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Leasehold Land for 99 years - Income Tax treatment

Jigar Shah (Chartered Accountant) (692 Points)

22 June 2010

Dear friends,

The query is:

The client has got a leasehold land for 99 yeras and paid the entire sum in advance. The question is whether we should consider the entire XX amount for claiming deduction or for the current year and proceed in the similar manner.

Some experts might take a view that it is capital expenditure and not business expenditure, but the fact is Act doest not recognise such bifurcation.

Kindly help me for the same with reference!

Experts your kindness is commendable!!!

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8 Replies

CA VINAY BANSAL (In job with KPMG) (289 Points)
Replied 22 June 2010

as per the concept " Substance over form", we have to capitalise the same. and on land, we cant claim depreciation.

So capitalise it and forget it......

Jigar Shah (Chartered Accountant) (692 Points)
Replied 22 June 2010

Substance over form is an accounting concept....Here, I need to substantiate as per I.T Act. I can still justify it as operating expenditure then what will be the treatment

Jigar Shah (Chartered Accountant) (692 Points)
Replied 22 June 2010

Pls give the reference

Amir (Learner) (4016 Points)
Replied 22 June 2010

Dear Jigar,

The sum paid for using land for next 99 years cannot be claimed as revenue expenditure.

I can not support my answer with any provision but I can present the case in different wordings -

A ltd. takes a building on rent for five years and makes the entire payment for 5 years in the very first year. now the deduction will be available proportionately across 5 years..

Same is the case with "Leasehold land"

"Matching concept" will apply...(Sum paid divided by 99)

It cannot be allowed u/s 32, the section would be Sec 30

mehul kishnani (student) (264 Points)
Replied 23 June 2010

hi everyone

i found case laws in support of above

247 ITR 347 (J&K) CIT v. Muhammed Hussain

Distinction between payment for acquisition of lease and payment for use of premises-Payment of monthly rent revenue expenditure and payment of lumpsum is capital expenditure.

Jigar Shah (Chartered Accountant) (692 Points)
Replied 23 June 2010

I believe the first case law was for:

Payment for acquiring leasehold right for extracting minerals – Whether it is paid in lump sum or in installments, it is capital expenditure.

mehul kishnani (student) (264 Points)
Replied 23 June 2010

hi jigar...

yes u r right. That was posted by mistake n that i i tried to modify at that time only but i dont know y i was not able to modify it. may be some problem in connection or site...anyway decision of CIT v. Muhammed Hussain is applicable in ur case