9911796707
TMI Blog2013 (10) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... 16/- i.e. 40% of the addition made by the Assessing Officer by disallowing the interest. 4. The ld. CIT(A) ignored the fact that the disallowance has been correctly worked out by the Assessing Officer keeping in view the facts and circumstances of the case. 5. The appellant craves leave to add, to alter, or amend any grounds of the appeal raised above at the time of hearing. " 2. Briefly stated the facts giving rise to this appeal are that the assessee is engaged in running of hospitals under the brand of 'METRO' throughout 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 pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opy of the consolidated judgments dated 24.09.2009 of the ITAT Chandigarh 'B' Bench in assessee's own appeal in ITA No.1037/Chandi/2008 and in the Revenue's appeal ITA No.1057/Chandi/2008 for the A Y 2005-06 by which the issue of disallowance and addition pertaining to the expenses incurred by the assessee towards repairs of the premises taken on lease so as to made it fit for business activities has been decided in favour of the assessee with following observations: "9. The Assessing Officer disallowed the claim of expenditure 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is answered in favour of the assessee and against the Revenue. The appeal is dismissed." [underlined for emphasis by us} 11. In fact, identical view has been expressed in the case of Ayesha Hospitals (P) Ltd. {supra}. With respect to an expenditure incurred by a tenant on the leased promises, the Hon'ble Madras High Court considered Explanation 1 below section 32 and held as under: "From a reading of the above, it is clear that if the lessee incurs capital expenditure on the building of the nature mentioned above, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are to be treated as having been incurred wholly and exclusively for the business of the assesses and revenue expenditure. Such expenses cannot be construed as a capital expenses. (Underlined for emphasis by us). 13. Similarly, Hon'ble Delhi High Court in the case of CIT Vs Dr. A.M. Singhvi 302 ITR 26 (Del) was considering expenditure incurred by way of repair/renovation on the leased premises. It has been hold such expenditure does not result in acquisition of a new asset and thus it can not be held to be a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edly not so. That being the position, we can find no infirmity in the view taken by the Tribunal." 15. From the aforesaid judicial pronouncements, an irresistible conclusion is that 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. 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 elaborate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is structural changes in the leased premises resulting because of the impugned expenditure. Therefore, the ratio of the decision in the case of Bigjo's India Ltd. (supra) does not apply to the facts of the instant case. Remaining on this point of enduring benefit, we may observe that there is no absolute proposition that in all cases of enduring benefit, the particular expenditure is to be treated as capital in nature. Only in cases where the expenditure result in enduring benefit in the field of capital, 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 and contended that this issue involved in Ground No. 3 and 4 for the same AY, which is also under consideration against the same impugned order in this appeal, has been decided in favour of the Revenue. The observations and findings of ITAT Chandigarh (against the same impugned order which is also challenged in this appeal) read as under: "9. We have heard both the parties. The Hon'ble jurisdictional High Court has held in Abhishek Industries (supra) that the Tribunal being the last fact finding 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ern without carrying any interest for non-business purposes would be that the assessee has some loans or other interest bearing debts to be repaid. In case the assessee had some surplus amount which, according to it, could not be repaid prematurely to any financial institution, still the same is either required to be circulated and utilised for the purpose of business or to be invested in a manner in which it generates income and not that It is diverted towards sister concerns free of interest. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest loans/ advances. 10. The assessee also submitted before the Assessing Officer that the interest free loans /advances were given out of interest free funds available with the assessee. But as per judgment of Hon'ble High Court in the case of Abhishek Industries (Supra), there should be a nexus of use of borrowed funds for the purpose of business for the claim u/s 36(1)(iii) of the Act. In the present case, we agree with the finding of the authorities below as well as findings 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 groun ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
