TaxTMI 
TaxTMI 
2014 (8) TMI 104
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....d expenditure of a sum of Rs. 86,48,765/- is an allowable revenue expenditure following the decision of the Income Tax Appellate Tribunal in the case of DCIT v. Lazard India P. Ltd. [(2010) 41 SOT 72 (Bom)] = 2010-TII-121-ITAT-MUM-INTL & other cases relied upon by the appellant, wherein on similar facts, the expenses were held to be of revenue nature and hence allowable as a deduction. 2. Without prejudice to what is stated above, the learned Commissioner of Income-tax (Appeals) erred in not directing the Assessing Officer to allow a sum of Rs. 6,78,015/- being society maintenance charges (included in the total repairs and maintenance expenses of Rs. 86,48,765/-), which are clearly of routine repair and maintenance nature. 3. The appellant submits that the Assessing Officer is directed : (i) to delete the addition of Rs. 86,48,765/- being expenses incurred by the appellant as temporary repairs and maintenance on leased premises; (ii) without prejudice to what is stated above, to allow society maintenance charges of Rs. 6,78,015/-; and to modify the....
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.... and wall tiles. 11. Antares Building Products Pvt.Ltd. 7, Jadav Bhavan, 62/B Gowalia Tank Road, Mumbai - 400 026. 4,43,664 Supply of vitrified / floor tiles. 12 Anurup Designs Pvt.Ltd. Anurup House, plot 96, Lane 3, Hindu Colony, Dadar (E) Mumbai - 400 014. 2,64,222 Professional fees. Total (B) 79,70,750 Total (A) + (B) 86,48,765 3.1 The A.O. required the assessee to show cause as to why the office renovation expenses should not be capitalized. Vide letter dated 25th November, 2010, it was submitted that these expenses are incurred on tiling, plumbing, false ceiling, etc. which could not be reused on vacation of premises. However, resorting to Explanation 1 to section 32, the A.O. observed that the expenses are in respect of civil work, tiling work, marble work, fittings, fixtures, interior work, etc. cannot be taken as revenue expenditure as claimed by the assessee as these are major renovation expenses in the nature of capital and since the property was taken on lease on 7th December, 2007, the assessee entitled to depreciation at the rate of ½ of the normal ....
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....got the business advantage of using modern business premises at a low rent, thus saving considerable revenue expenditure for a considerably long period, the Tribunal was held to be perfectly justified in coming to the conclusion that the expenditure should be looked upon as revenue expenditure. (ii) Talathi And Panthaky Associates P.Ltd. [(2012) 343 ITR 309 (Bom.)] In the said case, the assessee was a tenant in a building and was in the occupation of an area admeasuring 5,000 sq.ft. The building was declared by the Municipal Corporation to be unsafe for occupation and an eviction notice was served on the occupants. A suit was instituted for partition between the owners of the property. A developer came to be impleaded as a party respondent and was a party to the consent terms. Under the consent terms, the developer agreed to repair and reconstruct the building at his cost. Under the agreement, the tenancy of the assessee in respect of the sixth floor in its possession was confirmed and the assessee assumed an obligation to contribute a sum of Rs. 1.50 crore for the work of repair and restoration of the structure. It was agreed that there ....
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....esent case had given its finding that it is a revenue expenditure on the ground that the expenditure is incurred only towards painting, re-laying of the damaged floors, partitions, etc., which can never considered to be capital expenditure of the nature mentioned in the above Explanation and thus the appeal filed by the Revenue was dismissed. (v) CIT v. Mehta Transport Company [(1986) 160 ITR 35 (Guj)] An expenditure of Rs. 16,748 was laid out on construction of loft admeasuring about 350 sq.ft. on the ground floor office premises taken on lease in Bombay. The said amount was disallowed on the ground that it is in the nature of capital expenditure. As per the finding given by the Tribunal, construction of loft was not in the nature of renovation but was a new construction. However, the Tribunal held that the expenditure incurred by the assessee was with a view to make the leased premises more suitable for business purposes and they could not be treated as capital expenditure. Their Lordship observed that the expenditure incurred for construction of loft was neither for extending nor for addition to the premises. The assessee was putting t....
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.... of enduring benefit had been brought into existence. The repairs also could not be regarded as heavy structural repairs. Simply because of repairs the life of the building was prolonged for at least 15 years, it could not be said that the expenditure was in the nature of a capital expenditure and thus, it was held that the said amount was allowable as business expenditure. 5. The learned AR further distinguished the decision of the Tribunal relied upon by the learned CIT(A) in the case of Free India Assurance Services Ltd. v. DCIT (supra). The learned AR produced before us the copy of the said decision and it was submitted that the following facts distinguishable from the decision. (i) The expenditure was incurred before the assessee started business in its office and these expenses were not of routine nature but of one time expenditure. (ii) The wooden partitions, cabins, cubicles, desks are in the nature of permanent furniture and fixtures for starting the business. (iii) The said premises was owned by the Directors of the company who had more than 50 per cent of the shares of the company. This premises was going to be remained with the assessee permanently for all practical ....
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....igh profile clients both Indian as well as foreign. In the circumstances, the office premises are required to be kept to a good standard. The expenditure incurred by the assessee was in order to meet these business requirements. The renovation expenses were in connection with modifying the cabins, cubicles, laying good marbles, painting and other related expenditure. These expenditure were incurred and were necessary for the purpose of business to carry it more efficiently and also for creating good environment for the staff as well as the clients. These expenditure were incurred wholly and exclusively for the purpose of business. The repair / renovation work carried out at the premises which were not owned by the assessee but were taken on lease. The expenditure incurred, as can be seen from the details furnished, has not created any capital asset nor it has given the benefit of enduring nature. None of the expenditure entails any structural change or extension or improvement of the building, therefore, Explanation 1 to section 32(1) will not be applicable. These submissions of the assessee are recorded by the Ld. CIT(A) in para 6.2 of the impugned order. 7.1 If the above submi....
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....e of the question whether the expenditure is in the nature of revenue or capital. Since in the present case no new asset or new advantage has been brought into existence by the assessee, it cannot be said that the assessee has incurred capital expenditure and quantum of expenditure alone also cannot be considered sufficient to arrive at a conclusion that the expenditure is in the nature of capital. What is necessary to see is as to whether the expenditure is in the nature of capital or it is in the nature of revenue. 7.2 In the case of CIT v. Talathi and Panthaky Associates P.Ltd. (supra), despite making payment of Rs. 1.5 crore towards reconstruction of the tenanted premises, their Lordship have held that the expenditure was not in the nature of capital. The assessee obtained a commercial advantage of securing tenancy of an equivalent area of premises on the same rent as before. Since there was no acquisition of capital asset and the occupation of the assessee continued in the character of tenancy, the expenditure was in the nature of capital. In the present case also the assessee did not acquire any capital asset but made the leased premises more suitable for its business. ....
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....t) Act 1970 by inserting new Sub-section (1A)in section 32 by section 5 of the Amending Act w.e.f. 1/4/1971. Its scope was explained in Circular No.56 dated 19/3/1971. It was described that under the existing provisions of Income Tax Act, the assessee was not entitled to depreciation or any other deductions in respect of capital expenditure incurred by him on extension or renovation or improvement of a building not belonging to him which is used for the purpose of business or profession. Therefore, new sub-section (1A) is being inserted w.e.f. 1/4/1971. Later on sub-section (1A) was omitted and explanation-1 was inserted after the second proviso to section 32(1)(iii) of the Act in view of switch over to block concept by the Taxation Laws (Amendment and Miscellaneous provisions) Act 1986 and the reason for amending sub-section (1A) of section 32 and insertion of explanation has been stated in the Circular No.469 dated 23/9/1986. 7.6 The relevant part of both aforementioned Circulars are reproduced below. "CIRCULAR NO.56, dated 19/03/1971. Amortisation of expenditure on renovation or extension of, or improvement to, leased business premi....
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....endments relating to depreciation allowance are as follows:- (a) to (g)..................... (h) Sec. 32(1A) of the IT Act provides for depreciation allowance in respect of any addition, renovation or extension of or improvement to a building which an assessee does not own but in respect of which he holds a lease or other right of occupancy. As a result of the switch over to the block concept, this provision has been omitted. By the newly inserted Expln. 1 after the second proviso to s. 32(1)(iii) of the IT Act, it has been provided that depreciation will be allowed in respect of such a structure or work as if it is a building owned by the assessee." The reading of above explanatory notes will make it clear that Sub-section (1A) and subsequent omission of Sub-section (1A) and insertion of explanation-1 after the second proviso to Section 32(1)(iii) are brought to the statute only for the reason that in a case where capital expenditure is incurred by the assessee in respect of building not owned by him in that case there was no provision in the Act for grant of depreciation or any other deduction and to meet such hardship faced by such ....