2017 (3) TMI 892 - HC - Income Tax

Expenditure incurred towards temporary structure on leased business premises - capital or revenue expenditure - Held that - None of the authorities below have examined in detail the nature of the expenses. The authorities below have adverted to, broad heads while rendering their respective decisions in the matter. To give an example, the details submitted by SRP along with their invoice dated 01.06.2007 would show that there are expendses incurred, towards painting of walls, supply and fixing of covin cum capping, light fittings, etc.; which, to our minds, prima facie, appear to be in the nature of revenue expenditure. The authorities below, as indicated hereinabove, have not examined, in our view, the expenditure incurred under each sub-head minutely so as to ascertain as to whether or not they would fall under the category of capital expenditure. Furthermore, as correctly pointed out by the learned counsel for the assessee, a Division Bench of this Court in Thiru Arooran Sugars Ltd. vs. Deputy Commissioner of Income-Tax, (2013 (2) TMI 450 - Madras High Court ), has held that temporary structures such as false ceiling, could not be categorised as a capital expenditure.As a matter of fact, in that particular case, deduction was claimed qua expenditure incurred on re-laying of damaged floors, painting and setting up partitions in a leased property. Therefore, to our minds, the authorities below ought to have carefully examined each sub-head of the expenditure incurred by the assessee and then, come to the conclusion whether or not they ought to categorise the expense as capital expenditure, keeping in mind, the facts obtaining in the present case and the case law on the point. We are, thus, of the view that for the foregoing reasons, the impugned order would have to be set aside with the direction to remit the matter to the Assessing Officer for a de novo assessment.

Summary

Issues:
1. Whether the expenditure incurred towards temporary structure on leased business premises is capital in nature and not allowable as revenue expenditure?
2. Whether the Tribunal was right in law in not considering and applying the ratio of various decisions of the High Court and Tribunal cited before them?

Analysis:

Issue 1:
The assessee, engaged in servicing computers and trading telecommunication products, filed a return for AY 2008-2009 admitting an income of ?3,35,31,354. The Assessing Officer disallowed excess depreciation claimed on furniture, fittings, and temporary structures in leased premises, treating it as capital expenditure. The Tribunal upheld this decision, emphasizing that the structures provided enduring benefits, remaining the property of the assessee. The Tribunal referred to Explanation-1 to Section 32 and distinguished cases cited by the assessee, concluding in favor of the Revenue. The assessee contended that a major part of the expenses did not result in an enduring asset, challenging the application of Explanation-1. The Court noted that detailed examination of expenses was lacking and ordered a de novo assessment by the Assessing Officer.

Issue 2:
The Tribunal did not delve into the nature of expenses under each sub-head, failing to differentiate between current repairs and capital repairs. It was observed that a Division Bench had previously ruled that temporary structures like false ceilings could not be categorized as capital expenditure. The Court highlighted the need for a meticulous examination of each expense sub-head to determine its classification accurately. The impugned order was set aside, directing a reassessment by the Assessing Officer. The questions of law proposed by the assessee were left open for consideration post reassessment.

In conclusion, the Court disposed of the Tax Case (Appeal) without costs, emphasizing the importance of a detailed assessment of expenses to differentiate between revenue and capital expenditure, as per the facts and relevant case law.