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TMI Blog2012 (6) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... for the claim of such expenditure. The assessee furnished the details called for. After furnishing the particulars, the assessee contended that the expenditure incurred are in respect of leased properties and they do not give to the assessee the benefit of enduring nature and the amount spent was for business purpose and not for acquisition of the capital asset. The particulars given by the assessee reads as under: Sl. No. Party's Name Nature of work Amount 1. Vinod Interior Decorators Civil Work 1,82,342 2. Gopinath & Katakam Architect Tees 14,786 3. Power System Need Civil Work 21,998 4. Micron Electrical Electrical Work 59,770 5. Calcutta 32,401 6. Varun/Vinod Interiors Wooden Partings 17,798 7. Da Civil Work 37,665 8. Accent Vertical Blinds 45,991 9. Vinod Interior Decorators Civil Work 2,33,441 10. Sahyadri Construction Civil Work 95,715 11. Paramhamsa Electricals Electrical 2,69,284 12. Sahyadri Constructions Civil Work 3,46,538 13. Sahyadri Constructions Civil Work 2,32,422 14. Salian Nagrath Certification Work 11,059 15. Paramhamsa Electricals Electrical 4,11,649 The Assessing Officer on consideration o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g authority as well as the appellate Commissioner and held that it amounts to a revenue expenditure and the assessee is entitled to the benefit of deduction. Aggrieved by the same, revenue is before this Court. 3. This appeal came to be admitted on 10-08-2007 to consider the following substantial question of law: "Whether the Tribunal is right in holding that a sum of Rs. 22,23,057/- claimed by the assessee as a revenue expenditure for improving the leasehold building spent on electrical work, civil work, air conditioning, architect fee etc., cannot be treated as capital in nature as held by the Assessing Officer, but should be allowed as a revenue expenses as it was incurred for business purpose?" 4. Learned counsel for the Revenue assailing the impugned order contended that having regard to the amount involved and the nature of work, there is an improvement to the leasehold premises, which is enduring in nature. Therefore, the Assessing Officer was justified in treating it as Capital Expenditure. The Tribunal without properly appreciating the material on record, erred in holding that the said expenditure is in the nature of revenue expenditure and therefore, he submits that, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. If it was part of the fixed capital of the business, it would be of the nature of capital expenditure and if it was part of its circulating capital it would be of the nature of revenue expenditure." Ultimately, the Court held that: "Each case turns on its own facts". 9. The Supreme Court in the Assam Bengal Cement Co. Ltd. (supra) at Para-5 has held as under:- "5. This synthesis attempted by the Full Bench of the Lahore High Court truly enunciates the principles which emerge from the authorities. In cases where the expenditure is made for the initial outlay or for ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficult to lay down a test which would apply to all situations. One has therefore got to apply these criteria one after the other from the business point of view and come to the conclusion whether on a fair appreciation of the whole situation the expenditure incurred in a particular case is of the nature of capital expenditure or revenue expenditure in which latter event only it would be a deductible allowance under section 10(2)(xv) of the IT Act. The question has all along been considered to be a question of fact to be determined by the IT authorities on an application of the broad principles laid down above and the Courts of law would not ordinarily interfere with such findings of fact if they have been arrived at on a proper application of those principles. The expression "once and for all" used by Lord Dunedin has created some difficulty and it has been contended, that where the payment is not in lump sum but in instalments, it cannot satisfy the test. Whether a payment be in a lump sum or by instalments, what, has got to be looked to is the character of the payment. A lump sum payment can as well be made for liquidating certain recurring claims which are clearly of a revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business and an expenditure for the benefit of the business as a whole"...e.g... "enlargement of the goodwill company"-: permanent improvement in the material or immaterial assets of the concern." To the same effect are the observations of Lord I Greene, M.R., in Henriksen (H.M. Inspector of I Taxes) v. Grafton Hotel Ltd. above referred to." 10. The Apex Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1/3 Taxman 69 held as under:- "There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, 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 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying the premises otherwise than as a tenant, as an owner or mortgagee in possession, and in those cases the deduction is restricted in respect of the "current repairs" to the premises. So far as a tenant is concerned, it is the "repairs" to the premises and if the assessee had undertaken to bear the cost of the repairs to the premises, then those repairs may be even in the nature of a capital expenditure. Such an expenditure incurred by the assessee if it is in relation to the commercial activity would be in the nature of revenue expenditure'. 13. Again the Delhi High Court in the case of CIT v. Hi Line Pens (P.) Ltd. [2008] 306 ITR 182/175 Taxman 132 at para 16 has held as under:- 'There is a clear distinction between the expression "repairs" and the expression "current repairs". It is obvious that the word "repairs" is much wider than the expression "current repairs". This fact has also been taken note of by the Supreme Court in the case of Saravana Spinning Mills (P.) Ltd. [(2007) 293 ITR 201]. The expression "current repairs" is much more restricted than the word 'repairs" because the latter is qualified by the word "current". What the assessee has done in the present case h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enduring character so as to characterise as capital expenditure". 15. The authorities both in this country and in England have pointed out the difficulties in formulating precise rules for distinguishing capital expenditure from revenue expenditure. The line of demarcation has been found to be very thin. Certain broad tests have, however, been laid down. Each case turns on its own facts. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. When an expenditure is made for acquiring or bringing into existence an asset or an advantage for the enduring benefit of the business, it is properly attributable to capital and is of the nature of capital expenditure. In cases where the expenditure is made for the initial outlay, or for extension of a business or a substantial replacement of the equipment, there is no doubt that it is capital expenditure. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment. Expenditure may be treated as properly attributable to capital when it is made not only on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acterise as capital expenditure. 16. In the instant case, the expenditure incurred by the lessee can be broadly categorised as expenditure incurred towards civil works, electrical works and interior decoration. If a tenant or lessee incurs expenditure by way of civil work in respect of a property which he does not own, that by itself would not render the said expenditure as a revenue expenditure. In fact, Explanation I to section 32 throws some light on this aspect, which reads as under:- Explanation I - Where the business or profession of the assessee is carried on in a building not owned by him 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 purposes of his business or profession on the construction of any structure or doing of any work in or in relation to and by way of renovation or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee." 17. Where business or profession of the assessee is carried on in a bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time, the Tribunal without going into the question as to the nature of civil work, electrical work and interior decoration done to the lease premises has proceeded on the assumption that it constitutes a revenue expenditure. Therefore, both the authorities have come to opposite conclusions without applying their minds to the facts of the case. Therefore, both the findings are unsustainable. The findings recorded by all the three authorities on this aspect require to be set aside and the matter is to be remanded to the assessing authority to go into the matter afresh in the light of the observations made above and also in the light of the materials to be furnished by the assessee before him after notice. That would meet the ends of justice. Hence, we pass the following order. 18. The order passed by the Assessing Officer, Appellate Commissioner and the Tribunal insofar as the expenditure incurred by the assessee in a sum of Rs. 22,33,057/- is hereby set aside and the matter is remanded to the assessing authority to consider whether the said expenditure is revenue expenditure or capital expenditure and then grant such relief to the assessee to which he is entitled to in law. In view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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