TaxTMI 
TaxTMI 
2020 (2) TMI 939
X X X X Extracts X X X X
X X X X Extracts X X X X
....peal on merits. 3. The solitary issue that is raised in this appeal is whether the CIT(A) is justified in confirming the action of the Assessing Officer in treating the sum of Rs. 60,25,240/- as capital expenditure. 4. Briefly stated, the facts of the case are as follows: The assessee is a private limited company running a 3 star bar attached hotel. For the assessment year 2011-12, the return of income was filed on 29/09/2011 claiming a loss of Rs. 19,86,712/-. The assessment was taken up for scrutiny by issuance of notice u/s. 143(2) of the I.T. Act on 28/09/2012. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had incurred expenses under "repairs and maintenance to building" amounting to Rs. 60,25,240/-. Notice was issued to assessee seeking its explanation as to why the said expenditure should not be treated as capital expenditure. The assessee filed objections vide letter dated 27/11/2013 which reads as follows: "Our hotel had been classified as a three star hotel by the Department of Tourism,.... With effect from 12.04.2006 and this classification was valid for 5 years. As per the condition of the issue of this thr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....appellant is in the business of running a hotel having 3 star classification. As per appellant's own submissions it has to renew application every 5 years and for this purpose it incurred Rs. 60,25,240/- during the year The repair work was completed during the month of March 2011. As per appellant these expenses were incurred in repair of existing building to keep it fit to get the renewal of 3 star classification. Due to repair, there was no increase in the income or decrease in the expenditure. The appellant did not get any enduring benefit. The gross receipts did not increase. The appellant relied upon ITAT Delhi decision in case of United Hotels. (ITA No.3225/Del/2012) 7. Whether an expenditure is in the nature of capital or revenue is largely a question of facts. Nor there can be any binding precedent to decide if any expenditure is in the nature of repair and maintenance is Capital or Revenue, What has to be seen is if the party got any enduring benefit or not. In the case relied upon by the appellant the expenditure was incurred on the leasehold premises and it was observed that no new asset was created. 8. In the case before undersigned the ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t in the case of Ballimal Naval Kishore & Another vs. CIT reported in (1997) 224 ITR 414 where ginning factory was purchased and converted into a Cinema Theatre for exhibiting cinema. 4. The Ld. ClT(A) ought to have examined the break-up of the expenses of Rs. 60,25,239/-incurred for repairs and maintenance as listed below and found that they are all Revenue Expenditure. Labour Aluminum 37,400 Carpenter 2,22,435 General 2,39,083 Glazing work 3,90,000 Gypsum work 51,900 Painting 4,06,300 Steel Work 55,000 Tile and Mason work 2,10,645 Loading & unloading renovation 4,708 Material Aluminum work 2,19,202 Bricks 2,502 Glazing work 12,22,855 Gypsum work 51,424 Painting 2,19,259 Flooring tiles 8,74,695 Furniture and Furnishings 13,31,053 Materials others 4,75,135 Transportation incurred for renovation work 11,643 60,25,239 5. The ld. CIT(A) has failed to appreciate the decision of the Hon. Madras High Court (DB). in the case of C1T (Central) Madras v Dasaprakash reported in (1978) 114 1TR 211 wherein it was held that such items of expenditure ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Dictionary, 1978, (Vol II, page 812) defines a "repair" to mean as follows: "To restore to a sound or good state after decay, injury, dilapidation or partial destruction; to make, amends for, as for an injury by an equivalent; to give indemnity for, as a building in good or bad repair." 7.2 The distinction between repair and reconstruction is quite narrow and the meaning attributable to the word "repairs" depends upon the facts and circumstances of each case. The test of an improvement or an advantage is not strictly germane or conclusive. The object of every repair is to improve the condition or the efficiency which has become lost on account of the user, and so there is necessarily an improvement or betterment. In CIT vs. Mahalakshmi Textile Mills Ltd.(1967) 66 ITR 710 (SC) the roller stands of textile machinery were worn out and replaced with parts, manufactured by a different company said to be better than the older type because the older type was not available. It was held by the Hon'ble Apex Court that this consideration alone could not be said to have brought into existence a new asset or enduring advantage to the assessee's business and that the expenditure was....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". In other words, expenditure on current repairs to buildings, machinery, plant and furniture used for the purposes of the business is generally covered by sections 30 and 31 of the I.T. Act. In respect of types of repairs that do not fall under the above description, a deduction can still be allowed u/s. 37 of the I.T. Act if all the requirements for deduction under the said section are fulfilled. The expenses incurred by the assessee towards repairs and whether it is allowable as revenue expenditure or not, is a pure question of fact. 7.4 In the instant case, the repair works were completed in the month of March, 2011. The assessee has enclosed details of expenditure incurred for repairs in the paper book filed by the assessee. The details of all the bills and relevant vouchers of the expenditure are enclosed in the paper book filed by the assessee The major portion of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Assessing Officer is not applicable to the facts of the case. The assessee in the case considered by the Apex Court purchased ginning factory, ran it as such for over five years and then converted into a cinema theatre and exhibited films. The expenses incurred for converting the building into a cinema theatre was claimed by the assessee as revenue expenditure. It was held by the Hon'ble Court that it cannot be allowed as a revenue expenditure since it was capital in nature. 7.6 The order of the Cochin Bench of the Tribunal in the case of DCIT vs. Indus Motor Company Pvt. Ltd. (supra) relied on by the Ld. DR is distinguishable on facts. In the said order of the Tribunal, it was held by referring Explanation 1 to section 32(1) of the I.T. Act, the construction carried out in the leased premises would result in enduring benefit and in such cases, the expenditure is to be capitalized and depreciation should be allowed on the same. 7.7 The judgment of the Hon'ble Delhi High Court in the case of M/s. Bharat Gears Limited vs. CIT (supra) relied on by the learned DR, is also distinguishable on facts. In the said case, the Hon'ble Delhi High Court confirmed the order of the Tribunal ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ucture or work put up by them in the leasehold premises which, in the normal course, they are not entitled to, since they are not the owners. However, it cannot be stated that whatever is spent by the lessees or tenants should always be regarded as a capital expenditure." iii) The Hon'ble Madras High Court in the case of CIT vs. Ooty Dasaprakash (237 ITR 902), affirming the decision of the Tribunal, had held that the expenditure incurred solely for repairs and modernizing the hotel and replacing the existing components of the building, furniture and fittings, with a view to create a conducive and beautiful atmosphere for the purpose of running the business of a hotel was an allowable deduction. It was further held by the Hon'ble Court that the expenditure incurred was not of an enduring nature and was allowable as revenue expenditure under section 37 of the Act. iv) The Hon'ble Rajasthan High Court in the case of CIT vs. Lake Palace Hotels and Motels P. Ltd. reported in 258 ITR 562 had held that the expenditure incurred on refurnishing/modernizing a hotel is not a capital expenditure. It was held by the Hon'ble High Court as follows: "We have scanned thro....