TMI Blog2006 (8) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... f our order and after allowing the assessee reasonable opportunity of being heard in the matter. The assessee's grounds of appeal in this respect for all the three years are disposed of accordingly. Disallowance of a sum of commission and brokerage expenses - HELD THAT:- On consideration of the matter we hold that the assessee has furnished all primary details from which it appears that the assessee has incurred the expenditure in the ordinary course of carrying on of its business. No specific material has been relied upon by the Revenue for the finding given that the expenditure incurred was on the higher side. The persons to whom the payments have been made are unrelated persons and therefore, it appears that the transactions have been carried out at arm's length. We therefore direct that the full deduction as claimed by the assessee in this behalf of Rs. 6,97,800 should be allowed to the assessee. In the result, while the appeals filed by the assessee are partly allowed, appeals filed by the Revenue are dismissed. - HON'BLE S. C. TIWARI., N. K. KARHAIL , J.M. For the Assessee : M. S. Syali, V. S. Rastogi, Tarandeep Singh For the Revenue : Gopal Kamal ORDER S.C. TIW ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc. Hence the judgment of the Hon'ble Supreme Court in the case of Empire Jute Co. vs. CIT (1980) 17 CTR (SC) 113 : (1980) 124 ITR 1 (SC) did not support the case of the assessee because by this expenditure the assessee's fixed capita did not remain untouched. As a result of major renovations carried out by the assessee the appearance as well as utility of the entire premises had changed. The assessee had fabricated and erected structures that had a long life and were in themselves separate capital assets. In the audited annual accounts of the assessee this expenditure had been enumerated in schedule pertaining to fixed assets. During the course of appeal before the learned CIT(A) the assessee argued that the expenditure had been incurred for proper utilization of the leased premises, facilitating the assessee's trading operations and improvement in working conditions. The assessee claimed that no new asset had been created by this expenditure. The learned CIT(A) referred to the English judgment in the case of Vallambrosa Rubber Co. Ltd. 5 Tax Cases 529 (HL) and the judgment of the Hon'ble Supreme Court in the case of CIT vs. Ashok Leyland Ltd. 1973 CTR (SC) 9 : ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement the assessee had right to have two renewals comprising of period of three years each. Any further extension beyond nine years could be effected only if mutually agreed upon and upon fresh terms. As per cl. 10 of the agreement, the assessee could not make any major permanent additions or alterations without the written consent of AIFACS, which consent would not be unreasonably delayed or withheld. The assessee was entitled to erect temporary partitions, false ceilings, refurbish the premises, make provisions for air-conditioning, refrigeration and electrical outlets without the permission of AIFACS. However, in any event the assessee was required, on expiry of the term, to restore the premises to its original condition. The learned counsel argued that a major part of the expenditure was on such items that would be of little value if detached or removed from the leased premises. Certain facilities were acquired in the nature of built-in provision and could not be removed and transported elsewhere. The expenditure was thus building specific, it did not increase the floor area available to the assessee for use. The AO had wrongly mentioned in the assessment order that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstituted or reduced the revenue expenditure should normally be considered as revenue expenditure and held that in that case the assessee had not got any capital asset by spending the amount. The learned counsel for the assessee also placed heavy reliance upon the judgment of Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. vs. CIT and argued that it had been held by the apex Court that every expenditure that results in long-term benefit or advantage, need not necessarily be capital expenditure and if by such expenditure the fixed capital left untouched and the expenditure merely resulted into 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, the expenditure Would be on revenue account. 8. The learned counsel referred to the judgment of Hon'ble Bombay High Court reported in CIT vs. Hede Consultancy (P) Ltd. (2003) 180 CTR (Bom) 70 : (2002) 258 ITR 380 (Bom) and argued that in that case conversion of godown into office was treated to be revenue expenditure. In the case of the assessee there was conversion of erstwhile art gallery/library into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ried 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 purposes 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. Prior to insertion of aforesaid Expln. 1 w.e.f. 1st April, 1988 the IT Act contained provisions of s. 32(1A) to the same effect that were inserted by the Taxation Laws (Amendment) Act, 1970 w.e.f. 1st April, 1971 and omitted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 1st April, 1988. In this view of the matter the fact that premises are leasehold premises is not of much significance. The judgment of Hon'ble Supreme Court in the case of Madras Auto Services (P) Ltd. and of Hon'ble Delhi High Court in the case of Instalment Supply (P) Ltd. vs. CIT on which so much reliance has been placed by the learned counsel for the assessee are no longer applicable. Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the fact that the repairs have been carried out to a capital asset, and may otherwise have been regarded as a capital expenditure, the said provision specifically allows deduction. Current repairs must necessarily mean repairs which are required to be carried out from time to time as and when a defect arises. If there has been wear and tear on an item, like the floors in the present case, over a number of years and ultimately they are replaced, then such replacement cannot be regarded as current repairs. The replacement may amount to renovation or repairs which mayor may not be entitled to deduction under s. 37 of the Act but such an expense has been rightly held by the Tribunal as not being allowable as deduction under the said head' current repairs'. It would be seen that in the case of Modi Spinning Weaving Mills Co. Ltd. their Lordships were considering a case where the assessee had carried out repairs that were long overdue. There is no such aspect involved in the case of the assessee before us. Significantly in that judgment the Hon'ble jurisdictional High Court have observed that replacement of building parts on account of wear and tear over a number of years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove their Lordships have made it very clear that the position in law would be otherwise in respect of expenditure in relation to fixed capital of the assessee. The learned counsel for the assessee has emphasized before us the later part of the observations as extracted above and he argued that if the expenditure was incurred for 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, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The learned counsel conveniently omitted the expressions merely and while leaving the fixed capital untouched which are of seminal importance in relation to the law declared by the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. The rule given is that if the asset is not part of fixed capital asset, the test of enduring benefit may not be a conclusive test in relation thereto. In the present case we are dealing with building which is the most obvious and classic example of fixed capital. The observations of the Hon'ble Supreme Court in the case of Empire Jute Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son only that it facilitates the assessee's business. A business expenditure whether capital or revenue serves the same purpose i.e. to facilitate the management and conduct of business to be carried on more efficiently or more profitably. As per the judgment of Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. what distinguishes a capital expenditure from revenue expenditure is the fact that former is related to fixed capital of the assessee and the latter leaves the fixed capital untouched. 16. We therefore, have to adjudge the case before us on the basis as to 'whether the expenditure claimed by the assessee can be allowed as current repairs under s. 30 or as revenue expenditure under s. 37(1) of the Act. This aspect has been considered at length by Hon'ble Supreme Court in their judgment in the case of Ballimal Naval Kishore Anr. vs. CIT (1997) 138 CTR (SC) 284 : (1997) 224 ITR 414 (SC) in the following words: The expression used in s. 10(2)(v) is 'current repairs' and not mere 'repairs'. The same expression occurs in s. 30(a)(ii) and in s. 31(i) of the IT Act, 1961. The question is what is the meaning of the expression in the context of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g for a Division Bench of the Calcutta High Court, held that an expenditure incurred with a view to bring into existence a new asset or an advantage of enduring nature cannot qualify for deduction under s. 10(2)(v). In our opinion the test involved by Chagla C.J., in New Sharrock Spinning Manufacturing Co. Ltd.'s case is the most appropriate one having regard to the context in which the said expression occurs. It has also been followed by a majority of the High Courts inIndia. We respectfully accept and adopt the test. Applying the aforesaid test, if we look at the facts of this case, it will be evident that what the assessee did was not mere repairs but a total renovation of the theatre. New machinery, new furniture, new sanitary fittings and new electrical wiring were installed besides extensively repairing the structure of the building. By no stretch of imagination, can it be said that the said repairs qualify as 'current repairs' within the meaning of s. 10(2)(v). It was a case of total renovation and has rightly been held by the High Court to be capital in nature. Indeed, the finding of the High Court is that as against the sum of Rs. 17,000/- for which the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nference room, etc. Hence the portion of the building taken on lease by the assessee was required to be adapted to the assessee's business needs. It is apparent that the expenditure was incurred on the building so that it may yield to the assessee afresh advantage not forthcoming from the leased out premises in its original condition. The assessee had acquired premises for the period of nine years but further extension beyond nine years could also be effected if mutually agreed upon and upon fresh terms between the parties. As we have seen in view of Expln. 1 to s. 32(1), we have to ignore the fact that the premises in question are leased premises and view the nature of the expenditure as if the premises were owned by the assessee. Detailed break-up of the expenditure has been enumerated in the impugned orders of the learned CIT(A) for three years before us. Major part of the expenditure is in relation to building premises. However, certain expenditure has been incurred in relation to items of furniture, machinery and plant. Only few items such as surface coating paint, plumbing work, can be said to be in the nature of repairs. We are, therefore, of the view that the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yee and the amount paid to each payee as well as date of payment. Thus all primary details had been given to the AO. However, the learned AO still alleged that the assessee had not furnished justification for the payments and that the payments made were on higher side. The disallowance was made by the authorities below by applying their subjective standards. The learned Departmental Representative relied upon the orders of the authorities below. On consideration of the matter we hold that the assessee has furnished all primary details from which it appears that the assessee has incurred the expenditure in the ordinary course of carrying on of its business. No specific material has been relied upon by the Revenue for the finding given that the expenditure incurred was on the higher side. The persons to whom the payments have been made are unrelated persons and therefore, it appears that the transactions have been carried out at arm's length. We therefore direct that the full deduction as claimed by the assessee in this behalf of Rs. 6,97,800/- should be allowed to the assessee. 19. Ground of appeal No.4 for asst. yr. 1995-96 is directed against the disallowance of ex gratia paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o s. 43B by the Finance Act, 2003 w.e.f. 1st April, 2004, it should be treated that second proviso was never on the statute book. Respectfully following the decision of Special Bench, we delete the disallowance of Rs. 8,56.591/- made by the AO in this behalf. 21. Ground of appeal No. 3 in assessee's appeal for asst. yr. 1996-97 is directed against the assessee not being allowed interest on interest-tax under s. 12B of the Interest-tax Act, 1974 amounting to Rs. 10,369/-. During the course of hearing before us the learned counsel for the assessee argued that this deduction was allowable to the assessee in the same manner as interest-tax paid by the assessee. Merely because it was interest on interest-tax, deduction under s. 37 could not be denied to the assessee. In support of these contentions the learned counsel relied upon the judgments reported in Bharat Commerce Industries Ltd. vs. CIT (1985) 45 CTR (Del) 1 : (1985) 153 ITR 275 (Del), Mahalakshmi Sugar Mills Co. vs. CIT (1980) 16 CTR (SC) 198 : (1980) 123 ITR 429 (SC) and Bharat Commerce Industries Ltd. vs. CIT (1998) 145 CTR (SC) 340 : (1998) 230 ITR 733 (SC). The learned counsel argued that this interest payment was of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was following mercantile system of accounting there was deviation in the computation of income as filed by the assessee along with return. He further held that the reliance placed by the assessee on the judgment of Hon'ble Supreme Court in the case of Vijaya Bank Ltd. vs. Asstt. CIT (1991) 94 CTR (SC) 216 : (1991) 187 ITR 541 (SC) was not justified. That judgment related to interest pertaining to period prior to purchase of the security. The learned AO made additions accordingly. On assessee's appeal the learned CIT(A) held that the assessee had himself offered the sum of Rs. 92,31,360/- for asst. yr. 1997-98. The claim of the assessee was covered by the decision of the Tribunal in the case of State Bank of Bikaner Jaipur vs. Dy. CIT (1999) 65 TTJ (Jp) 480 : (2000) 74 ITD 203 (Jp). Relying upon that decision, the learned CIT(A) deleted the disallowance of Rs. 92,31,360/- for asst. yr. 1996-97. For asst. yr. 1997-98 the learned AO made an addition of Rs. 19,81,271/- on the same basis. The learned CIT(A) deleted the addition following order for asst. yr. 1996-97. 25. During the course of hearing before us the learned Departmental Representative argued that the decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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