2013 (2) TMI 450 - HC - Income Tax

Repairs and renovation expenses - Revenue or Capital Expenditure - Whether the repairs and renovation expenses incurred on the leased business premises is capital expenditure or revenue expenditure Assessee is in the occupation of the leased premises Assessee carried on renovation work by providing false ceiling and furniture modification - Held that - Temporary structure by means of false ceiling and office renovation had not resulted in any capital expenditure As decided in CIT v. Madras Auto Service P. Ltd. 1998 233 ITR 468 (SC) expenditure incurred in respect of the maintenance of the leased premises was deductible as revenue expenditure In favour of assessee.

Summary

Issues:
Interpretation of repairs and renovation expenses as capital expenditure for leased business premises.

Analysis:
The assessee carried out renovation work on the leased premises, incurring expenses on false ceiling and furniture modification. The dispute arose regarding the treatment of these expenses as capital expenditure or eligible for depreciation. Initially, the assessment considered part of the expenditure as capital, leading to a disagreement. The Commissioner of Income-tax (Appeals) sided with the assessee, deleting the addition made. However, the Revenue challenged this decision before the Income-tax Appellate Tribunal, which referred to an amendment to Explanation 1 to section 32(1)(ii) of the Income-tax Act. The Tribunal held that the assessee was entitled to depreciation at 10 percent, remitting the matter back to the Assessing Officer for recomputation.

The assessee, in the appeal, relied on a previous court decision concerning similar expenditure on leased property. The court highlighted the deductibility of maintenance expenditure on leased premises as revenue expenditure, citing relevant legal precedents. The Revenue's argument based on Explanation 1 to section 32(1)(ii) of the Income-tax Act, inserted in 1988, was addressed by the court as an exceptional provision allowing depreciation in specific cases of capital expenditure on renovation or extension of a building not owned by the assessee.

In the final analysis, the court applied its previous decision to the present case, concluding that the false ceiling and office renovation did not amount to capital expenditure. Consequently, the court ruled in favor of the assessee, allowing the tax case (appeal) and deciding no costs to be incurred.