Lease Rent Paid For Acquiring Mining Rights Is Capital In Nature, Income Tax Deduction Not Allowable: ITAT

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) has observed that lease rent paid for acquiring mining rights is capital in nature and income tax deductions cannot be allowed.

The two-member bench of Partha Sarthi Choudhary (Judicial Member) and Inturi Rama Rao (Accountant Member) disallowed the amount of Rs. 24,33,339 towards amortization of leasehold premium paid in respect of land acquired from Gujarat Power Corporation Limited, Gujarat, for a solar project on a leasehold basis.

The appellant/assessee is a company engaged in the business of manufacturing mechanical and power steering gears and spares for commercial vehicles, passenger buses, multi-utility vehicles, passenger cars, and tractors.

During the financial years 2011–12 and 2012–13, the assessee company acquired on leasehold 1,52,981 sq. m. of land situated at Gujarat Solar Park from Gujarat Power Corporation Limited (GPCL) and land development charges for a total period of 30 years.

Under the agreement, the appellant was required to pay a very nominal annual rent at the rate of Rs 1 per square meter to GPCL. The appellant also claimed amortization of expenses on leasehold land taken for a windmill and solar project based on the tenure of the lease agreement. The Assessing Officer was of the opinion that amortization of lease premium cannot be allowed as "revenue expenditure", as it is of an enduring nature.

The tribunal, while dismissing the appeal of the assessee, noted that amortization of lease premiums cannot be allowed as "revenue expenditure".

Case Title: ZF Steering Gear (India) Ltd. Versus DCIT

Citation: ITA 310/pun/2019

Date: 07.02.2023

Counsel For Appellant: Nikhil Pathak

Counsel For Respondent: M. G. Jasnani

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