2016 (12) TMI 404 - AT - Income Tax

Expenditure under the head Repairs & Maintenance - revenue v/s capital expenditure - Held that - For the proposition that merely because the expenditure has been incurred on a new leased premises, it does not mean that the same amounts to capital expenditure and different treatment should be given. The assessee is into the business of setting up and running cinema theatres and in the earlier years, the assessee has carried out similar activities which has been considered by the AO as capital expenditure. ITAT has considered the factual and legal matrix of the case and has held the expenditure to be revenue expenditure. The decisions relied upon by the learned Counsel for the assessee also supported the case of the assessee - Decided in favour of assessee. Registration charges for lease deed - revenue v/s capital expenditure - Held that - In the case of Gopal Associates (2008 (8) TMI 530 - HIMACHAL PRADESH) considering the nature of the incurred expenditure on stamp duty and registration charges at the time of execution of lease agreement for taking of land on lease for Fruit Processing Plant for 7 years and the Hon ble High Court has held it to be in the nature of revenue expenditure. The above decisions, therefore, clearly hold that the expenditure incurred towards registration charges of leave and licence agreement is in the nature of the revenue expenditure and has to be allowed in the year of execution of the leave and licence agreement. - Decided in favour of assessee Additional depreciation u/s 32(1)(iia) - Held that - In the case before us, the claim of the assessee is that it is running a canteen in the Cinema Theatre and therefore, is manufacturing food items and hence is eligible for additional depreciation u/s 32(1)(iia) of the Act. Running a canteen cannot be said to be manufacturing of an article or thing. Therefore, the claim of the assessee is not tenable. - Decided against assessee

Issues Involved:
1. Classification of certain expenditures as capital or revenue in nature.
2. Treatment of registration charges for lease deed.
3. Claim of additional depreciation for windmill installation.

Detailed Analysis:

1. Classification of Expenditures as Capital or Revenue:

The primary issue was whether the expenditures incurred by the assessee for "Interior Decoration & POP Wall design," "False Ceiling," "Electrical Maintenance & Installation," and "Stamp duty for the registration of license deed" should be classified as capital or revenue in nature.

- Interior Decoration & POP Wall Design: The assessee argued that these expenditures were revenue in nature as they were incurred to make the premises functional and suitable for business. The Revenue, however, treated these as capital expenditures since they were related to setting up a new theatre complex, thus creating an asset of enduring benefit. The Tribunal, referencing decisions from the Hon'ble Supreme Court and various High Courts, concluded that since the premises were taken on a leave and license basis and the expenditures did not create any asset of enduring benefit for the assessee, these expenditures should be treated as revenue in nature.

- False Ceiling and Electrical Maintenance & Installation: Similar to the interior decoration expenses, the Tribunal held that these expenditures were necessary for the business operations and did not result in the creation of a capital asset. Therefore, they should be classified as revenue expenditures.

- Stamp Duty for Registration of License Deed: The Tribunal, citing precedents, ruled that the stamp duty paid for the registration of the license deed should be treated as revenue expenditure. The Tribunal emphasized that the intention behind the expenditure and the nature of the agreement (leave and license) indicated that it did not create an enduring benefit or capital asset for the assessee.

2. Treatment of Registration Charges for Lease Deed:

The assessee contended that the registration charges for the lease deed should be treated as revenue expenditure. The Revenue, however, viewed it as capital expenditure. The Tribunal, relying on decisions from the Hon'ble Supreme Court and various High Courts, held that the registration charges for the lease deed should be treated as revenue expenditure. The Tribunal emphasized that the nature of the agreement (leave and license) and the intention behind the expenditure indicated that it did not create an enduring benefit or capital asset for the assessee.

3. Claim of Additional Depreciation for Windmill Installation:

The assessee claimed additional depreciation for the installation of a new windmill, arguing that it was engaged in the manufacture of food items in its canteen. The Revenue disallowed this claim, stating that the windmill was not used for manufacturing food items. The Tribunal upheld the Revenue's decision, stating that running a canteen could not be considered as manufacturing an article or thing. Therefore, the claim for additional depreciation was not tenable.

Conclusion:

The Tribunal allowed the assessee's appeal in part. It ruled in favor of the assessee regarding the classification of expenditures as revenue in nature and the treatment of registration charges for the lease deed. However, it rejected the claim for additional depreciation for the windmill installation, concluding that the canteen operations did not qualify as manufacturing an article or thing. The appeal was thus partly allowed.

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