del HC). d. CIT vs. Vodafone Essar South Ltd - 55 taxmann.com 289 (Del HC).
We have heard the rival submissions and also perused the relevant finding given in the impugned orders as well as the judgements referred and relied upon by the parties. Here in this case as noted above the nature of expenditure is on account of renovation and repairs for improving the existing infrastructure. The Ld. AO has not pointed out as to which expenditure is for construction of new structure. In fact he has classified all the expenditure as revenue and that is why he has allowed it in a deferred manner, that is, as deferred revenue expenditure. If AO himself has accepted that expenditure is revenue and has held to be allowable on a deferred basis spread over 30 years, then there cannot be case that it is capital in nature. As submitted by the Ld. Sr. Counsel in light of various judgment as cited above, that there is no concept of deferred revenue expenditure under the Income Tax Law and the expenditure has to be allowed in the year in which it is incurred. Since, AO has himself has not classified or distinguished as to which repairs is for new infrastructure or for construction of new structure, therefore, we are unable to give any finding that any of the expenditure as noted above pertains to new construction. As he himself has treated to be revenue, then in that
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
case, we hold that the entire expenditure under the head repair and maintenance is allowable as revenue expenditure in the year in which it is claimed. The judgements relied upon by the Ld. CIT DR would not apply under such facts and circumstances of the case. However, we agree with one of the contentions of the Ld. CIT DR that an amount of Rs. 1,54,61,755/- debited under this head cannot be treated as expenditure on repair and maintenance and therefore, AO is directed to remove this expenditure from the head ‘repair and maintenance of building etc. With this direction, ground No. 2 as raised by the revenue is partly allowed.
In ground No. 3 the revenue has challenged the direction of the Ld. CIT (A) in restricting the disallowance u/s 14A to the tune of 5% of the dividend income. The Ld. AO noted that assessee has earned tax free dividend income of Rs. 2,31,54,191/- and required the assessee as to why disallowance under rule 8D should not be made. The assessee submitted that in order to pay ‘upfront fee’ of Rs. 150 crores to AAI, assessee had approached banks for such a payment and since funding by way of borrowing of such payment was taking time it was decided to bring equity of Rs. 200 crores in April 2006 and the surplus arising from the operation was kept in mutual funds. When the funding was received then the same got substituted by the borrowed money of Rs. 150 crores from the banks which was utilised in incurring of cost of airport project. Thus, investment in funds were not made from borrowed funds but from share capital and internal accruals from time to time. However, the AO applied the provision of Rule 8D for making the disallowance after referring to certain decisions which worked out to Rs. 85.22 lacs. Out of which 72.28 lacs consisted of disallowance of interest only under Rule 8D 2 (ii).
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
The Ld. CIT(A) so far as interest expenditure is concerned, held that same cannot be disallowed, because assessee had owned interest free funds sufficient to cover the investment made and therefore, no apportionment of any interest expenses can be made for the purpose of disallowance u/s 14A. He further held that provision of Rule 8D were not applicable in assessment year 2007-08 as the same has been made applicable for the assessment year 2008-09 and this view is well supported by the decision of Hon’ble Bombay High Court in the case of Godrej & Boyce Manufacturing vs. DCIT 328 ITR 81. However, he held that on account of indirect expenses certain disallowances should be called for on reasonable basis as certain amount of administrative effort is required. Following the decisions of ITAT Mumbai Bench in the case of; VFC Securities Pvt. Ltd. vs. ITO, CITA 5523/M/2009; and Godrej Agrovet Ltd. vs. ACIT (2010) –TIOL-616- ITAT-Mum), wherein disallowance of 5% to 2% of the dividend income were held to be reasonable. Accordingly, he made the disallowance of 5% of the dividend income for the purpose of section 14A.
Before us the Ld. CIT(DR), in her detailed written submission first of all, submitted that Rule 8D is to be treated as retrospective and it applies to pending proceedings also for which she relied upon certain judicial pronouncements which was prior to the judgment of the Bombay High Court in the case of Godrej & Boyce vs. DCIT (supra). Secondly, she submitted that Rule 8D only provides the mechanism for determination of expenditure and sub section (2) has been inserted in section 14A which enables the AO to determine the amount of expenditure in relation to the exempt income. This sub section was brought under the statute w.e.f. 1.4.2007; and thus, AO has rightly computing the disallowance u/s 14A.
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
On the other hand Ld. Senior Counsel, Mr. Dastur submitted that now this issue is no longer res integra that Rule 8D is applicable from the assessment year 2008-09. The judgment of Hon’ble Bombay High Court in the case of Godrej & Boyce (supra) has now stands affirmed by Hon’ble Supreme Court also as this issue was never disputed. Regarding deletion of interest, he relied upon judgement of Hon’ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd., 366 ITR 505; and CIT vs. Reliance Utilities and Power Ltd., 313 ITR 340, wherein the Hon’ble High Court has held that if the assessee has owned sufficient funds or interest free funds, sufficient enough to cover the investments, then no interest expenditure can be attributed for the purpose of disallowance.
We have heard the rival submissions and perused the relevant findings given in the impugned order. Ostensibly, the invoking of Rule 8D for making the disallowance u/s 14A in the impugned assessment order cannot be upheld and this proposition is fairly settled by the judgement of Hon’ble Bombay High Court in the case of Godrej and Boyce (supra). Thus, we hold that Ld. CIT (A) has rightly held that disallowance cannot be determined in accordance with Rule 8D. So far as the deletion of interest expenditure is concerned, the assessee before the AO had clearly stated that the equity funds as well as accrual from day to day income has been invested in the mutual funds which has yielded dividend income. No borrowed funds have been utilised for such an investment. This fact has not been controverted by the Revenue that the funds borrowed from the bank has been utilised for the purpose of making the investment. Once that is so, then no disallowance of interest can be made while attributing the disallowance u/s 14A. Even otherwise also if the assessee has both
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
borrowed and surplus funds and assessee’s own funds or interest free funds are sufficient to cover the investment made which has yielded exempt income, then in view of various judicial pronouncements as relied upon by the Ld. Sr. Counsel above, which carves out the proposition that in such a situation it can be presumed that such an investment has been made out of own funds/interest free funds and therefore, on this count also, we do not find any reason for any disallowance of interest. Coming to the reasonableness of disallowance made by the Ld. CIT (A) who had disallowed 5% of the dividend income out of indirect expenditure, we find that the said conclusion of the Ld. CIT (A) is not only reasonable but also is in consonance with the certain judicial precedent and therefore, we do not find any reason to interfere in such a finding and same is affirmed accordingly ground No. 3 as raised by the revenue is dismissed.
Lastly, with regard to the ground No. 4 that Ld. CIT (A) has erred in allowing the assessee’s claim u/s 80-IA in case the assessed income is positive, we find that here in this case, it is an undisputed fact that assessee is engaged in the business of operating and maintaining of airport and the profits and gains derived by an undertaking from such business which has been referred to as eligible business in section 80-IA. The assessee before the Ld. CIT (A) has submitted that, since the return of income has filed at a huge loss of Rs. 150.55 crores, therefore, no claim for deduction u/s 80IA was made. It is only when the AO has made the assessment at a positive figure Rs. 62.70 crores, the assessee has made a claim for deduction u/s 80-IA. In support of such a claim, audit report was also filed in the prescribed form, a copy of which has also been placed in the paper
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
book before us. Ld. CIT (A) after examining the entire facts and submissions of the assessee observed and held as under:-
“11.5 It is undisputed that the Appellant is carrying on the business of operating and maintaining an airport. The AO in his remand report has only contested that claim u/s 80IA cannot be entertained since it was not made in the return of income.
11.6 In view of the above discussion, the question of rejection of the claim merely on the basis that it has not been made in the return of income does not arise. However, the prayer of the Appellant is that the said deduction be allowed if the assessed income is a positive figure. In view of the decisions in respect of the grounds of appeal dealt with above, the income of the Appellant would not be a positive figure. Therefore, this ground is allowed for statistical purposes.”
After hearing both the parties, we do not find any infirmity in the direction of the Ld. CIT(A), because, the assessee is carrying on the business of operating and maintaining of airport which is an eligible business specified in section 80IA(4)(i) for which assessee is eligible for claim for deduction u/s 80IA. In support of the claim, audit report in prescribed form had already been obtained. The said claim was not made in the return of income, because there was a huge loss of more than Rs. 155.55 crores. It was only when huge income was assessed at positive figure; assessee has made its claim for deduction u/s 80IA. In light of this background, the direction of the Ld. CIT (A) to the AO is in accordance with the law and no interference is called.
In the result appeal of the revenue is party allowed in the manner indicated above.
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
Now we will take assessee’s cross objection. In ground no.1, assessee has made an alternative claim of allowing the depreciation, if ‘Upfront fees’ is treated as capital expenditure. In ground no. 2, assessee has challenged the conclusion of the Ld. CIT (A) that payment of Rs. 45,50,00,000/- in respect of CWIP is capital in nature instead of revenue expenditure claimed by the assessee. In ground no. 3, assessee made an alternative claim qua the expenditure of Rs. 24 crores under the head ‘repair and maintenance’, that in case it is held as capital in nature, then depreciation should be allowed on capitalisation. Lastly, in ground no.4, assessee has made the alternative claim of allowing the deduction of section 80IA in case there is positive income.
So far as ground nos. 1, 3 &, 4, are concerned, the same stands answered while dealing the appeal of the revenue and therefore, in view of our finding given therein, the ground nos. 1, 3 & 4 have become partly academic.
Now so far as the issue raised in cross objection no. 2, i.e., disallowance of payment made by AAI in respect of CWIP amounting to Rs.45.50 crores which was claimed as revenue expenditure by the assessee; the facts in brief are that, in pursuant to OMDA the assessee was required to make all the payments in respect of work-in- progress at the airport from August 30, 2005 till the effective date i.e. the date of taking over the airport. Accordingly, as per the terms of OMDA the assessee had paid an amount of Rs. 45.50 crores being expenditure incurred by AAI on said WIP. The assessee has claimed this expenditure as revenue in its return of income. The AO has disallowed the said amount and allowed the 1/30th of the said amount by holding that, firstly, the payment was done by the assessee for the 59
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
capital work done by the AAI; secondly, though the ownership of the asset did not vest in the assessee but the payment was not in the nature of repairs but for the initial capital work; and lastly, the benefit of the said payment would be available to the assessee over a period of 30 years. The assessee’s contention had been that the expenditure incurred in WIP was an asset not belonging to the assessee, and therefore, the assessee had claimed the same as revenue expenditure. This it was contended from the fact that the OMDA provides that the assessee would return the “transfer assets” back to the AAI. Upon completion of the work, the abovementioned assets would be the property of the AAI and no right except those mentioned in the OMDA would vest in our Company. This it was stated that is amply clear from the OMDA that all land and building being ‘Transfer Assets’ belong to AAI. The amount so incurred on the CWIP being in the nature of an asset not belonging to assessee and hence, was claimed as revenue expenditure. It was submitted that, it is settled law that where expenditure has been incurred on a capital asset to facilitate the business of the assessee and where the ownership of the capital asset belongs to a third party, the amount so incurred is an allowable revenue expenditure. Reliance was placed on various decisions like CIT vs. Associated Cement Companies Ltd. [1988] 172 ITR 257 (SC); CIT vs. Saw Pipes Ltd. (2007) 208 CTR (Del) 476; and other decisions as incorporated by the Ld. CIT (A) from pages 17 to 19.
Ld. CIT (A) held that the assessee itself in the subsequent years has capitalised the similar amount incurred by it on the construction of new terminals and when assessee itself had capitalised the expenditure incurred for same construction activity in the subsequent years, then it cannot be permitted to take a contrary stand for initial
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
capital work in progress acquired from AAI under OMDA and therefore, the payment of Rs. 45.50 crores cannot be held as revenue.
After hearing both the parties and on perusal of the relevant finding given in the impugned orders, we find that the payment has been made by the assessee in the capital work done by the AAI and under the terms of OMDA agreement, the assessee was required to make the payment on capital-work-in-progress which was incurred by the AAI while taking over the operation management and development of the airport. This is evident from clause 5.2 (B)(ii) of OMDA. In the said agreement it was clarified that CWIP is part of mandatory capital project to be undertaken by the JVC and the treatment of capital work in progress in the accounts of AAI and the expenditure incurred by the JVC from the effective date will continue to be shown by the JVC in its books as capital-work-in-progress till such time the JVC completes the relevant CWIP. The amount shown in the books of accounts of JVC will be restricted to the expenditure incurred by the JVC on such works till the time of the completion. On the completion of capital work in progress, the JVC should transfer the same to the concerned completed work assets. Further JVC should also provide depreciation on those portions of the completed assets. In light of the categorical stipulation with regard to the treatment of capital work in progress, it is ostensibly clear that it was the CWIP which was taken over by the assessee by making such payment of Rs. 45.50 crores and assessee itself has capitalised the said amount under the head capital-work-in- progress in the subsequent year also. On the completion of CWIP the same was stipulated to be transferred to the concerned completed work assets and depreciation was to be allowed on such assets. Thus, in light of these documents and facts, we hold that Ld. CIT (A) has
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
rightly held that payment of Rs. 45.50 crores to AAI in respect of work in progress is clearly capital expenditure and same cannot be allowed as revenue expenditure. Thus, order of the Ld. CIT (A) on this score is affirmed and the ground raised by the assessee is dismissed.
In the result cross objection filed by the assessee is dismissed.
Now we shall come to the penalty appeal, wherein the revenue is aggrieved by deletion of penalty of Rs. 11,48,64,750/- on account of disallowance of expenditure of Rs. 4,50,00,000/-on account of payment made by the assessee to AAI towards capital-work-in- progress. The relevant facts have already been discussed by us in the quantum proceedings hereinabove while dealing with the cross objection No. 2 of the assessee., Ld. AO has levied the penalty on this disallowance by holding that assessee has furnished inaccurate particulars of income and held that assessee itself in assessment years has treated similar nature of expenditure as capital, whereas in this year it has treated as revenue. Thereafter, relying upon the principle laid down by the Hon’ble Supreme Court in the case of Dharmendra Textile Processors (supra) AO has levied the penalty of Rs. 11,48,64,750/-.
Ld. CIT (A) had noted the following facts as stated by the assessee of the disclosure made by the assessee in the document accompanying the return of income with regard to the CWIP reimbursement which was came as revenue expenditure:- a. In the return of income, both ‘Upfront fees’ and the ‘CWIP’ were disclosed in the Return of Income separately in Schedule BP at Sr. No. 11/30 as other expenditure claimed allowable.
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
b. In the audited accounts: the accounting treatment followed with respect to the amount of Upfront fees and the CWIP were disclosed in the Fixed assets schedule-S and Schedule 17 dealing with significant accounting policies.
c. In the Tax audit report, a detailed note was provided explaining the treatment in accounts and the contention of the Appellant as regards allowbility of said expense for tax purposes.
d. In the computation of income filed before the Assessing Officer, the stand of the Appellant was once again disclosed suo-motto.
e. In the course of the assessment proceedings, complete disclosure was made, explanation provided and the relevant documents, submissions in support of the claim made by the Appellant as regards the payment to AAI and the judicial pronouncements relied on by the Appellant in support of its claim were also submitted and based upon which the learned Assessing Officer took a different view that since the OMDA period is of 30 years and consequently this amount should be allowed as deduction by amortizing the same over 30 years instead of claim of the Appellant as revenue expenditure.
f. In the course of the Appellate proceedings on merits before the CIT (A), the Ld. CIT (A) called for a remand report from the Assessing Officer. The remand report by the Assessing Officer dated December 2, 2010 was filed. The report clearly states that the show cause notice was issued by the Assessing
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
Officer in view of the disclosure made in the return of income, audited accounts and the tax audit report.
After considering the assessee’s detailed submission/explanation and various decisions, Ld. CIT (A) deleted the penalty on the ground that, assessee has disclosed all the material facts necessary for assessee and there is no filing of inaccurate particulars of income. Merely making an incorrect claim does not tantamount to inaccurate particulars of income and for coming this conclusion he relied upon judgement of Hon’ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. reported in 322 ITR 158 (SC), and also referred to catena of judgments which has been dealt and referred by him in the impugned order right from pages 18 to 25.
After hearing both the parties at length on various factual and legal aspects, we find that the assessee while making the claim for aforesaid expenditure as revenue expenditure has given complete disclosure not only in the return of income wherein separate schedule has been given qua this claim but also in the audit report the accounting treatment followed with respect to the amount of ‘upfront fees’ and ‘CWIP’ were disclosed in the fixed assets and also detailed note was provided in this regard. In the computation of income again the disclosure was made with proper explanation and documents. This fact has been clearly noted by the Ld. CIT (A) in the impugned order. Before the AO the assessee had duly explained as to why such an expenditure is to reckoned as revenue, because it has made the payment for expenses incurred by AAI on the airport which it was required to reimburse in terms of OMDA and since such payment was made in this year therefore, same was claimed as revenue expenditure in this year. One very important fact which is to be noted here is that 64
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
the Ld. AO has not treated this expenditure completely as capital albeit has gone ahead to allow 1/30th of expenditure to be spread over the period of 30 years. Ld. CIT (A) as well as this Tribunal (as above) in the quantum proceedings has confirmed the entire disallowance made by the AO as capital expenditure, but such an addition has not been confirmed on the ground that either the assessee’s explanation has found to be false or the claim made by the assessee is unsubstantiated.
In deciding the cases whether a particular expenses is capital in nature or falls in revenue field is always a very vexed question of facts and law and there is very thin line of demarcation between the two and there is no sure shot test to decide the same. Such a nature of controversy between capital and revenue had even perplexed the judicial forums including the Hon’ble Supreme Court and High Court. Merely because assessee has made a claim for revenue expenditure which later on has been held to be capital in nature does not mean that assessee is guilty of either furnishing of inaccurate particulars of income or concealment of income. Though the finding in the quantum proceedings are of great pervasive value, however such a finding alone in the quantum side does not leads to conclusion that penalty is to be levied or confirmed automatically. What is to be seen is, whether the assessee’s claim was otherwise allowable under the law or not. Here in this case at the stage of AO itself, part of the expenditure has been treated as revenue, therefore, in such a situation it cannot be held that assessee has furnished any inaccurate particulars of income or assessee’s explanation has been found to be false or unsustainable in law. The finding of the Ld. CIT (A) that assessee has made full disclosure and merely because the claim has been found to be
ACIT vs. Delhi International Airport Pvt. Ltd. DCIT vs. M/s.Delhi International Airport Pvt. Ltd. & M/s.Delhi International Airport Pvt.Ltd. vs.ACIT
unsustainable by the appellate authorities it does not mean that assessee has furnished inaccurate particulars of income and in such a situation the principle and laid down in the judgment of Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. (supra) is clearly applicable. Accordingly, the order of Ld. CIT (A) in deleting the penalty is affirmed and the appeal of the revenue is thus dismissed.
In the result appeal of the revenue in ITA No. 2720/DEL/2011 is partly allowed; and appeal in ITA No. 4202/Del/2013 is dismissed; and the cross objection of the assessee is also dismissed.
Order pronounced in the open court on 14th December, 2017. Sd/- sd/-
(PRASHANT MAHARISHI) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 14th December, 2017
Veena