TaxTMI 
TaxTMI 
2006 (9) TMI 219
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....9;Repairs and maintenance on lease-hold premises'. The assessee claimed deduction of this amount relying upon the judgment of Hon'ble Supreme Court in the case of CIT v. Madras Auto Services (P.) Ltd. [1998] 233 ITR 468. The learned Assessing Officer found that in the accounts of the assessee the expenditure had been capitalized and depreciation of Rs. 51,34,664/- was reduced therefrom in "Schedule V-Fixed Assets" appended to Balance-sheet as at 31-3-1999. However, in the income-tax return the assessee treated the entire expenditure as revenue expenditure and claimed 100 percent deduction. The learned Assessing Officer held that the assessee was not entitled to adopt two different strategies under Companies Act and Income-tax Act. The decision relied upon by the assessee was not applicable on the facts of the case of the assessee because in the books of account the assessee had himself capitalized the expenditure. The learned Assessing Officer, therefore, rejected the assessee's claim of deduction amounting to Rs. 3,19,93,825/- and instead he allowed the assessee a depreciation of Rs. 36,98,709/- as worked out by him at page 2 of the assessment order. 3. During the c....
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....F office for connecting each employee's working place. The expenditure of Rs. 18,58,189/- at DLF office was nothing but heating, ventilation and air-conditioning expenses (HVAC) incurred at office premises. Similarly, a sum of Rs. 7,11,446/- was for the HVAC works of Bombay office. The expenditure of Rs. 23,14,591/- related to connectivity of employees at Bombay office. The expenditure of Rs. 5,17,000/- was carried out for concealed wiring and roofing at Bombay office. The expenditure of Rs. 9,29,673/- was for LAN equipments at Bombay office and Rs. 3,26,130/- for Access Control System of Bombay office. Besides, interior work carried out at Bombay amounted to Rs. 54,81,444/- and at DLF office it amounted to Rs. 1,26,57,696/-. That expenditure was on fittings and fixtures and partitions so as to separate each person's work place in an open office environment. A sum of Rs. 21,67,987/- was spent on the work in that relation carried out by M/s. Blow Plast. The learned CIT (Appeals) held that the entire expenditure had been incurred to facilitate the assessee to utilize the lease-hold premises more profitably and efficiently for enhancing the profitability and productivity of th....
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.... to the premises that were lease-hold. Any expenditure incurred in respect of lease-hold premises had to be in nature of things revenue expenditure only. The learned AR of the assessee submitted that there was no basis to hold that these premises were likely to be with the assessee for an indefinite period. He referred to lease agreement dated 09-01-1998 with M/s. DLF Commercial Developers and the agreement dated 21-11-1997 with M/s. High Rise Properties Pvt. Ltd. and stated that both the Delhi premises as well as Bombay premises were available to the assessee on lease for a period of 9 years only. The assessee did not have a right of renewal after the expiry of the period of nine years. 7. During the course of hearing before us the learned AR of the assessee strongly placed reliance on the judgments in B and A Plantations & Industries Ltd v. CIT [2000] 242 ITR 22 (Gauhati); Shriram Refrigeration Industries Ltd.'s case; CIT v. Hede Consultancy (P.) Ltd. [2002] 258 ITR 380 (Bom.) and CIT v. Hari Vignesh Motors (P.) Ltd. [2006] 282 ITR 338 (Mad.). As to the treatment given in the books of account, the learned AR of the assessee submitted that in Schedule V to the Balance-Sheet....
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....n the cases of B & A Plantations and Industries and Madras Auto Services (P.) Ltd. because those judgments have been delivered in relation to assessment years prior to the insertion of Explanation 1 of section 32(1). We may also state here that the arguments of the assessee that considerable part of the expenditure was embedded in office premises not belonging to the assessee has to be treated of not much consequence because of Explanation 1 to section 32(1). The purport and objective of Explanation 1 to section 32(1) is to deal with precisely such argument that expenditure is irretrievably on leased premises. The mandate of the provision is that to determine the nature of expenditure it should be viewed as if the assessee is the owner of the premises. This aspect is quite clear by the judgment of Hon'ble Delhi High Court in the case of Rajdev Singh & Co. v. CIT [1990] 181 ITR 38. In that judgment the Hon'ble Delhi High Court have distinguished their earlier judgment in the case of Instalment Supply (P.) Ltd. because of insertion of the provisions of section 32(1A) that are now finding place by way of Explanation 1 to section 32(1). There is, thus, no doubt that for the pur....
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....at brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future." (emphasis by us) Once the expenditure is at the root of a fixed capital asset, the pertinent question to ask is whether the expenditure is on maintenance, repairs or restoration of the asset already in existence or the expenditure is with the objective to enhance or value add to that asset. In the instant case the expenditure has been incurred in the very first year of the acquisition of the premises. The expenditure has been incurred by the assessee so as to make the premises more posh and impressive befitting the business profile of the a....
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....rcane that was a long-term advantage and, therefore, expenditure was of capital nature. On these facts the Hon'ble Supreme Court held that the expenditure was of revenue nature in the following words:- "Now it is clear on the facts of the present case that by spending the amount of Rs.50,000/-, the assessee did not acquire any asset of an enduring nature. The roads which were constructed around the factory with the help of the amount of Rs. 50,000/- contributed by the assessee belonged to the Government of Uttar Pradesh and not to the assessee. Moreover, it was only a part of the cost of construction of these roads that was contributed by the assessee, since under the sugarcane development scheme, one-third of the cost of construction was to be borne by the Central Government, one-third by the State Government and only the remaining one-third was to be divided between the sugarcane factories and sugarcane growers. These roads were undoubtedly advantageous to the business of the assessee as they facilitated the transport of sugarcane to the factory and the outflow of manufactured sugar from the factory to the market centres. There can be no doubt that the construction o....
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.... Industries Ltd. also Hon'ble Delhi High Court have taken note of change in the legal position after the promulgation of the provisions of section 32(1A), now Explanation 1 to section 32(1). Moreover in that case the Hon'ble Delhi High Court have held that expenditure incurred on wooden partition was possibly an expenditure of capital nature. The other expenses were in the nature of repairs only and, therefore, we find that the judgment of Hon'ble Delhi High Court in the case of Shriram Refrigeration Industries Ltd. relied upon by the assessee is against the assessee. 14. In the instant case the expenditure incurred by the assessee and depreciation allowed by the Assessing Officer is as under :- Sl. No. Description of expenditure Amount Rate Depreciation (1) Lan Equipment-DLF office 106,72,526/- 25% 4,18,131/- (2) Access Control System 4,00,553/- 25% 1,00,138/- (3) Electrical Work, Delhi 29,56,590/- 10% 2,95,659/- (4) HVAC Work, Delhi 18,58,189/- 10% 1,85,820/- (5) HVAC Work, Bombay 7,11,416/- 10% 71,141/- (6) Electric Work, Bombay 23,14,591/- 10% 2,31,459/-....
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.... direct bearing on the business of the assessee. Facts of the case leading to this ground of appeal briefly are that these amounts had been paid by the assessee to such parties as Educational Institute at Savli, Baroda, India Paint Conference etc. The learned Assessing Officer held that this expenditure did not have nexus or business connection with the assessee's business. He, therefore, disallowed the assessee's claim of deduction of Rs. 6,88,150/-. During the course of hearing before the learned CIT (Appeals), the assessee submitted that the expenditure mainly comprised of the following :- Rs. (i) Paid to Navrachan Education Institute, Savli, Baroda. 1,50,000/- (ii) Hiring of a stall at India Paint Conference 2,50,000/- (iii) Paid to CII for co-sponsoring International Conference on clean technologies 2,00,000/- (iv) Membership fee for Crop Protection Association 50,000/- (v) Purchase of jerseys carrying the company's logo paid to American Support Activity Association 24,500/- (vi) Paid to United Way for organising Garba Festival in Baroda 10,000/- (vii) Donation to Sant Kabir School 12,000/- The learned CIT (....
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....d reliance on no material whatsoever in that behalf. We, therefore, restore this issue to the file of the learned Assessing Officer with the direction to grant the assessee an opportunity to establish that majority of the students in that school were children of assessee's employees. Thereafter the learned Assessing Officer may decide this issue afresh in accordance with law. As to the contributions made by the assessee for sponsoring International Conference on clean technologies and for hiring a stall at India Paint Conference and for membership fee of Crop Protection Association, these are expenses related to the business being carried on by the assessee and, therefore, the expenditure was incurred for the purposes of the business of the assessee. There is no reason to hold that these expenses were incurred for considerations other than business purpose of the assessee. The expenditure of Rs. 12,500/- for purchase of jerseys bearing assessee's logo is also an expenditure in the nature of advertisement and, therefore, allowable as business expenditure. We hold that the learned CIT (Appeals) erred in allowing the expenditure of Rs. 10,000/- paid towards Garba festival in B....