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Issues involved: Determination of whether the expenditure incurred on renovation charges of a show-room is capital expenditure or revenue expenditure for the assessment year 1980-81.
Judgment Summary: The Income-tax Appellate Tribunal referred the question of the nature of expenditure incurred on renovation charges to the High Court under section 256 of the Income-tax Act, 1961. The assessee, an authorised dealer of Godrej Products, claimed renovation charges of Rs. 42,000 for its rented show-room. The Income-tax Officer initially considered the expenditure as capital in nature due to the lasting benefit of renovation, but allowed depreciation at five percent. The Commissioner of Income-tax (Appeals) disagreed, stating that the renovation did not transfer ownership to the assessee, thus deeming it revenue expenditure. The Tribunal upheld this view, emphasizing that the rented premises did not become the property of the assessee solely through renovation. The High Court noted the absence of any finding indicating capital expenditure by the assessee, which would have triggered the application of section 32(1A) of the Act. Section 32(1A), relevant to business premises not owned by the assessee, was cited to argue that the renovation amount could be considered capital expenditure. However, as there was no factual basis for capital expenditure, the Court ruled that section 32(1A) did not apply in this case. Referring to a decision of the Delhi High Court, the Court answered the question in favor of the assessee, affirming that the renovation expenditure was revenue expenditure. No costs were awarded in this matter.
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