Question And Answer
Subject: Whether Lease premium amortization allowable on calculation of Book Profit U/s 115JB of the Act?
Querist: V K Gupta
Answered by:
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Date: May 16, 2021
Query asked by V K Gupta

Company amortize lease premium paid for leasehold land every year in its books of account and got disallowed while computing the taxable income under the provision of Income tax act considering the same is a capital expenditure.

However no adjustment has been made while computing book profit u/s 115JB of Income tax act. Accordingly book profit is lower to that extent. The AO added back the same.

How to proceed, please guide.

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The terms of the lease agreement will have to be read to understand whether the same would constitute an operational lease or a financial lease. Whether the property is ready to use or modifications would be carried out? Would the property be transferred to the lessee at the end of the lease period or not.

As per Ind AS 116 on Leases, if the same lease is classified as an operational lease the same may be treated as advance rent and amortized over the lease period. However, if the same is a financial lease the same may have to be capitalized.
One has to verify the Accounting standard and the term of the lease only can guide the assessee . It may be desirable to the assesseee to consult the Tax consultant with all facts and relevant documents .

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