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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 ..... ion 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, therefore, it is allowable as revenue expenditure. On appeal, the Commissioner of Income Tax (Appeals) sustained the disallowance following the order of the coordinate bench in assessee 's own case for the assessment years 2005-06 and 2008-09 against which the assessee is in appeal before us. 4. Counsel for the assessee submits that expenditure incurred by the assessee is only revenue expenditure and not capital expenditure. She further submits that in assessee's own case, the Tribunal already held for the assessment years 1991-92 and 1993-94 that expenditure on leasehold premises as revenue expenditure. 5. Departmental Representative supports the orders of lower authorities and heavily places reliance on the decision of co-ordinate Bench of the Tribunal for the assessment years 2005-06 and 2008-09. 6. Heard both sides. Perused orders of lower authorities and the decisions relied on. The Commissioner of Income Tax (Appeals) elaborately considered the issue of whether the expenditure incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Invoking Explanation 1 to Section 32(1), the Assessing Officer disallowed the claim of revenue expenditure and allowed depreciation treating the expenditure as capital in nature. 9. During the course of appellate proceedings, the Authorized Representative stated that with regard to the premises at Ambattur Industrial Estate, an agreement has been entered into with M/s. The Indo Swiss Synthetic Gem Manufacturing Co. Ltd. dated 01.11.2000 and the rent per sq. ft. is an amount of Rs. 1.04 only (Rs.25,000/- per month for an total area of 24,050 sq. ft). Thus the learned Authorized Representative argued that the appellant had obtained substantial benefit by way of discounted rent and this clearly amounts to a revenue benefit. This submission is supported squarely by the judgment of the Hon'ble Madras High Court in the case of Madras Auto Services (156 ITR 740). 10. I have examined the lease agreements between M/s. The Indo Swiss Synthetic Gem Manufacturing Company Limited and the appellant. It is clear that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee claimed expenditure to the tune of Rs. 75,11,775/- towards construction/renovation of leased buildings as revenue expenditure. Similarly, for the assessment year 2008-09 the assessee had claimed Rs. 65,53,204/- as revenue expenditure towards construction/renovation of building on leased premises. The Assessing Officer disallowed the expenditure as revenue and capitalized the same. The Assessing Officer allowed depreciation @ 10% treating the expenditure as capital. Apart from the above addition, the Assessing Officer inter-alia made additions on the following counts for assessment year 2008-09:- i) Excess depreciation claimed by the assessee on windmills; ii) Expenditure incurred for earning exempted income; & iii) Unexplained fixed deposits under section 68 of the Act. Aggrieved against the assessment order for the respective assessment years, the assessee preferred appeals before the CIT(A). For the assessment year 2005-06, the CIT(A) vide order dated 12.7.2011 partly allowed the appeal of the assessee. The CIT(A) held that the amount spent on construction of overhead tank, washing ramp, oil change, final inspection & wheel pit and extension of shed from exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75,11,775/- for the assessment year 2005-06 incurred by the assessee towards construction/renovation expenses as revenue expenditure. The amount has been spent by the assessee on the leasehold premises to make it suitable to carry out business in the showrooms and service centres. The assessee has failed to show any benefit of enduring nature derived from the renovation/reconstruction on the leased out premises. The DR contended that in view of Explanation I to Section 32(1) of the Act which clearly states that any expenditure incurred by the assessee on the leased premises has to be capitalized. The expenditure incurred by the assessee for the construction of new structures, repairs, renovation of existing building has to be capitalized. In order to support his contentions, the DR relied on the judgement of the Hon'ble Supreme Court of India in the case of CIT Vs. Madras Auto Service (P) Ltd., reported as 233 ITR 468(SC), the judgement of the Hon'ble Madras High Court in the case of CIT Vs. TVS Lean Logistics Ltd., (supra) and the judgement of the Hon'ble Delhi High Court in the case of Bigjo's India Ltd. Vs. CIT., reported as 293 ITR 170(Del). 6. The DR submitted that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 several buildings on lease for setting up of service stations. It is also undisputed that the assessee has carried out renovation, repair including flooring, false ceiling, sanitary works, partition, wall paneling, doors, cupboards etc. at the leased premises. The assessee has made certain changes/additions in the existing structures viz., construction of washing ramps, oil change & wheel alignment pit, extension of workshop shed for additional space, overhead tank, electrical works, demolition of walls and partitions, construction and sewage connection and renovation of shed to suit the norms of Maruti Udyog Ltd. All these construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of M/s. Thiru Arooran Sugars Ltd.(supra). In the said case, the Hon'ble High Court has referred to the construction of temporary structure by means of false ceiling and office renovation, which was held to be revenue in nature. 12. The Hon'ble Supreme Court of India in the case of Madras Auto Service (P) Ltd.(supra) while dealing with a similar controversy has observed as under:- "5. In order to decide whether this expenditure is revenue expenditure 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 spending money for such construction? The assessee got a long lease of a newly constructed building suitable to its own business at a very concessional rent. The expenditure therefore, was made in order to secure a long lease of new and more suitable business premises at a lower rent. In other words, the assessee made substantial savings in monthly rent for a period of 39 years by expending these amounts. The saving in expenditure was a saving in revenue expenditure in the form of rent. Whatever substitutes for revenue expend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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