TMI Blog2006 (10) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure. Here the expenditure was incurred by the assessee on a leased property and the same has to be allowed as revenue expenditure. The Tribunal has correctly followed the judgment in the case of CIT v. Madras Auto Service P. Ltd.[ 1998 (8) TMI 1 - SUPREME COURT] held that the expenditure incurred on construction of a leased premises by the assessee was deductible as revenue expenditure. The nature of the expenditure indicates that it is only revenue expenditure for the purpose of carrying on business. Thus, it is clear that if the lessee incurs capital expenditure on the building of the nature mentioned above, the said provision treats the building as if owned by the assessee. The Explanation is an exceptional one which permits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed? (ii) Whether, on the facts and circumstances of the case, the Tribunal was right in allowing the expenditure incurred on flooring and partitions, etc., for the newly extended area of space, co-owners of the property and the directors of the assessee-company are same persons? 2. The brief facts arising out of the above tax case are as hereunder: 3. The assessee is a private limited company running a hospital in a leased premises. The assessment year is 1991-92 and the corresponding accounting year ended on March 31, 1991. The assessee-company filed a return of income on October 28, 1991, showing the income at Rs. 3,23,275. Later the case was selected for scrutiny and notice was issued under Section 143(2) of the Income Tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income Tax Act, which is inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from April 1, 1988, and held as capital expenditure. 5. Learned Counsel appearing for the assessee submitted that whenever the tenant had incurred expenditure, it would amount to only revenue expenditure and further stated that Explanation 1 to Section 32(1) of the Act is not applicable to the facts of the case. 6. Heard counsel. The assessee had spent a sum of Rs. 1,85,557 towards painting, re-laying of the damaged floors, partitions, etc. The co-owners were the directors of the appellant. But they were separate entities. The co-owners were admitting the rental income. They were also paying tax on the profits arisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. 8. From a reading of the above, it is clear that if the lessee incurs capital expenditure on the building of the nature mentioned above, the said provision treats the building as if owned by the assessee. The Explanation is an exceptional one which permits depreciation in cases were the assessee does not own a building. In the present case, the Tribunal had given a finding that it is a revenue expenditure on the ground that the expense is incurred only towards painting, re-laying of the damaged floors, partitions, etc. This expenditure can never be considered to be a capital expenditure of the nature mentioned in the above Expl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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