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The Commissioner of Income Tax, Delhi II, New Delhi Versus M/s U.G. Hospitals Pvt. Limited

2016 (6) TMI 1043 - PUNJAB & HARYANA HIGH COURT

Disallowances under section 30(1) - expenditure incurred on repair and renovation of Lajpat Nagar Hospital - Held that:- In the instant case, there is nothing to distinct from the plea set up by the assessee that the impugned expenditure has not resulted in demolition of old structure and construction of a new structure. The assessee has, therefore, been successful in establishing that the impugned expenditure was revenue in nature. The case laws referred to by the learned DR are primarily in th .....

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H COURT DELHI) - Decided against revenue - Disallowance of interest under Section 36(1)(iii) - Held that:- Once it is established that there is nexus between the expenditure and purpose of business, revenue cannot justifiably claim to put itself in arm chair of businessman or in position of Board of Directors and assume role to decide how much is reasonable expenditure having regard to the circumstances of the case.- Decided against revenue - ITA No. 680 of 2010 - Dated:- 16-3-2016 - Ajay Ku .....

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005-06 whereas ITA No.288 of 2011 has been filed by the assessee against the order dated 28.2.2011, Annexure A.3 for the assessment year 2006-07. The facts have been extracted from ITA No.680 of 2010. 2. ITA No.680 of 2010 has been filed by the revenue under Section 260A of the Income Tax Act, 1961 (in short, the Act ) against the order dated 24.9.2009, Annexure A.III passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'B' Chandigarh (in short, the Tribunal ) in ITA No.1057/CHA .....

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50% of the disallowance sustained by the CIT(A) without giving a finding as to what was legally/factually wrong in the order of the CIT(A). The Hon'ble ITAT is the last fact finding authority and is bound to give an order which goes into all the aspects of the case? III. Whether, on the facts and in the circumstances of the case and in law, the Hon'ble Income Tax Appellate Tribunal was legally justified in deleting/giving relief of ₹ 7,26,477/- of the quantum amount disallowed by t .....

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for the assessment year 2006-07. 4. A few facts relevant for the decision of the controversy involved as narrated in ITA No.680 of 2010 may be noticed. Return of income declaring income of ₹ 2,27,72,100/- was filed on 30.10.2005 by the assessee. The assessment was completed vide order under section 143(3) of the Act dated 18.12.2007, Annexure A.1 at a total income of ₹ 3,24,71,901/-. The Assessing Officer made total addition of ₹ 96,99,801/- (i.e. disallowance under section 37( .....

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f building at Lajpat Nagar amounting to ₹ 33,64,107/- (i.e. 50% of ₹ 67,28,214/-) and relief on account of disallowance of interest under section 36(1)(iii) - ₹ 7,26,477/- (out of ₹ 24,21,587/-) and also a relief of ₹ 15,000/- out of ₹ 50,000/- was given. Aggrieved by the order, the revenue as well as the assessee filed appeals before the Tribunal. The Tribunal vide order dated 24.9.2009, Annexure A.III partly allowed the appeal of the assessee and dismissed t .....

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enue, the assessee had taken huge unsecured loans of ₹ 21.78 crores by paying interest on the same at the rate of 10.75%. However, at the same time, it had not charged the interest on the loans and advances given to various persons. Hence the instant appeals by the revenue and the assessee. 5. We have heard learned counsel for the parties. 6. The first two questions are inter-related and are regarding claim of expenditure of ₹ 67,28,214/- incurred on repair and renovation of the Lajp .....

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d structure or construction of a new hospital, as recorded by the CIT(A). After examining the entire material on record and the case law on the point, it was concluded by the Tribunal that where the expenses are incurred towards repair of the premises taken on lease so as to make it fit for its business activity, such expenditure would fall within the expression of repair as appearing in section 30(a)(i) of the Act. In the present case, the impugned expenditure was held to be revenue in nature. .....

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by the CIT(A). The revenue has not assailed the above finding before us in any manner. There is no specific plea in the grounds raised in the memo of appeal. Even the learned DR in the course of hearing before us has not disputed the above factual conclusion recorded by the CIT(A) on the basis of any cogent material. Moreover, even the details of the expenditure as stated before us do not lead us to infer that such expenditure has been incurred for construction of a new hospital..... 8. It is n .....

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nd not capital expenditure. ...... 15. From the above said judicial pronouncements, an irresistible conclusion is that where the expenses are incurred by the assessee towards repairs of the premises taken on lease so as to make it fit for its business activity, such expenditure would fall within the expression of repair as appearing in section 30(a)(i) of the Act. In the instant case, there is nothing to distinct from the plea set up by the assessee that the impugned expenditure has not resulted .....

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repairs' in section 30(a)(ii) which covers the case of rented premises and the expression current repairs in section 30(a)(ii) has been elaborately brought out by the Hon'ble Delhi High Court in the case of High Line Pens (P) Limited (supra). 7. Nothing was shown that the said findings of the Tribunal are perverse. Accordingly, the first and second questions are answered against the revenue. 8. With regard to the third question qua disallowance of interest of ₹ 24,21,587/- claimed .....

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on borrowed capital (interest free loans). It was held that once it is established that there is nexus between the expenditure and purpose of business, revenue cannot justifiably claim to put itself in arm chair of businessman or in position of Board of Directors and assume role to decide how much is reasonable expenditure having regard to the circumstances of the case. It was recorded as under:- "26.The expression "commercial expediency" is an expression of wide import and includ .....

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n allowed under section 36(1)(iii) of the Act. In Madhav Prasad's case [1979 (118) ITR 200 (SC)], the borrowed amount was donated to a college with a view to commemorate the memory of the assessee's deceased husband after whom the college was to be named, it was held by this court that the interest on the borrowed fund in such a case could not be allowed, as it could not be said that it was for commercial expediency. 28. Thus, the ratio of Madhav Prasad Jatia's case [1979 (118) ITR 2 .....

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t;for the purpose of earning profits" vide CIT v. Malayalam Plantations Ltd. [1964 53 ITR 140 (SC), CIT v. Birla Cotton Spinning and Weaving Mills Ltd. [1971 82 ITR 166 (SC)], etc." In the process, the Court also agreed that the view taken by the Delhi High Court in 'CIT v. Dalmia Cement (B.) Ltd.' [2002 (254) ITR 377] wherein the High Court had held that once it is established that there is nexus between the expenditure and the purpose of business (which need not necessarily b .....

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rities must not look at the matter from their own view point but that of a prudent businessman. 9. Further, in Kapson Associates's case (supra), while considering disallowance of interest under section 36(1)(iii) of the Act, it was recorded as under:- The Commissioner of Income Tax (Appeals) and the Tribunal found as a matter of fact that the company had interest free advances from its directors/shareholders and the members of their families amounting to ₹ 315.11 lakhs as against the i .....

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