TMI Blog2009 (10) TMI 642X X X X Extracts X X X X X X X X Extracts X X X X ..... s to commence its business. The expenditure of such nature was stated to be inevitable and imperative to conduct the business for operating the restaurant and bar. The Assessing Officer examined the details of expenditure and was of the opinion that the expenditure was capital in nature though the building was not owned by the assessee. Referring to Explanation 1 to section 32 he observed that where 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 rights of occupancy and any capital expenditure is incurred by the assessee for the purposes of business or profession on construction of any structure or doing of any work in relation to and by way of renovation or extension of or improvement to the building, then provisions of this clause shall apply as if the said structure or work was a building owned by the assessee. He also referred to the Explanation to section 30, which clarified that the amount paid on account of the cost of repairs referred to in sub-clause ( i ) and amount paid on account of current repairs referred to in sub-clause ( ii ) of clause ( a ) shall not include any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, it was apparent that the existing structure was almost freshly re-constructed, i.e., why it had resulted in major expenditure. The ld. CIT (Appeals), therefore, agreed with the observations of the Assessing Officer that the expenditure incurred was capital in nature. He placed reliance on the decision of Hon ble Delhi High Court in the case of Bigjo s India Ltd. v. CIT [2007] 293 ITR 170 wherein it has been held that huge expenditure on renovation of show room by the licensee resulted in enduring benefit. He also placed reliance in the case of CIT v. Asian Hotels Ltd. [2008] 296 ITR 374. He, accordingly upheld the order of the Assessing Officer. 5. Before us the ld. AR of the assessee referring to the work done by the contractor submitted that except one room the entire expenditure was incurred on renovation. He further submitted that the agreement entered into with Aggarwal Hotels was not a lease agreement, but a joint venture agreement. Therefore, it is a business agreement for which the expenditure has been incurred. Since the expenditure has been incurred on renovation of the building to make suitable for the restaurant, the same cannot be treated as cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii ) of Income-tax Act, 1961 in respect repairs of a premises, used for the purposes of the business or profession, the amount paid by him on account of current repairs to the premises shall be allowed as deduction. The Explanation to section 30 clarifies that the amount paid on account of current repairs referred to in sub-clause ( ii ) of clause ( a ) of section 30 shall not include any expenditure in the nature of capital expenditure. The provisions of section 30 will be pressed into operations only when the premises are used for the purposes of business or profession. In the instant case the assessee-company was incorporated on 5-10-2005 entered into agreements on 10-10-2005 for the purpose of management and operation of the existing restaurant and bar of AHPL. Certain modifications and renovations to the restaurant and bar building were to be carried out by investing a sum of Rs. 50 lakhs to be subscribed by the assessee from its own funds. Hence the assessee as a matter of fact contributed capital of Rs. 50 lakhs in order to participate in the profit of joint venture. Thus the assessee had incurred the expenditure on modifications and renovations before start of the busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shorrock Spg. Mfg. Co. Ltd. s case ( supra ) by holding as under : "In our opinion the test involved by Chagla C.J., in New Shorrock Spinning and Manufacturing Co. Ltd. s case [1956] 30 ITR 338 (Bom.) 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 in India. 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 section 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 assessee had purchased the factory in 1937 , the expenditure incurred in the relevant accounting year was in the region ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of actual operations of business activities. Hon ble Madras High Court in the case of A.Y.S. Paisutha Nadar v. CIT [1962] 46 ITR 1041 had held that section 10(2)( xv ) of the Indian Income-tax Act, 1922 [section 30( a )( ii ) of 1961 Act.] relating to expenditure laid out or expended wholly and exclusively for the purpose of the assessee s business, clearly indicated that the expenditure should relate to a business which is already in existence and not one that is to come into existence in the future. Hence the expenditure incurred on modifications and renovations of the building cannot be treated to have been incurred during the course of business wholly and exclusively for the purposes of business and cannot be allowed as deduction under section 37 of the Act. 10. From above discussion it is clear that expenditure incurred on modification and renovation is neither allowable under section 30( a )( ii ) or section 37 of the Act. The Assessing Officer had rightly treated the expenditure capital in nature and had allowed the deduction under section 32(1) of the Act. We, accordingly, uphold the order of CIT(A). 11. In the result, the appeal filed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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