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2021 (11) TMI 1111 - HC - Income Tax


Issues:
Challenge to order of Income Tax Appellate Tribunal regarding expenditure on construction of building in a leasehold premises as revenue expenditure.

Analysis:
The High Court considered the appeal challenging the Tribunal's order on the substantial question of law regarding the nature of expenditure on construction of a building in a leasehold premises. The Court referred to a previous judgment where a similar issue was decided against the assessee, emphasizing the enduring benefit and renovation aspect of the construction. The Court highlighted the relevant provision of Explanation 1 to Section 32(1) of the Income Tax Act, which treats such construction as if owned by the assessee. The Court distinguished previous judgments based on the applicability of the said Explanation, emphasizing the enduring nature of the asset created through construction.

The Court further discussed a separate judgment concerning expenditure on repairs, renovation, and modernization of a cinema house taken on lease, emphasizing the enduring benefit and improvement aspect of the expenditure. The Court analyzed the replacement of wooden chairs with steel chairs as an improvement for attracting better customers, leading to an enduring asset. The Court rejected arguments regarding repairs being capitalized under Section 30(a)(i) of the Act, stating that renovations leading to enduring benefits are capital in nature.

In conclusion, the Court held that the expenditure incurred by the assessee for renovation and construction in the leasehold premises was capital in nature, falling under the purview of Explanation 1 to Section 32(1) of the Act. The Court rejected alternate submissions regarding repairs and remittance to the Assessing Officer, affirming that the expenditure was capital in nature and not merely repairs. The Court ruled in favor of the Revenue, allowing the appeals filed by the Revenue based on the judgment's reasoning and the nature of the expenditure incurred by the assessee.

 

 

 

 

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