TaxTMI 
TaxTMI 
2016 (11) TMI 70
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....the expenditure incurred by the assessee towards renovation and improvement of hotel building is in the nature of revenue expenditure even when the assessing authority has rightly treated it as capital expenditure considering the available materials on record and Explanation (1) to section 32(1) of the Income Tax Act and the expenditure has resulted in enduring benefit to the assessee?" 3. We have heard Mr.Indra Kumar, learned Senior Standing Counsel with Mr.E.I.Sanmathi, learned Counsel appearing for the appellants-Department. 4. We may at the outset record that the Tribunal in the impugned order at paragraphs 5.4.1 to 5.4.9 has observed thus: 5.4.1 We have heard the rival contentions and perused and carefully considered the material o....
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....- "Explanation 1: 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 the business or profession on the construction of any structure or doing any work in or relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this claim shall apply as if the said structure or work is a building owned by the assessee." This Explanation to Section 32 of the Act was introduced by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 1.4.1988. By introduction of this Explanation, th....
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....iation u. 32(1A) of the Act would not arise for consideration. In other words, section 32(1A) of the Act introduced w.e.f. 1.4.1971 by Taxation Laws (Amendment) Act, 1970 would not be applicable in case the assessee incurred revenue expenditure on the leased premises. 5.4.5 However, sub-section 1A of Section 32 of the Act introduced by Taxation Laws (Amendment) Act, 1970 was omitted and Explanation 1 to Section 32 was introduced by Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 1.4.1988. This was done when the concept of depreciation on individual asset was changed to depreciation on the block of assets. When Parliament introduced depreciation on block of assets, sub-section (1A) of Section 32 of the Act was delet....
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....aim it as revenue expenditure irrespective of Section 32(1A) or Explanation 1 of Section 32 of the Act. In our considered view, this being the correct position of law, the conclusions of both the Assessing Officer and the learned CIT(A) in the impugned orders that the expenses incurred on leased premises have to be capitalized and only depreciation can be allowed thereon is not in tune with the provisions of law and is therefore incorrect. 5.4.6 To fall within the ambit of the provisions of Explanation 1 to Section 32 of the Act, the question to be answered is, whether the assessee has incurred any capital expenditure for the purposes of business on the construction of any structure or doing of any work in or in relation to and by way of ....
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....nor conclusive. Even if this fact is applied, the expenditure incurred by the assessee is only in the process of earning profit and not to acquire any capital asset. As a result of the expenditure incurred by the assessee, the hotel remains a hotel and the capacity does not increase. At the most, the assessee might have carried on the business in a profitable manner. The assessee has not obtained any enduring advantage in the capital field. Therefore, the expenditure incurred facilitated the assessee to carry on its business effectively and more profitably. In this factual matrix of the case on hand, we are of the considered opinion that the expenditure incurred by the assessee has to be treated as revenue in nature. 5.4.9 In view of the ....
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....of earning profit and not to acquire any capital asset. However, the learned Counsel appearing for the appellants- Revenue attempted to contend that by virtue of Section 32 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act' for short) and more particularly explanation to Section 32 of the Act, even if it is a leased premises and the expenses are incurred for renovation of the structure or otherwise, the depreciation is available to a limited extent. He contended that same would mean that the Parliament wanted to treat certain expenses for structure and others even on the tenanted premises as capital expenditure. He has also submitted that the lower authority had rightly observed that it was a capital expenditure and therefore....