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TMI Blog2016 (1) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... s/2015 - - - Dated:- 29-10-2015 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER For The Appellant : Dr. Anita Sumanth, Advocate For The Respondent : Mr. M.Srinivasa Rao, CIT DR ORDER Per Challa Nagendra Prasad, JM: These two appeals are filed by the assessee against the orders of Commissioner of Income Tax (Appeals)-I, Coimbatore dated 21.07.2014 and 13.03.2015 for the assessment years 2010-11 and 2011-12 respectively. 2. The common issue in both these appeals is that Commissioner of Income Tax (Appeals) erred in upholding the order of assessment treating the expenditure incurred amounting to ₹ 10,39,58,102/- and Rs. 15,03,51,310/- on leased out premises as capital in nature liable to be disallowed. 3. The Assessing Officer while completing the assessments disallowed expenditure incurred on leasehold land by the assessee treating it as capital expenditure. This expenditure was booked under the head construction of building on leasehold land . The assessee claimed this expenditure as revenue expenditure as according to it, it is only an expenditure incurred on leasehold land for conducting business, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Asst. Year 2008-09. 8. The Assessing Officer in his order has stated that the claim of the assessee in respect of ₹ 16,97,86,606/- which is the expenditure incurred on the 'land' and 'land and building' comes under the ambit of Explanation 1 of Section 32(1) of the Income Tax Act, 1961. On going through most of the lease deed agreements entered into by the assessee with the lessor, the following were noticed : The lessee shall put-up any structure including permanent structures required for smooth conduct of their business, For such structures they should not claim any compensation from the lessor and ..... , leased property . The Assessing Officer after considering all the above facts, allowed the expenditure incurred in respect of repairs and renovation amounting to Rs.l,94,35,296/- as revenue expenditure as these are in the nature of minor repairs on the existing asset. The balance of ₹ 15,03,51,310/- was disallowed as revenue expenditure for the reason that these are capital expenditure incurred in construction of new permanent building for conducting the business in the leasehold land which gives the assessee an enduring benefit. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that identical issue has come up before the co-ordinate Bench in assessee s own case for the assessment years 2005-06 and 2008-09 in ITA Nos. 1557 1558/Mds/2011 dated 03.01.2013 and the Tribunal upheld the disallowance holding that expenditure incurred on leasehold land is capital expenditure observing as under:- 2. The brief facts of the case are that the assessee is a company registered under the provisions of the Companies Act and is engaged in the business of parcel service, Maruti dealership and service station, petrol bunk, wind energy and fettling. The assessee company for the purpose of setting up Maruti service station had taken various premises on lease throughout the State of Tamil Nadu. To make the building suitable according to its requirements, the assessee had carried out renovations, interior decoration, new construction and repairs of the buildings taken on leasehold basis. The assessee claimed the entire expenditure incurred on leased premises as revenue expenditure. For the assessment year 2005-06, the assessee claimed expenditure to the tune of ₹ 75,11,775/- towards construction/renovation of leased buildings as revenue expenditure. Similarly, for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t apply in the present case. In order to support his contentions, the counsel for the assessee relied on the judgement of the Hon ble Madras High Court in the case of CIT Vs. TVS Lean Logistics Ltd., reported as 293 ITR 432(Mad) and another judgement of the jurisdictional High Court in Tax Case (Appeal ) No.197 of 2005 titled M/s. Thiru Arooran Sugars Ltd. vs. DCIT., decided on 26.07.2011 and stated that expenditure incurred on temporary structure such as false ceiling and office renovation does not amount to capital expenditure. The counsel for the assessee further submitted that the assessee had taken several premises on lease throughout the State of Tamil Nadu for setting up of service stations. The details of some of the premises could not be supplied to the lower authorities as they were not fully compiled at that time. Now compilation has been done, the details of expenditure can now be supplied. 5. On the other hand, Dr. S.Moharana representing the department submitted that the CIT(A) has wrongly allowed amount of ₹ 28,66,775/- out of Rs. 75,11,775/- for the assessment year 2005-06 incurred by the assessee towards construction/renovation expenses as revenue expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he is not pressing the issue of reopening before the Tribunal. 8. Explanation 1 to section 32(1) which was inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 with effect from 1.4.1988 deals with the situation where the expenditure has been incurred by the assessee on construction of any structure on leasehold premises. The Explanation 1 is reproduced herein below:- [Explanation 1.-Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. 9. 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) Wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profession of the assessee in a land taken on lease by the assessee. Thus, it is clear that the ratio laid down by the Hon ble Madras High Court in the said judgement does not support the case of the assessee. 10. In the present case, the assessee has taken building on lease and made certain additions in the existing structure. It is not the case of the assessee where the assessee has constructed 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, especially when a literal reading thereof produces an intelligible result and 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. 11. The counsel for the assessee has relied on another judgement of the jurisdictional High Court in the case of M/s. Thiru Arooran Sugars Ltd.(supra). In the said case, the Hon ble High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e High Court have rightly come to the conclusion that the expenditure should be looked upon as revenue expenditure. 13. From the above judgement, we can conclude that it is essential that the expenditure incurred on the construction of any structure on the leased premises should result in saving of the revenue expenditure at the subsequent stage. In the present case, from the pleadings of both the sides, it cannot be ascertained whether the assessee is getting enduring benefit of revenue nature from the additional structure or renovation/repairs undertaken by the assessee on the leased out premises. In our considered opinion, the case of the assessee very much falls within the ambit of Explanation 1 of section 32(1) of the Act. Therefore, both the appeals of the assessee are dismissed being devoid of merit. 8. Respectfully following the said decision of the Tribunal, we uphold the order of the Commissioner of Income Tax (Appeals) in holding that expenditure incurred by the assessee on leasehold land is capital expenditure and reject the grounds raised by the assessee. 9. In the result, both the appeals of the assessee are dismissed. Order pronounced in the open c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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