2014 (10) TMI 102 - HC - Income Tax

Classification of expenses - Expenses on wooden partitions, electric wiring, power connections, interior layout and carpeting - Revenue expenditure or capital expenditure Held that - The expression is so typical and complicated that it is difficult to define it with an amount of certainty - Much would depend upon the facts and circumstances of the case in which the question arises assessee is a lessee of a building - The business premises naturally needed certain alterations and works of arranging partitions extending electricity supplies carpeting, wherever needed was arranged - even while claiming that the expenditure is revenue, in nature, the revenue claimed depreciation on it Following CIT vs. Madras Auto Service Private Limited 1998 (8) TMI 1 - SUPREME Court In order to decide whether this expenditure is revenue expenditure or capital expenditure, one has to look at the expenditure from a commercial point of view - the assessee made substantial savings in monthly rent for a period of 39 years by expending these amounts - the assessee did not get any capital asset by spending the amounts - The assessee could not have claimed any depreciation - Looking to the nature of the advantage which the assessee obtained in a commercial sense, the expenditure appears to be revenue expenditure Decided against revenue. Perquisites to employees Held that - The Tribunal rightly held that the amount allowed towards perquisites can be ₹ 500/- per employee and not more than that - there was no binding precedent handed out by the constitutional Courts Decided against revenue.

Summary

Issues:
1. Allowance of expenditure for business purposes.
2. Treatment of expenditure for wooden partitions, electric wiring, etc.
3. Perquisites for employees.

Issue 1: Allowance of Expenditure for Business Purposes
The respondent, as an assessee, had certain deductions disallowed by the Income Tax Officer, including expenditure for employee travel, business premises improvements, and employee perquisites. The Appellate Authority and Tribunal ruled in favor of the respondent. The Department appealed, raising questions on expenditure allowance under Rule 6D, which the Tribunal referred to the High Court. The High Court, considering a previous judgment, favored the Department on this issue.

Issue 2: Treatment of Expenditure for Wooden Partitions, Electric Wiring, etc.
The Department argued that the expenditure by the respondent on premises improvements should be treated as capital expenditure due to the enduring asset addition. However, the respondent contended that as a lessee, the arrangements were not enduring additions to assets. The High Court referred to precedents and held in favor of the respondent, citing that the expenditure was revenue in nature, following guidelines from a Supreme Court judgment.

Issue 3: Perquisites for Employees
Regarding the perquisites for employees, the Department claimed the Tribunal did not address the issue independently and should have favored the revenue. The respondent argued that the Tribunal's decision in a previous assessment year should be upheld for consistency. The High Court agreed with the respondent, maintaining the perquisite amount at Rs. 500 per employee based on the Tribunal's previous decision.

The High Court's judgment clarified the classification of expenditure as revenue or capital, emphasizing the commercial perspective and the nature of advantages gained. It highlighted the importance of consistency in decisions, especially when dealing with the same assessee. Ultimately, the High Court ruled in favor of the respondent on the treatment of expenditure and perquisites issues, based on legal precedents and the Tribunal's previous decisions.