TaxTMI 
TaxTMI 
2012 (6) TMI 540
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....called for the details and justifications for the claim of such expenditure. The assessee furnished the details called for. After furnishing the particulars, the assessee contended that the expenditure incurred are in respect of leased properties and they do not give to the assessee the benefit of enduring nature and the amount spent was for business purpose and not for acquisition of the capital asset. The particulars given by the assessee reads as under: Sl. No. Party's Name Nature of work Amount 1. Vinod Interior Decorators Civil Work 1,82,342 2. Gopinath & Katakam Architect Tees 14,786 3. Power System Need Civil Work 21,998 4. Micron Electrical Electrical Work 59,770 5. Calcutta 32,401 6. Varun/Vinod Interiors Wooden Partings 17,798 7. Da Civil Work 37,665 8. Accent Vertical Blinds 45,991 9. Vinod Interior Decorators Civil Work 2,33,441 10. Sahyadri Construction Civil Work 95,715 11. Paramhamsa Electricals Electrical 2,69,284 12. Sahyadri Constructions Civil Work 3,46,538 13. Sahyadri Constructions Civil Work....
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....al assets. According to the Tribunal, the issue was covered by the decision of the Delhi High Court reported in 149 ITR 52 and therefore set aside the order of the assessing authority as well as the appellate Commissioner and held that it amounts to a revenue expenditure and the assessee is entitled to the benefit of deduction. Aggrieved by the same, revenue is before this Court. 3. This appeal came to be admitted on 10-08-2007 to consider the following substantial question of law: "Whether the Tribunal is right in holding that a sum of Rs. 22,23,057/- claimed by the assessee as a revenue expenditure for improving the leasehold building spent on electrical work, civil work, air conditioning, architect fee etc., cannot be treated as capital in nature as held by the Assessing Officer, but should be allowed as a revenue expenses as it was incurred for business purpose?" 4. Learned counsel for the Revenue assailing the impugned order contended that having regard to the amount involved and the nature of work, there is an improvement to the leasehold premises, which is enduring in nature. Therefore, the Assessing Officer was justified in treating it as Capital Expenditure. The T....
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....to produce the profits, it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. If it was part of the fixed capital of the business, it would be of the nature of capital expenditure and if it was part of its circulating capital it would be of the nature of revenue expenditure." Ultimately, the Court held that: "Each case turns on its own facts". 9. The Supreme Court in the Assam Bengal Cement Co. Ltd. (supra) at Para-5 has held as under:- "5. This synt....
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.... the facts of each particular case in the manner above indicated. It has been rightly observed that in the great diversity of human affairs and the complicated nature of business operations it is difficult to lay down a test which would apply to all situations. One has therefore got to apply these criteria one after the other from the business point of view and come to the conclusion whether on a fair appreciation of the whole situation the expenditure incurred in a particular case is of the nature of capital expenditure or revenue expenditure in which latter event only it would be a deductible allowance under section 10(2)(xv) of the IT Act. The question has all along been considered to be a question of fact to be determined by the IT authorities on an application of the broad principles laid down above and the Courts of law would not ordinarily interfere with such findings of fact if they have been arrived at on a proper application of those principles. The expression "once and for all" used by Lord Dunedin has created some difficulty and it has been contended, that where the payment is not in lump sum but in instalments, it cannot satisfy the test. Whether a payment be in a l....
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....nduring' are used in this connection it is not meant that the advantage which will be obtained will last for ever. The distinction which is drawn is that between more or less recurrent expenses involved in running a business and an expenditure for the benefit of the business as a whole"...e.g... "enlargement of the goodwill company"-: permanent improvement in the material or immaterial assets of the concern." To the same effect are the observations of Lord I Greene, M.R., in Henriksen (H.M. Inspector of I Taxes) v. Grafton Hotel Ltd. above referred to." 10. The Apex Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1/3 Taxman 69 held as under:- "There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that 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 applicati....
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....ndertaken to bear the cost of the repairs. If the amount is spent by the assessee otherwise than as a tenant, the amount paid by him on account of only "current repairs" is allowable. The latter provision applies to the assessee occupying the premises otherwise than as a tenant, as an owner or mortgagee in possession, and in those cases the deduction is restricted in respect of the "current repairs" to the premises. So far as a tenant is concerned, it is the "repairs" to the premises and if the assessee had undertaken to bear the cost of the repairs to the premises, then those repairs may be even in the nature of a capital expenditure. Such an expenditure incurred by the assessee if it is in relation to the commercial activity would be in the nature of revenue expenditure'. 13. Again the Delhi High Court in the case of CIT v. Hi Line Pens (P.) Ltd. [2008] 306 ITR 182/175 Taxman 132 at para 16 has held as under:- 'There is a clear distinction between the expression "repairs" and the expression "current repairs". It is obvious that the word "repairs" is much wider than the expression "current repairs". This fact has also been taken note of by the Supreme Court in the case of Sa....
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.... the necessary repairs which are required to be done. We consider that all such expenditures which were incurred on painting, polishing of the floor providing wooden panelling etc. is revenue expenditure and the nature of repairs is not of an enduring character so as to characterise as capital expenditure". 15. The authorities both in this country and in England have pointed out the difficulties in formulating precise rules for distinguishing capital expenditure from revenue expenditure. The line of demarcation has been found to be very thin. Certain broad tests have, however, been laid down. Each case turns on its own facts. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. When an expenditure is made for acquiring or bringing into existence an asset or an advantage for the enduring benefit of the business, it is properly attributable to capital and is of the nature of capital expenditure. In cases where the expenditure is made for the initial outlay, or for extension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. Out....
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....repairs which are required to be done. All such expenditures which were incurred on painting, polishing of the floor, providing wooden panelling etc. is revenue expenditure and the nature of repairs is not of an enduring character so as to characterise as capital expenditure. 16. In the instant case, the expenditure incurred by the lessee can be broadly categorised as expenditure incurred towards civil works, electrical works and interior decoration. If a tenant or lessee incurs expenditure by way of civil work in respect of a property which he does not own, that by itself would not render the said expenditure as a revenue expenditure. In fact, Explanation I to section 32 throws some light on this aspect, which reads as under:- Explanation I - Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of his business or profession on the construction of any structure or doing of any work in or in relation to and by way of renovation or doing of any work in or in relation to, and by way of ren....