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TMI Blog1984 (7) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the business carried on by the assessee-firm is mentioned in clause (3) of the partnership deed, which is reproduced below : " That the business of the firm shall be of commission agents, distributors and procuring of agencies in various items including that of electrical goods and appliances, publishing and distribution of books, dealing in paper, medicines and pharmaceuticals, cloths and garments, manufacture of steel furniture, shutters, etc., business of real estate, procuring properties on lease, letting out of properties, operation of hotels, motels, etc. The firm can do such other business either in addition to or in substitution of any or all of the aforesaid business which the partners may decide to do from time to time. " 3. Subsequently, the assessee entered into an agreement with the Punjab and Sind Bank. As per the terms of this agreement, the bank agreed to advance certain amounts to the assessee, which the latter was to utilise in the renovation and reconstruction of 34, Mahatma Gandhi Marg, with a view to make it fit for the use by the Bank itself. After the completion of the renovation and the reconstruction, the premises were to be let out to the bank on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely, Harish Tandon (HUF). It was further submitted before him that the rental income from the bank had been assessed as the assessee's business income and, therefore, the expenses should be treated incidental to the business and of revenue nature. The AAC agreed with these submissions and directed the deletion of the additions. 5. The department is now in appeal before us. The submission of the learned departmental representative, based on a number of decided authorities, was that the expenses clearly were of capital nature, while, on the other hand, the submission of the learned counsel for the assessee was that they were of revenue nature. We have, therefore, to decide between these rival claims. The facts, as stated above, are not in dispute and the question clearly is one of law. We have, therefore, to consider the various cases on the point and then come to a legal conclusion. It will be relevant to mention here that emphasis from the side of the assessee was led on the submission that the assessee had incurred the above expenditure as commercial expediency with a view to improve its business premises, which was its business asset in order to exploit it in a commercial manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance. " The Court further observed at page 343 of the report that there was no finding that the lease in favour of the assessee was a perpetual lease so that the advantage acquired by him by structural changes could be said to be of enduring nature. 7. From the above, it is clear that the Court came to the conclusion that the expenditure was of revenue nature mainly on the ground that a tenant was not entitled to any depreciation allowance on the expenditure incurred by it in construction of a property. The Court was, however, conscious of the fact that even in the case of a tenant, there can be an advantage of enduring nature in case the tenant had obtained a perpetual lease of the property from its own landlord. There is, therefore, no universal principle, as was canvassed before us on behalf of the assessee, that in the case of a tenant there could never be a capital expenditure with reference to the premises taken on rent. Each case has to be examined on its own merits. With regard to the allowance of depreciation to a tenant, an amendment has been made to the Income-tax Act. Sub-section (1A) has been introduced in section 32 of the Act by the Taxation Laws (Amendment) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his own to remodel the building or build it anew. But the assessee was prepared to do the demolition and reconstruction, if allowed, at its own cost and expense. The landlord was agreeable to this course, if the assessee were willing to forego the ownership of the new building, even as it was being raised brick by brick [emphasis supplied]. The assessee found it worthwhile accepting these terms, because the landlord was willing to grant the lease on a long-term basis. The assessee incurred certain expenditure in the reconstruction. The question arose whether it was capital or revenue. It was held that entire expenditure was revenue in nature. The decision went against the department for the asset belonged to the landlord brick by brick from the very beginning. The whole money was lost to the assessee as soon as the expenditure was incurred. In the case before us, we have already quoted above the letter to the landlord which states that only on the expiry of the lease, the property as stood on that date shall become the property of the lessor without any charge or claim from the assessee. The above decision of Madras High Court, is also, therefore, distinguishable on its own facts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came up for the consideration of Andhra Pradesh High Court in an earlier decision in Sri Rama Talkies v. CIT [1966] 59 ITR 63. In this case also, the assessee, who had constructed and was running a cinema theatre on a land taken on lease, had incurred certain expenditure on extensive renovations to the theatre. It was held that the expenditure had been incurred for giving an enduring advantage to the assessee to keep pace with or outstrip in the competition with a new theatre which had recently sprung up, and the expenditure must be deemed to be in the nature of a capital expenditure. 13. Similar view was taken by the Madras High Court in the case of Southern Agencies Ltd. v. CIT [1962] 45 ITR 602. In this case, the assessee had taken certain buildings on lease and expended moneys to improve them and make them fit for use as guest houses to accommodate its guests and claimed the moneys so spent as deductions in computing its profits. The Tribunal held that the expenditure was capital in nature. This view was accepted by the High Court. 14. Apart from the above, even section 32(1A) clearly suggests that there can be an expenditure in the case of a tenant, otherwise the sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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