TaxTMI 
TaxTMI 
2019 (4) TMI 1127
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....ary to the clear provisions of Explanation 1 to Section 32(1) of the Income-tax Act?; and (ii). Whether in the facts and circumstances of the case, the Tribunal was right in holding that even though the introduction of Explanation 1, to Section 32 was not brought to the notice of this Court in the case of Hari Vignesh Motors (282 ITR 338) and the appeal was dismissed as covered by the Supreme Court Judgement in the case of Madras Auto Service (233 ITR 468) for a year subsequent to the amendment, it would form a binding precedent?" 2. Since common questions of law are involved in all the Appeals, the Appeals are taken up together for discussion and consideration. 3. The brief facts in T.C.A.No. 1931 of 2008 arising with respect to a partnership Firm Shri Rm K Viswanatha Pillai and Sons is discussed herein as being illustrating of the facts of all the other Appeals also. 4. The Assessee was a firm carrying on business at Tirunelveli and during the relevant Assessment Year had debited a sum of Rs. 2,99,36,364/- as 'maintenance' allowance. They had taken on lease a building which consisted of RC structure upto third floor at T.Nagar, Chennai and thereafter, th....
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....gave a direction under Section 144A holding that the expenditure has to be considered as revenue since the assessee does not own the premises and therefore does not get to enjoy a capital asset and while so holding reliance was placed on the decision of the Apex Court of CIT vs. Madras Auto Services (P) Ltd., (1998) 233 ITR 468. The similar issue had arisen in the case of the main concern M/s. RMKV Pillai and Sons and assessee's detailed submissions on all aspects of the matter and the allowability of the claim had been discussed at length in my order u/s 263 for A.Y. 2003-04 in that case. The assessee's submission in response to notice u/s 263 is also on the same line as in the main case. Both the assessee as well as the Joint Commissioner who allowed the claim u/s 144A were oblivious of Explanation 1 to Section 32 which provides "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 of any w....
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....t is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the (Assessing) Officer to enable him to complete the assessment and such directions shall be binding on the (Assessing) Officer. Provided that no directions, which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard. Explanation: For the purposes of this Section, no direction as to the lines on which an investigation connected with the assessment should be made, shall be deemed to be direction prejudicial to the assessee." A reading of the above provision very clearly shows that direction issued by the Jt.CIT are binding on the Assessing Officer. The only two riders provided in the powers of Jt.CIT., are (i) to issue any directions, and if the directions are prejudicial to the Assessee, then opportunity be allowed to the Assessee and (ii) that no direction can be issued on the lines in which an investigation should be conducted. Admittedly, the Jt.CIT had very clearly issued the direction that the expenditure incurred by the Assessee should be allowed as revenue expenditure. There....
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....d on the basis of the directions issued by the JCIT under Section 144A. Therefore, the CIT had power to revise even the Assessment Orders before us. However, still the issue is covered by the decision of the Hon'ble High Court in the case of Hari Vignesh Motors (P) Ltd., (supra) and in that case the Asst. Year involved was 1997-98, whereas Explanation (1) to Sec. 32(1) was introduced by Taxation Law (amendment and Miscellaneous Provisions) Act, 1986 with effect from 01.04.1988. We would not like to comment as to whey the new law was not brought to the notice of the Hon'ble High Court. But the fact which has come to our notice as admitted by the Id. Departmental Representative is that no appeal has been filed against this decision before the Hon'ble Supreme Court. We, at Tribunal, are bound by the decision rendered by the Hon'ble Jurisdictional High Court and, therefore, following this decision, we decide this issue in favour of the Assessee. In these circumstances, we quash the revisionary order passed by the CIT. Since the facts in all these appeals are identical, all the revisionary orders passed by the CIT against which the Assesssees have come in appeal before u....
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.... 9. It was further argued that in the present case admittedly, the Assessees had taken on lease a building which originally consisted of two floors and a partially completed third floor. The Assessee had put up further construction raising the building up to the fifth floor. Further the Assessee also incurred huge expenditure in interior renovations and these constructions /renovation were directly related to the business of the Assessee and consequently, the total expenditure of Rs. 2,99,36,364/- incurred towards construction/renovation/ or improvement of the building can only be considered as capital expenses. 10. This argument had been very seriously disputed by Mr.M.P.Senthil Kumar, learned counsel for the Assessee, who also filed written submissions. The learned counsel placed reliance on the Judgement in the case of Hari Vignesh Motors (P) Ltd., cited supra and pointed out that the Revenue had not filed any further Appeal against the said Judgment. The learned counsel stated that for expansion of business which they had been carrying from 1980 they had taken the premises on leave and license basis. The learned counsel also advanced an alternate submission that the lease a....
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....es in favour of the Assessee was that this Court in Hari Vignesh Motor (P) Ltd., cited supra, following the earlier Judgment of the Hon'ble Supreme Court in Madras Auto Services (P) Ltd., cited supra had held that expenditure incurred in the nature as incurred by the Assessee herein cannot be considered as Capital expenditure. However, as pointed out by Mr.M.Swaminathan, learned Senior Standing Counsel for the Revenue, Madras Auto Service (P) Ltd., related to the Assessment Year 1968-1969. Thereafter, Section 32(1A) had been inserted with effect from 01.04.1970 and this provision had been clarified by Explanation 1 with effect from 01.04.1988. Consequently, the correct provision which is applicable to these cases are Explanation 1 to Section 32(1) of the Act. 16. It is not in dispute that the Assessees had taken on lease the premises and had put up further additional construction and had also renovated and incurred expenses for improvement of the building. The contention of Mr.M.P.Senthil Kumar, learned counsel placed only in the written submissions and not advanced during oral arguments that the Court cannot examine the lease agreements since they were not registered has to....
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....not in dispute that the assessee had put up the impugned construction of building only on the leasehold land and no building was taken on lease by the assessee. Therefore, the fiction created by Expln. 1 that the building put up by him in the leasehold land or structure or work shall be construed as if the same is owned by the assessee, is not applicable to the case of the assessee and the Expln. 1 to S.32(1) of the Act is not attracted to the instant case of the assessee at all." The aforesaid Judgement cited by the learned counsel for the Assessee are therefore not applicable to the facts of the present case in view of amended law. 19. In Silver Screen Enterprises Vs. CIT, 85 ITR 0578, (High Court of P & H), while examining whether expenditure incurred on repairs to chairs, renovation of building and modernisation of cinema house taken on lease by the Assessee, it was held that they are capital expenditure since it brought an enduring benefit. The relevant discussion on this aspect is quoted below:- "It cannot be denied that the amount spent for the construction of the verandh, office room, side room and bath rooms brought into existence an asset of an enduring nat....