Input Tax Credits on upfront lease premium vs. Section 17(5)(d)


Input Tax Credits on upfront lease premium vs. Section 17(5)(d) 

 The scope of Section 17(5) is full of controversy and litigation. This is mostly used by the department so as to deny the ITC to the registered entities.

Here is one case as under on the scope of Section 17(5) with reference to lease premium paid in upfront as under:

Kamarajar Port Ltd. – AAR Tamilnadu – Order No. 32/AAR/2022, 22-07-2022

Short overview of the case:

  1. Applicant has been allotted a covered space of 267 sq.mtby Chennai Port Trust for purposes of accommodation of Record/Documentation.
  1. Lease rent for said space is as Rs. 740/- per sqm per month or part thereof and applicant has paid provisional upfront amount of Rs. 6,84,28,627 (Including GST).
  1. State jurisdictional authority states that input tax credit is ineligible under section 17(5)(d).
  2. Hon’ble Advance Ruling Authority upheld that Upfront premium made is lease rentals as per the allotment order/letter of Chennai Port Trusts and it is nothing but lease rentals paid for services of ‘Renting of Immovable property’ for business purpose.
  1. It is held that the Applicant has rightly contended that contract does not construe to any construction activity but a simple lease agreement and hence provisions of section 17(5)(d) is not applicable.Said allotted space is intended to be used by applicant as an extended corporate office for accommodation of Record/Documentation Room.

    As per provisions of section 16(1) input tax credit can be claimed on upfront lease premium which is paid for allotted covered space used as an extended corporate office as it is in course of furtherance business.