TMI Blog2019 (4) TMI 1127X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and construction of the building. These cannot be termed as 'repairs'. Consequently, this alternate submission is rejected by us. The second alternate submission advanced by Mr.M.P.Senthil Kumar that the case should be remitted back to the Assessing Officer is also rejected since the fact have been addressed and settled by the Authorities below and it had been concurrently found that the expenditure were capital in nature. The issue of bifurcating the said expenses as capital and revenue would therefore not arise. - Decided in favour of the Revenue. - Tax Case Appeal Nos. 1929 to 1937 of 2008 - - - Dated:- 15-4-2019 - Dr. Justice Vineet Kothari And Mr. Justice C.V. Karthikeyan For the Appellant : Mr. M.Swaminathan Senior Standing Counsel For the Respondent : Mr.M.P.Senthil Kumar COMMON JUDGMENT C.V.KARTHIKEYAN, J. The Revenue had filed these Appeals against the order of the learned Income Tax Appellate Tribunal dated 14.03.2008 allowing the Appeals filed by the Asessee with respect to the Assessment Years 2002-2003 and 2003-2004. These Appeals had been admitted by a Co-ordinate Bench of this Court on 16.12.2008 on the following substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited., (1998) 233 ITR 468 (SC) would not apply to the facts of the present case since it related to the Assessment Year 1968-1969, which was prior to the insertion of Section 32(1A) with effect from 01.04.1970 and its substitution by Explanation 1 with effect from 01.04.1988. The CIT (Appeals) held that the expenditure has to be treated as a capital expenditure since the same had been incurred for the purpose of bringing into existence an asset providing enduring advantage for a considerable period of time. The relevant portion of the order of the CIT (Appeals) is quoted below:- The main concern of this group M/s. RMKV Pillai and Sons took one premises at Door No. 125 to 127 at North Usman Road, T.Nagar on lease for 20 years from the following persons. Shri K.Viswanathan, Shri K.Shivakumar, Shri. K.Ponnanand, Shri.K.Mahesh, Shri N.Viswanathan and Shri N.Manickavasagam. M/s. RMKV Pillai and Sons constructed a 5 storeyed building again for a show room on the unfinished RCC structure constructed upto 3 storey in the said premises. A part of the premises was sub leased to the assessee firm for 19 years. The cost of construction of the show room in both the places mentioned ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion specifically provides where such expenditure had been incurred the Act deems that the said structure or building is owned by the assessee. Therefore what is material is the nature of expenditure and not the ownership of the premises. Following the definition of capital expenditure as first mentioned in the case of New Shorrock Spinning and Manufacturing Co. Ltd., (30 ITR P 338) which has been widely quoted and approved by the Apex Court in the case of Ballimal Naval Kishore and Another v. CIT 224 ITR pg 414. The construction expenditure has to be treated as capital expenditure since the same was incurred for the purpose of bringing into existence a new asset and also obtaining a new advantage for a considerable period. 5. The Assessee then took the matter before the Income Tax Appellate Tribunal. By a common Judgement dated 14.03.2008, the Tribunal allowed the Appeals. The reasoning of the Tribunal is given below:- 9. We have considered the rival submissions carefully in the light of the material on record. Sec. 144A reads as under:- 144A . A Joint Commissioner may, on his own motion or on a reference being made to him by the (Assessing) Officer or on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the Joint Commissioner is found to be erroneous, the reversionary power of the Commissioner is rightly invoked u/s. 263. We agree with the above observations of the CIT because Explanation to Section 263(1) reads as under :- (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub- section,- (a) an order passed 4 on or before or after the 1st day of June, 1988 ] by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or the Incometax Officer on the basis of the directions issued by the Deput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Appeals before us under Section 260-A of the Act. 7. Heard arguments advanced by Mr.M.Swaminathan, learned Senior Standing Counsel for the Revenue and Mr.M.P.Senthil Kumar, learned counsel for the Assessees. 8 . The main thrust of the arguments of Mr.M.Swaminathan was that the Tribunal had relied on the earlier Judgment of this Court in CIT Vs. Hari Vignesh Motors (P) Limited., (2006) 282 ITR 228 (Madras) , wherein similar circumstances, this Court had followed the ratio laid down in CIT vs. Madras Auto Service (P) Limited., (1998) 233 ITR 468 (SC) and had allowed the appeal of the Assessees. Unfortunately, Explanation 1 to Section 32(i) which was introduced by a Taxation Law (Amendment and Miscellaneous Provisions) Act 1986 with effect from 01.04.1988 had not been discussed in Hari Vignesh Motors (P) Limited., cited supra. Moreover Madras Auto Service (P) Ltd., cited supra dealt with the Assessment Year 1968-1969 before the insertion of Explanation 1 to Section 32(1). Mr.M.Swaminathan therefore urged that the order of the Tribunal requires interference since the Explanation 1 to Section 32(1) of the Act very clearly provides that where any construction is put ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the order of the Tribunal has to be upheld. 12. Mr.M.P.Senthil Kumar also advanced a further alternate submission that the Assessees have not created any tangible or intangible assets having an enduring advantage by the construction of the further floors in the building and in carrying out interior works which were done only to produce the right ambience to attract customers in his textile business. He therefore argued that expenditure incurred in 'repairing' the premises taken on lease would fall within the expression repairs to the premises as provided in Section 30(a)(i). Such expenditure cannot be capitalised as they are temporary in nature. The interior decorations could not be durable for a long period of time and would require consistent maintenance and upkeep which also involves costs. 13. The learned counsel stated that the Assessee had submitted the details of cost of construction and expenditure incurred towards interiors. It was stated that the CIT (Appeals) had directed the Assessing Officer to treat the entire expenditure as 'Capital'. The learned counsel therefore pointed out that the issue may be remanded back to the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [Explanation 1.- Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the 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 of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee. 18. This Explanation had been inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act 1986 with effect from 01.04.1988. The Judgement heavily relied on by the learned counsel for the Assessees, namely, Madras Auto Services (P) Ltd., cited supra related to the Assessment Year 1968- 1969 before the above provision was brought into effect. The further Judgement relied on by the learned counsel for the Assessees in Hari Vignesh Motors (P) Ltd., cited supra in the course of the said Judgement did not consider the said Explanation. The other Judgement relied on by the learned counsel in TVS Lean L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en chairs had been useless and could not be used for seating the cinema-goers. On the other hand, the stand taken was that the whole object was to modernise the cinema house to bring it in line with the modern show business. The replacement was an improvement of an enduring nature and not mere replacement. Capital expense with regard to a short-term venture, such as a lease for a period, had to be viewed in the context of that lease, namely, its purpose coupled with its duration. Expenditure incurred by the assessee is an expenditure of a capital nature and it brought into being an advantage of an enduring nature and thus it had been rightly treated as such by the Tribunal, except to the extent of the amount found by the Tribunal being on account of repairs. 20 . In view of the above propositions, we are of the considered view that the expenditure incurred by the Assessee in the present case are Capital in nature and come within the mischief of Explanation 1 to Section 32(1) of the Act. The alternate submission advanced by Mr.M.P.Senthil Kumar that the repairs to the premises cannot be capitalised in view of Section 30(a)(i) of the Act is rejected since the renovations made a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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