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TMI Blog2014 (4) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the case are that the assessee is engaged in manufacturing and sales of high fashion garments. On perusal of the depreciation chart, it was observed by the AO that the assessee had claimed depreciation @ 100% on Emporio Showroom, being premises No. 338 DLF Emporio, Vasant Kunj, New Delhi which was taken on lease from M/s Regency Park Property Management Pvt. Ltd. vide lease deed dated 22.01.2009. The said premises was taken on lease for a period of 3 years extendable by a further period of 6 years. The AO called upon the assessee to explain as to why depreciation on Emporio Showroom furniture should not be restricted to 10% as against claimed at 100%. Break-up of total expenditure of Rs.53,61,659/- incurred by the assessee under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the ld. DR. 5. We have heard the rival submissions in the light of material placed before us and precedents relied on. The ld. AR was fair enough not to press against the sustenance of disallowance on account of the reduced rate of depreciation in respect of second and third items, being expenditure of Rs.6.86 lacs and Rs. 3.65 lac. He pressed and focused his arguments only on the expenditure of Rs.31.78 lac incurred on `Civil and flooring work'. It was submitted that the entire amount be allowed as deduction u/s 37(1) of the Act as it was incurred on the items which were not retrievable on the expiry of lease. In support of the contention that the entire amount should be allowed as deduction, the ld. AR relied on the judgment of the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Bigjo's India Ltd. VS. CIT (2007) 293 ITR 170 (Del) considered almost a similar situation as is obtaining before us in the present appeal. In that case, the assessee, a licensee of the showroom, erected new counters and built a new lift shaft at a new site. It was held that such expenditure was not in the nature of current repairs but capital expenditure not deductible in full. Adverting tot the facts of the instant case, we find that the present facts are on all fours with that considered by the Hon'ble High Court in Bigjo"s (supra). It is evident from the description of the items on which the above referred expenditure has been incurred that it is a case of renovation of premises immediately after taking it on lease. As such, there c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nature of building owned by the assessee for the purpose of depreciation. The essence of Explanation 1 to section 32 is that any capital expenditure by the assessee on a building not owned by him, in which he carries on the business, shall be considered as building owned by him for the purposes of section 32, to the extent of the amounts spent on the construction of structure or doing of any work in or in relation to and by way of renovation or extension or improvement to the building. It therefore, follows that in order to bring any amount within the ambit of Explanation 1 to section 32 it is paramount that the expenditure incurred by the assessee on the premises in the capacity of non-owner should firstly be in the nature of capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure in the hands of the owner, it has to be considered as capital expenditure in the hands of the tenant, who is the assessee so far depreciation and other benefits" are concerned. It further observed that if the expenditure has to be treated as revenue expenditure in the hands of the owner, it would amount to revenue expenditure even in the hands of the assessee tenant. "In other words, section 32(1) (i) of the Income Tax Act read with Explanation 1 thereto, would only mean, whatever the owner of the building is entitled so far as benefits of other depreciation will be applicable to the case of the assessee, who takes the building on lease". From the above discussion, it follows that the retrieval test is not the only test laid do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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