TMI Blog2017 (12) TMI 1168X X X X Extracts X X X X X X X X Extracts X X X X ..... re - Lands taken on lease and constructions made thereon - Held that:- The assessee shall produce the lease deeds of period one year or above before the concerned Sub-Registrars, who shall calculate the duty payable under Article 33 of the Stamp Act and levy penalty of ₹ 10,000/- each. If the assessee pays up the amounts then the procedure as prescribed in Section 37(1) shall be complied with. The Sub-Registrar shall also register the document de-hors Sections 23 and 25 of the Registration Act, but levying registration fees as applicable and an amount of ₹ 5,000/- each as penalty. The assessee then shall produce the registered documents before the respondent A.O, who shall finalise the assessment on the principles herein above stated, determining whether the expenditure made by the assessee can be treated as a capital expenditure or revenue expenditure. If the assessee does not comply with the above directions then the respondent shall impound the documents and send it for stamping under the provisions of Section 33 of the Stamp Act to the respective District Registrars who shall pass orders at their discretion under powers conferred by Section 39 of the Stamp Act, in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was considered by a Division Bench of this Court and the questions were answered in favour of the assessee in Joy Alukkas India (P) Ltd. v. Assistant Commissioner of Income Tax [(2016) 282 CTR (Ker) 551]. 4. When the instant appeals came up for hearing before another Division Bench, a doubt was raised as to whether the dictum laid down in Joy Alukkas; was correct or not in the teeth of Explanation 1 to Section 32(1) of the Income Tax Act, 1961 [for brevity the Act ]. A reconsideration was directed, upon which a Full Bench of this Court considered the issue and affirmed the earlier Division Bench in Joy Alukkas, as per order dated 17.02.2016. We are considering the issue on the basis of the interpretation placed on Explanation 1 to Section 32(1) by the Full Bench. 5. The learned Senior Counsel, Government of India (Taxes) asserts that the matter having been sent back to the Division Bench for consideration, the decision as to whether the expenses are to be treated as capital expenditure or revenue expenditure, is to be arrived at from the facts in the individual cases. Reference is also made to Arvind Mills Ltd. v. C.I.T. [(1992) 197 ITR 422 (SC)] to conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the building. The view expressed by the referring Bench that the introduction of the Explanation manifested the legislative intent to treat all expenditure incurred on a lease hold building as capital expenditure of the assessee was not accepted. The Full Bench specifically found that the Explanation does not create a fiction insofar as any expenditure made in a leased out premises being treated as a capital expenditure. It would be apposite to extract paragraph 28 of the decision of the Full Bench: 28. The plain reading of the language of Explanation 1 indicates that the legal fiction was created as if the said structure or work is the building owned by the assessee. There is no warrant of reading the Explanation 1 in a manner to read that when assessee who holds a lease or other right of occupancy incurs any expenditure for purposes of the business or profession on the construction of any structure or doing of any work, in or in relation to and by way of renovation or extension or improvement to the building, then the said expenditure has to be treated as capital expenditure. The legal fiction has not been created to treat the said 'such work' as mentioned there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scussion on facts and law in para 25 applies squarely: The appellants-assessees are conducting their business in rented premises. They claim to have made improvements to the premises taken on lease in order to create good ambience by spending money on interior decoration which has resulted in expenditure on many items. Out of those items, some of them could be retrieved at the end of the lease and could be used by the appellantsassessees again. Some of the improvements made cannot be taken away along with the lessee assessee at the end of the term of the lease. Though in some of the decisions enduring benefit irrespective of creating an asset or not was alone the criterion and later on the Apex Court, while dealing with the subject exhaustively in Empire Jute Co.Ltd's case (Supra), has held that theory of enduring benefit or advantage may break depending upon the facts and circumstances of the case. Therefore, the stand and argument of the revenue that as long as there is income earning effort by whatever means or name you call it, whether it could be expansion or extension of the business, the same has to be considered as capital investment has to be looked into from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the items on which expenditure was made must be able to come back to the assessee at the end of the day . 10. The decision of the Division Bench in Joy Alukkas binds us inexorably with respect to the question raised on expenses incurred for refurbishing and making improvements of a leasehold building. The questions of law raised by the Division Bench admitting the instant appeals as also the reference order indicates that the additions made were on two counts: (i) the expenditure incurred on refurbishment, repairs and improvements and (ii) the superstructures constructed on leased out immovable property. The revenue expenditure made on leased out buildings has to be allowed as a revenue expenditure and not as a capital expenditure. We answer the first question in favour of the assessee and against the Department. 11. The other question raised is with respect to the lands taken on lease and constructions made thereon. The learned Senior Counsel for the assessee would refer to C.I.T. v. Madras Auto Service (P.) Ltd. [(1998) 233 ITR 468 (SC)], wherein a similar issue was considered and the expenditure incurred in construction of the buildings was allowed as revenue ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any engaged in sale of motor parts, had taken on lease certain lands wherein a building was constructed investing sufficient funds in two years, which were claimed alternatively as capital loss, depreciation on capital investment or as business expenditure, as an extra rent for the lease. Apposite would be reference to the following consideration made by the Hon'ble Supreme Court [at page 472]: In order to decide whether this expenditure is revenue expenditure or capital expenditure, one has to look at the expenditure from a commercial point of view. What advantage did the assessee get by constructing a building which belonged to somebody else and spending money for such construction? The assessee got a long lease of a newly constructed building suitable to its own business at a very concessional rent. The expenditure, therefore, was made in order to secure a long lease of new and more suitable business premises at a lower rent. In other words, the assessee made substantial savings in monthly rent for a period of 39 years by expending these amounts. The saving in expenditure was a saving in revenue expenditure in the form of rent. Whatever substitutes for revenue expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing constructions in leased out lands were held to be revenue expenditure and not capital expenditure. We are of the opinion that the explanation brought in later to the aforesaid decision would not detract from the above position. If the expenditure could be treated as revenue expenditure, necessarily the lessee, the assessee, would be entitled to show the same as revenue expenditure in its books of accounts. Merely because the property was leased out and constructions carried out, having no enduring benefit to the assessee; would not be the test for finding a revenue expenditure. The test of enduring benefit has been held by the Hon'ble Supreme Court to be not applicable in all cases. 17. In this context we have to refer to the decision in TVS Lean Logistics Ltd. of the Madras High Court. Therein, the Division Bench of the Madras High Court had considered the Explanation and found it to be not applicable in the case of landed properties, since only buildings were referred to. The Explanation would not apply in the case of constructions made on leased out properties, was the specific finding. A corollary to the said finding would be that the construction made on a lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property and the period for which the lease is permitted. The going market rent for buildings, in the specified locations, would also have to be looked into by the Assessing Officer to arrive at a proper determination of whether the expenditure is a capital expenditure or revenue expenditure. If the Assessing Officer finds that the investments made in the property spread over the period of lease, together with the lease rent payable as per the agreement, would constitute the ostensible lease rent for the building, then investment made for constructing superstructures, has to be deemed to be revenue expenditure, otherwise it should be treated as capital expenditure and in the latter event allowable as depreciation under the Explanation I to Section 31(1). 20. Before leaving the matter we have to notice that the lease deeds produced before this Court are not registered. The Registration Act, 1908 mandates under Section 17, that any lease from year to year or beyond one year to be compulsorily registrable, failing which it shall not be received in evidence as per Section 49. It has also to be duly stamped under the Kerala Stamp Act, 1959 [for brevity, the Stamp Act]. The lease de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above directions then the respondent shall impound the documents and send it for stamping under the provisions of Section 33 of the Stamp Act to the respective District Registrars who shall pass orders at their discretion under powers conferred by Section 39 of the Stamp Act, in which event the determination of penalty will be left to the District Registrar. The assessment will also then be without looking into the documents, since the Registration Act does not provide for registration beyond eight months from the execution. 22. Two other questions which arise in the appeals for the assessment years 2009-10 and 2010-11 [I.T.A.Nos.15/2015 and 29/2016] are dealt with separately. For the assessment year 2009-10, the question raised as seen from I.T.A.No.15 of 2015, is as under: Whether, on the facts and in the circumstances of the case, the Appellate Tribunal; is right in confirming the disallowance of expenses incurred on show rooms/service stations which was written off/discarded since the requisite permission for commencing the operations could not be obtained? . The assessee had incurred expenses on showrooms or service stations leased out by the assessee; but, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
