Delhi High Court
Mahle Anand Filter Systems Pvt. ... vs Acit, Circle-6(1), New Delhi on 15 February, 2019
$~30
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Decided on: 15th February, 2019.
+ ITA 159/2019
MAHLE ANAND FILTER SYSTEMS PVT. LTD.
(FORMERLY KNOWN AS MAHLE
FILTER SYSTEMS PVT. LTD. ..... Petitioner
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr.Aniket D. Agrawal & Mr.Neeraj
Jain, Advs.
versus
ACIT, CIRCLE-6(1), NEW DELHI ..... Respondents
Through: Mr. Sanjay Kumar & Mr. Asheesh
Jain, Advs.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE PRATEEK JALAN
S. RAVINDRA BHAT, J. (OPEN COURT)
%
1. The assessee questions the order of the Income Tax Appellate
Tribunal (ITAT) for A.Y. 2008-09 and submits that the question of law
arises with respect to the disallowance of ₹ 5.8crores, made by the Revenue
and upheld by all Appellate Authorities.
2. The assessee inter alia had entered into a lease agreement with
M/s.Anand Automotive Systems Ltd. As part of the lease agreement, it was
required to pay ₹ 5.8 crores as security deposit. This amount was reflected
in its balance sheet and in the capital under assets, as "receivables". On
ITA 159/2019 Page 1 of 5
account of unforeseen circumstances i.e. sealing of the premises on account
of non-conforming user by directions of the Supreme Court through the
Monitoring Committee, the premises could not be used. The petitioner,
therefore, sought to vacate it; this resulted in the dispute between the lessor
and the appellant/lessee. To end the dispute, the lessee i.e. assessee agreed
not to claim the security deposit of ₹ 5.8 crores. As a result, it sought to
claim the amount as deduction. The AO disallowed this holding that such
disallowance was impermissible; the CIT(A) and the ITAT relying upon the
Commissioner of Income Tax vs. Triveni Engg. & Industries Ltd. 343 ITR
245 (Del.), upheld the disallowance.
3. Learned Senior Counsel for the assessee urges that the ruling in
Triveni Engineering is inapplicable because of peculiar facts of that case. It
was highlighted that the security deposit given by original assesee, was
given to one entity which subsequently amalgamated with the assessee
[Triveni Engineering and Industries Ltd.]. The treatment sought to be given
by the original company, was assessed in the hand of the assessee in Triveni
Engineering (supra). It is submitted that these circumstances mark a very
important distinguishing factor which ought to persuade this Court not to
follow Triveni Engineering. It was furthermore urged that the decision of
the Supreme Court in CIT vs. Madras Auto Services (P.) Ltd. 233 ITR 468
(SC), clearly enunciated the law on this aspect. Learned counsel highlighted
that in the facts of that case, the assessee had acquired a long lease and was
permitted to undertake construction on the land. The expenditure incurred
towards the construction was treated to be as allowable deduction. It is
argued on behalf of the assessee further that the amount was paid by way of
ITA 159/2019 Page 2 of 5
damages, it was in the course of business and therefore, entitled to
deduction as claim.
4. This Court in Triveni Engineering (supra) dealt with a similar
situation as the present case and held as follows:
"15. Coming to the security deposit written off by the
assessee, the moot question is as to whether the advances were
given for securing the capital assets. It is not disputed by the
Department that the payment of security deposit to landlords
was for obtaining use of premises for the purposes of business
against the payment of rent. The contention of the assessee, in
this backdrop, is that this payment was clearly in the revenue
field, viz., for facilitating carrying on of business more
profitably and efficiently while leaving the fixed capital
untouched. Learned counsel for the Revenue, however, argues
that the security deposits were given for obtaining the premises
on rent and thus, the assessee had obtained a right to use the
property, i.e., tenancy right, which is a capital asset.
16. In order to appreciate the controversy, we may first state
the true nature of this deposit. When the premises were taken
on rent by the company, the payments in the form of security
deposits were given to the land lords. Since the Rent
Agreement entered into with the said landlords has not been
produces, which could have shown the purpose for which
security deposits were made, in the absence thereof, we
presume that normal practice which is followed in giving such
security deposits existed here also. On that premise, it can be
inferred that these were refundable security deposits, which
were to be given back by the landlords to the company on the
conclusion of tenancy period and surrendering of the leased
premises by the company to the landlords. Therefore, these
security deposits were not in the form of rent. The question
would be when such a security deposit has become non-
ITA 159/2019 Page 3 of 5
recoverable for some reasons whether it can be allowable as
deduction under Section 28 of the Act. The deposits were not
given in the ordinary course of business either. These were
given for securing the premises on rent; albeit for the purpose
of carrying on business therein. Once we keep in mind this true
nature of deposits, we find force in the submission of Ms.
Bansal, learned counsel for the Revenue.
17. We may point out that the assessee had relied upon the
judgment of the Supreme Court in the case of Commissioner of
Income Tax v. Madras Auto Service (P) Ltd. [233 ITR 468].
However, that judgment would not be applicable to the facts of
the present case. The expenditure incurred on the construction
of building of a leased property was treated as revenue
expenditure by the Supreme Court, as the assessee was getting
business advantage and was acquiring the business asset in the
context of specific Clause in the lease deed. Therefore, the
property was not treated as that of the lessor. Further, the
Supreme Court found that by incurring the expenditure of this
nature, the assesse had taken the advantage in the form of
reduced rent for a much longer period. This judgment is, thus,
not applicable in the present context."
5. The distinctions sought to be made by the assessee/appellant that
Triveni Engineering (supra), was decided in peculiar circumstances of the
case, since the amalgamated company's books were assessed as it were in
the hands of the transferee company [Triveni Engineering], in the opinion
of this Court, is an insubstantial aspect which is not sufficient to distinguish
the ruling. The reasoning in Triveni Engineering (supra) is not limited to
such a fact situation. Furthermore, this Court notices that the decision in
Madras Auto Services (P.) Ltd. apart from other judgments were also
noticed by this Court in Triveni Engineering (supra).
ITA 159/2019 Page 4 of 5
6. This Court is also un-persuaded with the argument that the amount of
₹5.8 crores, could be treated as a revenue expenditure merely because it
was paid in the course of a dispute. Clearly, the character of the amount was
of a capital nature and remained so; all that the assessee did was to agree
that it would not claim a refund out of ₹ 10.58 crores, agreeing to forgo ₹
5.8 crores.
7. As a result, the Court is of the opinion that given the concurrent
nature of the findings, no question of law arises. The appeal is accordingly
dismissed.
S. RAVINDRA BHAT, J.
PRATEEK JALAN, J.
FEBRUARY 15, 2019
'pv'
