TMI Blog2020 (2) TMI 939X X X X Extracts X X X X X X X X Extracts X X X X ..... urred cannot be allowed as deduction as current repairs certainly expenses would not be a capital expenditure and all conditions being satisfied u/s. 37 expenses are to be allowed under the said section. The expenses incurred in a hotel industry may be current repairs which expenses are incurred on yearly basis and expenditure incurred on periodical basis. As mentioned earlier, assessee s hotel was already having three star facility from the year 2006 and for renewal of three star facility, the assessee had to incur the impugned expenses on periodical basis. On basis of these expenses incurred, the assessee did not derive a new asset and there was no increase in the total rooms nor there was an increase in total area of the hotel. The expenditure incurred by assessee such as painting of the hotel, replacement of floor tiles, glazing works etc. are nothing but periodical expenditure which a hotel has to necessarily incur for its upkeep and cannot be termed as capital expenditure. Assessee is entitled to deduction u/s. 37(1) - Decided in favour of assessee. - I.T.A. No.715/Coch/2019 - - - Dated:- 18-2-2020 - Shri George George K., Judicial Member For the Assessee : Shri K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luminium cladding work, painting, interior furnishing had to be renovated. Entire furniture and furnishing had to be refurnished. The entire hotel had to look like a new one during the visit of the committee for revaluation of allotting three star classification. For executing all the work, we had incurred ₹ 60,25,240/. The Tourism Department also awarded three star rating for us from 12.04.2011 to 11.04.2016 4.1 The Assessing Officer rejected the objections raised by the assessee and disallowed the sum of ₹ 60,25,240/- by treating it as capital expenditure. The relevant finding of the Assessing Officer reads as follows: Hence what transpires from assessee's statement is that the expenditure that was booked under Repairs and Maintenance- Bldg is nothing but the cost incurred in obtaining Three Star certification. By incurring this expenditure the assessee had made sure that the value of the asset does not diminish from a three star hotel to an ordinary one, which otherwise would have, had the assessee not renovate the hotel in due time. Thus by incurring this expense, assessee has given an enduring benefit to the asset by another five years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial (₹ 2.19 lakhs), aluminium material (₹ 2.19 lakhs) apart from labour expenses on painting (₹ 4.06 lakhs), glazing (₹ 3.9 lakhs) etc. The nature of these expenses clearly show that the expenditure is not a routine renovation expenditure but an expenditure towards creating assets in the form of furniture and furnishings, new floor, new tiles etc. Moreover premises are owned by the appellant itself. The facts of the case cited by appellant are quite different in which the expenditure consisted of fabric, cutlery, rubber mats civil work, shower mirror etc. 9. The appellant submitted that the expenditure towards repair and maintenance of building in financial year 2007-08 is ₹ 6.24 lakhs. Expenditure in financial year 2008-09 is ₹ 5.88 lakhs and in financial year 2009-10 it is ₹ 1.85 lakhs. Thus it can be seen that routine repair is a miniscule amount when compared to expenditure incurred by appellant in the relevant assessment year. The nature of expenses leave no doubt that it was incurred in order to get enduring benefit in the nature of reclassification of hotel and creation of new assets and assets substantially improved fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s others 4,75,135 Transportation incurred for renovation work 11,643 60,25,239 5. The ld. CIT(A) has failed to appreciate the decision of the Hon. Madras High Court (DB). in the case of C1T (Central) Madras v Dasaprakash reported in (1978) 114 1TR 211 wherein it was held that such items of expenditure as in the case of the appellant are of Revenue Nature. Copies of the two judgments may be permitted to be submitted at the time of hearing. 6. The ld. CIT(A) should have noticed the fact that the building tax levied by the Trichur Corporation before and after the renovation work is one and the same and there was no increase in such levy, indicating the fact that there is no new capital asset came into existence after the impugned renovation. For these and such other grounds that may be urged at the time of hearing it is prayed that, the entire sum of ₹ 60,25,240/- may kindly be allowed as Revenue Expenditure. 6.1 The Ld. AR has filed a paper book enclosing details of the expenses claimed as revenue expenditure amounting to ₹ 60,25,240/-. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile Mills Ltd.(1967) 66 ITR 710 (SC) the roller stands of textile machinery were worn out and replaced with parts, manufactured by a different company said to be better than the older type because the older type was not available. It was held by the Hon ble Apex Court that this consideration alone could not be said to have brought into existence a new asset or enduring advantage to the assessee s business and that the expenditure was allowable as deduction. It was further held by the Hon ble Supreme Court that the fact that the benefit of repairs extends beyond the year of expenditure would not make the expenditure capital expenditure. The concept of current repairs has been explained by the Hon ble Bombay High Court in the case of CIT vs. Chowgule Co. Pvt. Ltd. (214 ITR 523). The High Court has spelt out the meaning of current repairs in following words: (i) The amount should be paid on account of current repairs. (ii) Current repairs means repairs undertaken in the normal course of user for the purpose of preservation, maintenance or proper utilization or for restoring it to its original condition. (iii) Current repairs do not mean only petty repairs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er it is allowable as revenue expenditure or not, is a pure question of fact. 7.4 In the instant case, the repair works were completed in the month of March, 2011. The assessee has enclosed details of expenditure incurred for repairs in the paper book filed by the assessee. The details of all the bills and relevant vouchers of the expenditure are enclosed in the paper book filed by the assessee The major portion of the expenditure are detailed below: 1. Glazing work ₹ 12,22,855 2. Flooring tiles ₹ 8,74,695 3. Furniture and Furnishings ₹ 13,31,053 4. Materials others ₹ 4,75,135 Total ₹ 39,03,738 Apart from the above expenditure, the assessee had also incurred painting expenditure for a sum of ₹ 4,06,300/- and ₹ 2,19,259/-. From the bills and vouchers, it is clear that the expenses are incurred for repair and maintenance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 7.6 The order of the Cochin Bench of the Tribunal in the case of DCIT vs. Indus Motor Company Pvt. Ltd. (supra) relied on by the Ld. DR is distinguishable on facts. In the said order of the Tribunal, it was held by referring Explanation 1 to section 32(1) of the I.T. Act, the construction carried out in the leased premises would result in enduring benefit and in such cases, the expenditure is to be capitalized and depreciation should be allowed on the same. 7.7 The judgment of the Hon ble Delhi High Court in the case of M/s. Bharat Gears Limited vs. CIT (supra) relied on by the learned DR, is also distinguishable on facts. In the said case, the Hon ble Delhi High Court confirmed the order of the Tribunal in view of the fact that the impugned expenditure had resulted in bringing into existence a new machinery and therefore, the expenditure incurred was held to be a capital expenditure. 7.8 The following judicial pronouncements are in favour of the assessee: i) The Hon ble Madras High Court in the case of CIT(Central), Madras vs. Dasaprakasha reported in 114 ITR 210 had held that periodical expenditure incurred with a view to beautify the premises is not a capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hotel and replacing the existing components of the building, furniture and fittings, with a view to create a conducive and beautiful atmosphere for the purpose of running the business of a hotel was an allowable deduction. It was further held by the Hon ble Court that the expenditure incurred was not of an enduring nature and was allowable as revenue expenditure under section 37 of the Act. iv) The Hon ble Rajasthan High Court in the case of CIT vs. Lake Palace Hotels and Motels P. Ltd. reported in 258 ITR 562 had held that the expenditure incurred on refurnishing/modernizing a hotel is not a capital expenditure. It was held by the Hon ble High Court as follows: We have scanned through the cases referred to by learned Counsel for the Department as well as for the assessee. Section 37 of the Income-tax Act provides for deduction of any expenditure not being in the nature of capital expenditure laid out or expended wholly and exclusively for the purposes of the business or profession. But the expression capital expenditure is not defined in the Act and the words employed under section 37(1) in the nature of capital expenditure is, therefore, closely akin to the concep ..... 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