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TMI Blog2008 (10) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... law, the learned CIT(A) has erred in deleting the addition of Rs. 6,98,642 made on account of repairs to premises occupied for business by the assessee, stating that the relation between the assessee was not that of landlord and tenant but that of between a principal and agent, thereby ignoring the words or other rights of occupancy contained in Explanation 1 to section 32(1). ( ii ) On the facts and circumstances of the case and in law, the learned CIT(A) has interpreted the provisions of Explanation 1 to section 32(1) incorrectly, but inferring that it is applicable only if a landlord - tenant relationship exists." 3. Briefly stated, the facts of the case are that the assessee is an individual and is a proprietor of M/s. Mehta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the said Franchise Agreement. Therefore, the debit is an allowable repair expenses. On the other hand, the Assessing Officer is of the opinion that the property is held by the assessee by the way of lease comprising of landlord and tenant relationship and the amount spent on renovation of class-rooms is capital in nature with enduring advantages. In this regard, the Assessing Officer relied on the Pune Bench decision in the case of G.D. Apte Co. v. Asstt. CIT [2000] 75 ITD 323 for the proposition that since, the assessee acquired the flat with perpetual lease and incurred expensive expenditure as compared to the acquisition cost of leasehold rights and a nature of such expenditure was in the capital field, such expenditure cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. The addition of Rs. 6,98,642 is, therefore, deleted." 7. Aggrieved that the above decision of the CIT(A), the revenue is in appeal before the Tribunal with the above said grounds. The essence of the grounds is that the CIT(A) erred in deleting the addition of Rs. 6,98,642 and erred in interpreting the provisions of Explanation 1 to section 32(1). 8. The Ld. DR for revenue has argued that (1) the assessee is not the owner of the premises; (2) the assessee holds the right of occupancy of the premises; and (3) the said expenditure in question is capital in nature, and therefore, the provision of Explanation 1 to section 32(1) are applicable to the instance case. Further, the DR has argued that once the assessee holds the right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply. Whereas, the case of the assessee is that the assessee does not hold the right of occupancy perpetually. First Schedule of the Agreement prescribes that all the expenses pertaining to repairs of the premises would be borne by the Franchisee-assessee. Further, the expenditure in question is not capital in nature. 11. In the background of the above, we find it necessary to examine the provisions of Explanation to section 30( a )( i ) and Explanation 1 of section 32(1). Section 30 of the Income-tax Act provides for deduction of current repairs along with the rent incurred by the assessee as a tenant. However, the Explanation inserted by the Finance Act, 2003 for the removal of doubts declaring that such deduction of current r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee." 12. From the combined reading of the above two Explanations , the irrefutable conclusion is that the expenditure, capital in nature, are not allowable as deduction under section 30 and only the capital expenditure is entitled to depreciation under Explanation 1 of section 32(1). Therefore, an important aspect to be decided in the assessee s case is whether the expenditure incurred by the assessee on the making the classrooms fit for use falls in capital field or otherwise. 13. To decide the above issue, we have perused the nature of expenditure incurred by the assessee. Undisputedly, the expenditure was incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apex Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 and the Hon ble Court held that "even where expenditure is incurred for enduring benefit, the expenditure may be revenue expenditure unless the advantage is in the capital field. If advantage was merely facilitating assessee s trading operation or enabling it to efficiently or mere profitably run its business, leaving the fixed capital untouched, the expenditure will be revenue expenditure. It was observed that there was no addition to the profit making apparatus of the assessee." 16. In the light of the above position together with the repairs done to the classrooms has an enduring advantages, we have examined the nature of expenditure in the assessee s case fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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