Madras H.C : The repairs and renovation expenses incurred on the leased business premises as capital expenditure

High Court Of Madras

Thiru Arooran Sugar Ltd. vs. DCIT

Section 32(1)(ii)

Chitra Venkataraman & Jaichandren M. JJ

TC(A) NO 197/05

26th July, 2011

Chitra Venkataraman J.

The assessee has preferred the present tax case (appeal) as against the order of the Income-tax Appellate Tribunal, raising the following substantial question of law :

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the repairs and renovation expenses incurred on the leased business premises as capital expenditure ?”

The assessee, herein, who is in occupation of the leased premises, carried on renovation work by providing false ceiling and furniture modification to the extent of Rs. 1.71 lakhs and Rs. 9.19 lakhs. The assessee claimed that they were eligible for depreciation at 100 per cent. However, this expenditure wa treated as capital expenditure. Thus, the assessment made on the assessee holding that part of the furniture and f ttings were eligible for depreciation at the rate of 10 per cent. Aggrieved by the same, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), who agreed with the contention of the assessee and deleted th addition made. As against the order of the Commissioner of Income-tax (Appeals), the Revenue preferred an appeal before the Income-tax Appellate Tribunal. Distinguishing the judgment relied on by the assessee in the case of CIT v. Kisenchand Chellaram (India) P. Ltd. reported in (1981) 130 ITR 385 (Mad), the Tribunal held that after the amendment to Explanation 1 to section 32(1)(ii) of the Income-tax Act, the said judgment could not be of any assistance of the assessee’s case and, hence, only the Explanation would apply. In the circumstances, the Tribunal held that the assessee was entitled to depreciation at 10 per cent. Accordingly, the matter was remit-ted back to the Ass ssing O ficer for recomputation. Aggrieved by the same, the assessee has preferred the present tax case (appeal).

Learned counsel appearing for the assessee placed reliance on the decision of this court reported in CIT v. Ayesha Hospitals P. Ltd. (2007) 292 ITR 266 (Mad), wherein in respect of the claim made for the assessment year 1991-92, the assessee claimed the amounts spent on painting, relaying of the damaged floors, partitions, etc., as revenue expenditure. On an appeal before this court by the Revenue, it was pointed out that the assessee incurred expenditure for relaying of the damaged floors, painting and partition in respect of the leased property. Referring to the decision of the apex court reported in CIT v. Madras Auto Service P. Ltd. (1998) 233 ITR 468 (SC), this court pointed out that the expenditure incurred in respect of the maintenance of the leased premises was deductible as revenue expenditure.

As regards the contention taken by the Revenue placing reliance on Explanation 1 to section 32 (1)(ii) of the Income-tax Act, which was inserted with effect from April 1, 1988, this court pointed out that the Explanation is an exceptional one which permits depreciation in cases where the assessee does not own a building, in respect of which the assessee incurs capital expenditure 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.

Applying the above said decision of this court to the facts of the present case, we hold that the temporary structure by means of false ceiling and office renovation had not resulted in any capital expenditure. The benefit of the above said decision of this court hence, applies to the facts of the case. Accordingly, the question is answered in favour of the assessee and the tax case (appeal) stands allowed. No costs.

[Citation : 350 ITR 324]