2006 (10) TMI 258 - AT - Income Tax

Summary

Issues:
1. Denial of depreciation on building used by the assessee-firm.
2. Classification of expenditure on the construction of a strong room as capital or revenue expenditure.

Detailed Analysis:

1. Denial of Depreciation on Building:
The first issue in this appeal pertains to the denial of depreciation on a building used by the assessee-firm for business purposes, although the property was registered in the names of two partners. The Assessing Officer contended that ownership needed to be registered in the name of the assessee-firm for depreciation to be allowed under section 32 of the Act. The Tribunal examined relevant precedents cited by the Assessing Officer, such as Kalpaka Tourist Home (P.) Ltd. v. CIT and others. However, the Tribunal noted that the assessee-firm had financed the building's purchase, and the property was exclusively used for business. The Tribunal distinguished previous cases where ownership issues were present, emphasizing that the firm, despite not being a legal entity under the Indian Partnership Act, had funded the building purchase. Consequently, the Tribunal held that the assessee was entitled to depreciation on the building and directed the Assessing Officer to grant the depreciation.

2. Classification of Expenditure on Strong Room:
The second issue involved determining whether the expenditure incurred on constructing a strong room in rented premises constituted capital or revenue expenditure. The Assessing Officer disallowed the expenditure as capital, allowing only for depreciation. The Tribunal considered precedents like CIT v. Madras Auto Service (P.) Ltd. and others, supporting the treatment of such expenditure as revenue. Upon review, the Tribunal found that the strong room construction expenditure was revenue in nature, aligning with the assessee's claim. Consequently, the Tribunal set aside the CIT (Appeals) decision and instructed the Assessing Officer to permit the expenditure. Additionally, the Tribunal noted that a ground related to legal expenses deduction was not pursued by the assessee, resulting in its dismissal.

In conclusion, the Tribunal partially allowed the assessee's appeal, granting relief on both issues of depreciation on the building and the classification of expenditure on the strong room.