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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 ..... sed premises is to be treated as revenue expenditure in spite of Explanation 1 to Section 32 of the Act ? And 2. Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the expenditure incurred on vasthu consultancy for setting up of a new office is to be treated as revenue expenditure ?" 4. Ms.Sree Lakshmi Valli, learned counsel for the respondent - 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. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 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 tax has to be computed and not only that, the rate of depreciation is to be ascertained and a complete reworking has to be done by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough 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 their contention, the assessee referred to the decisions in the case of (i) CIT Vs. Ooty Dasaprakash [reported in (2000) 110 Taxmann 275 (Madras)]; and (ii) CIT Vs. Kishan Chand Chellaram (India) P. Ltd. [reported in 130 ITR 385 (Madras)] and few other d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 one taken by the CIT(A) in respect of both the issues. Accordingly, the appeal filed by the Revenue before the Tribunal was dismissed. 18. Mr.Karthik Ranganathan, learned Standing Counsel for the Revenue is right in his submission that the Tribunal has not given any independent reasons as to why the order passed by the CIT(A) needs to be sustained. 19. It is true that the Tribunal, while affirmin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect 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 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." 25. A reading of the above Explanation clearly shows that where the business or profession of the assessee is carried on in a building, which is not owned by him, but has been leased out, in respect of which the assessee holds a lease or other right of occupancy, if any expenses are 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 rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 whether the assessee has acquired any enduring benefit by putting the refurbished building to use over a period of time in accordance with the agreement entered into between the assessee and the building owner. 25. So far as the question regarding the expenditure incurred by the assessee for refurbishing the building taken on lease is concerned, we are of the considered opinion that after the introduction of Explanation 1 to Section 32(1) of the Act, there is no scope left at all for any interpretation since, by a legal fiction, the assessee is treated as the owner of the building for the period of his occupation. This means that by refurbishing, decorating or by doing interior work in the building, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 31. Furthermore, 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, by legal fiction, the assessee is treated as the owner of the building for the period of their occupation. 32. The learned counsel for the assessee submits that the matter may be remanded to the Assessing Officer or the CIT(A) to en ..... X X X X Extracts X X X X X X X X Extracts X X X X
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