TMI Blog2011 (12) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and when any item belonging to the block is removed, its value is reduced and if any new item comes in its place, its value is added to the block - tax case appeal are answered against the assessee and in favour of the revenue. Section 37(1) of the Income Tax Act permits deduction of only such expenses not being capital expenditure of the nature prescribed under Sections 30 to 36 - when the major repairs in the nature of capital expenditure is carried out, it cannot be treated as deductible under Section 37(1) of the Income Tax Act, merely because the premises is rented - tax case appeal decided against the assessee and in favour of the revenue. - TAX CASE APPEAL NOS. 322 TO 324 OF 2008 - - - Dated:- 22-12-2011 - ELIPE DHARMA RA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Appellate Tribunal. 6. Aggrieved by the orders passed by the Commissioner of Income Tax (Appeals), the Revenue filed appeals before the Income Tax Appellate Tribunal and the Tribunal, relying on the decision of the Madras High Court reported in the case of CIT v. Janakiram Mills Ltd. [2005] 275 ITR 403/146 Taxman 40, wherein it was held that the entire spinning mills is a plant and no intermediate product arises and as such, the expenditure on the replacement of individual machinaries is revenue in nature and allowed the appeal in favour of the assessee and with respect to repairs to rented premises, following the assessee's own case in ITA No.123/Mds/1995, dated 07.01.1997, allowed the appeals. 7. Aggrieved by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that as per the agreement entered into between the owner of the buildings and the assessee, the assessee need not carry out any repairs and the repairs are to be carried out only by the building owners. 10. It is also seen from the perusal of the records that the Commissioner of Income Tax (Appeals) reversed the order passed by the Assessing Officer on the ground that the expenses were incurred for the effective use of the assets leased out to the appellant and these expenses were not reimbursed to the appellant by the landlords. It is further seen that a similar disallowance made in the assessment year 1991-92 was partly deleted by the Commissioner of Income Tax(Appeals) and on further appeal, it was fully deleted by the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y can only be treated as reduction and addition to the block of assets, which is a part of replacement. It is also submitted that while under the law, as it stood prior to 1988-89, the fact of treating the entire mill as an integrated unit may have had the effect of treating the replacement of machinery as replacement of parts of a larger whole and thus treated as revenue expenditure, and once the concept of block of assets has been brought in by the Parliament, from the assessment year 1988-89, whether the mill is an integrated whole or not, whether the replacement of machines resulted in increased capacity or not, will have no bearing and when any item belonging to the block is removed, its value is reduced and if any new item comes in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to, and by way of renovation or extension or improvement to the building' as if the building was owned by him. Finally, it is submitted by the learned counsel for the appellant that the Tribunal ought to have applied the provisions of Explanation 1 to Section 32 of the Act instead of Section 37(1) of the Act while allowing the expenditure incurred on repairs of the rented building. 17. In view of the aforesaid submission made by the learned counsel appearing for the appellant, we perused Explanation (1) to Section 32 and Section 37(1) of the Income Tax Act. 18. Explanation 1 to Section 32 of the Income Tax Act reads as follows:- "Where the business or profession of the assessee is carried on in a building not owned by hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be seen from the list of constructions made and thus, the object of expenditure incurred by the assessee is definitely to bring a new asset into existence to obtain new advantage, further giving enduring benefit to the assessee. 21. On going through the entire materials placed on record, we are of the considered opinion that when the Section itself clearly says that the expenditure, which is not in the nature of capital or personal, can be allowed to be deducted under Section 37(1) of the Income Tax Act, the Tribunal has committed an error in allowing the expenditure incurred on repairs of the rented building as a deductible expense under Section 37(1) of the Income Tax Act, ignoring the provisions of Explanation 1 to Section 32 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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