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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 ..... in the nature of capital or revenue has to be examined independently under the facts and circumstances of each case - Appeal is allowed by way of remand to CIT(A) X X X X Extracts X X X X X X X X Extracts X X X X ..... 93 ITR 201 (SC) 5. However, the learned Authorised Representative submitted that the said Explanation-1 to sec. 32 can be invoked only if an assessee incurs any capital expenditure on the building taken on lease. He submitted that the impugned expenditure has been incurred due to business exigencies to make the building suitable for the production requirements and hence they cannot be called to be capital expenditure. Accordingly he submitted that the provisions of Explanation 1 to sec. 32 shall not apply to the instant case. The learned Authorised Representative placed reliance on the following case law to support the view taken by Learned CIT(A). (a) CIT v. Madras Auto Service (P.) Ltd. [1998] 233 ITR 468 (SC) (b) CIT v. Hari Vignesh Motors (P.) Ltd. [2006] 282 ITR 338 (Mad.) (b) Lucent Technologies Hindustan Ltd. v. Joint.CIT [2007] 106 TTJ 205 (Bang.) He submitted that in the case of Madras Auto Service (P.) Ltd. (supra) the assessee therein constructed a new building by demolishing the old one and the Hon'ble Supreme Court held that the expenditure so incurred on the construction is revenue in nature. 6. We have heard the rival contentions and carefully perused the recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (supra) has been explained by the Hon'ble Bombay High Court in the case of CIT v. Khimline Pumps Ltd. [2002] 58 ITR 459. We extract below the relevant observations of Hon'ble Bombay High Court. "In the case of Madras Auto Service (P.) Ltd. [1998] 233 ITR 468 (SC), the assessee was a company, carrying on the business of sale of motor parts. Its head office was at Madras. It had a branch at Bangalore. Under the lease, the assessee obtained premises for 39 years at Bangalore. Under the lease, the lessee had the right to demolish the existing structure at its own expense and to construct a new structure at its own cost and appropriate to itself, all the material in the old existing structure, without paying to the lessor, any compensation for demolishing the existing structure. Under the lease, permission was granted to the assessee to construct a new building to suit the purpose of their business. Under clause 2, the assessee was required to pay Rs. 1,000 per month for the first 15 years, Rs. 1,500 per month for the next ten years, Rs. 1,650 per month for the next ten years and Rs. 2,000 per month for the remaining years. Under the lease, the new construction was to remain the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that reduced rent was a substitute for revenue expenditure and, therefore, the expenses were treated as revenue expenditure. In our case, the present assessee paid Rs. 75 lakhs for the whole unit. That, the assessee has got the benefit of right, title and interest in the building and, therefore, the assessee in this case has got the capital asset by spending the afore stated amount, which was not so in the case before the Supreme Court. In the present case, the assessee was entitled to take away the building on the expiry of the lease. In the present case, there is a clause of renewal of the lease. In the present case, no amount has been paid by the present assessee as premium. In the present case, the assessee has bought from the official liquidator, with the consent of MIDC, the whole unit. Therefore, on the facts, the judgment of the Supreme Court has no application to the present case. Moreover, in the case before the Supreme Court in Madras Auto Service (P.) Ltd. [1998] 233 ITR 468, the old construction was dilapidated. The assessee could not have carried on business in the old structure. Under the lease, in that case, the old structure was permitted to be demolished. That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 32 read as under: "Where the business or profession is carried on in a building not owned by the assessee but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purpose of business or profession after the 31st day of March, 1970, on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building then, in respect of depreciation of such structure or work, the following deductions shall, subject to the provisions of section 34, be allowed:- (i) such percentage on the written down value of the structure or work as may in any case or class of cases be prescribed…….. The sub- section 1A) to section 32, referred supra was omitted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 upon the introduction of Explanation 1 cited above. 12. If it is contended that the decision of Hon'ble Supreme Court in Madras Auto Service (P.) Ltd.'s case (supra) has to be followed even after the introduction of sub. section (1A) or Explanation 1 to section 32, as the case may be, then the said ..... X X X X Extracts X X X X X X X X Extracts X X X X
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