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2015 (9) TMI 894 - ITAT PUNE

2015 (9) TMI 894 - ITAT PUNE - TMI - Expenditure incurred on improvement/additions to leasehold property - treated as capital or revenue expenditure - Held that:- In the present case the assessee has incurred expenditure on construction of sheds etc. on leasehold land for advancement of its business. The lease period in the present case is 3 years which is further extendable for the period of 3 years. Thus, the total period of lease is 6 years only. The assessee has not received any advantage of .....

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und that the assessee had acquired a benefit of enduring nature in the form of use of land for a period of 99 years, the land has been transferred through a registered deed involving transfer of immovable property, thus, the assessee has acquired fixed asset. CIT(Appeals) upheld the order of Assessing Officer. The Tribunal reversed the findings of the CIT(Appeals). In appeal by the Department, the Hon'ble High Court upheld that the findings of the Tribunal, that the land in question was not acqu .....

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ench decision in the case of JCIT Vs. Mukund Ltd. (2007 (2) TMI 358 - ITAT MUMBAI) cannot be applied in the facts of the present case. The expenditure incurred by the assessee on construction of storage structure etc. has to be allowed as revenue expenditure. - Decided in favour of assessee. - ITA No. 258/PN/2013 - Dated:- 31-8-2015 - SHRI R.K. PANDA AND SHRI VIKAS AWASTHY, JJ. For The Assessee : Shri Ketan Ved For The Revenue : Mrs. M.S. Verma ORDER PER VIKAS AWASTHY, JM: This appeal of the ass .....

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partment treated the same as capital in nature. The assessee has made an alternate prayer without prejudice to his submissions made in support of main prayer, that the Assessing Officer has erred in not allowing proportionate expenditure incurred on leasehold improvements over the lease period the same may be allowed. 2. The brief facts of the case are : The assessee company (formerly known as M/s. Shirke Construction Equipments Private Limited) is engaged in manufacturing of tower Cranes and Ma .....

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es were made by the Assessing Officer in respect of domestic transactions. The assessee had incurred an expenditure of ₹ 1,39,96,739/- on improvement of land taken on lease for the storage of raw materials and finished goods. The assessee claimed the said expenditure as revenue in nature. On the other hand, the Assessing Officer held the same to be capital in nature. Aggrieved by the findings of Assessing Officer in draft assessment order qua, the nature of expenditure on leasehold propert .....

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n behalf of the assessee submitted that the assessee had taken land measuring 4.5 acres on lease from B.G. Shirke Construction Equipments Pvt. Limited along with structures consisting of equipment shop admeasuring 15724.07 sq. mtrs. built up area and store and office block admeasuring approximately 1191 sq. mtrs. The assessee incurred expenditure towards the leveling and flooring of the land and construction of storage space for raw material measuring 3600 sq. mtrs. and for finished goods admeas .....

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o enduring benefit was derived by the assessee from the said structures. The assessee had only the right to use the leasehold property including improvements during the lease period. The ld. AR of the assessee in support of his submissions placed reliance on the decision of Hon'ble Supreme Court of India in the case of CIT Vs. Madras Auto Service (P.) Ltd. reported as 233 ITR 468 (SC) and the decision of Hon'ble Madras High Court in the case of CIT Vs. TVS Lean Logistics Ltd. reported as .....

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e Construction Equipments Pvt. Limited. The assessee had came into picture much later. As such, the assessee cannot claim the expenditure incurred on construction of new structures as revenue. The ld. DR vehemently defended the orders of the authorities below. In support of her submissions the ld. DR placed reliance on the following decisions: i. CIT Vs. Khimline Pumps Ltd.; 258 ITR 459 (Bom). ii. JCIT Vs. Mukund Ltd.; 106 ITD 231 (Mum)(SB). iii. National Stock Exchange of India Vs. ACIT in ITA .....

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19-07-2007. Subsequently, the name of Indian company was changed to Potain India Private Limited. On 18-07-2007, B.G. Shirke Construction Equipments Pvt. Limited had entered into lease agreement with M/s. Shirke Construction Equipments Private Limited in respect of land measuring 4.5 acres along with building and structures including factory, shed, equipment shops etc. for the period of 3 years. As per the terms and conditions of lease agreement the user/lessee could make changes in the said st .....

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e in nature. On the contrary the Department held the expenditure on the aforesaid improvements and constructions as capital. 6. In appeal the issue raised is; Whether the expenditure incurred by the assessee on construction of sheds etc. is it be classified as revenue or capital expenditure. Whether the expenditure is revenue or capital in nature is a question of fact which has to be decided in the facts and circumstances of the each case. The primary reason for holding the expenditure as capita .....

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of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. 7. A bare perusal of explanation shows that it applies to the building taken on lease, rent or otherwise by the assessee for the purpose of business. Thus, the explanation does not apply to any construction or improvement over the land taken on lease. The Hon'ble Madras High Court in the case of CIT Vs. TVS Lean .....

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business and profession of the assessee, but not in a case of construction of any structure or doing any work or relation to where such building is put up/constructed for the purpose of business or the profession of the assessee in a land taken on lease by the assessee. Because the assessee did not acquire a capital asset, viz., the land in the instant case, but has put up a construction of the building only for the business advantage, with the result the entire construction cost is admissible .....

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a in the case of CIT Vs. Madras Auto Service (P.) Ltd. (supra) has held that where expenditure is incurred for the purpose of conducting the business of assessee more profitably or more successfully and the asset created by incurring such expenditure does not belong to the assessee, in such cases the expenditure has to be treated as revenue expenditure. The relevant extract of the order of Hon'ble Supreme Court of India reads as under: 6. In order to decide whether this expenditure is revenu .....

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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, the 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 advan .....

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d an enduring business advantage by expending the amount. In all these cases, the expenses have been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully. In the present case also, since the asset created by spending the said amounts did not belong to the assessee but the assessee got the business advantage of using modern premises at a low rent, thus saving considerable revenue expenditure for the next 39 years, both the .....

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of the considered opinion that the expenditure incurred is of revenue in nature. 11. The ld. DR in support of his submissions has placed reliance on the decision of Jurisdictional High Court in the case of CIT Vs. Khimline Pumps Ltd. (supra). In the said case a plot of land was leased by MIDC to APV Equipments Ltd. for a period of 95 years on yearly rent of Re.1/-, APV went into liquidation. The assessee purchased entire unit, including land and building and plant and machinery for ₹ 75 la .....

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out of which ₹ 45 lakhs related to acquisition of leasehold land. The Assessing Officer treated ₹ 45 lakhs as capital expenditure for the purpose of leasehold rights. In appeal, the Tribunal upheld the findings of Assessing Officer. The matter travelled to the Hon'ble High Court. The Hon'ble High Court confirmed the findings of the Tribunal in treating the cost of leasehold land as capital expenditure. We find the facts of the present case are entirely different. Thus, the ra .....

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t the same is not applicable in the facts of the present case. 13. The ld. DR has also relied on the decision of Special Bench in case of JCIT Vs. Mukund Ltd. (supra). The Special Bench held that lumpsum non-refundable premium paid for securing leasehold rights in land for factory in Industrial area from State Development Corporation is capital in nature. The assessee had paid lumpsum payment for acquiring lease rights for 99 years. The assessee has got advantage of enduring nature. In the prese .....

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