No input tax credit is available for rent paid on leasehold land acquired for construction of resort

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Authority for Advance Rulings, West Bengal GGL Hotel & Resort Company Ltd., In re [2019] 101 taxmann.com 138 (AAR - WEST BENGAL) The applicant company is in the hospitality and real estate business and is contemplating a new project on a leasehold land. Bengal Housing Infrastructure Development (WBHIDCL) has leased out a piece of land for a period of 32 years to the applicant. The applicant is liable to pay annual lease rent at certain rate. The project is proposed to be completed within a period of two years from the foundation of the project and the lease rent paid during the pre-operative period would be capitalized in the books of account by the applicant. The applicant has sought advance ruling as to whether Input Tax Credit is available for lease rent paid during pre-operative period for the leasehold land on which the resort is being constructed to be used for furtherance of business, when the same is capitalised and treated as capital expenditure. The Authority for Advance Ruling observed that the prohibition on availing of input tax credit is not limited to the civil structure being constructed. It extends to the immovable property in general (other than plant and machinery), which includes the supplies received for retaining the right to use and develop the land. Therefore, the lease rental paid during the pre-operative period would be treated as part of the cost of goods and services received for the purpose of constructing an immovable property and ITC would not be admissible on such lease rental.

No input tax credit is available for rent paid on leasehold land acquired for construction of resort

 

Authority for Advance Rulings, West Bengal GGL Hotel & Resort Company Ltd., In re [2019] 101 taxmann.com 138 (AAR – WEST BENGAL)

 

     The applicant company is in the hospitality and real estate business and is contemplating a new project on a leasehold land. Bengal Housing Infrastructure Development (WBHIDCL) has leased out a piece of land for a period of 32 years to the applicant. The applicant is liable to pay annual lease rent at certain rate. The project is proposed to be completed within a period of two years from the foundation of the project and the lease rent paid during the pre-operative period would be capitalized in the books of account by the applicant.

     

The applicant has sought advance ruling as to whether Input Tax Credit is available for lease rent paid during pre-operative period for the leasehold land on which the resort is being constructed to be used for furtherance of business, when the same is capitalised and treated as capital expenditure.

     

The Authority for Advance Ruling observed that the prohibition on availing of input tax credit is not limited to the civil structure being constructed. It extends to the immovable property in general (other than plant and machinery), which includes the supplies received for retaining the right to use and develop the land. Therefore, the lease rental paid during the pre-operative period would be treated as part of the cost of goods and services received for the purpose of constructing an immovable property and ITC would not be admissible on such lease rental.

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