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2016 (4) TMI 870 - ITAT KOLKATA

2016 (4) TMI 870 - ITAT KOLKATA - TMI - Nature of expenditure - expenditure on erection of police booths which is made of wood - revenue v/s capital expenditure - Held that:- Neither any new asset has come into existence nor the assessee has the ownership of the police booths so it should be treated as revenue expenditure. We are also putting our reliance on the decision of Hon'ble Supreme Court in the case of Madras Auto Services (P) Ltd. (1998 (8) TMI 1 - SUPREME Court ). - Decided in favour o .....

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43(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 04.12.2008 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 capit .....

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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 of Income which entitles the assessee to claim depreciation at the rate of 10 percent. Shri Miraj D Shah, Ld. Authorized Representative appearing on behalf of assessee and Shri Satyendra Mohan Das, Ld. Departmental Representati .....

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ee as a result of contract awarded by Kolkata Police for erection and maintenance of police booths. The role of assessee is to erect the police and to maintain it for 15 years as per the agreement with Kolkata Police. After the expiry of the agreement these booths shall be handed over to Kolkata Police. These police booths are maintained and operated under the scheme of BOT (Build Operate Transfer for short) by the assessee. During the year under consideration, assessee claimed depreciation @ 10 .....

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hs are under the lock & key with the Kolkata Police (KP for short), so it clearly shows that the ownership of police booths is not with assessee. d) As per agreement in clause-c, Kolkata Police it can be terminated without warning any notice from either side. So assessee cannot take the view that allowed/obtained was enduring in nature, e) There is no provision under the Act for amortization or for deferment of expense to spread over a given period of time except for case and circumstances r .....

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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, co .....

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exchange of availing exclusive right to place advertisement on the said booths. The possession of the booths always remained with Kolkata Police who had fully right to occupy; use & enjoy the police booths at all times. From the fact on record I note that the assessee was in the business of advertising & for this purpose it required public spaces to display advertisements. Erection of police booths only facilitated the assessee to carry on its business of advertising because under the a .....

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ntents of the letter dated 16/12/2008 issued on behalf of Kolkata Police clarified the factual position regarding ownership of the booths being vested in Kolkata Police. 6. Now coming to the cases laws relied o by the A/R, I note that decision of the Apex Court in the case of CIT v. madras Auto Service (P) Ltd. [1998] 233 ITR 468 supports the case of the assessee. In this case, the assessee obtained lease of premise for a period of 39 year on a nominal rent. The assessee constructed a new buildi .....

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ng in expenditure was the saving in revenue expenditure in the form of rent. The Court therefore held that whatever was the substitute for revenue expenditure; would normally be considered as revenue in nature. Since the building never 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. L .....

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he 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 indefinite future. The test of enduring benefit is, therefore, not a certai .....

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an enduring advantage or benefit was received in the capital field. Where however an enduring benefit was in the revenue field and did not result in the creation of a capital asset, the expenditure would be on revenue account. According to this decision, expenditure cannot be treated as capital in nature if the enduring advantage or benefit is not derived in the capital field. The word enduring means enduring in the way that fixed capital endures and it cannot be a benefit that endures in the se .....

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e expenditure is to be attributed to capital if it is made with a view to brining an asset or advantage of enduring nature into existence. If, for instance, the expenditure is incurred for the acquisition of property or rights of an enduring character, the possessions of which is a condition for carrying on of the trade, the outlay will be held to be an expenditure of capital nature. The main test appears to be its permanency, i.e., whether the capital of the company or its assets or its goodwil .....

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;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 c .....

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be regarded as a revenue expenditure incurred wholly and exclusively for the purposes of the business. 10. Applying the test laid down in above judicial decisions; to the facts of the assessee s case, I find that the expenditure incurred by the assessee on erecting Police Booths did not result in acquisition of a depreciable asset by the assessee. The appellant herein was in the business of advertising and derived revenue from advertisements displayed in public areas. For displaying advertisemen .....

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en described as Licensee because under the Agreement the appellant was provided only limited right or license to use designated areas of the booths for advertising purposes whereas ownership of the booths remained with Kolkata police. The erection of temporary structures in the form of Police Booths was therefore incidental to carrying on appellant s advertising business & thus it was only a tool of trade which enabled the appellant to carry on its business more effectively. Erection of Poli .....

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mained the property of Kolkata Police. The Agreement between the assessee and Kolkata Police did not envisage possession of the Booths being taken by the assessee & the Police Booths were to remain the property of Kolkata Police who alone had right to occupy and use the said booths. Save and except limited right or license to exhibit advertisements in designated areas; appellant did not acquire ownership rights in the booths itself and therefore expenditure incurred by the appellant for obta .....

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ual 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 .....

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ws and relied on the order of Assessing Officer, whereas Ld. AR supported the order of Ld. CIT(A) and submitted paper books which is running pages 1 to 64. 4.1 Before us Ld. DR submitted that in terms of agreement of 15 years between the KP and assessee booths are the property of assessee. Therefore, only depreciation should be allowed instead of cost incurred on erection of police booths. On the contrary, Ld. AR submitted that assessee is not the owner of police booths and there is no creation .....

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ixed assets was created and assessee was not the owner of the police booths as per lease between assessee and KP. The ld. AR also cited various case laws as given below: i) CIT v. Associated Cement Companies Ltd. (1998) 38 taxman 110A (SC), where Section 10(2)(xv) of the Indian Income-tax Act, 1922 [corresponding to section 37(1) of the Income-tax Act, 1961] - capital or revenue expenditure - Under an agreement, assessee-company incurred expenditure on laying of water pipelines in a particular t .....

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