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RPG Enterprises Ltd. Versus Deputy Commissioner of Income Tax

2016 (7) TMI 71 - BOMBAY HIGH COURT

Repairs and maintenance expenditure - revenue or capital - ITAT holding that the expenditure to the extent of 75% was capital in nature - Held that:- There is nothing on record to indicate that any benefit was obtained by the assessee in the revenue field for having expended the amount for repairs / renovation of the office premises. - We find that the authorities on facts found that some of the expenditure incurred out of ₹ 31.32 lakhs was incurred for maintenance such as plastering e .....

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view, the concurrent finding of fact by the Authorities under the Act that the expenditure incurred claiming to be the repairs and maintenance was in fact on account of renovation of the premises, leading to enduring benefit to the appellant assessee in as much as it enabled the appellant to accommodate larger number of employees and also facilitate its trading operations. This benefit would be available to it for a long period of time and thus, was capital in nature. It was in the above view t .....

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come Tax Appellate Tribunal (Tribunal). The impugned order dated 18 April 2001 relates to A.Y. 1996-97. 2. On 30 July 2004 this appeal was admitted on the following substantial question of law : Whether on the facts and in the circumstances of the case and in law, Income Tax Appellate Tribunal was correct in holding that the expenditure to the extent of 75% of ₹ 31,32,841/was capital in nature? 3. Brief facts leading to this appeal are as under : (a) Since the year 1995, the appellant was .....

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lakhs related to the said premises. The Assessing Officer on examination of the nature of expenses found that the same were substantially capital in nature i.e. renovating the said premises by doing civil work. However, some part of its expenditure were found to be revenue in nature, example plastering. Therefore, the Assessing officer attributed 75% of the expenditure claimed as capital and 25% as revenue i.e. ₹ 23.49 lakhs (capital expenditure) and ₹ 7.83 lakhs (revenue expenditure .....

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to the Commissioner of Income Tax (Appeal) [CIT(A)]. On consideration of the nature of expenditure incurred by the appellant, the CIT(A) held that substantial expenses incurred on the said premises was on account of major structural renovation. Thus, capital in nature. Therefore the CIT(A) by order dated 24th February 2000 upheld the Assessment order dated 18th July 2004 of the Assessing Officer disallowing the claim of ₹ 23.49 lakhs as Revenue expenditure. (c) Being aggrieved, the appella .....

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n capital account and cannot be allowed as revenue expenditure. 4. Being aggrieved, the appellant is in appeal and the appeal has been admitted on the above question of law. Mr. Jhaveri, learned Counsel appearing for the appellant in support submits as under : (a) The expenditure of ₹ 31.32 lakhs claimed on account of repairs and maintenance of the said premises is allowable as revenue expenditure. This is no longer res integra in view of the decisions of this Court in Commissioner of Inco .....

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case there is no basis indicated for apportioning the expenditure in the ratio of 75% and 25% between capital and revenue account. Therefore, the finding of the authorities is not sustainable; 5. We find that the appellant was a tenant of the said premises. It was paying monthly rent of ₹ 73,530/from April, 1995 onwards under the agreement dated 15th February, 1995. Further the agreement provided that the cost of repairs and renovation i.e. civil, electrical, plumbing, polishing etc. would .....

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enefit obtained by the appellant, according to the Authorities was substantially in the capital field and could not be entirely allowed as revenue expenditure. The submission on behalf of the appellant, before us, that as the appellant does not own the premises the expenditure incurred on renovation goes to the benefit of the owner of the said premises, therefore in the hands of the tenant it can only be revenue expenditure is more then met by the impugned order of the Tribunal. This in view of .....

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at on an identical fact situation expenditure incurred by tenant has been allowed as revenue expenditure by this Court. Therefore it is submitted that the entire issue is no longer open to debate as it stands concluded in favour of the appellant by the decisions of this Court in Talathi & Panthaki Associates Pvt. Ltd. (supra) and Hede consultancy Pvt. Ltd. (supra). In Talathi & Panthaki Associates Pvt. Ltd. (supra) the tenant of the premises had contributed a sum of ₹ 1.50 crores t .....

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aid facts that it was held that where a lumpsum payment of ₹ 1.50 crores gets rid of annual business expenses chargeable against revenue then the lumpsum is to be regarded as a revenue/business expenditure. The benefit obtained by the assessee in the above case was premises at a lower rent in view of the contribution made to the developer for repairing / reconstructing the premises. Thus, the expenditure was in the revenue field and allowable under Section 37 of the Act. In the present fac .....

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t expended for interior decoration and renovating of a godown premises so as to be converted into an office premises was allowed as a revenue expenditure, will not apply to the present facts. This is because in that case the tenant got the benefit of lower rent in view of the expenditure incurred on renovation. It was in that context that this Court upheld the view of the Tribunal that the expenditure for repairs and renovation was in the revenue field. As pointed out above, in the present case, .....

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e find that the authorities on facts found that some of the expenditure incurred out of ₹ 31.32 lakhs was incurred for maintenance such as plastering etc. This allowing of 25% was on the basis of an estimate. Nothing has been shown to us that the estimation by the authorities on the basis of facts found was in any way arbitrary or perverse. Thus we find no merit in the above submission. 9. In the view taken by us that the expenditure of 75% of ₹ 31.32 lacs i.e. ₹ 23.49 lakhs is .....

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