TMI Blog2002 (6) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances of the case, the expenditure incurred by the assessee in converting the godown taken on lease into office premises could be termed as revenue expenditure or capital expenditure?" Facts in brief: The brief facts pertaining to the case are as under: The assessee is a private limited company carrying on a business at various places, inter alia, at Mumbai. The assessment year involved is 1988-89. The assessee filed its return on June 30, 1988, declaring taxable income of Rs. 20,267. The assessee spent Rs. 9,20,436 for converting the godown premises into office by renovating it, incurring expenses on interior decoration, which resulted in replacement of existing roof with that of cement sheets, replacement of floor with that of marble, plastering of walls and construction of bathrooms and W. C., etc. The assessee claimed the said expenditure of Rs. 9,2.0,436 as revenue expenditure and thereby refused to treat it as capital expenditure, since in his belief it was towards repairs and maintenance of the said premises taken on rent by the assessee. In response to the notice under sections 142(1) and 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the "IT Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition is allowable as revenue expenditure. He relied on the decision of the Bombay High Court in the case of Nila Products Ltd. v. CIT [1984] 148 ITR 99 and also placed heavy reliance on the judgment of the apex court in the case of CIT v. Madras Auto Service (P.) Ltd. [1998] 233 ITR 468. He also contended that renovation of office premises and cost of panelling walls with plywood is revenue expenditure as held in CIT v. J.K. Industries (P.) Ltd. [1980] 125 ITR 218 (Cal). Alternatively, he submitted that even if such repairs are assumed to be of capital nature, even then the same are deductible as held in the cases of Instalment Supply P. Ltd. v. CIT [1984] 149 ITR 52 (Delhi) and Allied Metal Products v. CIT [1982] 137 ITR 689 (P H). He prayed for rejection of the appeal with costs. Consideration: In computing the income chargeable under the head "Profits and gains of business or profession", section 37 of the Income-tax Act, enables the deduction of any expenditure laid out or expended wholly and exclusively for the purpose of the business or profession, as the case may be. The fact that an item of expenditure is wholly and exclusively laid out for the purposes of the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d certain premises for a period of thirty nine years at Bangalore. Under the terms and conditions of the lease, the lessee (that is to say the assessee), had the right to demolish at its own expense the existing premises and appropriate to itself all the material, thereof, without paying to the lessors any compensation and construct a new building thereon to suit the purpose of their business as per the plan approved by the lessors. Under clause 2 of the lease deed, the lessee was required to pay a rent of Rs. 1,000 per month for the first fifteen years, Rs. 1,500 per month for the next ten years, Rs. 1,650 per month for the next ten years and Rs. 2,000 per month for the remaining years. The lease deed further provided that the new construction shall, right from the commencement of the work, be the property of the lessors and upon completion of the work of construction the lessee would have only the right to be a tenant for a period of 39 years under the existing lease, subject to the payment of rent and observation of other terms and conditions of the lease. The lessee would not be entitled under any circumstances to any compensation whatsoever on account of its putting up the new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital." The apex court while dealing with this question relied on the following cases: (i) Lakshmiji Sugar Mills Co. P. Ltd. v. CIT [1971] 82 ITR 376 (SC), wherein the assessee-company was carrying on the business of manufacture and sale of sugar. It paid to the Cane Development Council certain amounts by way of contribution for the construction and development of roads between the various sugarcane-producing centres and the sugar factories of the assessee. The roads remained the property of the Government. The apex court held that the expenditure was not of capital nature and had to be allowed as an admissible deduction in computing the profits of the assessee's business. The expenditure was incurred for the purpose of facilitating the running of the assessee's motor vehicles and other means employed for transportation of sugarcane to its factories. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the expenditure was incurred merely with a view to carry on the business of the company more efficiently by having a contented labour force. All these cases have looked upon expenditure which did bring about some kind of an enduring benefit to the company as a revenue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expenses have been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully. As in the present case also since the assets created by spending the said amounts did not belong to the assessee but the assessee got the business advantage of using modern business premises at a low rent, thus saving considerable revenue expenditure for a considerably long period, the Tribunal was perfectly justified in coming to the conclusion that the expenditure should be looked upon as revenue expenditure. No fault can be found with the findings recorded by the Tribunal. In the result, the appeal is dismissed, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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