Madras HC rules disallowance of one time claim of upfront lease money

The Hon’ble Madras High Court in the case of Rane Brake Linings Ltd. dated 07.04.2014 has ruled that long term lease transaction wherein lumpsum upfront is paid, the said upfront is a capital expense and not allowable as revenue expense. The Court held as under :
“Incidentally, we may also point out that as early as 1928 in
the decision in the case of Archaka Sundara Raju Dikshatulu vs.
Archaka Seshadri Dikshatulu reported in (1928) 54 MLJ 76, this
Court held that the lease for 99 years or for a long term in
consideration of a premium paid down is as much an alienation as a
sale or mortgage. This Court pointed out that the mere use of the
word ‘lease’ or the fact that a long term is fixed would not by itself
make the document in lease. In this connection, this Court followed
the decision in the case of Rama Varma Tambaran vs. Raman
Nayar reported in (1882) ILR 5 M 89, holding that there was no real distinction between mischief of such a transfer in perpetuity and a
transfer for the long period of 96 years. Thus, this Court took a view
that a permanent lease is as much an alienation as a sale. In the
background of what we have narrated about and the clauses in the
assignment deed, we hold that the lumpsum amount paid does not
make a permanent lease any the less an alienation than a sale.”

To view complete text of the judgement, click here Rane Brakes-Capital vs Revenue-Lease money upfront-mad HC