Home Case Index All Cases Income Tax Income Tax + HC Income Tax - 2021 (11) TMI HC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (11) TMI 1111 - HC - Income TaxNature of expenditure - Expenditure on construction of building - whether leasehold premises would amount to revenue expenditure contrary to the clear provisions of Explanation 1 to Section 32(1)? - HELD THAT - As decided in case Viswams 2019 (4) TMI 1127 - MADRAS HIGH COURT . Assesses had incurred substantial expenditure towards renovation leading to enduring benefit. They are not merely repairs. Assessee had also incurred expenditures towards improvement and construction of the building. These cannot be termed as 'repairs'. Consequently, this alternate submission is rejected by us. The second alternate submission advanced by Mr.M.P.Senthil Kumar that the case should be remitted back to the AO is also rejected since the fact have been addressed and settled by the Authorities below and it had been concurrently found that the expenditure were capital in nature. The issue of bifurcating the said expenses as capital and revenue would therefore not arise. We hold that the substantial questions of law have to be answered in favour of the Revenue and against the Assessee and the Appeals filed by the Revenue have to be allowed. Accordingly, the Appeals are allowed.
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.
|