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TMI Blog2006 (8) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. Similarly appeals in ITA Nos. 2529 and 2730/Del/2002 are cross-appeals filed by the assessee on 10th June, 2002 and Revenue on 21st June, 2002 against the order of the learned CIT(A)-XV, New Delhi dt. 27th March, 2002 in the case of the assessee in relation to the assessment order under s. 143(3) for asst. yr. 1997-98. 3. In all the three appeals filed by the assessee the main dispute relates to deduction claimed by the assessee on account of renovation of office premises. Facts of the case leading to this dispute briefly are that the assessee took on lease office premises located at AIFACS building, 1 Raft Marg, New Delhi by a lease agreement dt. 1st March, 1994 for a period of three years from 1st March, 1994 to 28th Feb., 1997 with option for renewals. The assessee claimed deduction as revenue expenditure on renovation of the aforesaid office premises in the assessment orders under appeals before us in the following manner: Asst. yr. Amount 1995-96 Rs. 51,64,834/- 1996-97 Rs. 23,78,628/- 1997-98 Rs. 2,95,15,178/- Particulars of renovation expenditure incurred by the assessee in the course of subsequent assessment years, if any, are not available with us. In the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Delhi High Court in the case of Delhi Cloth & General Mills vs. Addl. CIT (1986) 51 CTR (Del) 228 : (1986) 160 ITR 857 (Del). The learned CIT(A) found that the judgment of Hon'ble Allahabad High Court in the case of Rampur Distillery & Chemical Co. Ltd. relied upon by the assessee had been overruled by the Hon'ble Supreme Court by their judgment reported in Lohia Machines Ltd. vs. Union of India (1985) 44 CTR (SC) 328 : (1985) 152 ITR 308 (SC). The learned CIT(A) therefore, upheld the decision of the AO but he directed the AO to allow the assessee depreciation as per law on the expenditure. 4. For asst. yrs. 1996-97 and 1997-98 the learned AO found that facts of the case were identical to asst. yr. 1995-96 and following the reasons given in the assessment order for that year he disallowed the assessee's claim of deduction. During the course of proceedings before the learned CIT(A) the assessee repeated his contentions as in asst. yr. 1995-96 and the learned CIT(A) repeating his order for asst. yr. 1995-96 upheld the decision of the AO for asst. yrs. 1996-97 and 1997-98. 5. During the course of hearing before us the learned counsel for the assessee referred to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that case the Hon'ble High Court had held that an expenditure that could not be claimed as on current repairs under s. 30, being on renovation of the premises, could be claimed as deduction under the provisions of s. 37 of the Act. The learned counsel referred to the judgment of Hon'ble Delhi High Court in the case of Instalment Supply (P) Ltd. vs. CIT (1984) 40 CTR (Del) 313 : (1984) 149 ITR 52 (Del) wherein the Hon'ble Delhi High Court had held that the commercial advantage obtained by the assessee by redesigning the premises and providing better fittings, better material and marble flooring was not in the nature of capital expenditure. He referred to the judgment of Hon'ble Gauhati High Court in the case of B & A Plantations & Industries Ltd. vs. CIT (2000) 242 ITR 22 (Gau) and pointed out that in that case the Hon'ble Gauhati High Court, following the judgment of Hon'ble Supreme Court in the case of CIT vs. Madras Auto Services (P) Ltd. (1998) 148 CTR (SC) 398 : (1998) 233 ITR 468 (SC) held that amounts spent by way of expenditure on wall papers, partition wall, marble flooring etc. was not in the nature of capital expenditure. 7. The learned counsel p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssal expenditure incurred by the assessee. The assessee was a premier company engaged in the field of financial services having well versed and experts on the subject on its payroll and having the benefit of the best accountancy/legal advice. Such an assessee could not commit a mistake in accounts or in law and the fact that in the books of account this expenditure was consistently treated as on "fixed assets", was strong evidence as to the nature of the expenditure. The expenditure was in the nature of non-recurring expenditure incurred in relation to fixed assets i.e. building premises resulting into durable value addition to the fixed assets and long-term advantage to the assessee. The learned CIT Departmental Representative strongly relied upon the judgment of Hon'ble Delhi High Court reported in Delhi Cloth & General Mills Co. Ltd. vs. Addl. CIT and various judgments relied upon in the impugned orders of the learned CIT(A). 11. We have carefully considered the rival submissions. There are two major aspects of the issue before us. Firstly, the facts that the building premises upon which the expenditure in question has been incurred by the assessee were not ownership buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of Expln. 1 to s. 32(1). It therefore, follows that for the purpose of determination of the nature of expenditure incurred by the assessee we have to assume as if the premises were owned by the assessee. During the course of hearing before us the learned counsel of the assessee has placed reliance on the judgment of Hon'ble Delhi High Court in the case of Modi Spinning & Weaving Mills Co. Ltd. vs. CIT. In that judgment the Hon'ble Delhi High Court have not accepted the contention of the assessee that the expenditure of Rs. 34,606/- on repairs and renovations of the administrative block of the assessee's building was admissible as current repairs under s. 30(a)(ii) of the Act. The Hon'ble Delhi High Court have held that the fact that the building required repairs which were long overdue made it apparent that the amount was not spent on current repairs. The Hon'ble High Court however observed as under: "One of the ingredients of the amount being allowed as a deduction under s. 30(a)(ii) is that the amount must be spent for purposes of carrying out current repairs. The facts as found by the Tribunal are that the administrative block had been built in 1948 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... netheless, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case." 13. It is important to remember that in the case of Empire Jute Co. Ltd., the Hon'ble apex Court considered the question as to whether expenditure incurred by that assessee-company on purchase of loo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down by the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. It is because the expenditure incurred were marketing expenses in connection with launch of products of the company. Those expenses did not touch or constitute part of fixed capital assets of that assessee. In the instant case we are concerned with an expenditure incurred in relation to predominantly fixed capital assets. We therefore see no assistance to the case of the assessee from that decision. In the case of Jt. CIT vs. Da1mia Cement (Bharat) Ltd. (2006) 99 TTJ (Del) 1109 the expenditure related to right to advertise on the structure of a bus shelter. The Tribunal held that disallowance of expenditure was not justified. An advertisement site need not be the assessee's own property, the same could not be said to be capital expenditure either. We find factual matrix of that case totally different. The assessee constructed bus shelter at Government land and that bus shelter itself was not leased out to the assessee, as in the case of the present case. The assessee only obtained the right to advertise on the structure of bus shelter. We find the other Tribunal decisions also distinguishable on facts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed arises must be decided not by any academic or theoretical test but by the test of commercial expediency. The learned Chief Justice observed: 'The simple test that must be constantly borne in mind is that as a result of the expenditure which is claimed as an expenditure for repairs what is really being done is to preserve and maintain an already existing asset. The object of the expenditure is not to bring a new asset into existence, nor is its object the obtaining of a new or fresh advantage. This can be the only definition of 'repairs' because it is only by reason of this definition of repairs that the expenditure is a revenue expenditure. If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then obviously such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure, and it is clear that the deduction which the legislature has permitted under s. 10(2)(v) is a deduction where the expenditure is a revenue expenditure and not a capital expenditure.' In taking the above view, the Bombay High Court dissented from the view taken by the Allahabad High Court in Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure under s. 37(1) provided that the fundamental condition of the provisions of s. 37(1) "not being in the nature of capital expenditure" is satisfied. In the case of Ballimal Naval Kishore the Hon'ble Supreme Court have held that where the expenditure gives the assessee new or fresh advantage, that cannot be allowed as a revenue expenditure. In the case of Morn Spinning & Weaving Mills Co. Ltd. the Hon'ble Delhi High Court have also said the same thing that the replacement may amount to renovation or repairs which mayor may not be entitled to deduction under s. 37. Keeping these aspects in mind we now proceed to consider the nature whether the expenditure claimed by the assessee in the assessment years before us can be allowed as revenue expenditure. It is seen that the assessee took on lease office premises located at AIFACS building w.e.f.1st March, 1994. The assessment years before us are first three years of the lease and the assessee has incurred the following expenditure on renovation of the aforesaid office premises: Asst. yr. Amount 1995-96 Rs. 51,64,834/- 1996-97 Rs. 23,78,628/- 1997-98 Rs. 2,95,15,178/- Particulars of renovation expenditure incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who would work out depreciation allowable to the assessee under Expln. 1 to s. 32(1) in the light of our order and after allowing the assessee reasonable opportunity of being heard in the matter. The assessee's grounds of appeal in this respect for all the three years are disposed of accordingly. 17. Ground of appeal No. 3 in assessee's appeal for asst. yr. 1995-96 is directed against disallowance of a sum of Rs. 3,48,900/- i.e. 50 per cent of commission and brokerage expenses claimed by the assessee as having been paid for arranging office accommodation and residential accommodation for employees. Facts of the case leading to this dispute briefly are that the assessee claimed deduction of Rs. 6,97,800/- on this account. According to the learned AO while the assessee furnished details of the expenditure, no justification was given except stating that the expenditure had been incurred as per current industry practice. The learned AO held that the expenditure incurred by the assessee was on the higher side. He allowed the assessee deduction of Rs. 2 lakhs on estimate and made disallowance of Rs. 4,97,800/-. On assessee's appeal the learned CIT(A) held that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yments had been treated as taxable in the hands of the employees and accordingly tax was deducted at source. If the learned AO required any further detail, he should have asked for the same. The learned CIT(A) held that the evidence sought to be furnished by the assessee as to the TDS on the payments and justification for payments was not admissible as the conditions prescribed under r. 46A(1) were not fulfilled. Based on this reasoning he upheld the disallowance of Rs. 2,80,000/-. On consideration of the matter we hold that the learned CIT(A) has not correctly held that the expenditure was not verifiable when the names of the employees, dates of payment and amounts of payments had been supplied to the AO. The assessee only sought to further support this basic information by way of TDS which strictly did not constitute any fresh evidence as such. It is not the case of the Revenue that these payments have been made to any of the relatives of the directors, senior executives or shareholders. On consideration we do not see any justification for the disallowance and delete the same. 20. Ground of appeal No. 5 for asst. yr. 1995-96 is directed against disallowance of Rs. 8,56,591/- cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of penal in nature. The imposition is described as an interest and not penalty. We therefore hold that there was no justification not to allow deduction on this account to the assessee. We direct accordingly. 22. In assessee's appeal for asst. yr. 1997-98 ground of appeal No. 3 relates to disallowance of Rs. 90,500/- being ex gratia amount paid to the employees. Following our order in relation to ground of appeal No. 4 in the case of the assessee for asst. yr. 1995-96, we allow this ground of appeal and direct the assessee be allowed deduction of Rs. 90,500/- as claimed on this account. 23. Ground of appeal No. 4 in assessee's appeal for asst. yr. 1997-98 is directed against non-deduction of interest on interest-tax amounting to Rs. 17,97,895/-. Following our order in relation to ground of appeal No. 3 for asst. yr. 1996-97 we allow this ground of appeal and direct that the assessee be allowed deduction of Rs. 17,97,895/- as claimed on this account. 24. We now turn to appeals filed by the Revenue. The major issue involved in both the appeals filed by the Revenue for asst. yrs. 1996-97 and 1997-98 is deletion of the disallowance of Rs. 92,31,360/- in relation to asst. yr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of the assessee was also governed by the judgment of Hon'ble Delhi High Court in the case of CIT vs. Punjab & Sind Bank Ltd. (1999) 157 CTR (Del) 116 : (1999) 239 ITR 343 (Del). Respectfully following the aforesaid judgment of Hon'ble Delhi High Court we reject Revenue's grounds of appeal for both the assessment years provided the assessee has Offered the amount of interest on due date basis in the assessment years involved. 26. For asst. yr. 1997-98 Revenue has taken one more ground of appeal i.e. allowance of the sum of Rs. 13,05,965/- on software that had been treated by the learned AO to be capital expenditure. On consideration of the matter we see no force at all in the contention of the Revenue. It is well-known that software is a field of fast changing technology and needs update and upgradation recurrently and may at times less than one year. It is not the case of the Revenue that any special software has been developed for particular needs of the assessee only. We therefore find no reason to interfere in the impugned order of the learned CIT(A) in this behalf. Accordingly this ground of appeal is rejected. 27. In the result, while the appeals filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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