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TMI Blog2013 (10) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... ed - Restriction of the disallowance to 40% of the interest has been upheld. Where the expenses are incurred by the assessee towards repairs of the premises taken on lease so as to make it fit for its business activity, such expenditure would fall within the expression of 'repairs' as appearing in Section 30(a)(i) of the Act - In the instant case, there is nothing to distract from the plea set up by the assessee that the impugned expenditure has not resulted in demolition of old structure and construction of a new structure. The assessee has, therefore been successful in establishing that the impugned expenditure was revenue in nature. Merely because the amount spent has been used for construction of a building or structure of permanent nature is not the decisive test for holding the expenses to be of capital outlay or revenue outlay. The two tests emerging from the aforesaid decisions are that firstly where the building or construction of any permanent structure is brought into existence that is by itself is not sufficient to hold the expenses to be capital nature invariably. Where such construction does not result in acquisition of any capital assets to the trade of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the country. The assessee filed a return declaring total income of Rs. 4,69,80,320 including business income and capital gain. The case was selected for scrutiny under CASS and statutory notices U/S 143(2) and 142(1) of the Act, 1961 (for brief the Act) along with detailed questionnaire were issued and served on the assessee. During the course of assessment, the Assessing Officer noted the following points:- i) The assessee paid interest of Rs.2,42,295 towards capital borrowed for acquisition of assets and as per provisions of section 36(1)(iii) of the Act, this amount is not allowable as deduction and the same was to be capitalized to the cost of assets purchased i.e. Cath Lab Machine. The Assessing Officer made an addition of Rs.2,42,295 to the income of the assessee . ii) On perusal of Profit Loss account, the Assessing Officer noted that an amount of Rs.32,03,628 has been debited under the head "repair to building". The Assessing Officer observed that the expenses incurred on repairs was for major renovation of the hospital building so as to obtain benefit and to create an asset of enduring nature. Therefore, the Assessing Officer made an addition of Rs.20,85,399 to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure by relying upon Explanation to section 30 of the Act, which reads as under:- Explanation For the removal of doubts, it is hereby declared that the amount paid on account of the cost of repairs referred to in sub-clause(i), and the amount paid on account of current repairs referred to in sub-clause (ii), of clause (a), shall not include any expenditure in the nature of capital expenditure. 10. On consideration of the above provisions, we find that, what has to be disallowed is capital expenditure. However, in the instant case, expenditure is towards repair of hospital and not capital expenditure. Reliance is placed on the judgment of the Hon ble Delhi High Court in the case of Hi Line Pens Pvt. Ltd. (supra) wherein, it has been held as under:- After having considered the arguments advanced by learned counsel for the parties and examined the decisions cited by them; we are of the view that the assessee s claim for deduction under section 30(a)(i) has been rightly allowed by the Tribunal. The decisions cited by learned counsel for the Revenue relate to "current repairs". There is a clear distinction between the expression "repairs" and the expression "current rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove, the said provision treats the building as if owned by the assessee. The Explanation is an exceptional one which permits depreciation in cases were the assessee does not own a building. In the present case, the Tribunal had given a finding that it is a revenue expenditure on the ground that the expense is incurred only towards painting, re-laying of the damaged floors, partitions, etc. This expenditure can never be considered to be a capital expenditure of the nature mentioned in the above Explanation." 12. Even the Hon'ble Rajasthan High Court in the case of Rajasthan Spinning and Weaving Mills Ltd. 272 ITR 487 (Raj) referred to the nature of expenditure incurred to determine applicability of explanation 1 to section 32 of the Act, in the following words:- 8. 1. Now, coming to the expenses incurred by the assessee at its Bhopal office amounting to Rs. 20,78,622. The nature of expenses, as revealed from the details placed in the paper book, are interior work, painting and polishing, electrical maintenance related work, architect fee for interior decoration, etc. The expenditure incurred also relates to panelling, partition work, designing and fabricating office furniture, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital expenditure. The following discussion is worthy of notice: "Considering various case laws on the subject, we are of the opinion that in the instant case, the assessee, who is lessee of the premises, has carried out certain renovations in order to see that the office premises is kept in a proper condition and the professional activities are carried out effectively and smoothly for which certain repairs were carried out by the assessee in the rented premises. In our View, the quantum of expenditure is not relevant for determining the issue in question. On appreciation of evidence both the fact-finding authorities, i.e., CIT(A) as well as the Tribunal have found that the expenditure in question was a revenue expenditure. The expenditure incurred by the assessee was not for the purpose of bringing into existence any such asset or advantage but incurred for running the profession effectively and in smooth manner. It cannot be said that the expenditure was incurred for the purpose of acquiring and appreciating capital assets. In the case of CIT vs. Madras Auto Service (P) Ltd. (supra), the Supreme Court has considered the expenditure as revenue expenditure where the lessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee that the impugned expenditure has not resulted in demolition of old structure and construction of a new structure. The assessee has, therefore been successful in establishing that the impugned expenditure was revenue in nature. The case laws referred to by the ld. DR are primarily in the context of the expression 'current repairs' as appearing in Section 30(a)(ii) of the Act whereas, the instant case is to be considered in the light 01 Section 30(a)(i) 01 the Act. In fact, the distinction between the presence of expression 'repairs' in Section 30(a)(i) ( which covers the case of rented premises) and the expression "current repairs" in Section 30(a)(ii) has been elaborately brought out by the Hon'ble Delhi High Court in the case of High Line Pens (P) Ltd. (supra). 16. The learned DR has relied on the case of Hero Cycles Ltd. in ITA No. 781/CHD/05 and 493/CHD/06 for assessment year 2001-02. We have perused the above decision and in our opinion, the same has no application to the facts of the present case. In that case, assessee had claimed expenditure for dismantling the old roof and laying down a new roof and such expenditure was held to be capital expenditure following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, that the expenditure is to be held as capital in nature. If the ending benefit is on account of revenue field or is intended towards conduct of business conduct of business conducively, such expenditure is to be viewed as a revenue expenditure and not in the capital field. Reliance in this regard is placed on the deicison of the Hon ble Supreme Court in the case of Empire Jute Co. Ltd. vs Commissioner of Income Tax 124 ITR 1(S.C.). 18. Ld. DR has also placed reliance on the decision of the Hon ble Orissa High Court in the case of Ruprag Pvt. ltd. (supra). In that case too, we find that the expenditure, though incurred on leased premises was held to be capital in nature, having regard to the facts of that case. The said decision therefore is not applicable in view of the fact that in the present case, there is no enduring benefit or acquisition of asset in the capital field. Hence the decisions relied upon by the learned DR do not help the case of the Revenue. 19. In view of the aforesaid, the order of the Commissioner of Income Tax(A) is set aside and the disallowance made by the Assessing Officer is directed to be deleted. 5. From a bare reading of the impugned order. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding authority, a higher responsibility is cast by the Legislature on it to decide the cases by recoding complete facts and on the basis of the law laid down by the Supreme Court/High Court and not what the Tribunal decides on the particular issue. Keeping in view the aforesaid observations, it is considered necessary to briefly touch upon the relevant facts and the law applicable thereto. 10. Section 36(1)(iii) allows deduction of the amount of Interest paid In respect of capital borrowed for the purposes of business or profession. However, proviso to clause (iii) of sub-section (1) of section 36 (inserted with effect from 1.4.2004 by the Finance Act 2003) disallows deduction In respect of any amount of interest paid, in respect of capital borrowed for acquisition of an asset for extension of business or profession (whether capitalized in the books or not). 11. The assessee has raised un-secured loans on which it has paid interest amounting to Rs.1,37,61,301/-. The aforesaid funds formed part of common kitty. The funds so available with the assessee have been utilised by it either for extension of its existing business or for giving interest-free advances. It was the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest. This would result in not presenting the true and correct picture of the accounts of the assessee as at the cost being incurred by the assessee, the sister concern would be enjoying the benefits thereof. It cannot possibly be held that the funds to the extent diverted to sister concerns or other persons free of interest were required by the assessee for the purpose of its business and loans to that extent were required to be raised. We do not subscribe to the theory of direct nexus of the funds between borrowings of the funds and diversion thereof for non-business purposes. Rather, there should be nexus of use of borrowed funds for the purpose of business to claim deduction u/s 36(1)(iii) of the Act. That being the position, there is no escape from the finding that interest being paid by the assessee to the extent the amounts are diverted to sister concerns on interest free basis are to be disallowed. If the plea of the assessee is accepted that the interest free advances made to the sister concerns for non-business purposes were out of its own funds in the form of capital introduced in business, that again will show a camouflage by the assessee as at the time of raising of lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal that there is no escape for the assessee from the finding that interest being paid by the assessee to the extent the amounts borrowed on interest are diverted to sister concern on interest free basis are to be disallowed. 11. In view of the above, we hold that the CIT (A) rightly restricted the disallowance to 40% of the interest claimed by the assessee. For the reasons discussed above, we are unable to see any valid reason to take a different view. The restriction of disallowance made by the CIT (A) has been made on justified and reasonable basis, therefore, we uphold the finding of the CIT (A) in this regard in the impugned order. 12. We are unable to see any valid reason or ground to take a different view in this regard. Grounds No. 3 and 4 of the Revenue in this case are squarely covered by above order of the ITAT Chandigarh. Accordingly, Ground No.3 and 4 of the Revenue are disposed of respectfully following the judgment of ITAT, Chandigarh vide order dated 24.02.2011 (Supra). Ground No.1 and 5 are general in nature, which need no adjudication and we dismiss the same. 13. In the result, appeal of the Revenue is disposed of as indicated above. Order pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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