TMI Blog2004 (3) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 4. Without prejudice to grounds No. 1 above, but without conceding them, the assessee contends that the lower authorities ought to have allowed depreciation on the alleged capital expenditure incurred on the repairs to the building premises not owned by the assessee, in accordance to the provisions of Expln. 1 to s. 32(1) of the IT Act, as all the conditions prescribed in the said Expln. 1 have been fulfilled by the assessee." 3. The only issue involved in this appeal is, whether the amount of Rs. 5,07,146 incurred by the assessee during the assessment year under consideration in reconstructing the premises is revenue expenditure or capital expenditure? The assessee-firm is in the trading business of plywood, hardboard, formica, etc. under the name and style of M/s Dalal Associates, at 296, M.G. Road, Pune. On 26th June, 1993, fire broke out in the said premises. The premises was very old consisting of ground floor and wooden mezzanine floor. The structure was built of mud, old type of bricks. The wooden structure was damaged due to fire and it was not possible to carry on the said business as before. The assessee was a tenant of the premises belonging to the Cutchi Memon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to the AO, new structure was constructed in place of old structure which was badly damaged, expenditure is of capital in nature. The AO concluded that the expenditure in question is neither allowable under s. 30(a)(i) nor under s. 37 of the Act. The AO also rejected the claim of the assessee regarding depreciation stating that the depreciation can be claimed only by the owner of the asset. 4. Aggrieved by the order of the AO, the assessee carried the matter in appeal before the CIT(A). Before the CIT(A), the assessee reiterated the submissions made before the AO. The assessee further submitted before the CIT(A) that: (1) When a new structure is to be built, permission of municipal authority as per local municipal rules is must. No permission was taken as only repairs were carried out. No plan was submitted to the municipal authorities. The front portion of the premises was slightly damaged due to the activities of fire brigade and therefore current repairs such as plastering, etc. was done. (2) It is also stated that there is no alteration to structure of foundation except repairs and replacement. (3) Further, the trustees of the trust categorically allowed permissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT(A) has not correctly appreciated the facts of the case as well as settled legal position. According to the learned counsel for the assessee, the expenses were in the nature of replacement of old worn out and burnt wooden materials and, therefore, the expenditure of Rs. 5,07,146 was revenue in nature, incurred with a view to obtaining a commercial advantage and for facilitating trading operations. He further submitted that the lower authorities have completely ignored this fact that building premises to which repairs were carried on were not owned by the assessee and were tenanted; and the assessee did not acquire any capital asset on account of expenditure incurred by it on the said tenanted building premises. According to the learned counsel for the assessee, if at all there was any advantage of capital nature, the same went to the owners of the building premises and not to the assessee-tenant. Reliance was also placed on the following decisions: 1. National Organic Chemical Industries Ltd. vs. CIT (1993) 115 CTR (Bom) 434 : (1993) 203 ITR 410 (Bom) 2. CIT vs. Hede Consultancy (P) Ltd. Anr. (2003) 180 CTR (Bom) 70 : (2002) 258 ITR 380 (Bom) 3. Indian Ginning Press ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and replacement. The permission was granted by the trustees of the trust to carry out repairs, i.e., to restore the utility of premises as before. In our view, there is no enduring or additional benefit to the assessee, since no new building or asset came into existence. In the case of Ram Swarup Cold Storage Allied Ltd., the Tribunal, Delhi Bench has held that in order to determine whether the expenditure was of capital or revenue, the facts of the case had to be examined in the environment of the business involved and its circumstances. It was also held by the Delhi Bench of the Tribunal that enduring nature which does not mean everlasting nature of the benefit is not the sole test to take the expenditure out of the ambit of revenue expenses. In the said case, it has been held that the expenditure incurred for repairing damaged portion of the cold storage to bring back the original structure or the amount spent on racks was of revenue nature and fully allowable. In the said case, the assessee was engaged in the business of cold storage and due to fire, one of the chambers of the cold storage was almost totally burnt in the fire which broke out during the asst. yr. 1989-90. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts did not belong to the assessee, but the assessee got the business advantage of using modern business premises at a low rent, thus saving considerable revenue expenditure for a considerably long period, the Tribunal was perfectly justified in coming to the conclusion that the expenditure should be looked upon as revenue expenditure. In our view, the decision of the Hon ble Bombay High Court, Panaji Bench, is squarely applicable to the present case. In the instant case, during the assessment year under consideration, the assessee had shown sales of Rs. 3,01,22,019 and G.P. percentage declared by the assessee was at 11.46 per cent. It is also relevant to point out here that the sales during the immediately preceding year were at Rs. 2,52,81,548. Thus, the amount spent by the assessee on repairs was for the purpose of facilitating the business of the assessee and making it more efficient and profitable. In that view of the matter, the expenditure in question was of revenue nature. In the case of Cultural Enterprises Corporation, the Hon ble Calcutta High Court held that the cost of renovation cannot amount to capital expenditure, provided it did not result in creation of new a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
