2016 (4) TMI 870 - AT - Income Tax

Police Booth Expenditure: Revenue vs. Capital. Tax Decision Upheld.

The Tribunal determined that the expenditure on erecting Police Booths constituted revenue expenditure rather than capital expenditure. The booths did not ... Nature of expenditure - expenditure on erection of police booths which is made of wood - revenue v/s capital expenditure - Held that:- Neither any new asset has come into existence nor the assessee has the ownership of the police booths so it should be treated as revenue expenditure. We are also putting our reliance on the decision of Hon'ble Supreme Court in the case of Madras Auto Services (P) Ltd. (1998 (8) TMI 1 - SUPREME Court ). - Decided in favour of assessee Issues Involved:1. Whether the erection of Police Booths constitutes revenue expenditure or capital expenditure.2. Ownership of the Police Booths and its implications on depreciation claims.3. The appropriate rate of depreciation for the Police Booths.Detailed Analysis:Issue 1: Revenue Expenditure vs. Capital ExpenditureThe primary issue revolves around whether the expenditure incurred on the erection of Police Booths should be treated as revenue expenditure or capital expenditure. The assessee argued that the booths were temporary structures made of wood, thus qualifying for 100% depreciation as revenue expenditure. The Assessing Officer (AO) disagreed, treating the expenditure as capital in nature and allowing only 10% depreciation.The Commissioner of Income Tax (Appeals) [CIT(A)] held that the expenditure was revenue in nature. The CIT(A) cited the Supreme Court's decision in CIT v. Madras Auto Service (P) Ltd. [1998] 233 ITR 468, where the Court held that expenditure on constructing a building on leased land was revenue expenditure since the building did not belong to the assessee. Similarly, in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1, the Supreme Court observed that expenditure facilitating business operations without creating a capital asset is revenue expenditure.Issue 2: Ownership of Police BoothsThe AO argued that the assessee was the owner of the booths based on the agreement with Kolkata Police, which specified a lifespan of more than 15 years for the booths. However, the assessee contended that the booths were owned by Kolkata Police, as evidenced by a letter from the Commissioner of Kolkata Police.The CIT(A) supported the assessee's claim, noting that the land on which the booths were erected belonged to Kolkata Municipal Corporation and that the booths were the property of Kolkata Police. The CIT(A) emphasized that the assessee only had a license to display advertisements on the booths, not ownership. This view was supported by the Supreme Court's ruling in Alembic Chemical Works Co. Ltd. v. CIT 177 ITR 377, which distinguished between capital and revenue expenditure based on the nature of the advantage obtained.Issue 3: Rate of DepreciationThe AO allowed only 10% depreciation, treating the booths as capital assets under the 'Buildings' category. The assessee claimed 100% depreciation, arguing that the booths were temporary structures.The CIT(A) concluded that since the expenditure was revenue in nature, the question of depreciation did not arise. The CIT(A) directed the AO to allow the entire expenditure as a revenue deduction and withdraw the depreciation allowed in the assessment.Tribunal's Decision:The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal. It agreed that the expenditure did not result in the acquisition of a depreciable asset and was therefore revenue in nature. The Tribunal relied on several judicial precedents, including CIT v. Associated Cement Companies Ltd. (1998) 38 taxman 110A (SC) and CIT v. Birla Jute Mfg. Co. Ltd. (1990) 51 taxmann 402 (CAL), which supported the assessee's position.Conclusion:The Tribunal concluded that the expenditure on the erection of Police Booths was revenue in nature, as it did not result in the creation of a new asset or confer ownership to the assessee. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order to allow the entire expenditure as a revenue deduction and withdraw the depreciation allowed by the AO.