TaxTMI 
TaxTMI 
2016 (4) TMI 900
X X X X Extracts X X X X
X X X X Extracts X X X X
....ess premises at Unit Nos. 638 and 639, 6th Floor, Laxmi Plaza, Laxmi Industrial Estate, New Link Road, Andheri (W), Mumbai, a leased premises, transferring its furniture and fixture and other equipment from its' erstwhile premises (at Unit Nos. 607 & 630 in the same building). Apart from and incidental to the said transfer, expenditure was required to and, accordingly, incurred toward installation of work stations, Furniture and Fixture, flooring, electric wiring, false ceiling, painting, etc. Further, as the lease, which did not have any renewal clause, was for a period of 24 months, beginning 18.12.2010, it had debited the proportionate expenditure in its operating statement for the year. The Assessing Officer (A.O.) was of the view that the accounting treatment cannot determine the deductibility, which was to be guided by the provision/s of law, relying for the purpose on the decision in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC), reproducing there-from. Capital expenditure, where incurred on or in relation to a building, qua which the assessee has lease hold or other right of occupancy, would only be entitled to depreciation u/s. 32....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 30(a)(i), employing, in contradistinction, the expression 'repairs'. Repairs, even if broadly construed, would only imply existence of an asset, on the preservation (in a good operating state) or maintenance of which the expenditure is incurred, as explained in New Shorrock Spinning & Manufacturing Co. Ltd. vs. CIT [1956] 130 ITR 338 (Bom), relied upon by the A.O. (refer para 4.4, 5 of the assessment order). It may, however, be clarified here that there is no concept of a deferred revenue expenditure under the Act. As such, where the expenditure is found as not capital in nature, the same shall be, per contra, and the entire of it, revenue in nature and, accordingly, exigible to deduction for the year in which it is incurred irrespective of the period over which benefit from it is likely to arise, which, future being uncertain, is indefinite. Also, it is not a contractual arrangement, whereby the benefit enures as a function of time, so as to adopt the matching principle, which has been upheld by the Hon'ble Courts. In the facts of the present case, the premises had been acquired in a semifinished state; it requiring further work being performed thereon to make it fit for use. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nting definition of a fixed asset, i.e., an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business (refer para 6.1 of the Accounting Standard 10 issued by the Institute of Chartered Accountants of India). The Apex Court in Challapalli Sugars Ltd. (supra), among others, clarified that the accounting definition or the rule of accountancy, as understood by the men of commerce, shall obtain in the absence of any statutory definition or any indication to the contrary. This would also meet the assessee's reliance on CIT vs. Hi Line Pens P. Ltd. [2008] 306 ITR 182 (Del); the relevant expenditure (Rs.8.39 lacs) having been found in the nature of a set-up cost. True, the building is not owned by the assessee, who has only a right of occupancy in its respect, but then that is precisely what Explanation 1 to section 32(1), incorporated in the statute book w.e.f. 01.4.1988, seeks to explain and clarify, making ownership not necessary, so that capital expenditure would nonetheless be regarded as subject to depreciation despite being in or in relation to a building not owned by the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(c)). Prior to the introduction of the concept of block of assets, terminal depreciation was allowed under such circumstances. Any monies realized on the sale of such machinery, no longer viable and discarded, or its' scrapping, gets reduced from its written down value (WDV) of the relevant block of assets. All such fittings/materials as are embedded in the building, which cannot be used at a different place and, therefore, is to be discarded (viz. work stations), shall, in the facts and circumstances, continue to be subject to depreciation. Surely, it is not for us or the Revenue to comment or assess as to why such expenditure, unsustainable in terms of the productive time with reference to the lease period, assuming so, was incurred in the first place. That is the business decision of the assessee as a businessman. Why, he may be confident of recouping the cost and, in fact, generating profit, over the lease term, or of bargaining an extension at the end of the term, etc. The fact of the matter is that if any asset forming part of block of assets gets discarded, depreciation thereon on its unabsorbed cost continues to be available till the same gets totally charged or realized by....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... any stipulation with regard thereto, i.e., the said period, and which in the admitted facts of the case subsists for 20 months after the end of the relevant year, i.e., going by the current arrangement. The assessee may well be able to secure its renewal. The same, in any case, i.e., irrespective of extension, is not to be confused with the nature of the expenditure incurred - capital or revenue. In other words, the fallacy in the argument lies in determining the nature of the expenditure based on or with reference to the period of the right of occupancy. The two are independent of each other. In the instant case, it has already been indicated that the entire expenditure is in the nature of a set-up cost of the business. Even assuming, for which there is nothing on record to suggest so, that the business was already set up at the previous location, dislocation is disruptive of its business and would accordingly be required to be set up again. To the extent this entails additional expenditure, the same only implies a higher capital expenditure in-as-much as the capital work or assets discarded (at the old location) cannot be put to use again. Such discarded assets shall, however, c....