TaxTMI 
TaxTMI 
1990 (6) TMI 100
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....f Sardar Inderjit Singh group to which the assessee belonged; (iii) the assessee has not brought on record sufficient material to prove that any services were rendered. On appeal, the CIT(A) concurred with the views of the ITO and confirmed the disallowance of Rs. 3,17,126. 4. At the hearing before us, the learned counsel for the assessee challenged the aforesaid findings recorded by the authorities below and claimed that it was a genuine business expenditure incurred by the assessee wholly and exclusively for its business purposes. 5. The learned counsel contended that it was wrong to say that M/s Hemkunt Chemicals Pvt. Ltd. belonged to the same group or that it was a sister concern of the assessee. At our instance the learned counsel produced a list of shareholders of Hemkunt Chemicals Pvt. Ltd. He contended that while the assessee was a public limited company, Hemkunt Chemicals was a private limited company. One Sardar Inderjit Singh was at the relevant time the chairman of the assessee company. The list of shareholders of M/s Hemkunt Chemicals Pvt. Ltd. placed at pages 117 to 119 of the paper book would show that Smt. Damyant Kaur, the wife of the said Inderjit Singh, hel....
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....wn name or in the name of your nominees in one or more lots". Then there is a letter dated 15th December'. 1981 from Skipper Construction Company to Hemkunt stating "As finally resolved with you we agree to purchase the following commercial space inJhandewalanTowersfrom M/s P.S.B. Finance and Investment Ltd." The price mentioned is Rs. 3,17,12,586. On the same date i.e.,15-12-1981, the assessee sent a bill claiming Rs. 3,17,125.86 as commission. Then there is a letter dated 31-12-1981 from Skipper to the assessee stating "in accordance with your instructions we wish to inform you that we have transferred an area of 45918 sq. ft. as detailed below from time to time during the year 1981". The letter further states "We further wish to inform you on the sale of the above space profit earned thereon is Rs. 12,40,440 which we have credited to your account". 8. These are the letters between the three parties concerned that were put in evidence in proof of rendering services. There is a letter dated6th December, 1981from one M/s Prop Deals offering similar services to the assessee. This, in our view, has little relevance. At pages 100, 100A and 101 are three letters dated30-5-1981,8-4-1....
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.... the same on behalf of the company. The following directors being interested, did not participate in the discussion or voting on this resolution: S. Darshanjit Singh S. Tajbir Singh" A copy of another resolution at page 127 of the paper book shows that in the meeting held on 7th October, 1986 itself, S. Gurbhajan Singh Man, a director of the assessee was authorised to advance money to M/s Skipper Construction Co. and its. 51 lakhs were ultimately advanced to the said builder in respect of the space in question. All these papers thus show that the assessee and M/s Skipper Construction Co. were acting in close collaboration with each other and one fails to understand why the assessee should engage a broker if the property was to be surrendered to Skipper itself. As already observed there is no material on record to show that Hemkunt was acting as a property broker from before or that it has executed any other similar assignment. The circumstances mentioned above, therefore, arouse one's genuine suspicion regarding the genuineness of this substantial expenditure. 10. Suspicion alone, however, cannot sustain a disallowance. The learned counsel for the assessee contended tha....
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....he learned counsel further contended that although a formal lease deed was executed between the parties on the26-4-1982, that could be no reason for doubting that the accommodation had been taken on rent by the assessee from15-11-1981particularly when the assessee had spent Rs. 2,55,250 on the repairs of the building in question during the accounting year itself. 13. On the other hand, the learned Departmental Representative relied upon the arguments of the authorities below in support of the disallowance of the rent. 14. As regards the assessee's contention that the building had been taken on rent from15-11-1981, we are of the view that there is no reason to doubt the same. Although the formal lease deed was executed later on, that does not by itself create any suspicion particularly when simultaneously the assessee has been claiming that it spent substantial amount on the repairs of the building and which expenditure has been accepted by the ITO and treated as a capital expenditure. Actual use of the accommodation for business purposes right from the date on which the tenancy commences is not required and is usually not possible. When a person hires an accommodation some ti....
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....nbsp; @ Rs. 15,000 30,000 2 Nos. Toilets including providing for WC,WashBasin, Glazed tiles up to height of 7' and marble flooring, C.P. fitting of standard make. 5. Provide & Fixing one No. @ Rs. 10,000 10,000 Pantry-including providing of Marble counter, Glazed tiles up to 7 ft. height, sink & C.P. Fitting of standard make. 6. Providing & Fixing of @ Rs. 20 per sq. ft. 30,000 ceiling of Plaster of Paris1500 sq. ft. &n....
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....n Pts. @ 75 1,500 10 Nos. Circuits @ 150 1,500 15 Nos. Telephone Pts. @ 150 2,250 15 Nos. Ball points @ 125 1,875 Main Panel Board &nbs....
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....6MM Commercial ply. Providing & Fixing Teek/ Rosewood Panelling 1650 sq. ft. @ 15 per sq. ft. 24,750 &n....
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....; -------- ....
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....n of the term hereby, granted at the same terms and conditions excepting that the monthly rent will be enhanced only by 15% over the rent being paid in the previous lease deed. In this way the lease will be for a continuing period." The above clause will show that the lease deed is not for a very short period. The initial period of lease is 4 years and there is provision for its subsequent renewals one after the other. There is also a provision for enhancement in rent @ 15% on every renewal. The use of the words "In this way the lease will be for a continuing period" clearly indicates that it is a lease for an indefinitely long period. The heavy expenditure incurred by the assessee also points out to the intention of the assessee. Had it been a lease for a very short period, the assessee would not have incurred such heavy expenditure on the improvement of the building. We, therefore, hold that the lease in favour of the assessee is for an indefinitely long period. 18. The learned counsel for the assessee relied upon certain rulings to show that such expenditure is treated as revenue expenditure for the purposes of determination of the income of an assessee. He referred to the....
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....hip of such building was to remain with the landlord. The total expenditure incurred on the building was Rs. 1,62,335 in the first year and Rs. 50,937 in the next year. It was held that the assessee incurred the expenditure because of savings in rent charges and therefore, the expenditure was of a revenue nature. 22. The learned counsel for the assessee cited Instalment Supply (P.) Ltd. v. CIT [1984] 149 ITR 52 (Delhi). In that case the assessee was in occupation of a building for over 25 years and spent a sum of Rs. 47,186 in asst. year 1965-66 for redesigning, marble floorings, better fittings and wood work. The Tribunal had held that Rs. 30,000 of the aforesaid expenditure was of capital nature. The Hon'ble High Court, however, held that the entire expenditure was of a revenue nature. As would appear, this ruling relates to the period when section 32(1A) was not there. Further the assessee was in occupation of the premises for a long time past on a meagre rent of Rs. 340.25 per month and the total area occupied by it was 5405 sq. ft. In the cast before us the expenditure hag been incurred prior to actual occupation of the tenanted premises for business use and the tenancy, as....
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....o Rs. 7,20,000 had to be paid in advance. It is also clear, as discussed above, that the lessor and the lessee are interested in each other. 26. It was contended by the learned counsel for the assessee that expenditure of Rs. 25,000 on the demolition of walls did not bring about any lasting asset and must be treated as revenue expenditure. This, in our view, is not correct. The expenditure has been incurred to improve an asset, i.e., the lease hold right or the right of occupation in the building. As expenditure on digging of foundations does not bring about any tangible asset the demolition of walls also does not bring into existence tangible assets but the work does improve and add to the utility and usefulness of the asset as a whole. This expenditure too, therefore, has to be treated as a capital expenditure. It was also contended that painting and polishing expenditure of Rs. 25,000 should be treated as the revenue expenditure. Since this expenditure has been incurred for the first time for painting and polishing, inter alia, of the wooden partitions and panellings, the expenditure constitutes only a portion of the initial cost of those assets and it cannot be separated and....
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....stimating its total income at Rs. 10 lakhs. The advance tax due thereon worked out to Rs. 5,91,250. In pursuance of this estimate, the following amounts of tax were paid: 7-8-1981 Rs. 1,97,083 1-10-1981 Rs. 2,00,000 &n....
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....-1983 Rs. 1,00,000 2-6-1983 Rs. 2,00,000 2-6-1983 Rs. 2,00,000 6-7-1983 Rs. 3,41,000 ....
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....iled an estimate fails to pay tax in accordance therewith. According to the learned counsel where the assessee having filed an estimate does not pay tax in accordance therewith the remedy of the revenue lies in treating the assessee in default and taking proceedings for recovery. For this, the learned counsel relied upon a judgment of the Calcutta Bench 'A' of this Tribunal in Bengal Electric Lamp Works Ltd. v. ITO [1984] 8 ITD 349, in which a similar view was taken. We are in respectful agreement with the views expressed in that case but that does not help the assessee. In this case, the assessee had paid two instalments of advance tax on7-8-1991and1-10-1981amounting to Rs. 1,97,083 and Rs. 2 lakhs respectively in pursuance of its estimate filed on15-6-1981. The tax so paid was apparently less than 831/3% of the assessed tax and, therefore, interest was chargeable in accordance with section 215 of the Act. It is important to note that it is the revised estimate filed on13-12-1981in pursuance of which the assessee did not make any payments during the relevant financial year but the default in respect of the earlier estimate was there. The estimate of advance tax filed on 23-12-1981....
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....er observed in his order of assessment as under :--- "H.C.L. is a private limited company and is assessed with the ITO, Company Circle-II,New Delhi. As stated above the company is engaged in the manufacture of chemicals, Marble dust, Nails & screws and in other trading activities. It also constructed a Building at B-83, Greater Kailash,New Delhi. HCL's Issue & subscribed paid-up capital at the end of 1980-81 was Rs. 8,92,500. Smt. Damyant Kaur wife of S. Inderjit Singh, S. Darshanjit Singh and S. Interjit Singh sons of S. Interjit Singh and other close relatives of S. Inderjit Singh are promoters of HCL. A list of the share holding of this company as on31-12-1981(List placed at pages 295-341) revealed that Smt. Damyant Kaur was holding 830 shares of Rs. 10 each in her own name and 2251 shares in the joint names of herself and Shri Harkishan Lal. HCL is a company belonging to S. Inderjit Singh Group of cases and this ground owns companies under the names of 'Skipper' and 'Hemkunt'. HCL was never engaged in the business of real estate and the assessee has not brought on record the services rendered by HCL in the sale of this space. Commission payable to HCL is held to be a payment....
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....vidence was produced by the assessee by way of certain correspondence entered into by the parties concerned for the sale of commercial space inJhandewalanTower. These letters are referred to in paragraphs 7 and 8 of my learned brother's order. In my opinion this evidence required a closer look before rejection. It cannot be assumed that all the parties had entered into a conspiracy to help the in getting a deduction. Such evidence cannot perhaps be rejected on mere suspicion. It could be rejected only if that was indicated after the said parties were questioned. Thus the onus shifted to the Income-tax Officer and this onus remained undischarged. 6. Perhaps it cannot be asserted that HCL was a company of the same group as the assessee, if we leave out the 2251 shares held in the joint names of Harkishan Lal and Damyant Kaur. Then the question arises, why pay brokerage to an intermediary, when 3 sons of Sardar Inderjit Singh held about 50% of the shares of Skipper Construction Co. ? This question can be answered only if HCL and Skipper Construction Co. had been examined by the authorities below. It does not follow as a matter of course -that Skipper Construction colluded with HCL ....
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....7.61 (ii) Designing & supervision 750.00 (iii) Layout drawings & sketches, 300.00 (iv) Consultation fee for structural work 4,000.00 (v) Flooring 10,993.43 (vi) Cement 635.79 (vii) Painting  ....
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....p; --------- The renovation consisted of additional and modified construction of a large number of small rooms into one big hall more suited for office purpose and the expenditure included consultation fees to a structural engineer who was required to consider the safety of the whole building of which the premises let to the assessee was only a part at the time of removal of walls or for supporting the roof by additional pillars. As in the earlier years the Income-tax Officer estimated and allowed Rs. 7,787 to....
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....and for facility in the trading operations of the assessee. So was the case with the amounts spent on wood-work, electrical fittings and sanitary fittings. The old asset was remodelled for commercial expediency and the expenditure incurred therefor would be revenue expenditure. It would not be capital expenditure as the premises did not belong to the assessee. (vi) The argument for the department was that the term "repair" means (section 30) bringing the premises to its original shape which had deteriorated because of wear and tear or damage of the original condition : it cannot mean structural additions or alterations. However, the language of section 30(a)(i) and 30(a)(ii) has to be kept in view. A tenant is entitled to the deduction of amount spent on account of the cost of the repairs to the premises if that liability is his. If the amount is spent by the assessee otherwise than as a tenant, the amount paid by him only as "current repairs" is allowable. The latter provision applies to assessee occupying the premises otherwise than as a tenant, i.e., as an owner or mortgagee in possession; and in those cases the deduction is restricted in respect of the "current repairs" to t....
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....all be enhanced by 15% over the rent being paid in the previous lease period. "In this way the lease will be for a continuing period." (Clause No. 1 ofParaIII). 10. On facts it was pointed out to the IAC (Asst.) that the expenditure had been incurred on various items such as demolition of walls, providing of girders, repairs of flooring, repairs of toilets; providing and fixing of ceiling with plaster of paris; providing and fixing of power points, telephone points, main panel boards; intercom points, providing and fixing of panelling partitions; and painting and polishing. It was specifically brought to the notice of the IAC (Asst.) (p. 38 of the Paper Book) that the premises taken over were in a dilapidated condition. The roof was leaking. The assessee could not carry on business under a leaking roof The leaking roof was repaired and the entire premises were overhauled in the interest of the business which wag paramount. Without such repairs, the assessee company could not have carried on its business. It was further pointed out that initially the walls of the said office premises were scraped and re-plastered; thereafter wall panelling was done in the entire premises. 6 cabin....
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.... or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building then, in respect of depreciation of such structure or work a deduction at the prescribed percentage shall be allowed on the value of the structure or work. I have considered this provision. It appears to represent the desire of the Legislature to make available a certain benefit, also to assessee of a certain class by way of a deduction under the Income-tax Act removing legal restrictions in that regard. Before the assessment year 1971-72 no depreciation was allowable in respect of capital expenditure incurred by an assessee on any asset belonging to a third Party. Section 32(1A) provides an exception to this rule but is confined to buildings only and does not extend to plant, machinery or furniture. The point is, before the assessment year 1971-72, if the authorities found a certain expenditure to be capital expenditure incurred by the assessee on any asset belonging to a third party it had to be disallowed straightaway. No depreciation was also allowable thereon. This difficulty was removed by the Legislature. Thi....
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....essment year 1982-83 ?" 2. I have heard the case at length, perused the records, the orders passed by my learned Brothers and after considering the issues involved and the relevant law as enunciated by the Delhi high Court-and the Supreme Court, I have come to the conclusion that the view expressed by the learned Accountant Member is reasonable and justified-and deserves to be upheld. The learned Judicial Member's order contains the relevant facts over which there is no dispute and I, therefore, refer to them in order to have appropriate appreciation of the issues involved. 3. The assessee is a limited company, engaged in the business of financing and investments. This company came into existence after the nationalising of the Punjab & Sind Bank, by the Government of India w.e.f.15-4-1980. For the purpose of carrying on business, the assessee company had taken on lease premises at L-40,Connaught Place,New Delhifrom M/s Hemkunt Chemicals Pvt. Ltd., under a lease agreement dated26-4-1982. M/s Hemkunt Chemicals Pvt. lid., had taken 2,400 sq. ft., of area on lease from M/s Seth Properties, a partnership concern assessed at Bombay. It was out of that lease that 2,000 sq.ft. of are....
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....nbsp; including providing of marble counter, glazed tiles up to 7 ft. height, sink & C.P. fittings of standard make : Rs. 10,000 6. Providing & fixing of ceiling of plaster of paris 1500 sq. ft. : Rs. 30,000 7. Providing & fixing of power points, telephone points, main panel boards etc. : Rs. 25,000 8. Providing fixing of panelling partitions et....
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....sp; Rs. 2,55,250 ------------ The assessee claimed that this amount incurred as above should be allowed as a deduction towards repairs. The IAC (Asst.) on enquiries found tha....
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....improve an asset i.e. the leasehold right or the right of occupation of the building and since the expenditure was incurred for the first time for carrying out extensive repairs, building of partition walls, removing walls, marble flooring, etc., the entire expenditure could not but be treated as capital expenditure. He observed that if the lease had been for a shorter duration, such a heavy expenditure incurred on complete renovation could have been of a revenue nature but since in this case the lease was for an indefinite period, the advantage that enured was of an enduring nature coterminus with the indefinite duration of the lease add, therefore, the expenditure could only be of capital in nature. This was the main conclusion drawn by the learned Judicial Member after review of the case law relied upon by the learned counsel for the assessee before the Tribunal. 6. The learned Accountant Member held to the contrary. According to him, the expenditure was allowable in view of the authority of the Delhi High Court in the case of Instalment Supply (P.) Ltd., which is the jurisdictional High Court. After referring extensively to the facts of that case and the principles of law la....
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....whole of the amount as revenue expenditure. Dealing with this argument, the learned Accountant Member pointed out that before the introduction of the section the law was that assessee who takes on lease business premises was not entitled to any depreciation on the amount spent for renovation or extension or improvement and that it was to provide certain benefit to the assessee by way of deduction, removing the legal restrictions, that this provision was introduced to allow depreciation on the amount of such expenditure and the depreciation must be allowed only when the expenditure incurred was of capital expenditure and if the expenditure incurred was not of capital expenditure, the question of allowing any depreciation would not arise and, therefore, section 32(1A) could not come in the way of the assessee's claim to allow the expenditure as revenue expenditure. He also discussed about the meaning of the expression "enduring benefit" and following the judgment of the Supreme Court in the case of Empire Jute Co. Ltd. observed that that was not always the acid test of capital expenditure and in certain cases even that test should break down depending upon expediency of business. Pro....
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....iting their agreement providing for the indefinite period of leasing the wording of the clause would have been totally different. The reference to continuing the period in the above covenant refers only to the period of 8 years and not to any period subsequent thereto. "Continuing period" is different from "continuing the period of the lease even after 8 years". The learned Accountant Member, therefore, seemed to me to be right in his observation that the interpretation of this clause does not give the lessee the lease for an indefinitely long period. This seemed to be the premise for the difference between the learned Members. Of this, I am inclined to resolve in favour of the view expressed by the learned Accountant Member. I am unable to think that by exercising the power reserved under clause, the lessee shall be able to continue the lease ever thereafter. It may be that in actual conduct the lessee was allowed to occupy the premises even after the period of 8 years that I am not aware of nor is it the matter on which there was any debate or difference of opinion. The bare interpretation of this covenant according to me does not vest the lessee with the power of extending the l....
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....ive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. The enunciation of the law on the subject by the Supreme Court show that even though the advantage that accrues to an assessee on the incurring of an expenditure may endure for an "indefinite future", still if the advantage consisted merely in facilitating the assessee's business to be carried on more efficiently or profitably without leaving the fixed capital untouched, the advantage would be of revenue nature. It is no more the law of the land that the test of enduring benefit as considered by the English Courts and followed by our Courts in the earlier point of time is the test to be applied and that in any case it should not be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. In this case, in my opinion, the lease deed not having provided for an indefinite period of lease and the expenditure was to bring the leased premises into a workable position by incurring expenditure on strengthening the walls, roofs etc. and to provide such necessities as are needed to carry on business would not be ....
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....the owner. What is, therefore, relevant to see is whether the tenant, i.e., the assessee has undertaken to bear the cost of the repairs under the terms of the agreement. The agreement clearly provided that the assessee has to bear the cost of the repairs. When the assessee agreed to bear the cost of the repairs according to the Delhi High Court decision, the cost of repairs even if they are in the nature of capital expenditure, must be allowed as deduction. Assuming, therefore, for the sake of argument, that the learned Judicial Member was right in saying that the expenditure was of capital nature, still since the assessee as a tenant agreed to bear the cost of the repairs, the entire amount has to be allowed as deduction, applying the rule laid down by the Delhi High Court, which is binding on me as it is the jurisdictional High Court. 10. The Madras High Court in a recent case in Madras Auto Service Ltd.'s case held that when an assessee-company had taken on lease land and building in Bangalore for housing its branch in that city and when the building was old and when the assessee entered into an agreement with the landlord agreeing to demolish the building and construct a new....