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TMI Blog2011 (7) TMI 776X X X X Extracts X X X X X X X X Extracts X X X X ..... lly debited a sum of Rs. 10,14,216/- only to its profit and loss account by treating the balance amount as deferred revenue expenditure. However, during the course of assessment proceeding, the assessee filed a revised computation of income, wherein it claimed entire amount of Rs. 40.25 lakhs as revenue expenditure. The details of expenditure, as submitted by the assessee, are extracted in the assessment order as under: Particulars Amount (Rs.) Civil works 637161.30 Electrical works with transformer 903041.05 False ceiling 572541.81 Flooring 1083087.00 Mirrors & aluminium partitions 491751.50 Paintings 210760.00 Tube lights 127099.60 Total 4025442.26 The Assessing Officer accepted the said claim only for amount spent on painting - Rs. 2,10,760/- and Tube lights- Rs. 1,27,099/-, aggregating to Rs. 3,37,859/-. He treated the remaining expenses as capital in nature and accordingly disallowed the balance amount of Rs. 36,87,585/-. For doing so, the Assessing Officer took support from the provisions of Explanation 1 to sec. 32 of the Act. The Learned CIT(A), however, allowed the claim of the assessee and hence the revenue is in appeal before us. 4. The Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the construction is revenue in nature. 6. We have heard the rival contentions and carefully perused the record. We notice that the learned CIT (A) has followed the decision of the Hon'ble Supreme Court in the case of Madras Auto Service (P.) Ltd. (supra) and also the decision of Bangalore Bench of Tribunal in the case of Lucent Technologies Hindustan Ltd. (supra) in deciding the issue in favour of the assessee. We also notice that the Hon'ble Madras High Court in the case of Hari Vignesh Motors (P.) Ltd. (supra) and also the Bangalore Bench of ITAT in the case of Lucent Technology Hindustan Ltd. (supra) in turn have relied upon the decision of Hon'ble Supreme Court cited above. Hence, in our view, it is imperative to understand the ratio of the decision of Hon'ble Supreme Court cited (supra). 7. In the case of Madras Auto Service (P.) Ltd. (supra), the assessee therein demolished the existing premises and constructed a new building at its own expenses as per the terms of lease agreement. The assessee therein spent a sum of Rs. 1,62,835/- in the previous year relevant to the assessment year 1968-69 and Rs. 50,937/- during the succeeding year in construction of a new building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ten years and Rs. 2,000 per month for the remaining years. Under the lease, the new construction was to remain the property of the lessor and on completion of the work, the lessee had the right to be a tenant for 39 years. Under the lease, the lessee had no right, title and interest in the new construction. That, the lessee was not entitled to compensation from the lessor for putting up the new construction in place of the old construction. Acting under the lease, the assessee invested Rs. 1,62,835 in the previous year relevant to the assessment year 1968-69 and Rs. 50,937 in the succeeding year for constructing a new building on the land. The assessee claimed the expenditure as capital loss. In the alternative, the assessee claimed deduction for the payments as business expenditure or as extra rent for the lease. The Tribunal held that the expenditure of the afore stated amounts was for the construction of a new building and, therefore, it was in the nature of business expenditure for proper carrying on of the business of the assessee. Therefore, the Tribunal treated these amounts as revenue expenditure. Being aggrieved, the Department carried the matter to the Supreme Court in ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business in the old structure. Under the lease, in that case, the old structure was permitted to be demolished. That demolition was at the expense incurred by the assessee-lessee. That the assessee-lessee put up the new construction at his own cost. Therefore, under section 30(a)(i), the assessee in the case before the Supreme Court was entitled to claim deduction as revenue expense as it had undertaken to bear the cost of repairs to the premises. Under section 30 in respect of rent, rates, taxes, repairs and insurance for premises, used for business purposes, deductions are allowed. One such deduction is in cases where the premises are occupied by the assessee as a tenant and such assessee is required to pay rent. Such rent would be revenue expense. Similarly, if such assessee undertakes to incur cost of repairs to the premises, then such assessee would be entitled to deduction because the expense for the repair would be a revenue expenditure. Therefore, we have to read the judgment of the Supreme Court in the light of section 30 of the Income-tax Act. In that matter, the assessee had to incur expense to repair/ reconstruct the existing structure. He incurred the expenditure which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sub. section (1A) or Explanation 1 to section 32, as the case may be, then the said provisions will be rendered otiose, which is not an acceptable method of interpreting the law. Hence, as held by Hon'ble Bombay High Court in the case of Khimline Pumps Ltd. (supra) one has to understand the decision of Hon'ble Supreme Court in Madras Auto Service (P.) Ltd.'s case (supra) under the special facts prevailing in that case. 13. The effect of sub-section (1A) or Explanation 1 to section 32 is that the assessee is entitled to depreciation on any capital expenditure incurred by him for the purpose of business or profession on the construction of any structure or doing of any work or in relation to and by way of renovation or extension of or improvement to the building, even if the building is not owned by the assessee. Meaning thereby, the requirement that the assessee should be owner of the building stands disregarded after introduction of above said sub-section/Explanation and the assessee would only be entitled to claim depreciation on the capital expenditure incurred by it on a building even if the said building is not owned by him but in respect of which he holds a lease or other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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