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TMI Blog2015 (12) TMI 1031X X X X Extracts X X X X X X X X Extracts X X X X ..... venue expenditure and, therefore, deductible under section 32(1) and Explanation 1 of the Income-tax Act. 2. Since the issues raised in these appeals are identical in nature, they were disposed of by the Tribunal by a common order. Therefore, it is only expedient that these appeals are also considered together. 3. The assessee is a leading dealer of vehicles, spares and accessories of Maruti Suzuki and is an authorised service provider, of vehicles manufactured by the said company. The assessee is having dealership in various districts across Kerala and in Chennai, State of Tamil Nadu. The return of income for the aforesaid assessment years were processed under section 143(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act" for short), and, subsequently, the same were scrutinised under section 143(2) of the Act and additions were made. 4. The assessee went in appeal and relying on the judgments of the apex court, the Madras High Court and the orders of the Appellate Tribunal, the first appellate authority allowed the appeals and held that the expenditure incurred by the assessee is to be treated as revenue expenditure and, therefore, liable to be deducted. 5. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of superstructure and Rs. 64,82,190 incurred for repairs, refurbishing and improvements) was added as capital expenditure, declining the claim of the assessee against the revenue expenditure. 8. On the basis of the contentions raised by the appellant, this court, vide its order dated January 15, 2015, has framed questions of law to be decided in the appeals. The questions of law raised in I. T. A. No. 4 of 2015 are extracted hereunder and the questions in other appeals are similar except for the facts and figures : "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in confirming the disallowance of Rs. 1,22,66,205 incurred for construction of superstructures by the appellant on leased land as capital expenditure ? (2) Whether, on the facts and in the circumstances of the case, there is any material or evidence on record to justify the finding of the Appellate Tribunal that the sum of Rs. 1,22,66,205 incurred for the construction of superstructures by the appellant on leased land is capital expenditure ? (3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in confirming the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d bring about some kind of an enduring benefit to the company as a revenue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expenses have been looked upon as having been made for the purpose of con ducting the business of the assessee more profitably or more suc cessfully. In the present case also, since the asset created by spending the said amounts did not belong to the assessee but the assessee got the business advantage of using modern premises at a low rent, thus saving considerable revenue expenditure for the next 39 years, both the Tribunal as well as the High Court have rightly come to the con clusion that the expenditure should be looked upon as revenue expenditure." 12. In the case of TVS Lean Logistics Ltd. (supra), the Madras High Court has considered the question whether by carrying out construction of building on leasehold land, for business advantage, any capital asset has been acquired by the assessee. In the said decision, one remarkable difference from the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g taken on lease by the assessee therein was to be treated as revenue expenditure. The Division Bench has also entered into a finding that merely because the buildings taken on lease are refurbished, no enduring benefit on the capital acquired is enjoyed by the assessee and, therefore, the same cannot be treated as a capital expenditure. After considering the facts involved in the said case, it was concluded in paragraphs 29 and 30 of the judgment thus : "29. Advantage to facilitate trade, operations providing the man agement to conduct business more effectively to make profits without the need of expanding or extending capital asset (permanent struc ture), what assessee acquires by spending money is to achieve good ambience which may result in profits without changing the building itself in which the business is conducted. The outgoing expenditure though forms part of profit earning exercise, in the absence of acquir ing any asset or a right of permanent nature, it cannot be considered as capital expenditure. There is no replacement of complete structure with the new process. The nature of business prior to expenditure in question and afterwards being the same without any change, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be said that the improvements that have been effected on the land con sisting of filling up the ditches and raising the land and of construct ing a wall are not of a capital nature. Even so, it is suggested that, because the assessee had only leave and licence over the land, the rule that expenses in the nature of capital expenditure should not be deducted in computing the assessable income should not be applied. We are unable to accept this contention. The changes effected were of an enduring nature and the conclusion reached by the assessing authorities that the money was expended for capital purposes is cor rect. We, therefore, answer the first question referred to us in the affirmative, that is, in favour of the department and against the asses see. In view of our answer to question No. (1), question No. (2) can not arise and it is so agreed." 15. Learned senior counsel for the Revenue has also relied on the judgments in Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377 (SC) and this court in CIT v. Jacobs (P.) Ltd. [1979] 120 ITR 197 (Ker) to contend that in those judgments referred to in Joy Alukkas (supra), section 37 of the Income-tax Act, 1961, was interpret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction. It is the case that the assessee has con structed a new building on the leased land. The hon'ble High Court has further held in the aforesaid case that the language employed in a statute is the determinative factor of the legislative event and even assuming there is a defect or any omission in the words used in the Legislature, the court cannot correct or make up the deficiency, espe cially when a literal reading thereof produces an intelligible result an any departure from the literal rule would really be amending the law in the garb of interpretation, which is not permissible and which would be destructive of judicial discipline. 27. The hon'ble Supreme Court of India in the case of Madras Auto Service (P.) Ltd. [1998] 233 ITR 468 (SC) while dealing with a similar controversy has observed as under (page 472) : '5 In order to decide whether this expenditure is revenue expen diture or capital expenditure, one has to look at the expenditure from a commercial point of view. What advantage did the assessee get by constructing a building which belonged to somebody else and spend ing money for such construction ? The assessee got a long lease of a newly constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of the above, we find no merit in the arguments of the assessee's counsel on this issue. Hence, this ground of the Revenue is allowed." 20. The learned Appellate Tribunal in paragraph 22 of its order has discussed the judgment of the Division Bench of this court rendered in Joy Alukkas India Pvt. Ltd. (supra) and held that in view of Explanation 1 of section 32(1) of the Act, the assessee perfectly falls within the ambit of the same and thus held as follows : "To fall within the ambit of Explanation 1 questions which are to be answered are : (i) Whether the assessee is carrying on business or profession in a leased building or other rights of occupancy ? (ii) Whether the assessee has incurred any capital expenditure for the purpose of business on the construction of any structure or doing of any work in or in relation to and by way of renovation or extension or improvement in the building ? 24. If the answer to the aforementioned questions is in affirmative, the assessee falls within the purview of Explanation 1 to section 32(1). In the instant case, it is an admitted fact that the assessee has taken land on lease for setting up of service stations. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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