TMI Blog2016 (4) TMI 870X X X X Extracts X X X X X X X X Extracts X X X X ..... 08 for assessment year 2006-07. Revenue has raised the following grounds:- 1. That, on the facts and circumstances of the case, the ld. CIT(A) has erred in law as well as on facts in holding that erection of Police Boots is revenue expenditure whereas the assessee, in its agreement with Kolkata police, had specified that the life of such booths is more than 15 years whereas the assessee has capitalized in and claimed depreciation. 2. That, on the facts and circumstances of the case, the ld. CIT(A) has erred in law as well as on facts in holding that the assessee is not an owner of such booths whereas it has been mentioned in the agreement that the assessee is the sole owner of these booths for the period of 15 years after which the booths will be handed over o the Kolkata Police. 3. That, on the facts and circumstances of the case, the ld. CIT(A) has erred in law as well as on facts in allowing depreciation at the rate of 100 percent on Police Booth treating it as temporary erection whereas such booths are included in the block of assets under the head Buildings as per the Depreciation Schedule of tangible assets, filed by the assessee along with Return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusively belongs to KP i.e. ownership is not with the assessee. However, AO disregarded the claim of assessee by observing as under:- 1) Letter of KP is meaningless in the code of law as agreement written on the stamp paper shall be accepted. 2) There is ownership with the assessee of the said temporary police booths as per agreement made with KP. 3) Assessee itself is agreeing that the live span of said temporary police booths for 2 years so @ 100% depreciation cannot be allowed. 4) As per IT. Rules 1962, depreciation of such structure is allowed @ 10% only. So the depreciation claimed @ 100% by assessee is disallowed. 3. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who has deleted the addition made by Assessing Officer by observing as under:- 5. I have considered the submission of the A/R, perused the impugned order, computation of income, audited accounts, agreement dated 7th April 2005 and the letter dated 6/12/2008. I have also gone through the judicial decisions on which reliance was placed. I find that the land on which the booths were erected belonged to Kolkata Municipal Corporation this fact is not in dispute. The letter issued by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r belonged to the assessee, the Court held that the assessee did not acquire any capital asset by spending money on the construction of building accordingly the expenditure was held to be revenue in nature. 7. The Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 observed as follows:- There may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, my, nonetheless, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee s trading operations or enabling the management and conduct of the assessee s business to be carried on more efficiently or more profitably while leaving the fixed capital untouched the expenditure would be on revenue account, even though the advantage may endure for an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and thereby the assessee gained advantage which was of some endurance, could not affect its revenue character. 9. In the case of Royal Calcutta Turf Club v. CIT [1991] 188 ITR 352, the Hon'ble Calcutta High Court held as under:- The true test of an expenditure laid out wholly and exclusively for the purposes of trade or business is that it is incurred by the assessee as incidental to his trade for the purposes of keeping the trade going and of making it pay and not in any capacity other than that of a trader. The question whether a particular expenditure is a revenue expenditure incurred for the purposes of the business must be determined on a consideration of all the facts and circumstances and by the application of the principle of commercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on, or conduct of, the business that it may be regarded as an integral part of the profitearning process and not for acquisition of an asset or a right of a permanent character the possession of which is a condition for the carrying on of the business, the expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot acquire ownership rights in the booths itself and therefore expenditure incurred by the appellant for obtaining limited license to display advertisements; did not result in acquisition of depreciable asset by the appellant. For obtaining License to display advertisements appellant was required to pay fees or charges and if instead of paying such fees periodically; the appellant incurred expenditure on erection of police booths; such expenditure continued to retain same character in the hands of the payer. Irrespective of the period for which assessee displayed advertisements, the assessee s contractual obligation to incur initial expenditure on erection of booths thereafter maintain it during contract period remained unchanged therefore merely because in the initial year assessee expended large sums on erection of Booths did not change the character of expenditure from revenue expenditure to capital. In my considered opinion therefore the entire expenditure incurred on erection of Police Booths was revenue in nature and accordingly the AO is directed to allow the deduction for ₹ 1,02,19,884/- being the expenditure incurred on erection of Police Booths. Since I have all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained premises on lease for 39 years In terms of lease agreement, assessee demolished existing construction and constructed new building to suit its business at its own expenses In any circumstances assessee would not be entitled for any compensation on account of putting up new construction and it should be treated as tenant subject to payment of rent lower than rent prevailing Assessee claimed said construction expenditure as revenue expenditure Assessing Officer rejected its claim and treated said expenditure as capital expenditure Whether since asset created by assessee by spending amounts did not belong to assessee but assessee got only business advantage of using modern premises at a low rent, thus, saving considerable revenue expenditure for next 39 years, said expenditure should be treated as revenue expenditure Held, yes iii) CIT v. Birla Jute Mfg. Co. Ltd. (1990) 51 taxmann 402 (CAL), where Section 37(1) of the Income-tax Act 1961 Business expenditure allowability of Assessment year 1972-73 For facilitating supply of electricity to it Under an agreement assessee made payment to West Bengal State Electricity Board for laying service lines agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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