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TMI Blog2022 (11) TMI 734X X X X Extracts X X X X X X X X Extracts X X X X ..... as revenue expenditure which were disallowed by the assessing officer and treated as capital expenditure and accordingly these amounts were added in the income of the assessee for the assessment of the respective Assessment years. 5. The respondent - assessee is engaged in business of manufacturing and sale of pizza and other related fast food items under the brand name of "Dominos" and non-alcoholic beverages from its retail outlets across the country. The total number of retail outlets are said to be about 129. In the appeal filed by the respondent - assessee, under Section 246 A of the Income Tax Act, 1961 (hereinafter referred to as "the Act, 1961"), the Commissioner of Income Tax (Appeal) New Delhi, exhaustively examined and discussed the matter and held as under : "5.2 Ground 6 and 7 5.2.1 These grounds are related to the disallowance of Rs.47,37,14,260. The appellant in his computation in his profit and loss account had claimed a total expenditure of Rs 66,67,14,696 on existing outlets which were operational during the year under consideration. The assessing officer during the assessment had examined the nature of these expenses. The appellant himself had classified th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... View of Explanation 1 to section 32(1), the expenditure could not be claimed to be revenue expenditure for reason only that it is in relation to a property of which the assessee is a lessee and if the expenditure is incurred in respect of predominantly fixed capital assets, the expenditure cannot be claimed to be revenue expenditure for reason only that it facilities the assessee's business. In the instant case, the expenditure being in the nature of extensive renovation beautification of the stores value a much high cost and also an enduring benefits. (iv) The lease made for various stores are generally for an initial period of three years tenure with a right to the lessee to repair and renovate as per the assessee company's business requirements. The assessee has incurred certain expenses for customizing the leased premises for its use and an amount of Rs. 47,37,14,260/- has been debited to the Profit & Loss Account and considered as revenue in nature. The assessee submitted that incurring of such expenditure had not given rise to any fresh capital asset but was only to give a better look to its business premises to attract customers and cater to the taste of clientele an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purposes of eligibility under the Income-tax Act. The AO has also led the argument that the appellant had been claiming these expenses as being of capital nature during the assessment year 2012-13. The appellant in his reply has stated that the erroneous classification need not be perpetuated in the subsequent years. Reliance on the jurisdictional high courts decisions which have also held this proposition as correct have been given by the appellant. 5.2.3 The arguments of the assessing officer presented in the assessment order and the submissions of the appellant have been examined. The quoted case law to the extent, the same are relevant have also been considered. It is seen from the nature of business of the appellant that the appellant is a franchise of Dunkin Donuts and Domino's Pizza. The appellant takes a bare shell premises on lease from various cntities during the ycar. It is also evident that the Domino's store is required to have a specific and outlook., Therefore in order to run a Dominos outlet, the appelant is necessarily required to make extensive modifications in the premises which has been obtained on lease for the purposes of the store. Modificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on account of current repairs referred to in sub-clause (ii), of clause (a), shall not include any expenditure in the nature of capital expenditure. 5.2.5 It is noted that the expression used in sec.30(a)(i) refers to the term repairs in relation to a tenant whereas 30(a)(ii) per se refers to the term current affairs. As a result, the expenditures falling in term repairs are to be seen in a wider context when examining the same from the point of view of a tenant. It is so because being a lessor, the tenant is not the owner of the property. Therefore, he is not entitled to expend more or more liberally for repairs or renovations. The AO in his order refers that the aforesaid expenses do not lie within the ambit of current repairs. It is however seen that Sec. 30 talks of the term repairs for tenant and not current repairs. In the case of CIT V. Hi Line Pens (P.) Ltd. (2008) 175 taxman 132 (DHC), the jurisdictional Delhi High Court had held as under: "4. The facts of the case are that the assessee had claimed the aforesaid expenditure of Rs. 14,03,835 as a deduction under section 30(a)(i) of the said Act. The expenditure was in respect of tenanted premises which had been taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the very nature of his status as a tenant, not undertake expenditures as would endure beyond his likely period of tenancy or create a new asset. Whereas, an owner may undertake expenditures so as to even bring about new assets of capital nature. It was, therefore, necessary to qualify the expenditure on repairs. The deduction was, therefore, limited to expenditure on current repairs only. It follows, therefore that the cost of repairs that have been incurred by a tenant in respect of such premises would have to be allowed under section 30(a)(i). The question of disallowing such an expenditure and relegating the assessee to claim depreciation under section 32 does not arise. The assessee has not claimed depreciation. It has claimed deduction under section 30(a)(i). Once the assessee's claim falls within that provision there is no question of considering the question of applicability of section 32. Consequently, the question that has been framed is answered in favour of the assessee and against the revenue. The appeal is dismissed." 5.2.6 In the case of Installment Supply (P) Ltd vs. CIT [1984] 17 Taxman 172 (Delhi), the Hon'ble Delhi High Court held "7. The Tribunal afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Del/2018 for the A.Y. 2013-14 and appeal No.612/Del/2019 relating to A.Y. 2012-13. Both the aforesaid appeals were decided by the Income Tax Appellate Tribunal, Delhi Bench I - 1, New Delhi, by the impugned common order dated 08.12.2021. The Tribunal concurred with the view taken by the CIT (Appeal) and noticing the facts in brief, held as under : "6. The sole controversy is with respect to treatment of expenditure on account of leasehold improvement considered by AO as capital expenditure. 7. During the course of assessment proceedings and on perusing the computation of income, AO noticed that assessee had claimed deduction u/s 37 of the Act of Rs.47,37,14,260/- on account of leasehold improvements. Assessee was asked to justify the claim of expenditure as Revenue in nature. Assessee made the submissions which was not found acceptable to AO. AO noted that assessee has done massive level improvements costing a very huge amount resulting into the creation of assets, meeting with the international parameters for obtaining and running the stores of Dominos Pizza and Dunkin Donuts - chain of restaurants and takeaways which according to AO has resulted into creation of asset with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial available on record. The issue in the present ground is with respect to the treatment of expenditure which has been considered by AO to be of capital in nature as against the claim of the assessee of being revenue in nature. We find that CIT(A) after considering the detailed submissions of the assessee has given a finding that considering the nature of business of the assessee, the modifications done in the various lease premises taken by the assessee for the purpose of business did not create any new asset, the expenditure of renovation and repairs of stores assumed a character of revenue in nature and the expenditure incurred by the assessee was necessary for the purpose of business and squarely fall u/s 37(1) of the Act. Before us, no fallacy in the findings of CIT(A) has been pointed out by Revenue. The case law relied upon by Revenue is distinguishable on facts and therefore not applicable to the present facts of the assessee. In such circumstances, we find no reason to interfere with the order of CIT(A) and thus the Ground of Revenue is dismissed. 12. In the result, appeal of the Revenue is dismissed." 8. We find that the findings recorded by the CIT (Appeal) as af ..... X X X X Extracts X X X X X X X X Extracts X X X X
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