TMI Blog2014 (12) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... as Auto Service Pvt. Limited [1998 (8) TMI 1 - SUPREME Court] - what advantage did the assessee get by constructing a building which belonged to somebody else and spending money for such reconstruction - The assessee got a long lease of a newly constructed building suitable to its own business at a very concessional rent - The expenditure was made in order to secure a long lease of new and more suitable business premises at a lower rent - it is essential that the expenditure incurred on the construction of any structure on the leased premises should result in enduring benefit - the case of the assessee very much falls within the ambit of Explanation 1 of section 32(1) of the Act – Decided in favour of revenue. - I.T.A. Nos. 212, 213 & 214/Coch/2014 - - - Dated:- 25-7-2014 - SHRI N.R.S.GANESAN AND CHANDRA POOJARI, JJ. For The Respondent : Shri M. Anil Kumar, CIT(DR) For The Appellant : Shyri V.Sathyanarayanan, CA ORDER Per CHANDRA POOJARI, Accountant Member: All these appeals filed by the Revenue are directed against the different orders passed by the CIT(A), Kozhikode for the assessment years 2007-08, 2008-09 2009-10. 2. Since the issues in all these a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd and hence, the said explanation has no relevance to the facts of the case. Moreover, it was argued by the ld. counsel that if at al there is any contrary decision, the decision in favour of the assessee has to be followed. In this regard, the ld. counsel relied on the following decisions: Virtual Soft Systems Ltd. vs. CIT (289 ITR 83) (SC) Petron Engineering Construction P. Ltd. vs. Central Board of Direct Taxes (175 ITR 523) (SC) CIT vs. Vegetable Products Ltd. (88 ITR 192) (SC) 7. In view of the above, it was submitted by the ld. counsel that judicial discipline requires that the appellate authorities follow the decision of High Courts even if it is not the jurisdictional High Court. Since the facts of the case decided by the Madras High Court is same as in the case of the assessee, it was pleaded by the ld. counsel that the decision of Madras High Court be followed and the addition deleted. It was also submitted by the ld. counsel that the jurisdictional ITAT in the case of ACIT vs. MM Publications Ltd. (2011) 43 SOT 59 (Cochin) has followed the decision of Madras High Court in the case of CIT vs. TVS Lean Logistics Ltd. (2007) 293 ITR 432. 8. As regards ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the expenditure incurred by the assessee towards refurnishing repairs and improvements of the leased premises used for business purposes can always be a revenue expenditure and not capital expenditure. The improvements made by the assessee in that case are temporary or of temporary nature which cannot be retrieved by the assessee at the end of the term of the lease and can only be revenue expenditure. In the present case, according to the Ld. DR, the assessee carried on construction of super structure on leasehold land which cannot be considered as an improvement or repair. 11. On the contrary, the Ld. AR submitted that for the purpose of setting up of show rooms and repair/service stations, the assessee had taken land on lease at various locations. On such lands taken on lease, there were no buildings or super structures. The Ld. AR submitted that after taking the land on lease, the assessee had constructed buildings/super structures on it. Such super structures are owned by the owners of the land and the assessee had only the right of possession over a limited period. According to the Ld. AR, after the expiry of the lease period the assessee had to vacate the land and the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment was claimed as revenue. 14. The Ld. AR relied on the following case law: CIT vs. TVS Lean Logistics Ltd. (293 ITR 432) (Mad.) wherein it was held as under: The expenditure incurred by the assessee for constructing building on land taken on lease is a revenue expenditure This decision has been followed by the ITAT, Cochin Bench in the case of ACIT vs. MM Publications (43 SOT 59) CIT vs. Haridas Bhagath Co. Ltd. (240 ITR 169) (Mad.) wherein it was held as under: Expenditure incurred by the assessee in providing amenities on leasehold bays in a stadium complex is a revenue expenditure. What was taken on lease was only the bays. The assessee had to incur expenditure for construction work, providing minimum facilities like walls, racks, electrical fittings and the like to make the property suitable for business purposes . CIT vs. Bombay Dyeing Mfg. Co. Ltd. (219 ITR 521) (SC) wherein it was held as under: Payment made for constructing building on the land taken on lease from Housing Board is revenue since the buildings also belonged to the Housing Board. CIT vs. Madras Auto Service P. Ltd. (233 ITR 468) (Mad.) wherein it was held as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of the respondent, may be confirmed. AC vs. MM Publications Ltd. (43 SOT 59) wherein it was held as under: The ITAT had considered a similar claim and had allowed the claim of the assessee. In that case, the assessee had taken on lease a building. Certain modifications were done to make it functional. Such expenses were treated as revenue. Facts and law being identical it is prayed that the said decision of the Co-ordinate Bench may be followed DC Vs. EDS Electronic Data Systems (India) P. Ltd. (26 SOT 483) (Del.) wherein it was held as under: Expenditure incurred for making the let out office premises functional is a revenue expenditure. 17. The Ld. AR submitted that the decision relied on by the Department is not applicable being not comparable on facts. 18. The Ld. AR distinguished the decision of the Supreme Court in the case of Travancore Cochin Chemicals Ltd. vs. CIT (106 ITR 900) and the assessee s case. In the case of Travancore Cochin Chemicals Ltd. (TCC), the contribution was made to Government of Kerala whereas in the assessee s case no contribution was made to Government of Kerala. In the case of TCC, the contribution was for construction of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s incurred by the assessee for the purposes of 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 improvement to, building then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. 23 To fall within the ambit of Explanation 1 questions which are to be answered are: (i) Whether the assessee is carrying on business or profession in a leased building or other rights of occupancy? (ii) Whether the assessee has incurred any capital expenditure for the purpose of business on the construction of any structure or doing of any work in or in relation to and by way of renovation or extension or improvement in the building. 24. If the answer to the aforementioned questions is in affirmative, the assessee falls within the purview of Explanation 1 to sec. 32(1). In the instant case, it is an admitted fact that the assessee has taken land on lease for setting up of service stations. It is also undisputed that the assessee has constructed the building at the leased premises. Thus the assessee has constructed super structure. These con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r: 5 In order to decide whether this expenditure is revenue expenditure or capital expenditure, one has to look at the expenditure from a commercial point of view. What advantage did the assessee get by constructing a building which belonged to somebody else and spending money for such reconstruction? The assessee got a long lease of a newly constructed building suitable to its own business at a very concessional rent. The expenditure therefore, was made in order to secure a long lease of new and more suitable business premises at a lower rent. In other words, the assessee made substantial savings in monthly rent for a period of 39 years by expending these amounts. The saving in expenditure was a saving in revenue expenditure in the form of rent. Whatever substitutes for revenue expenditure should normally be considered as revenue expenditure. Moreover, assessee in the present case did not get any capital asset by spending the said amounts. The assessee therefore could not have claimed any depreciation. Looking to the nature of the advantage which the assessee obtained in a commercial sense, the expenditure appears to be revenue expenditure. 28. Thereafter, the Hon ble Apex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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