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2017 (10) TMI 1530 - AT - Income TaxAllowable business expenditure - whether the building renovation expenses, incurred by the assessee is a deductible business expenditure? - HELD THAT:- It is a clear case of renovation; of substantial (if not total) replacement, so that it is not ‘repairs’ as explained in Sri Rama Sugar Mills Ltd. [1951 (5) TMI 7 - MADRAS HIGH COURT]. The account head ‘building renovation expenses’, under which the expenditure stands booked in accounts, thus, correctly describes the same, i.e., its nature. Phase-II of the modernization program, as planned, followed Phase-I, being in fact under progress at the time of inspection (for valuation) on 08.01.2014. The same may not have translated into higher revenue or yield, as sought to be emphasized by the ld. counsel during hearing, which depends on a variety of factors. Retaining the franchise; retaining or improving the market share (which would accrue only in future as the expenditure itself continues up to March, 2013 – the repair being followed by refurbishing); upgradation/improvement in facilities, are, in our view, definite advantages in the capital field. It is clear that but for the expenditure, the assessee would not be able to retain either the franchise or a competitive edge in the market, which it wishes or intends to, and the expenditure is incurred with a long term perspective, objective and goal. It rather advances the argument of the expenditure being incurred at the behest of the ITC group, to contend of the same being ‘repairs’ or revenue in nature. The argument is misconceived in-as-much as both the revenue and capital expenditure are incurred only in response to business decisions, so that that by itself would not determine the nature of the expenditure As explained in Sri Mangayarkarasi Mills (P.) Ltd [2009 (7) TMI 17 - SUPREME COURT]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 furnishing; locational advantage, as (say) sea facing, etc., or even if priced equally, attract different occupancy rates, indicating being differently valued assets of the business. As explained in C.R.Corera & Bros.[1962 (9) TMI 73 - MADRAS HIGH COURT] introduction of additional features may result in bringing a new asset or advantage into existence. In fact, to even so suggest, i.e., that no new advantage has come into existence, places a serious question on the wisdom (or the business purpose – being not for preservation or maintenance) of incurring the expenditure. It is in fact contradictory in-as-much as it is admittedly incurred to upgrade the accommodation facilities to international standards, so that it is, by implication, presently, i.e., prior to incurring the expenditure, not. - Assessee’s appeal is dismissed.
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