Capital expenditures involved on leased building by the tenant, how to treat it whether revenue or capital , can we claim depreciation ,
and how to show in IT returns.
In the lessors books:
Finance lease, you cannot claim depreciation but you might incur capital expenditure and not maintenance depending upon the contract. Asset is derecognised and receivables added equal to the underlying assets value. No need to classify revenue or capital.
Operating lease- you can claim depreciation as you will not derecognise the underlying asset as in the case of a finance lease.
Now, after capital expenditure, will the lessee capitalise the costs into the right to use asset? I’m not sure either, if I can get an answer from IndAS, I’ll reply back,
In the books of lessee:
depreciation can be claimed. Capital expenditure depends upon the explicit contract as to what falls under his expenses, eg., taps, boilers maintenance is his, any major damages to the roof are lessors expenses. Maintenance is revenue, new fixtures and fittings will be capital in nature.
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