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2010 (8) TMI 307 - HC - Income TaxRepair - Assessee has carried out the repairs to the roof and in respect of the expenditure of the repairs of which the Appellant is claiming deduction Assessing officer was of the view that since the Appellant occupied 3700 sq, ft area out of the total area of 30, 000 sq.ft appellant is allowed deduction only on prorata basis - In the light of Section 38 of the said Act the order of the Assessing Officer as well as the Tribunal allowing proportionate deduction cannot be faulted with Thus the Appeal to stand dismissed and against the assessee. Even though the repair expenditure is allowed as revenue expenditure the assessee is entitled to claim by way of deduction only that proportion computed by the assessing officer on the basis of occupancy of floor area.
Issues Involved:
1. Whether the Tribunal was justified in restricting the allowance for deduction of expenditure incurred on repairs to the roof of the building commensurate with the area occupied by the assessee for business purposes. 2. Whether the Tribunal was justified in not allowing the deduction claimed in its entirety despite finding the expenditure incurred was in the revenue field and the appellant occupying a major part of the commercial premises. Detailed Analysis: Issue 1: Restriction of Deduction Based on Area Occupied The Tribunal's decision to restrict the allowance for deduction of expenditure on repairs to the roof was based on the proportionate area occupied by the assessee. The building in question was owned by a trust and consisted of multiple floors, with the appellant occupying approximately 3700 sq.ft. out of a total area of 30,000 sq.ft. for business purposes. The Assessing Officer initially determined that the appellant was not entitled to a full deduction of the expenditure incurred on repairs, allowing only a prorated deduction based on the area occupied. This decision was upheld by the Tribunal, which found that the fundamental duty to carry out repairs lay with the landlord and other tenants should also share the expenditure. The Tribunal referenced Section 38 of the Income Tax Act, which allows for deductions to be restricted to a fair proportionate part thereof, determined by the Assessing Officer, based on the use of the premises for business purposes. Issue 2: Deduction of Entire Expenditure Despite Revenue Nature The appellant argued that the entire expenditure should be deductible as it was incurred for business purposes and constituted revenue expenditure. The Tribunal acknowledged that the expenditure was indeed in the revenue field but maintained that the deduction should be proportionate to the area occupied by the appellant. The appellant contended that the repairs were necessary due to commercial expediency, as the old building's condition was detrimental to business operations. The Tribunal, however, did not accept the argument of helplessness, noting that the appellant was both a tenant and a de facto landlord. The Tribunal concluded that even if the expenditure was revenue in nature, it could not be wholly and exclusively for the tenant's business if it benefited the entire building. Legal Precedents and Reasoning: The Tribunal's decision was supported by various judgments, including CIT vs. Madras Auto Stores, which held that expenditure incurred by a tenant for repairs could be considered revenue expenditure. However, the Tribunal emphasized that the deduction must be proportionate to the area used for business, as per Section 38 of the Income Tax Act. The Tribunal also referred to the principle of commercial expediency, highlighting that the reasonableness of expenditure should be judged from the businessman's perspective, not the revenue's, as established in Eastern Investments Ltd. vs. CIT and CIT vs. Walchand and Co. Pvt. Ltd. Conclusion: The High Court upheld the Tribunal's decision, confirming that the appellant was entitled to a proportionate deduction based on the area occupied for business purposes. The Court found no error in the Tribunal's reasoning and dismissed the appeal, affirming the principle that deductions must be fair and proportionate to the business use of the premises.
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