9911796707
TMI Blog2015 (2) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... g the premises (by way of lease) in the first place, by making it fit for use, both in terms of capacity and capability, in-as-much as it has both quantitative and qualitative attributes, so as to constitute an improvement. It is not a case of a lumpsum payment in lieu of annual business expenditure. The benefit arising out of a capital expenditure, again, does not imply permanence, in which case no expenditure even on regular maintenance, or for keeping it in a state of good repairs, a stipulation that marks most tenancy agreements, would be required. The said benefit, though, cannot also be said to be limited to the period of lease, which may well be extended. Further, that the same, i.e., capital expenditure, is excluded, stands amply clarified per Explanations to sections 30 and 31 of the Act, brought on the statute by Finance Act, 2003 w.e.f. 01.04.2004. The expenditure, in our view, thus stands rightly considered by the ld. CIT(A) to form a part of an admissible asset in view of Explanation 1 below section 32(1)(ii), carving an exception for depreciation, which is generally allowed only on assets owned by an assessee, on a building not owned by it, but in respect of which it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Income Tax Act, 1961 ( the Act hereinafter) for the assessment year (A.Y.) 2009-10. 2. The appeal raises four grounds, which we shall take up in seriatim. The first ground is in respect of disallowance of architect engineering fees (Rs.1,1500/-); tender survey expenses (Rs.1,70,950/-); and advertisement sponsorship and brand building expenses (Rs.17,71,347/-), i.e., at an aggregate of ₹ 20,57,297/-, by treating them as a part of the construction work in process; the assessee-company being a builder and developer. The basis of the assessee s claim is that the relevant expenses were incurred in relation to redevelopment/construction proposals that did not materialize or were otherwise not relatable to any specific project at hand. The same, thus, either represent a loss or a selling cost, not relatable directly to any particular project. The said cost would thus not qualify to be included in the valuation of the work-in-progress (WIP) as at the year-end. The Revenue s case, on the other hand, is that the entire expenditure is in relation to the assessee s construction business, which represents its principal activity. The assessee has at the relevant year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e s case. The assessee s plea merits acceptance, and is upheld. We decide accordingly, allowing its Ground # 1 (also refer para 8). 5. The assessee s second ground is in respect of disallowance of repair and maintenance expenses of a rented premises at ₹ 42.66 lacs. The assessee, it was explained, had taken an office premises on rent in October, 2007 for a period of five years. As the said premises was old and not in use for a long time, it incurred the impugned expenditure towards repair and renovation of the said premises. The same was only toward achieving its functional utility. No capital asset had come into existence thereby. Further, it needed to be borne in mind that the same is in respect of rented premises and, accordingly, allowable u/s.30(a)(i), which employs the word repairs , in contradistinction to the words current repairs , i.e., in respect of non-tenanted house property, which falls u/s. 30(a)(ii). The Revenue s objection, on the other hand, is based on the premise that the nature and the volume of the expenditure would not qualify it to be a repair, which only could be allowed u/s.30 of the Act. The expenditure was admittedly on renovation, capital in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redients and prerequisites of a capital expenditure would remain the same, and not undergo any change depending on the object matter of the expenditure, i.e., whether an owned or leased premises, and which itself is the premise of Explanation 1 to section 32(1)(ii), invoked by the Revenue. Total renovation, leading to substantial improvements, is only capital expenditure, as clarified by the apex court in Ballimal Naval Kishore v. CIT [1997] 224 ITR 414 (SC). It is nobody s case, nor could be, that the improvement is not enduring or shall not inure in future, particularly upon incurring regular, maintenance expenditure. Reference may also be made to the decision in the case of CIT v. Madras Cements Ltd. [2002] 255 ITR 243 (Mad), rendered relying on Ballimal Naval Kishore (supra) and applying New Shorrock Spinning Mfg. Co. Ltd. v. CIT [1956] 30 ITR 338 (Bom). The asset being also not owned by the assessee, it is, strictly speaking, not a case of replacement, but of acquisition of an advantage of enduring nature - for the first time, an asset by definition. The impugned expenditure is in fact only toward effectuating the decision of acquiring the premises (by way of lease) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the nature of expenditure, so that no presumption with regard thereto, as with reference to the premises being not owned, shall obtain. Rather, where for an extended period, the lease-hold or other right of occupancy could itself be regarded as a capital asset, even as clarified by the hon ble jurisdictional high court in CIT vs. Khimline Pumps Ltd. [2002] 258 ITR 459 (Bom). The hon ble court in the cited case, as a reading of its decision would show, allowed the assessee s claim for similar expenditure on the basis that the same was admissible u/s. 30(a)(i), which uses the word repairs , the scope of which is wider that current repairs , covered u/s. 30(a)(ii). The apex court in CIT vs. Saravana Spg. Mills (P.) Ltd. [2007] 293 ITR 201 (SC) was concerned with a claim u/s. 31(i), distinguishing the said decision on that basis. The hon ble court, with respect, however, did not examine or dilate on the scope of the term repairs , either with reference to judicial precedents or even otherwise. True, the hon ble apex court in Saravana Spg. Mills (P.) Ltd. (supra) was concerned with a claim u/s. 31(i), which deals with current repairs of plant, machinery and furniture. So, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 31 w.e.f. 01.04.2004, by way of Explanations thereto, to the effect that the cost of repairs and, as the case may be, current repairs, shall not include any expenditure in the nature of capital expenditure, become now incumbent to consider, even as pointed out by the hon ble apex court. The same have a direct impact on the decision in the case of Hi Line Pens Pvt. Ltd. (supra). Rather, in view of the foregoing settled position of law, as clarified by the decisions which stand approved by the apex court in Saravana Spg. Mills (P.) Ltd. (supra), it may not be incorrect to say that the said Explanations are clarificatory and, thus, retrospective. The said decision, thus, apart from the fact that it does not review the binding judicial precedents explaining the scope of the term repairs , is also inapplicable in view of the extant law, i.e., as in force A.Y. 2004-05 onwards, and, accordingly, reliance thereon by the assessee would be of no moment. In view of the foregoing, we uphold the impugned order on this ground, dismissing the assessee s ground # 2 before us. 7. The assessee s third ground relates to the capitalization of 80% of the general, administrative expenses, incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed, as appears to have prevailed with the ld. CIT(A); the same being admittedly incurred wholly and exclusively for the purposes of the assessee s business. We may however add that the expenditure since allowed is not ₹ 32.55 lacs, as stated by the ld. CIT(A), in-as-much as another ₹ 20.57 lacs, which forms the subject of the assessee s ground # 1 before us, stands to be allowed. The Revenue s case is that as the principal activity during the year is toward project execution; the balance under the WIP A/c increasing from ₹ 5.99 cr. as at the beginning of the year to ₹ 10.03 cr. at its end, the general, administrative expenditure would only be directed toward the same and, thus, stand to be allocated thereto, and hence the allocation at 80% thereof. The assessee being a builder and developer, Accounting Standard 7 (AS-7), issued by the ICAI, titled, Construction Contracts , would not apply, so that the prescription of AS-9 and AS-2, based on general principles that govern any business, would apply for the revenue recognition and inventory valuation respectively. We have already, i.e., while discussing the assessee s ground # 1, clarified that only c ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
