TaxTMI 
TaxTMI 
2013 (2) TMI 265
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....Nadu. To make the building suitable according to its requirements, the assessee had carried out renovations, interior decoration, new construction and repairs of the buildings taken on leasehold basis. The assessee claimed the entire expenditure incurred on leased premises as revenue expenditure. For the assessment year 2005-06, the assessee claimed expenditure to the tune of Rs. 75,11,775/- towards construction/renovation of leased buildings as revenue expenditure. Similarly, for the assessment year 2008-09 the assessee had claimed Rs. 65,53,204/- as revenue expenditure towards construction/renovation of building on leased premises. The Assessing Officer disallowed the expenditure as revenue and capitalized the same. The Assessing Officer allowed depreciation @ 10% treating the expenditure as capital. Apart from the above addition, the Assessing Officer inter-alia made additions on the following counts for assessment year 2008-09:- (i) Excess depreciation claimed by the assessee on windmills; (ii) Expenditure incurred for earning exempted income; & (iii) Unexplained fixed deposits under section 68 of the Act. Aggrieved against the assessment order for....
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.... premises could not be supplied to the lower authorities as they were not fully compiled at that time. Now compilation has been done, the details of expenditure can now be supplied. 5. On the other hand, Dr. S. Moharana representing the department submitted that the CIT(A) has wrongly allowed amount of Rs. 28,66,775/- out of Rs. 75,11,775/- for the assessment year 2005-06 incurred by the assessee towards construction/renovation expenses as revenue expenditure. The amount has been spent by the assessee on the leasehold premises to make it suitable to carry out business in the showrooms and service centres. The assessee has failed to show any benefit of enduring nature derived from the renovation/reconstruction on the leased out premises. The DR contended that in view of Explanation I to Section 32(1) of the Act which clearly states that any expenditure incurred by the assessee on the leased premises has to be capitalized. The expenditure incurred by the assessee for the construction of new structures, repairs, renovation of existing building has to be capitalized. In order to support his contentions, the DR relied on the judgement of the Hon'ble Supreme Court of India in the case....
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....ay of renovation or extension 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." 9. To fall within the ambit of Explanation 1 questions which are to be answered are : (i) Whether the assessee is carrying on business or profession in a leased building or other rights of occupancy? (ii) Whether the assessee has incurred any capital expenditure for the purpose of business on the construction of any structure or doing of any work in or in relation to and by way of renovation or extension or improvement in the building. If the answer to the aforementioned questions is in affirmative, the assessee falls within the purview of Explanation 1 to section 32(1). In the instant case, it is an admitted fact that the assessee has taken several buildings on lease for setting up of service stations. It is also undisputed that the assessee has carried out renovation, repair including flooring, false ceiling, sanitary works, partition, wall paneling, doors, cupboards etc. at the leased premises. The assessee has made certain changes/additions in the existing structure....
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....roduces an intelligible result and any departure from the literal rule would really be amending the law in the garb of interpretation, which is not permissible and which would be destructive of judicial discipline. 11. The counsel for the assessee has relied on another judgement of the jurisdictional High Court in the case of Thiru Arooran Sugars Ltd. (supra). In the said case, the Hon'ble High Court has referred to the construction of temporary structure by means of false ceiling and office renovation, which was held to be revenue in nature. 12. The Hon'ble Supreme Court of India in the case of Madras Auto Service (P.) Ltd. (supra) while dealing with a similar controversy has observed as under:- "5. In order to decide whether this expenditure is revenue expenditure or capital expenditure, one has to look at the expenditure from a commercial point of view. What advantage did the assessee get by constructing a building which belonged to somebody else and spending money for such construction? The assessee got a long lease of a newly constructed building suitable to its own business at a very concessional rent. The expenditure therefore, was made in order to secure a long lea....
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....devoid of merit. 14. The Revenue in ITA No. 1705/Mds/2011 for the assessment year 2005-06 has assailed the order of CIT(A) on the ground that an amount of Rs. 28,66,775/- has been allowed by the CIT(A) as revenue expenditure, whereas the said amount has been incurred by the assessee on reconstruction/renovation of the old buildings taken on lease. The CIT(A) has bifurcated the expenditure incurred by the assessee as capital and revenue. The expenditure on new construction/addition was held to be capital whereas expenditure on dismantling, demolition, electrical work, interlocking, sewage connection and renovation of existing shed was held to be revenue. We are of the considered opinion that renovation of existing shed and new electrical fittings are capital in nature. The expenditure on demolition, dismantling etc. can only be allowed as revenue. We therefore, modify the order of CIT(A) to exclude expenditure incurred on renovation of existing shed and electrical fittings from revenue and consider the same to be capital in nature. Thus, the appeal of the Revenue for the assessment year 2005-06 is partly allowed. 15. The Revenue in its appeal No.1633/Mds/2011 relevant to the a....