2010 (11) TMI 391 - HC - Income Tax

Capital or revenue expenditure - if the expenditure is capital in nature and the same is incurred by the assessee for the purpose of business in a premises of which the assessee holds lease or other right of occupancy then any expenditure incurred on renovation and improvement of the building shall be treated as if the said contract or work is in a building owned by the assessee - Held that the amount spent was in the nature of capital expenditure - Decided against the assessee

Summary

Issues:
Determining whether the expenditure incurred by the assessee on building repairs was capital or revenue in nature.

Analysis:
The appeal was filed against the order passed by the Income-tax Appellate Tribunal regarding the treatment of expenditure incurred by the assessee during the assessment year for renovation in its building. The Assessing Officer treated the expenditure as capital, while the Commissioner of Income-tax (Appeals) disagreed and deleted the disallowance. The revenue appealed, and the Tribunal accepted both the appeal and cross-objections, leading to the current appeal.

The key issue revolved around whether the expenditure on repairs should be considered capital or revenue in nature. The appellant argued that the expenditure was revenue in nature, citing various judgments to support their position. On the other hand, the Revenue supported the Tribunal's decision.

The Tribunal concluded that the expenditure on renovation and maintenance of the building was capital in nature, leading to an improvement in the building's value, making it permanent and enhancing the business. The Tribunal referred to Explanation 1 to section 32 of the Income-tax Act, inserted in 1986, to support its decision. The Tribunal found that the expenditure was not merely for current repairs but for a permanent improvement, thus qualifying as capital expenditure. The Tribunal set aside the CIT(A)'s decision and restored the Assessing Officer's decision, allowing depreciation to the assessee as per the law.

The Tribunal's finding was deemed correct, and the judgments cited by the appellant did not alter the conclusion reached. Consequently, the substantial question of law was answered against the assessee, leading to the dismissal of the appeal due to lack of merit.