Our firm having textile showrooms throughout the State of Tamilnadu entered into lease agreements for 99 years with various land owners for acquiring lease right. The idea is to construct showroom buildings in those sites. We paid lump sum advance rent towards 99 year leasehold right in addition to monthly rent. We claimed the lump sum advance lease rent payments as revenue expenditure and whereas the AO wants the lease rent (including advance lease rent) to be spread over the lease term for allowance of deduction. Who is correct?
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The lease deed if continues to vest the ownership right with the land owners and only possessory and enjoyment rights are given to your firm then it cannot be called as sale of land / sites. In your case it seems that the lease agreement confers only the power of enjoyment as tenant / lessee.
ReplyDeleteThe amount paid towards advance rent to be fair could not be allowed in one go. The rent including advance rent has to be allowed over the lease term proportionately. However, you may refer to a favourable decision in the case of Dy. CIT v. Sun Pharmaceutical Industries Ltd (2009) 24 DTR (Guj) 262 in which it was held that the advance lease rent is deductible in one go notwithstanding, the benefit of such payment extends beyond the year of payment to many more years thereafter.