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TMI Blog2017 (10) TMI 1530X X X X Extracts X X X X X X X X Extracts X X X X ..... en, restaurant, bar, visitors' lounge, reception, etc., while the offices are located at the second floor. The guest rooms, 57 in total, are at the remaining three floors. The repair and renovation expenses were carried out qua 18 of these rooms, six at each floor, as Phase-I of the exercise, to be carried out in parts, at the instance of the ITC group, with the declared object of upgrading it to international standards, so as to remain competitive as well as to meet the expectations of the public, a large segment of it's clients being foreigners. The Assessing Officer (AO) referred the expenditure for valuation to the Valuation Officer (VO) u/s. 142A of the Act, who valued it at Rs. 151.21 lacs (vide valuation report (VR) dated 26.06.2014/copy on record), i.e., at a minor difference of Rs. 7.84 lacs. Adopting the same, the AO, regarding the entire expenditure as capital, allowed depreciation thereon at the rate exigible to a building. The ld. CIT(A), in view of it being nominal - less than 10 per cent., deleted the difference, and also directed the AO to allow deduction as a revenue expenditure; the operating part of his order reading as under: '3.3.1 The question is whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the only definition of 'repairs' because it is only by reason of this definition of repairs that the expenditure is a revenue expenditure. If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then obviously such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure, and it is clear that the deduction which the legislature has permitted under s. 10(2)(v) is a deduction where the expenditure is a revenue expenditure and not a capital expenditure." (emphasis, supplied) The afore-stated test was endorsed and applied by the Hon'ble Apex Court in Ballimal Naval Kishore v. CIT [1997] 224 ITR 414 (SC), reproducing it, noting that the same had in fact been followed by the majority of the High Courts in India, and was, rather, in agreement with the view expressed earlier as well, as in CIT v. Darbhanga Sugar Co. Ltd. [1956] 29 ITR 21 (Patna) and CIT v. Sri Rama Sugar Mills Ltd. [1952] 21 ITR 191 (Mad). The Hon'ble Court had, once again, an occasion to consider the issue qua repair to plant and machinery, admissible u/s. 31, which is pari m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'asset' or 'block of assets' was not required to be considered to decide as to whether the expenditure incurred by the assessee is a deductible expenditure or not, further suggesting that the expenditure could be regarded as an addition to the existing assets for claim of depreciation, as in fact treated in the accounts (pg. 124). As shall be apparent from the foregoing, there has been no deviation in the law as laid down in Ballimal Naval Kishore (supra), which continuous to hold the field over the years. In the facts of that case, extensive repairs to the structure of a building, a theatre, was held as not deductible; the Hon'ble Court explaining the scope of the term 'current repairs' u/s. 10(2)(v) (of the 1922 Act), which expression occurs both in s. 30(a)(ii) as well as s. 31 of the Act, with the Hon'ble Court drawing attention to the fact that the expression used is 'current repairs' and not 'repairs'. The scope of the term having been well clarified, it reduces the debate/controversy of revenue versus capital expenditure to largely it being current repairs or not, as explained in Saravana Spinning Mills (P.) Ltd. (supra). At this stage, it may be noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the period 07/2011 to 03/2013, i.e., carried over 21 months, profiles the expenditure at Annexure 1 thereto. Its perusal reveals it to consist of 58 items under the head 'Renovation Works' (for . 140.79 lacs), and another . 3.29 lacs under Section II, titled 'Dismantling Items', while Section III is qua supervision charges, at . 7.13 lacs, aggregating thus to . 151.21 lacs. It may be noted that the difference in value, as claimed to be incurred and as evaluated by the VO, corresponds with the cost estimated for supervision expenses. Excluding the supervision cost, the VO's estimation of the cost is thus in complete agreement with that claimed, validating both, further endorsing the reliability of the said report. With regard to the nature of the 'repairs' carried out, every single aspect of the civil work as well as electrical and sanitary fittings, i.e., other than the foundation and the existing superstructure, i.e., the RCC framework and masonary (brick) work, was dismantled and redone, with of course new materials. No wonder the same works to . 8 lacs per room. This, it is further noted, is on other than the expenditure on refurbishing the rooms, incurring expenditure on f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is then said that in-as-much as the floor area of the room/s remains the same, i.e., has not increased, no new asset has come into existence. As explained in Sri Mangayarkarasi Mills (P.) Ltd. (supra), deductibility of expenditure on repairs does not necessarily entail negating the bringing into existence of a new asset. We have in fact already found as a fact the impugned expenditure to result in an advantage in the capital field, which scotches this argument, which is in fact without merit. This is as an asset as both quantitative and qualitative aspects/attributes to it. Two machines with the same production capacity may vary significantly in cost and/or price in view of the quality of their output. As common experience bears out, two pieces of land of the same area and, further, even same dimensions, cost (valued by market) differently depending upon their location, even if subject to the same construction regulations. Could one possibly compare a room (of a particular size) in a downtown lodge with a room (of the same size) in an upmarket hotel, much less in a star hotel? Why, two rooms of the same size in the same hotel may be priced differently depending on their furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X
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