2014 (7) TMI 755 - AT - Income Tax

Expenses on society development charges Expenses to replace old lift of building personal expenditure - Held that - The assessee does not acquire any advantage in the capital account or any new asset for its professional purpose and the lift in question is not an apparatus of generating the professional income - it cannot be considered as an expenditure of capital nature as it does not create any new asset belonging to the assessee - CIT(A) have rightly considered this fact that the assessee is having residence as well as office in the same premises and the lift is installed for the purpose and interest of his profession as well as non-professional and family members personal convenience, therefore, the whole expenditure is not found to be incurred exclusive for the purpose of profession of the assessee. The view of the CIT(A) is upheld to the extent that 50% of the expenditure to be considered for professional purpose - since the expenditure in question does not create a new asset or bring any advantage in the capital account of the assessee, therefore, it cannot be treated as capital in nature - the expenditure has been incurred in the compelling circumstances to remove the inconvenience and hardship faced by the assessee in its professional work as well as non-professional life and the advantage of the said expenditure is to facilitate the assessee s professional activity to be carried out more efficiently and profitably - 50% of the total expenditure which is considered to be for the professional purpose is allowed as revenue expenditure Decided partly in favour of Assessee.

Issues Involved:
1. Whether the expenditure of Rs. 17,32,436/- incurred by the assessee for the installation of a new lift in a cooperative housing society building is allowable as revenue expenditure.
2. Whether the expenditure should be treated as capital expenditure.
3. Whether the expenditure should be apportioned between personal and professional use.
4. Whether the depreciation should be allowed on the capitalized cost of the lift.

Issue-wise Detailed Analysis:

1. Allowability of Expenditure as Revenue Expenditure:
The assessee, a lyricist and film personality, claimed the expenditure of Rs. 17,32,436/- for the installation of a new lift in his cooperative housing society building as society development charges in the Profit & Loss Account. The AO disallowed this claim, arguing that the expenditure was for a capital asset belonging to the society and not the assessee, and should not be considered as revenue expenditure. The AO suggested that the expenditure should have been debited to the personal capital account of the assessee.

2. Treatment as Capital Expenditure:
The CIT(A) held that the expenditure was not a revenue expenditure but a capital asset. However, considering that the lift was used both for professional and personal purposes, the CIT(A) held that 50% of the expenditure could be capitalized and allowed depreciation at the prescribed rate. The assessee argued that the expenditure was incurred to facilitate his professional work and should be allowed as revenue expenditure. The CIT(A) disagreed, noting that the expenditure was also for personal use.

3. Apportionment Between Personal and Professional Use:
The CIT(A) found that the lift installation benefited both the professional activities and the personal life of the assessee and his family. Consequently, the CIT(A) allowed only 50% of the expenditure to be capitalized, denying the remaining 50% as it was deemed personal and non-professional. The Tribunal agreed with the CIT(A) that 50% of the expenditure should be considered for professional purposes but disagreed with the capital nature classification, noting that the expenditure did not create a new asset or bring any advantage in the capital account of the assessee.

4. Depreciation on Capitalized Cost:
The CIT(A) allowed depreciation on 50% of the capitalized cost of the lift. However, the Tribunal modified this view, stating that since the expenditure did not create a new asset or bring any advantage in the capital account of the assessee, it should be treated as revenue expenditure. The Tribunal concluded that 50% of the total expenditure, considered for professional purposes, should be allowed as revenue expenditure.

Conclusion:
The Tribunal allowed the assessee's appeal in part by treating 50% of the expenditure as revenue expenditure, facilitating the professional activity of the assessee. The revenue's appeal was dismissed. The Tribunal's decision emphasized the necessity of the expenditure for the professional work of the assessee, despite the dual benefit of personal and professional use.

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