2012 (2) TMI 82 - HC - Income Tax

Cost of Repair/ Reconstruction on tenanted price - Capital Expenditure OR Revenue Expenditure - Held That - Appeal relates prior to the insertion of the Explanation to Section 30 by the Finance Act of 2003 with effect from 1 April 2004 in this view amount shall be admissible as revenue expenditure.

Summary

Issues:
Whether the cost of repair/reconstruction of tenanted premises is revenue or capital in nature for deduction under section 30(a)(1).

Analysis:
The case involved an appeal by the Revenue questioning the Tribunal's decision on the nature of expenditure incurred by the assessee for repair/reconstruction of a building. The assessee, a tenant in a disputed building, contributed Rs. 1.50 Crores for repair work under a consent agreement. The Assessing Officer initially treated the expenditure as capital, disallowing it, but the CIT (Appeals) and Tribunal held it as revenue expenditure, citing the Supreme Court's judgment in Commissioner of Income Tax v. Madras Auto Service. The Revenue contended that the assessee acquired an enduring benefit and deemed ownership through the expenditure, while the assessee argued that no ownership was transferred, and it obtained a commercial revenue advantage. The Court emphasized the commercial point of view, following Madras Auto, where expenditure for enduring benefits without acquiring a capital asset was considered revenue in nature.

The Court highlighted that the assessee's occupation remained that of a tenant, and the Rs. 1.50 Crores expenditure provided a commercial advantage without acquiring ownership of the new structure. The judgment in Madras Auto, supported by a Division Bench decision, was cited to justify the revenue nature of the expenditure. The Court noted that Explanation I to Section 32, inserted in 1988, deals with capital expenditure for depreciation benefits but stressed that it applies only when capital expenditure is incurred. Since the expenditure did not result in acquiring a capital asset and the occupation remained as a tenant, it was deemed revenue in nature. The Court rejected the Revenue's arguments and upheld the Tribunal's decision that the cost of repair/reconstruction was revenue expenditure, allowing it as a deduction under section 30(a)(1).

In conclusion, the Court held that the expenditure for repair/reconstruction of the tenanted premises was of a revenue nature, as per the judgment in Madras Auto, and was legitimately allowable as a deduction. The Tribunal's decision was upheld, and the question of law was answered in favor of the assessee. No costs were awarded in the case.