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TMI Blog2019 (8) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... and also consultation charges. These details were once again placed before the CIT(A), when the assessee filed appeal against the assessment order. The CIT(A) took note of the various categories of expenses incurred by the assessee and from the details given in paragraph 5 of the order passed by the CIT(A) dated 09.7.2007, it is clear that the assessee had spent substantial funds in creating office space with a particular design to suit their requirement. In fact, the assessee had also admitted that they were granted agency by M/s.Malaysian Airlines and that they had to design the showroom with a particular design as instructed by the said Airlines. The expenses, which were incurred, clearly show that they are fixed and are capital in nature and that the test applied by the CIT(A) to state that the assessee cannot remove the same at the time of vacating the premises is an incorrect test applied by the CIT(A) because the CIT(A) did not take note of Explanation 1 to Section 32 of the Act. In the light of the said Explanation, it has become immaterial as to whether the assessee is the owner of the building or the lessee and there is no scope left for any interpretation since, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent assessee has raised a preliminary objection with regard to the maintainability of the appeal on the ground that the appeal cannot be pursued any further by the Revenue on account of low tax effect. In this regard, the learned counsel has referred to the circular issued by the Central Board of Direct Taxes in Circular No.3 of 2018 dated 11.7.2018. By referring to paragraph 4 of the said Circular, it is submitted that for the purposes of the said Circular, 'tax effect' means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of the issues, against which, appeal is intended to be filed. Further, 'tax effect' shall be tax including applicable surcharge and cess. However, the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. 5. The learned counsel for the respondent assessee has referred to a memo signed by her dated 11.6.2019. The contents of the memo are quoted as hereunder : 1. In the above tax case appeal, an assessment order was passed under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than the limit of ₹ 50 lakhs prescribed in the said Circular and therefore, the Revenue cannot prosecute this appeal any further. The learned counsel for the respondent assessee has also referred to the order passed by the Assessing Officer under Section 154 of the Act dated 27.3.2012 to substantiate her contention that the tax and surcharge on total income has to the reckoned as ₹ 2,76,66,350/- consequent upon the order passed by the CIT(A) dated 09.7.2007. 7. The learned counsel for the respondent assessee has referred to a judgment rendered by a Division Bench of this Court, to which, one of us (TSSJ) is a party, in the case of CIT Vs. Ormed Medical Technology Ltd. [TCA.No.901 of 2008 dated 18.4.2018]. With the above submissions, the learned counsel for the respondent assessee prays for dismissal of this appeal. 8. Mr.Karthik Ranganathan, learned Standing Counsel for the Revenue submits that if the appeal filed by the Revenue is allowed, the order passed under Section 154 of the Act dated 27.3.2012 would become infructuous, that and consequently, the order passed by the Assessing Officer has to be restored and the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment was completed under Section 143(1) of the Act on 10.12.2004. In the meanwhile, a notice was issued under Section 143(2) of the Act on 08.10.2004 requesting the assessee to furnish various details, pursuant to which, the assessee, through their authorized representative (chartered accountant) appeared in person, furnished the details and produced the books of accounts and bills for repairs and maintenance. The Assessing Officer, on perusal of the records, which were placed before him, examined the same based on the various establishments, which the assessee had through out the country and accordingly completed the assessment vide order dated 10.3.2006. 12. Aggrieved by that, the assessee filed an appeal before the CIT(A) contending that the expenses incurred by them for doing the interiors of the premises taken on lease cannot be treated as a capital expenditure, but as a revenue expenditure. However, during the course of arguments before the CIT(A), the assessee conceded that certain expenditure can be capitalized and requested for depreciation and in respect of other expenses, they stated that they should be treated as revenue expenditure. In support of thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt any expenditure incurred by the assessee towards creation of any capital asset or obtaining an enduring benefit. Accordingly, the appeal filed by the assessee was partly allowed and the Assessing Officer was directed to modify the assessment order by allowing the amounts of ₹ 60,42,076/- and ₹ 87,14,311/-. 16. The Revenue preferred an appeal before the Tribunal seeking to set aside the order passed by the CIT(A) and to restore the order passed by the Assessing Officer. However, the Tribunal dismissed the appeal filed by the Revenue by the impugned order. Hence, the Revenue is before us. 17. On a reading of the impugned order passed by the Tribunal, we find that the Tribunal referred to the order passed by the Assessing Officer in paragraph 2 of its order and the order passed by the CIT(A) in paragraph 3, and extracted the relevant portions of the order passed by the CIT(A) in paragraph 4 and the findings of the Tribunal appear to be in paragraph 6. All that the Tribunal stated is that the Departmental Representative could not place any justifiable reasons or contra material to convince the Tribunal to take a different view than the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that the entire details were furnished before the CIT(A) and if at all this Court comes to the conclusion that the effect of Explanation 1 to Section 32 of the Act has not been considered, the matter may be remanded to the CIT(A) or to the Assessing Officer for a fresh consideration. 24. Section 32 of the Act deals with depreciation. Section 32(1A) of the Act was inserted by the Taxation Laws (Amendment) Act, 1970 with effect from 01.4.1971. It was omitted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 with effect from 01.4.1988. By the same Amendment Act, 1986, Sub-Section (1A) stood interpolated as Explanation 1 to Section 32 of the Act with effect from 01.4.1988. Explanation 1 to Section 32 of the Act reads as follows : 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had incurred substantial expenditure towards renovation leading to enduring benefit and that they are not merely repairs and ultimately rejected the contention raised by the assessee. 28. In the decision of the Kerala High Court in the case of Indus Motors Co. (P) Ltd., the Division Bench elaborated the effect of Explanation 1 to Section 32 of the Act. As the Division Bench entertained a doubt as to the correctness of the decision of the Division Bench of the Kerala High Court in the case of Joy Alukkas India Private Limited Vs. ACIT [ITA. No.230 of 2013 dated 20.1.2014], the matter was referred to a Full Bench. We quote the relevant portions in the decision of the Division Bench in the case of Indus Motor Co. (P) Limited, which read as hereunder : 24. According to us, on a reading of Explanation, it is categoric and clear that so far as the expenditure incurred as contemplated in the Explanation is concerned, a legal fiction is created, by which, the assessee enjoying a lease hold right on a building is treated as the owner of the building. So, according to us, the question to be considered in such a case is wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee for the period of occupation and therefore, it is a capital expenditure and not revenue expenditure. 30. The factual position has been pointed out by us in the preceding paragraphs and it will be worthwhile to reiterate that the entire details of the expenditure incurred by the assessee for all the branch offices spread over the country were produced before the Assessing Officer. The expenses incurred were for providing furniture, interior decoration and office equipment and also consultation charges. These details were once again placed before the CIT(A), when the assessee filed appeal against the assessment order. The CIT(A) took note of the various categories of expenses incurred by the assessee and from the details given in paragraph 5 of the order passed by the CIT(A) dated 09.7.2007, it is clear that the assessee had spent substantial funds in creating office space with a particular design to suit their requirement. In fact, the assessee had also admitted that they were granted agency by M/s.Malaysian Airlines and that they had to design the showroom with a particular design as instructed by the said Airlines. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Joy Alukkas India (P) Ltd., had to confine to the facts of that case. Further, the relevant portions in the judgment rendered by the Full Bench in the case of Indus Motors Co. Pvt. Ltd., read as follows : 33. As has been observed above, whether an expenditure incurred by assessee in a particular case is a capital expenditure or revenue expenditure has to be decided on the facts of that case by applying the relevant tests. Explanation 1 to Section 32(1)(i) does not intend to lay down that whenever expenditure has been incurred by the assessee for the purpose of business or profession on the construction of any structure or doing of any work in or in relation to or by way of renovation or improvement to the building, then such expenditure has to be mandatorily treated as capital expenditure. The explanation only meant that in the event any capital expenditure is incurred by the assessee, the provisions of Section 32 (1) shall be applicable as if the said structure or work is a building owned by the assessee. We thus answer the reference holding that the ratio of the judgment of the Division Bench in Joy Alukkas case as expressed in paragraph 28 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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