TMI Blog2012 (5) TMI 698X X X X Extracts X X X X X X X X Extracts X X X X ..... the same was duly accepted by the Assessing Officer in the earlier assessments. 3. The Ld. Commissioner of Income Tax (Appeals) erred in law and on facts in not allowing the expenditure of ₹ 40,88,455/- incurred on replacement of air conditioning plant of the building owners by treating its as a capital expenditure of the appellant and allowing the depreciation on the same. 4. The Ld. Commissioner of Income Tax (Appeals) erred in law and on facts by observing that i) Sinking fund amounts have no by actually put to use for the purpose for which the fund was created (para 7.2). ii) The receipts of sinking fund @ ₹ 2/- are being utilized for day to day activities / expenditure (para 8.2). The appellant craves leave to add, amend, modify, delete and or change all or any of the ground on or before the date of hearing. 3. In this case assessee is a partnership firm engaged in the business of providing management, maintenance and repair services of commercial complexes known as Narain Manzil situated at 23, Barakhamba Road, New Delhi. Assessee filed its income tax return on 31.10.2007 and declared NIL income after set off the unabsorbed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant portion of the agreement is reproduced below: In pursuance of the said agreement and in consideration of the Maintenance Agency having agreed to manage, administer, maintain, upkeep and preserve the said Commercial Building, named as Narain Manzil operation of common services therein, supply of water and also maintenance, repair and replacement of equipment/machinery for providing common services and facilities and replacement of capital goods such as lifts, pump sets, water mains, electric cables installed, emergency electricity standby generators, fire fighting/protection/ detection equipments, air-conditioning plant etc., the user hereby agrees and binds himself to pay to the Maintenance Agency maintenance and service charges at the rate of ₹ 16 (Sixteen) per sq. ft. of the Super Area of the said premises as mentioned in the said Lease Agreement per month to be utilized by the Maintenance company for the purposes mentioned above and to cover the costs, expenses and outgoings in respect inter . alia of the matters specified in the Schedule attached to this Agreement. The rates of maintenance charges which also include charges for providing airconditioning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 2 per sq. ft. is a revenue rece.ipt and not a capital receipt. 8.4 The user is making a payment of ₹ 16 per sq. ft. as Maintenance and Service charges. Out of this, ₹ 2 is being given as Sinking Fund contribution or replacement of capital goods. It is not expected that payment of ₹ 2 per sq. ft. by each 'user' will be sufficient to meet the capital goods replacement as and when it arises - but it is being raised from the user with the intention that as and when the capital goods are to be replaced some funds are available for utilization for this purpose, and that the appellant firm charges from the 'user' as part of its maintenance receipts a cost for replacement of the capital goods. Thus, in my view as the replacement of the capital. goods is solely and exclusively the responsibility of the appellant firm for which it is already levying charges on the user, the receipt of ₹ 2 per sq. ft. is also a revenue receipt as it is a part of the total maintenance receipts. The bifurcation of the receipts by the appellant does not change the inherent characteristic nature of the receipts i.e. payment by the flat owners/users for pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entire expenditure of ₹ 4O.88 lacs is neither factually nor legally admissible. As discussed, factually only ₹ 15,12,000 (including Excise Duty credit) and installment of ₹ 15,15,151 (11 installments) i.e. ₹ 30,27,151 is the expenditure incurred during the year including cost of finance at ₹ 2,20,578 legally. While the interest cost is otherwise allowable as revenue expenditure for this year as discussed in para 8.3.2 (supra), but in view of the overriding provisions of section 40(a){ia}- it is to be disallowed. The cost of the asset being capital expenditure cannot be allowed u/s 37 of the IT Act, 1961. The balance claim normally would be either admissible depreciation or hiring charges as the asset has been put to business use during the year. The appellant states that it is not the owner of the asset, however as per the hire purchase agreement the ownership is to devolve to the appellant. Therefore, appellant is entitled to depreciation @ 15% being the admissible rate for plant and machinery. The depreciation @ 15% at RS. 6,13,267 is held allowable. Thus the net effect of this enhancement will be ₹ 35,49,091-Rs.6,13,267 i.e. ₹ 29,35,82 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inking fund in this regard. It is settled law that revenue cannot inter into the shoes of a businessman and decide how he should conduct the business. We have found no infirmity in the accounting and conduct of the assessee, which will warrant an inference that ₹ 2/- being collected for the sinking fund for replacement of asset is a revenue receipt. 6.1 Thus, we find that Ld. Commissioner of Income Tax (Appeals) has erred in holding that ₹ 2 sq.ft. received by the assessee is also a revenue receipt and is a part of total maintenance receipt. Accordingly, we hold that ₹ 3549091/- collected during the year being sinking fund contribution is a capital receipt and not liable to be taxed as revenue receipt. The expenditure of ₹ 40,88,455/- incurred for replacement of Air conditioners of the building owners has to be adjusted from the sinking fund and the same cannot be allowed as revenue expenditure. Thus, we hold that an amount of ₹ 35,49091/- received towards sinking fund for replacement of assets is a capital receipt and not liable to be taxed. 7. In the result, the appeal filed by the assessee stands partly allowed. Order pronounced in the open ..... X X X X Extracts X X X X X X X X Extracts X X X X
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