TaxTMI 
TaxTMI 
2010 (6) TMI 503
X X X X Extracts X X X X
X X X X Extracts X X X X
....ounts towards consultation charges, interior design, modernization, changing of floor tiles, false ceiling, landscaping, chairs, earth filling etc. According to the learned departmental representative, these expenditures were incurred by the assessee for obtaining enduring benefit. The learned departmental representative further submitted that the expenditure incurred by the assessee brought into existence a capital asset for conducting the business. The cinema theatre, according to the learned departmental representative is a permanent business asset, therefore any expenditure incurred by the assessee for renovating the cinema theatre has to be treated as capital expenditure. Referring to Sec. 32 Explanation 1 of the I.T Act, the learned departmental representative submitted that after introduction of Sec. 32 Explanation 1, the assessee at the best is entitled for depreciation u/s 32 Explanation 1 of the I.T. Act w.e.f. 1.4.1988. Since the assessing officer himself has granted the depreciation to the assessee, the CIT(A) has committed an error in allowing the claim of the assessee as Revenue expenditure. The learned departmental representative placed reliance on the observations m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pers and also paid consultancy charges while repairing the false ceiling etc. Further, the learned counsel for the assessee submitted that this expenditure was incurred only for the purpose of carrying on the business in an effective and profitable manner and not for the purpose of acquiring any new asset. Placing reliance on the judgement of the Apex Court in the case of CIT Vs. Madras Auto Service (P) Ltd., 233 ITR 468, the learned counsel for the assessee submitted that the Supreme Court held that the expenditure incurred in construction of a building in the leased premises as revenue expenditure. Since CIT(A) himself disallowed the expenditure incurred by the assessee on marble flooring, no interference is called for. 4. We have considered the rival submissions on either side and also perused the material available on record. It is not in dispute that the assessee has taken five cinema theatres in a theatre complex on lease from M/s Satyam Sayi Corporation (P) Ltd,. for exhibition of feature films. From the materials available on record, it appears the assessee took the cinema theatres where the business of exhibition of films is going on. The assessee incurred expenditu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee." 5. This Explanation to Sec.32 was introduced in the Statute Book by Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 1.4.1988. By introduction of this Explanation, the Legislature intended to give depreciation on the capital expenditure incurred by the assessee in relation to renovation, extension or improvement to the building in which the assessee carried on the business as lessee. 6. Let us now examine the Legislative history of introduction of Explanation 1 to Sec.32 of the IT Act. The Parliament by Taxation Laws (Amendment) Act, 1970 w.e.f. 1.4.1971 introduced Sub Sec.(1A) to Sec.32. By Sec.32(1A), the Parliament intended to grant some benefit on the capital expenditure incurred by a tenant in the leased premises. Therefore, it is obvious that before introduction of Sec.32(1A) w.e.f. 1.4.1971 by Taxation Laws (Amendment) Act, 1970, the assessee who takes the business premises on lease was not entitled to any depreciation on the capital expenditure. In other words, before 1.4.1971, the assessees w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....32 w.e.f. 1.4.1988. Therefore, this is a benefit conferred on the assessee who took the premises on lease and incurred expenditure in the capital field. However, as explained earlier, in case, the expenditure falls in the revenue field, the assessee is entitled to claim the same as revenue expenditure irrespective of Sec.32(1A) or Explanation 1 to Sec. 32 of the Act. This was so explained by the CBDT in its circular. 8. By keeping this Legislative history and intent in mind, let us now examine the claim of the assessee in the case before us. The assessee incurred expenditure for the assessment 2003-04 for earth filling, under ground slump repair, cable works, wall paper fixing, dust opening repair, carpentry and plumbing repair, false ceiling repair, replacing of damaged chairs besides changing marble flooring. The assessee also incurred expenditure on canteen repairing, pest control, house keeping material, theatre cleaning, bandobust, re-fixing of chairs etc. For the assessment year 2005-06, the assessee incurred expenditure for repairing, renovation of canteen, change of flooring, water proofing for ceiling, theatre patch work, exterior painting, salary to temporary staff, clea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pital field then such an assessee is entitled for depreciation either u/s 32(1A) or under Explanation 1 to Sec.32 w.e.f. 1.4.1971. Before 1.4.1971, the capital expenditure incurred by the assessee has to be totally disallowed and such assessee was not eligible to claim depreciation. 10. We find that an identical fact was examined by this Tribunal in the case of P.S.B. Vs. Inspecting Assistant Commissioner (1941) 35 ITD page 9 (TM) (Delhi). In the case before Delhi Bench of this Tribunal in P.S.B. (supra) the assessee company took on lease premises for carrying on its business activity. The assessee incurred certain expenditure on demolition of walls providing girders, repairs of flooring, repairs of toilets providing and fixing of power point, telephone points intercom points, painting and polishing etc and claimed the expenditure as revenue expenditure. This Tribunal by a majority opinion found that the expenditure incurred by the assessee could not be said to be of enduring nature. This Tribunal found that the assessee is neither the owner of the building nor the fitting and fixtures of the building and after the expiry of lease period, the entire building would be handed over b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 'repairs' is much wider than the expression 'current repairs'. This fact has also been taken note of the Supreme Court in the case of 'Saravana Spinning Mills (P) Ltd. (2007) 293 ITR 201. The expression 'current repairs' is much more restricted than the word 'repairs' because the latter is qualified by the word 'current'. What the assessee has done in the present case has been construed to be repairs by the Tribunal as a finding of fact. It has not brought about any new asset and more importantly it was not the intention of the assessee to bring about any new capital asset. The expenses that were incurred by the assessee were towards repairing the premises taken on lease so as to make it more conducive to its business activity. Such expenses would clearly fall within the expression of repairs to the premises as appearing in section 30(a)(i). The Legislature has made a distinction between expenses incurred by a tenant for 'repairs' of the premises and expenses incurred by a person who is not a tenant towards 'current repairs' to the premises. The distinction has to be given meaning. Perhaps the logic behind the distinction was that a tenant would, by the very nature of his status ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tence. In other words, the assessee has not acquired any asset/ income earning apparatus. It is well settled principles of law that the expenditure incurred for acquisition of an asset is capital expenditure and expenditure incurred in the process of earning profit is revenue expenditure. In the case before us, the assessee incurred the expenditure in order to attract more customers and make the customers comfortable. Therefore, it is obvious that that the assessee has to incur the expenditure, in order to carry on the business and in the process of earning profit and, therefore, the expenditure is of revenue in nature. 15. We find the Karnataka High Court in CIT vs. Rex Talkies (1984) 148 ITR 560 had an occasion to consider an identical issue. In the case before the Karnataka High Court, the assessee firm was a tenant of a cinema theatre. During the assessment year under consideration, the assessee renovated the theatre and incurred the expenditure for addition and alteration to furniture polishing, chair brackets, cement flooring, wages for fixing chairs, plaster of Paris for ceiling and walls, etc. The Karnataka High Court after referring to the judgement of the Apex Court in E....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ature 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. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. But even if this test were applied in the present case, it does not yield a conclusion in favour of the revenue. Here, by purchase of loom hours no new asset has been created. There is no addition to or expansion of the profit-making apparatus of the assessee. The income-earning machine remains what it was prior to the purchase of loom hours. The assessee is merely enabled to operate the profit making structure for a longer number of hours. And this advantage is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was considered by another Bench of the very same High Court in the case of Silver screen Enterprises vs. CIT (1972) 85 ITR 578. In this case the assessee took a cinema house on lease. The assessee incurred the expenditure for repairing chairs, sanitary fittings, electricity fittings, etc. The Punjab & Haryana High Court held that the expenditure incurred by the assessee was in the nature of capital expenditure. Referring to its earlier decision in the case of Regal Theatre (Supra), the High Court found that the facts of that case were distinguishable. However, the fact remains that the judgement of the Apex Court in the case of Empire Jute Co. Ltd. (Supra) was not brought to the notice of the Punjab & Haryana High Court. Since the judgement in the case of Empire Jute Co. Ltd. (Supra) was not considered by the Punjab & Haryana High Court in the case of Silver Screen Enterprises (Supra), this judgement of the Punjab & Haryana High Court, in our opinion, may not be applicable in this case. The Karnataka High Court in the case of Rex Talkies (Supra) considered this issue and the judgement of the Apex Court in the case of Empire Jute Co. Ltd. (Supra) and held that identical expenditure ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the building. Admittedly the expenditure incurred by the assessee with regard to change of marble flooring, earth filling, under ground slump repair, drainage and cable work, wall paper fixing, ceiling repair, replacement of damaged chairs and refixing of chairs and paid consultancy charges also for carrying on the false ceiling repair. As found by the Delhi Bench of this Tribunal, these expenditures are only for the purpose of carrying on the business in an effective and profitable manner. The assessee has not acquired/obtained any asset/income earning apparatus as a result of this expenditure. Therefore, as held by the Delhi Bench of this Tribunal in the case of Escorts Ltd., the expenditure incurred by the assessee has to be treated as revenue expenditure. Admittedly, the assessee has not carried out any work in connection with the structure of the building. 22. We find that the Apex Court had an occasion to consider an identical issue in the case of CIT vs. Kalyanji Mavji & Co. (1980) 122 ITR 49. In the case before the Apex Court the assessee incurred the expenditure on payment of surface rent, minimum royalty and on account of salary for the watch and ward and claimed it as ....