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TMI Blog1992 (10) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Act, 1961 ? 3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was legally justified in holding that the expenditure of Rs. 34,606 on repairs and renovations of the administrative block of the assessee's building was not admissible as current repairs under section 30(a)(ii) of the Income-tax Act, 1961 ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the development rebate was not admissible on Rs. 21,76,873 being the enhanced cost of machinery supplied by the S.T.C., New Delhi ? 5. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the sum of Rs. 14,682 was in the nature of entertainment expenditure within the meaning of section 37(2) of the Income-tax Act, 1961 ? The questions referred at the instance of the Revenue are as follows: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the commission paid to the bank for securing guarantee for payment of purchase tax was an allowable deduction under section 37(1) of the Income-tax Act, 1961 ? 2. Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question No. 1 is answered in the affirmative and against the assessee. Question No. 2 is also similar to question No. 1. Here again, the assessee had to furnish guarantee for securing payment of income-tax and it paid a commission of Rs. 3,000 in order to obtain the guarantee. The claim was disallowed by the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal. This disallowance, in our opinion, is correct in view of the decisions of this court which have been referred to hereinabove. The payment of commission is essentially similar to the payment of interest on account of delayed payment of income-tax. The A commission which was payable directly related to the payment of income-tax which is not allowable as a deduction. Question No. 2 is, therefore, answered in favour of the Department. As regards question No. 3, the facts, as found by the Tribunal, are that the assessee incurred an expenditure of Rs. 28,247 on repairs and renovation of its administrative block. Besides, a sum of Rs. 6,359 was spent for providing sanitary installation. The aggregate of this amount is Rs. 34,606 which was disallowed after the authority had found that the sum of Rs. 14,472 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is evident that the amount was not spent on current repairs. Section 30(a)(ii) is not concerned with the question as to whether the nature of the expenses towards current repairs is capital or revenue. As long as the repairs which are carried out fall under the category of current repairs, then, irrespective of the fact that the repairs have been carried out to a capital asset, and may otherwise have been regarded as a capital expenditure, the said provision specifically allows deduction. Current repairs must necessarily mean repairs which are required to be carried out from time to time as and when a defect arises. If there has been wear and tear on an item, like the floors in the present case, over a number of years and ultimately they are replaced, then such replacement cannot be regarded as current repairs. The replacement may amount to renovation or repairs which may or may not be entitled to deduction under section 37 of the Act but such an expense has been rightly held by the Tribunal as not being allowable as deduction under the said head "current repairs". While referring to CIT v. Modi Industries Ltd. (No. 1) [1992] 197 ITR 517 (Delhi), learned counsel for the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as commissioned on June 1, 1966. On June 6, 1966, the Indian rupee was devalued with the result that the assessee had to incur an extra liability of Rs. 21,76,873. The question which arose for consideration was whether this additional liability should be added to the figure of the actual cost for the purpose of determining the amount of development rebate which was allowable. The Income-tax Officer did not allow this claim and the same was upheld by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. A similar question has arisen before the Supreme Court in the case of CIT v. Arvind Mills Ltd. [1992] 193 ITR 255. In that case also, the machinery was imported and the price was payable in foreign currency. The devaluation of the Indian rupee had taken place and an additional amount became payable. The question which arose was whether, for computing the actual cost of machinery, this additional amount had to be taken into account or not. The Supreme Court held that any increase or decrease in the actual cost consequent on fluctuation in exchange rate is not to be taken into account for the purposes of calculating admissible rebate. In view of the aforesaid dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses which are incurred because a guest has arrived may not be regarded as expenses incurred for maintaining a guest house. The expenses which are contemplated by sub-section (3) of section 37 are those which have to be incurred by an assessee irrespective of the fact whether a guest stays or not, or are those types of expenses which are necessary for the upkeep and running of the establishment. Provision for food and refreshment is something extra. Even though a facility for providing food is available, food is made available only if and when the guests require the same. The expense which is so incurred is an expense on the guests directly and not an expense which is relatable to the maintenance of a residential accommodation. In arriving at this conclusion, we are fortified by the decision in CIT v. Gaekwar Mills Ltd. [1992] 193 ITR 734 (Guj), where a question arose with regard to expenditure incurred on providing messing facility for employees and other merchants associated with the assessee. In this connection, the amount spent was Rs. 17,687 and the Gujarat High Court held that this expenditure was not incurred for maintenance of any residential accommodation which was in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed by the Income-tax Officer on the ground that it was in the nature of entertainment expenditure. The Income-tax Appellate Tribunal, however, followed the decision of the Gujarat High Court in the case of CIT v. Patel Brothers and Co. Ltd. [1977] 106 ITR 424 and deleted the said addition. The question of law which was referred to this court was as to whether the Tribunal was correct in holding that the amount of Rs. 7,359 was not in the nature of entertainment expenditure within the meaning of section 37(2B) of the Act. This court in Supreme Motors' case [1984] 147 ITR 48, took note of the divergence of judicial opinion prevalent among different High Courts of India on the point in issue. It was observed that, to a considerable extent, the question was one of degree and fact and held that (at page 51 ) : " Considering the claim of the assessee against the background of its turnover and profits, we are of the opinion that such a small amount incurred by the assessee, even assuming that it is for the supply of tea and cool drinks to customers, cannot be described as expenditure in the nature of entertainment expenditure. Even in the decision of the Full Bench of the Punjab High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... think, it is unnecessary to decide whether it is 'entertainment expense' or not, because the Legislature itself has clarified that from April 1, 1976, hospitality expenses are to be treated as 'entertainment expenditure'. It would follow that this type of expenditure before April 1, 1976, could be treated as a permissible deduction. We would, therefore, hold that in spite of the quantum being relatively 'high, the expense could not be treated as 'entertainment expenditure' in the circumstances of this particular line of business. " We find that the facts in the present case are similar to those of the cases of the Supreme Motors [1984] 147 ITR 48 (Delhi) and Santlal Kashmirilal [1986] 157 ITR 422 (Delhi). In the present case also, the amount which was spent on guests of the assessee represents a very small fraction of its business turnover. The expenditure which was incurred was not lavish and as held in the case of Santlal Kashmirilal [1986] 157 ITR 422 (Delhi), it could not be treated as entertainment expenditure. We are bound by the aforesaid two decisions of this court and, therefore, it is not necessary for us to consider any other decision which has been cited by Shri Gupta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s entitled to the relief with regard to the profits of its two units, namely, a new 'C' Mill and Yamunanagar Distillery. It was contended before the income-tax authority that profit had to be worked out without taking into consideration the unabsorbed losses and unabsorbed depreciation. Having failed before the Income-tax Officer and the Appellate Assistant Commissioner, the assessee succeeded before the Tribunal which came to the conclusion that the assessee was entitled to relief under section 80J on the profits of the two units mentioned above before deduction of any unabsorbed depreciation or carry forward losses. It is an admitted case that the carry forward losses had already been set off and this being so, the principle laid down by the Supreme Court in the case of CIT v. Patiala Flour Mills Co. P. Ltd. [1978] 115 ITR 640 and that of Rajapalayam Mills Ltd. v. CIT [1978] 115 ITR 777 (SC), would be clearly applicable. This question is, therefore, answered in the affirmative and against the Revenue. The next question relates to the ascertainment of the capital employed under section 801 of the Act and the Tribunal had come to the conclusion that, in such ascertainment, only th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating the carrying on of its business and must be regarded as being of revenue nature. Learned counsel for the Revenue referred to the decision of this court in the case of Hotel Diplomat v. CIT [1980] 125 ITR 781 and contended that the expenditure which was incurred on construction of additional bathrooms in that case was held to be a capital expenditure. The said case is clearly distinguishable. In the case of Hotel Diplomat [1980] 125 ITR 781 (Delhi) an indefinite lease of a building was taken by the firm from partners who were co-owners of the building. The expenditure was incurred by the firm on construction of additional bathrooms and it is under these circumstances that this court came to the conclusion that the assessee had acquired a right or an advantage of enduring nature and, therefore the expenditure had to be treated as capital expenditure. Whereas, in Hotel Diplomat case [1980] 125 ITR 781 (Delhi), the lease in favour of the assessee therein was for an indefinite period, in the present case, however, the lease was only for 11 months though renewable 10 times. The asset which came into existence on the expenditure being incurred by the assessee could not be enjoyed f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d carrying on the assessee's business. This is a case where there has been, at best, modification or adaptation of the two flats to suit the business convenience of the assessee. The expense has been incurred in order to facilitate the assessee in carrying on of his business activity more efficiently. It is difficult for us to hold that such expenditure incurred by an assessee who is a tenant for a limited period can be regarded as an expenditure which brings into existence a capital asset or a benefit of an enduring nature. It is true that the benefit of enduring nature need not be a life long benefit but nevertheless, in order that it may be said that the benefit which accrues is of an enduring nature, the benefit should be enjoyable or enjoyed for a reasonably long period of time. Counsel for the assessee has drawn our attention to the observations of the Allahabad High Court in the case of Girdhari Dass and Soils [1976] 105 ITR 339 which decision was relied upon by the Tribunal while deciding this case in arriving at its conclusion. On a rented shop, the assessee in that case incurred expenses for carrying out repairs which included making some structural changes. The question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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