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2009 (8) TMI 835

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..... s erred in confirming the disallowance of 10 per cent out of telephone expenses, 10 per cent out of staff welfare expenses and 10 per cent out of miscellaneous expenses holding the same to be personal in nature without any material to substantiate the same . 2. The facts necessary for the disposal of the appeal are stated in brief. The assessee is a Commission Agent for its sister concern M/s. Living Room Life Style Limited and looks after the sales on behalf of them. In respect of the previous year relevant to the assessment year 2004-05 it declared total income of Rs. 25,26,076. During the course of scrutiny assessment proceedings the Assessing Officer noticed, apart from several other defects, that expenditure claimed as administrative selling and other expenses was not supported by proper bills and vouchers and further noticed that the assessee incurred expenses for renovation of Mulund shop. Though substantial expenditure of Rs. 9,51,352 was incurred which is of capital in nature, the assessee debited the same to the P and L account as revenue expenditure. 3. The Assessing Officer observed that renovation expenses of Mulund shop are capital in nature and in accordance with Exp .....

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..... omprising page Nos. 1 to 103) and submitted that the expenditure incurred for civil works was capitalized by the assessee whereas, the expenditure on electrical works, purchase of Beams and Angles etc., was only in the form of replacement of the existing facilities and thus deserve to be considered as renovation expenditure. Consequently, the claim of the assessee, that it is of revenue character, ought to have been accepted by the Assessing Officer and CIT(A). 8. Learned Counsel appearing on behalf of the assessee strongly relied upon the decision of the Hon ble Bombay High Court in the case of CIT v. HEDE Consultancy (P.) Ltd. [2003] 127 Taxman 597 wherein the jurisdictional High Court observed that expenditure incurred for converting the godown premises into office by renovating it, providing interior decoration, replacement of existing roof with that of cement sheets, replacement of floor with that of marble etc., has to be treated as revenue expenditure. The Court observed that, though section 37 of the Act enables deduction of any expenditure laid out or extended wholly and exclusively for the purpose of business, the purpose in itself is not sufficient to entitle its allowan .....

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..... the learned Departmental Representative relied upon the Order passed by the first appellate authority. 11. We have carefully considered the rival submissions and perused the record. We wish to address on the main issue first i.e., with regard to the expenditure of Rs. 9,51,352 incurred by the assessee on the Mulund shop. The issue, as to whether an expenditure would fall within the category of revenue expenditure or capital expenditure, is a vexed question which requires to be decided on the basis of principles laid down by various Courts. 12. Broadly, if an expenditure gives the assessee an enduring advantage, the same has to be treated as a capital expenditure. Similarly if an expenditure is incurred on a leased premises and the agreement speaks of handing over possession of the property to the original owner as-it-is, without any benefit or without any right to retain the improvements made to the existing premises, such expenditure may be treated as revenue in nature since the assessee cannot be said to be having any enduring advantage out of such expenditure. Courts have also highlighted subtle difference between replacement and renovation. A wall or roof, which is already in .....

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..... lding at a low rent, thus saving considerable revenue expenditure, for the next 39 years. Therefore, the expenditure was considered as a revenue expenditure. 15. In the case of Bigjo s India Ltd. (supra), the Hon ble Delhi High Court was concerned with the assessment year 1998-99 wherein the assessee incurred certain expenditure on account of repair and maintenance of air-conditioners etc., and the same was claimed as revenue expenditure by placing reliance upon the decision of the Apex Court in the case of Madras Auto Services (P.) Ltd. (supra). The Hon ble High Court observed that the decision of the Apex Court is distinguishable on facts inasmuch as the Apex Court was concerned with a situation where the constructed portion would be in the ownership of the lessor and on account of the expenditure incurred the assessee had benefit of reduced payment of license-fee whereas, in the instant case the assessee had enduring benefit ; by virtue of incurring huge expenditure on purchase of timber, plywood and by building new shaft it is not shown that the assessee had enjoyed any revenue benefit in lump sum and thus it was treated as capital expenditure. 16. In the case of HEDGE Consulta .....

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