1983 (11) TMI 136 - AT - Income Tax

Appellate Assistant Commissioner, Capital Expenditure, Expenditure On Renovation, Revenue Expenditure

Summary

Issues Involved:
1. Classification of expenditure as capital or revenue.
2. Jurisdiction of the Commissioner (Appeals) to reclassify expenses.

Detailed Analysis:

1. Classification of Expenditure as Capital or Revenue:
The appellant, a Government of India undertaking, incurred an expenditure of Rs. 18,83,248 on various renovation, improvement, and furnishing activities for its business premises at 124, Janpath, New Delhi. The expenditure details include costs for new furniture, rolling shutters, air conditioning, paints, mirrors, artefacts, electrical fittings, and structural renovations.

The Income Tax Officer (ITO) disallowed the appellant's claim of deferred revenue expenditure of Rs. 3,52,026 and allowed Rs. 3,42,000 paid to the CPWD as revenue expenditure. Items totaling Rs. 7,37,730 were treated as capital expenditure entitled to depreciation, while Rs. 3,28,356 was allowed as actual revenue expenses on renovation.

On appeal, the Commissioner (Appeals) reversed the ITO's decision, treating the Rs. 7,37,730 as revenue expenses and directing the withdrawal of depreciation granted by the ITO. However, the Commissioner (Appeals) issued a notice under section 251 of the Act, questioning the Rs. 3.42 lakhs reimbursed to the CPWD, ultimately reclassifying it as capital expenditure entitled to depreciation under section 32(1A).

The Tribunal upheld the Commissioner (Appeals)'s decision, emphasizing that the expenditure on substantial renovation and extension of the business premises clearly partook the character of capital expenditure. The Tribunal noted that even though the building did not belong to the appellant and the improvements would revert to the lessor, the work done was covered by section 32(1A), which allows depreciation on capital expenditure incurred on leased buildings for business purposes.

The Tribunal distinguished the appellant's case from other cited cases (Kisenchand Chellaram (India) (P.) Ltd., Delhi Cloth & General Mills Co. Ltd., Dyer's Stone Lime Co. (P.) Ltd., and India United Mills Ltd.), noting that those cases involved minor repairs and alterations, whereas the present case involved substantial renovations and extensions.

2. Jurisdiction of the Commissioner (Appeals) to Reclassify Expenses:
The appellant contended that the Commissioner (Appeals) acted beyond his jurisdiction by reclassifying the Rs. 3.42 lakhs as capital expenditure. The Tribunal rejected this contention, citing the Explanation to section 251(2) of the Act, which allows the Commissioner (Appeals) to consider and decide any matter arising out of the proceedings, even if it was not raised before the Assessing Officer. The Tribunal concluded that the Commissioner (Appeals) did not travel beyond the facts furnished before the ITO and was within his jurisdiction to reclassify the expenditure.

Conclusion:
The Tribunal agreed with the first appellate authority's decision, upholding the classification of Rs. 3.42 lakhs as capital expenditure entitled to depreciation under section 32(1A) and rejecting the appellant's appeal.