9911796707
TMI Blog2007 (8) TMI 265X X X X Extracts X X X X X X X X Extracts X X X X ..... rest, agricultural income, etc. In all, for the relevant previous year, the assessee claimed an expenditure of Rs. 12,43,902 under the head "Office repairs and maintenance". During the aforesaid period, the assessee, who was occupying a rented premises had carried out certain repairs and renovation in his office premises used for the profession. The Assessing Officer, after considering the aspect of current repairs, treated the said expenditure incurred to the extent of Rs. 7,07,018 as capital expenditure and disallowed the same under section 37 of the Act. Against the decision of the Assessing Officer, dated December 30, 1998, the respondent-assessee preferred an appeal before the Commissioner of Income-tax (Appeals), Jodhpur. The Commissioner of Income-tax (Appeals), vide its order dated April 28, 1999, allowed the said appeal bearing No. 652/1998-99 and deleted the addition of Rs. 7,07,018 by holding that the office premises was not owned by the assessee as he was occupying the premises as a tenant and that he was required to incur the expenditure for repairing/renovating the office premises. The Commissioner of Income-tax (Appeals), accordingly, found that the said expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd. v. CIT [1970] 75 ITR 126. 5. The learned advocate, Mr. Singhvi, appearing for the respondent, on the other hand, submitted that on appreciation of evidence, it has rightly been held by the Tribunal as well as by the Commissioner (Appeals) that the expenditure in question is a revenue expenditure. It is also submitted that the assessee has not acquired anything by such renovations. Mr. Singhvi further submitted that it is not a case where even by such renovation the respondent has got any benefit by way of reduction in rent. It is submitted that the premises in question is a rented premises and with an object to see that the respondent can properly handle his professional work and in order to see that some more facilities are available to the clients, certain repairs were required to be carried out, which were carried out during the previous year and on that basis the assessee was entitled to claim deduction of the said expenditure as per section 37 of the Act. It is submitted by Mr. Singhvi that it is not in dispute that the renovation or repairs were carried out in the premises which were used by the assessee as office for the purposes of his profession and it is not rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement Co. Ltd. v. CIT [1955] 27 ITR 34, 47; AIR 1955 SC 89. In para 30, Their Lordships observed thus 'The fact, however, that it was a recurring payment was immaterial, because one had got to look to the nature of the payment which, in its turn, was determined by the nature of the asset which the company had acquired. The asset which the company had acquired in consideration of this recurring payment as in the nature of a capital asset, the right to carry on its business unfettered by any competition from outsiders within the area.' The aforesaid principle applies, in terms, to the present case. The assessee-company acquired the unexpired permits and thereby got rid of competition from private operators who were on the field prior to the acquisition. The investment was clearly one of a capital nature. The Tribunal correctly answered the question of law." 9. In the aforesaid: judgment, on the basis of the facts of the aforesaid case, the Orissa High Court held that the assessee-company acquired the unexpired permits and thereby got rid of competition from private operators and under the circumstances found that it was a case of capital expenditure. None the less, it was held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o acquisition of a source of profit or income which though intangible was nevertheless a source or 'spinner' of income and the amount spent on purchase of this source of profit or income, therefore, represented expenditure of capital nature. Now, it is true that if disbursement is made for acquisition of a source of profit or income, it would ordinarily, in the absence of any other countervailing circumstances, be in the nature of capital expenditure. But we fail to see how it can at all be said in the present case that the assessee acquired a source of profit or income when it purchased loom hours. The source of profit or income was the profit-making apparatus and this remained untouched and unaltered. There was no enlargement of the permanent structure of which the income would be the produce or fruit. What the assessee acquired was merely an advantage in the nature of relaxation of restriction on working hours imposed by the working time agreement, so that the assessee could operate its profit-earning structure for a longer number of hours. Undoubtedly, the profit-earning structure of the assessee was enabled to produce more goods, but that was not because of any addition or aug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee, however, had the benefit of the existing lease in respect of the new building at the agreed rent for a period of 39 years. The Tribunal has found, as a fact, that the rent as stipulated in the lease was extremely low. It has said that the area of the building was somewhere about 7,000 sq. ft. The rental rate for the area in which the building was situated was much higher and would be not less than Rs. 12,000 as against which the maximum rent the assessee would be paying was only Rs. 2,000. This concessional rent was on account of the fact that the new building was constructed by the assessee at its own cost. 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly attributable to capital when it is made not only once and for/all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade . . . If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. 3. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital.' (underlining ours) Relying upon the second test enumerated above, learned counsel for the appellant had submitted that the assessee got enduring benefit of a capital nature by spending the amount because the assessee obtained a new building for a period of 39 years. The difficulty, however, in the present case, arises from the fact that this building was never to belong to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee ; nor was there any addition to or expansion of the profit-making apparatus of the assessee. The amount was contributed for the purpose of facilitating the business of the assessee and making it more efficient and profitable. It was, therefore, revenue expenditure. In the case of CIT v. Associated Cement Companies Ltd. [1988] 172 ITR 257 (SC), the respondent-company entered into an agreement to supply water to the municipality and provide water pipelines as also to supply electricity for street lighting and put up a transmission line for that purpose. The assessee also agreed to concrete the main road from the factory to the railway station. The amounts expended for these purposes were held to be revenue expenditure since the installations and accessories were the assets of the municipality and not of the assessee. The expenditure, therefore, did not result in creating any capital asset for the company. The advantage secured by the respondent was immunity from liability to pay municipal rates and taxes for a period of 15 years. This court said that had these liabilities been paid, the payments would have been on revenue account. Therefore, the advantage secured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Associated Cement Companies Ltd. [1988] 172 ITR 257 (SC) ; CIT v. Bombay Dyeing and Manufacturing Co. Ltd. [1996] 219 ITR 521 (SC) ; L. H. Sugar Factory and Oil Mills P. Ltd. v. CIT [1980] 125 ITR 293 (SC). The principle was applied in a case where the assessee obtained certain premises for a period of 39 years. Under the terms of the agreement it was entitled to demolish the construction of the leased premises and reconstruct the premises for its own business requirement. On construction of such premises, it was to become the property of the lessor and the assessee was to pay the rent at a reduced rate as detailed in the lease agreement. The assessee raised the new building at its own cost and was running business in the said building as lessee. The Revenue has disallowed the claim of the assessee for deduction of the amount for reconstructing the building by holding it to be a capital outlay. However, the Tribunal found in favour of the assessee since the assessee had acquired no interest by way of ownership right in the newly constructed building, as under the lease agreement, it was to become the property of the lessor. The amount spent by him for constructing the building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ept in a proper condition : the professional activities are carried out effectively and smoothly for which certain repairs were carried out by the assessee in the rented premises. In our view, the quantum of expenditure is not relevant for determining the issue in question. On appreciation of evidence both the fact-finding authorities, i.e., Commissioner of Income-tax (Appeals) as well as the Tribunal, have found that the expenditure in question was a revenue expenditure. The expenditure incurred by the assessee was not for the purpose of bringing into existence any such asset or advantage but incurred for running the profession effectively and in smooth manner. It cannot be said that the expenditure was incurred for the purpose of acquiring and appreciating capital assets. In the case of CIT v. Madras Auto Service P. Ltd. [1998] 233 ITR 468, the Supreme Court has considered the expenditure as revenue expenditure where the lessee has demolished the entire structure by spending a large amount and the old structure was replaced by entirely a new one. The Division Bench of this court has also taken a similar view in the case of CIT v. Raj Spinning and Weaving Mills Ltd. [2005] 272 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
