TMI Blog2010 (6) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... ted against the common order passed by the CIT(A)-II, Hyderabad dated 24.12.2009 for the assessment years 2003-04, 2005-06 and 2006-07. Since common issues arise for consideration in all the three appeals, we heard the same together and disposing of the same by this common order. 2. Shri A. Patra, the learned departmental representative submitted that the only issue arises for consideration is the expenditure incurred by the assessee in renovation of the Cinema Theatre building taken on lease. According to the learned departmental representative, the assessee has taken on lease a theatre complex consisting of five cinema theatres from M/s Satyam Sayi Corporation (P) Ltd,. During the assessment year under consideration, the assessee has incurred substantial amounts towards consultation charges, interior design, modernization, changing of floor tiles, false ceiling, landscaping, chairs, earth filling etc. According to the learned departmental representative, these expenditures were incurred by the assessee for obtaining enduring benefit. The learned departmental representative further submitted that the expenditure incurred by the assessee brought into existence a capital asset for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng works, false ceiling repair, seat repair, pest control, house keeping material, theatre cleaning, charges on bandobust and fixing of chairs etc. According to the learned counsel for the assessee, these expenditures are absolutely necessary for the purpose of carrying out its business. These expenditures are incurred in the process of earning the profit and not in the process of acquiring any capital. For the assessment year 2005-06, the assessee has also incurred expenditure in repairing the canteen compound wall, under ground work, sump repairing, water roofing of ceiling, theater patch up work, exterior painting etc. Similarly, for the assessment year 2006-07, the assessee has incurred expenditure in fixing aluminum panel, scrambling, change of wall papers and also paid consultancy charges while repairing the false ceiling etc. Further, the learned counsel for the assessee submitted that this expenditure was incurred only for the purpose of carrying on the business in an effective and profitable manner and not for the purpose of acquiring any new asset. Placing reliance on the judgement of the Apex Court in the case of CIT Vs. Madras Auto Service (P) Ltd., 233 ITR 468, the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on repair of the cinema theatre taken on lease, whether the assessee is entitled for deduction of the expenditure incurred on such repair as Revenue expenditure or it has to be treated as capital expenditure, in view of explanation 1 to Sec.32 of the IT Act. We have carefully gone through the Explanation 1 to Sec.32 of the IT Act which reads as follows: "Explanation 1: Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purpose of the business or profession 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, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee." 5. This Explanation to Sec.32 was introduced in the Statute Book by Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 1.4.1988. By introduction of this Explanation, the Legislature intended to give depreciation on the capital expenditure incurred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture in relation to renovation, extension or improvement of the premises taken on lease continued to be the same w.e.f. 1.4.1971. Therefore, whenever the assessee incurred the expenditure, in the process of earning profit while carrying on the business in the leased premises, the expenditure has to be treated as revenue expenditure and either section 32(1A) or Explanation 1 to Sec.32 would not come in the way of allowing the same as Revenue expenditure. However, when the assessee incurred the expenditure which is of capital in nature, then the Parliament gives a benefit to such assessee for claiming the depreciation on such capital expenditure in relation to renovation, extension or improvement w.e.f. 1.4.1971 u/s. 32(1A) and under the Explanation 1 to Sec.32 w.e.f. 1.4.1988. Therefore, this is a benefit conferred on the assessee who took the premises on lease and incurred expenditure in the capital field. However, as explained earlier, in case, the expenditure falls in the revenue field, the assessee is entitled to claim the same as revenue expenditure irrespective of Sec.32(1A) or Explanation 1 to Sec. 32 of the Act. This was so explained by the CBDT in its circular. 8. By keep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this specific provisions in the I T Act whenever the assessee incurred expenditure for repairing the premises taken on lease it has to be allowed u/s 30(a)(i). However, the amount incurred by the assessee otherwise than as a tenant in respect of current repairs has to be allowed u/s 30(a)(ii). By Explanation, the Legislature clarified that any expenditure which is in the nature of capital expenditure cannot be included while allowing the same u/s 32(a)(i) and 32(a)(ii). Therefore, it is very clear that whenever the assessee incurred expenditure for repair and maintenance of a building taken on lease for carrying on its business activity, it has to be allowed u/s 30(a)(i) provided the same does not falls in the capital field. In case, the expenditure was in the capital field then such an assessee is entitled for depreciation either u/s 32(1A) or under Explanation 1 to Sec.32 w.e.f. 1.4.1971. Before 1.4.1971, the capital expenditure incurred by the assessee has to be totally disallowed and such assessee was not eligible to claim depreciation. 10. We find that an identical fact was examined by this Tribunal in the case of P.S.B. Vs. Inspecting Assistant Commissioner (1941) 35 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee s claim has to be allowed u/s 30(a) (i). The Delhi High Court further observed that the question of disallowing such expenditure and relegating the assessee to claim depreciation u/s 32 does not arise. In fact, His Lordship Hon'ble Mr. Juned Badar Durrez Ahmed speaking for the Division Bench has observed as follows: "After having considered the arguments advanced by learned counsel for the parties and examined the decisions cited by them, we are of the view that the assessee s claim for deduction u/s 30(a)(i) has been rightly allowed by the Tribunal. The decisions cited by the learned counsel for the Revenue relate to current repairs . There is a clear distinction between the expression repairs and expression current repairs . It is obvious that the word repairs is much wider than the expression current repairs . This fact has also been taken note of the Supreme Court in the case of Saravana Spinning Mills (P) Ltd. (2007) 293 ITR 201. The expression current repairs is much more restricted than the word repairs because the latter is qualified by the word current . What the assessee has done in the present case has been construed to be repairs by the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mfortable for cine goers. Therefore, the expenditure incurred by the assessee is only for carrying on the business of exhibiting feature films. Therefore, the expenditure incurred by the assessee was an integral part of profit earning process. Therefore, it is not correct to say that the assessee has obtained any enduring benefit because of this expenditure. The assessee can use the premises taken on lease only during the lease period as found by the assessing officer. After expiry of the lease period, the assessee has to leave the entire thing as it is and handover the same to the lessor. The nature of work undertaken by the assessee is to carry on the business and not to obtain any asset. Furthermore, as already observed, no capital asset of enduring nature came into existence. In other words, the assessee has not acquired any asset/ income earning apparatus. It is well settled principles of law that the expenditure incurred for acquisition of an asset is capital expenditure and expenditure incurred in the process of earning profit is revenue expenditure. In the case before us, the assessee incurred the expenditure in order to attract more customers and make the customers comfort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee for purchase of looms hours was in the nature of capital expenditure or revenue expenditure. The Apex Court after considering the entire relevant provisions of the Income-tax Act found that the expenditure incurred by the assessee for purchase of loom hours represented revenue expenditure and was allowable as deduction u/s. 10(2)(xv) of the Incometax Act, 1922. In fact, the Apex Court observed as follows: " . There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture for paneling of the walls and repair the staircase and restaurant. The also repaired the lawn, booking office, visitors stand, etc., and claimed the expenditure as revenue expenditure. The Punjab Haryana High Court after considering the case-laws on the subject found that the assessee incurred the expenditure in order to carry on his business. The business of the assessee being a show of cinema, the assessee has to incur the expenditure in order to attract customers. The High Court further observed that it was essential to keep the building in a tip-top condition so as to attract the customers to come to the cinema theatre. Accordingly it was held that the expenditure incurred by the assessee was revenue in nature. This judgement of the Punjab Haryana High Court was considered by another Bench of the very same High Court in the case of Silver screen Enterprises vs. CIT (1972) 85 ITR 578. In this case the assessee took a cinema house on lease. The assessee incurred the expenditure for repairing chairs, sanitary fittings, electricity fittings, etc. The Punjab Haryana High Court held that the expenditure incurred by the assessee was in the nature of capital expenditure. Ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure such as payment for internal furnishing, painting and polishing work, dismantling of old false ceiling, fees for internal design, lift, etc., was found to be spent for making the work place suitable and comfortable so as to carry on the business effectively and profitably. The Tribunal observed that this expenditure was certainly not incurred for acquiring any asset or addition of enduring nature. Therefore, this Tribunal held that the amount spent by the assessee for repair and renovation cannot be considered as capital in nature and, therefore, it is outside the purview of Explanation (1) to section 32(1) of the Act. 21. In this case also it is not the case of the Revenue that the assessee incurred any expenditure with regard to reinforcement of the structure of the building. Admittedly the expenditure incurred by the assessee with regard to change of marble flooring, earth filling, under ground slump repair, drainage and cable work, wall paper fixing, ceiling repair, replacement of damaged chairs and refixing of chairs and paid consultancy charges also for carrying on the false ceiling repair. As found by the Delhi Bench of this Tribunal, these expenditures are only f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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