Leased premises fit-out costs may be split between revenue and capital where the expenditure is partly enduring in nature.

Expenditure on false ceiling, plastering, painting, show-cases and other fit-outs in leased business premises was not wholly revenue in nature. Because the premises were taken on lease, ownership in the improvements did not pass to the assessee on vacation, but the character of the items and the absence of detailed expense particulars meant the entire outlay could not be treated as revenue expenditure. The expenditure was therefore required to be apportioned between revenue and capital, with the capital portion eligible only for depreciation as furniture and fittings.

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Issues: Whether the expenditure incurred on false ceiling, plastering, painting, show-cases and other decorations for the leased business premises was allowable wholly as revenue expenditure or was in part capital expenditure.

Analysis: The expenditure was incurred for fitting out the leased premises used as a jewellery showroom. The lease was not perpetual, and the assessee did not acquire ownership over the fittings and improvements on vacating the premises. At the same time, the nature of the items and the absence of detailed expenditure particulars showed that the whole outlay could not be treated as purely revenue in character. On the facts and circumstances, the expenditure required apportionment between revenue and capital.

Conclusion: Rs. 10,000 was held allowable as revenue expenditure, while Rs. 28,509 was held to be capital expenditure, with depreciation admissible thereon as furniture and fittings.

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