1986 (7) TMI 173 - AT - Income Tax

Summary

Issues Involved:
1. Whether the expenditure incurred by the assessee on the renovation of leased office premises is revenue expenditure or capital expenditure.

Issue-wise Detailed Analysis:

1. Revenue vs. Capital Expenditure:

The primary issue in this appeal revolves around whether the sum of Rs. 61,982 spent by the assessee on renovating an office taken on lease from his son should be classified as revenue expenditure or capital expenditure. The Income Tax Officer (ITO) classified this expenditure as capital in nature, citing the Delhi High Court's judgment in Hotel Diplomat v. CIT [1980] 125 ITR 781. However, the Commissioner (Appeals) disagreed, treating it as revenue expenditure allowable under section 37(1) of the Income-tax Act, 1961.

Detailed Analysis:

a. Nature of Expenditure:
The assessee incurred Rs. 61,982 towards wooden partitions, wall paneling, false ceiling, bookcases, platform-type tables, painting, polishing, whitewashing, and floor polishing. The ITO, relying on the Delhi High Court's decision in Hotel Diplomat, considered this expenditure as capital in nature, arguing it provided an enduring advantage.

b. Commissioner (Appeals) Decision:
The Commissioner (Appeals) found the facts in Hotel Diplomat different and not applicable to the present case. Referring to various High Court decisions, he concluded that the expenditure made the tenanted premises usable for office purposes and thus was a revenue expenditure under section 37(1).

c. Arguments by Revenue:
Shri K.K. Sharma, representing the revenue, supported the ITO's order, arguing that the expenditure was initial and necessary for making the premises usable, thus capital in nature. He also cited Uttar Bharat Exchange Ltd. v. CIT [1965] 55 ITR 550 and section 32(1A) of the Act to bolster his argument.

d. Arguments by Assessee:
Shri S. L. Batra, representing the assessee, contended the expenditure was revenue in nature. He referenced the Supreme Court's decision in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1, which stated that not every enduring benefit constitutes capital expenditure. He also cited various High Court rulings supporting the view that expenditure on rented premises for renovation or alteration is typically revenue in nature.

e. Tribunal's Findings:
The Tribunal examined the details of the expenses and concluded that the major expenditure was on partitions, paneling, and false ceilings, with additional costs for distempering, minor repairs, painting, and polishing. The total expenditure was Rs. 99,033, settled at Rs. 75,000. The Tribunal referenced multiple judicial decisions, including Empire Jute Co. Ltd., which emphasized the nature of the advantage in a commercial sense rather than the enduring benefit test.

f. Judicial Precedents:
The Tribunal noted several cases where similar expenditures were considered revenue in nature:
- Girdhari Dass & Sons v. CIT [1976] 105 ITR 339 (All.)
- J.K. Industries (P.) Ltd. v. CIT [1980] 125 ITR 218 (Cal.)
- Kisenchand Chellaram (India) (P.) Ltd. v. CIT [1981] 130 ITR 385 (Mad.)
- Mehta Transport Co. v. CIT [1986] 160 ITR 35 (Guj.)

g. Conclusion:
The Tribunal concluded that the expenditure was incurred to facilitate the assessee's professional activities, making the office space more efficient without altering the fixed capital. Therefore, it was a revenue expenditure. The Tribunal upheld the Commissioner (Appeals) decision and dismissed the departmental appeal, stating that the preponderance of judicial opinion favored the assessee.

Final Judgment:
The Tribunal upheld the order passed by the Commissioner (Appeals), dismissing the departmental appeal and confirming that the expenditure incurred by the assessee was revenue in nature.