TMI Blog2021 (8) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) has also recorded categorical finding of fact that the assessee has derived clear advantage of saving in rent by incurring expenditure on construction of building in lieu of rent. Further, there is clear commercial advantage in terms of saving in rent payments as narrated by the ld. CIT(A) in her order. Therefore, we are of the considered view that there is no error in the findings recorded by the learned CIT(A) in deleting additions made by the Assessing Officer towards disallowance of cost of construction on leasehold land. We are of the considered view that there is no error in the findings recorded by the learned CIT(A) to delete additions made by the Assessing Officer towards cost of construction incurred on leasehold land, hence, we are inclined to uphold order of the learned CIT(A) and reject grounds taken by the Revenue. - I.T.A.Nos.2227 & 2228/Chny/2018 - - - Dated:- 9-8-2021 - Shri Mahavir Singh, Vice-President And Shri G. Manjunatha, Accountant Member For the Appellant : Mr. Srinivasa Rao, CIT For the Respondent : Mr. T.Banusekar, C.A ORDER PER G.MANJUNATHA, AM: These two appeals filed by the Revenue are directed aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment is for the purpose for creating an asset of enduring in nature and consequently is of a capital nature. 8. Whether the Ld. CIT(A) was justified in allowing the sum of ₹ 7,49,49,895/- on the ground that building construction on a lease hold land is Revenue in nature. 9. Whether the Ld. CIT(A) was justified in ignoring the fact that building construction on a lease hold land is nothing but creation of an asset of enduring benefit which is going to be useful for the assessee company on long term basis to be utilized over a period of time. Accordingly, the same is only capital in nature eligible for depreciation under the Income tax Act. 10. Whether the Ld. CIT(A) was justified in ignoring the fact that just because the building is constructed on a lease hold land the same cannot become revenue expenditure because the investment is towards construction of a building which has a life beyond the current financial year and accordingly nothing but a capital expenditure. 11. For these and other grounds that may be adduced at the time of hearing, the order of the CIT(A)-3, Coimbatore may be cancelled and that of the Assessing Officer may be restored. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee s case it had every right to retain ownership of super structure, electrical and other installations, whereas in the case before the Hon'ble Supreme Court, ownership of new building vested with the land owner. The Assessing Officer further noted that the assessee has failed to demonstrate with evidences how expenditure incurred for construction of building on leasehold land resulted in reduction of revenue expenditure in form of rent in subsequent financial years and hence, opined that expenditure incurred on construction of building on leasehold land is in the nature of capital expenditure, which cannot be allowed as deduction, accordingly, made addition towards expenditure, however, allowed depreciation @10% as allowed towards building under the Act. Thus, the AO has made additions to balance amount to the total income of the assessee. 5. Being aggrieved by the assessment order, the assessee preferred an appeal before learned CIT(A). Before the learned CIT(A), the assessee has reiterated its arguments made before the Assessing Officer and submitted that the assessee has saved substantial amount in form of rent payment in subsequent financial years, when compared t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old land as revenue expenditure, even though contract between the parties itself is null and void, because as per agreement between the parties, lease period was five years and was further extendable by 25 months. However, construction period itself is five years and further extendable to 36 months leaving no time for lease to operate so as to get financial benefit. The DR further submitted that the learned CIT(A) was not justified in holding that case of the assessee is squarely covered in favour of the assessee by the decision of Hon'ble Supreme Court in the case of M/s. Madras Auto Service (P) Ltd. (supra) and the decision of Hon'ble High Court of Madras in the case of TVS Lean Logistics Ltd. (supra), without appreciating facts in those two cases, the assessee has derived clear benefit of savings in rent by constructing super structure on land and under those facts, the Hon'ble Supreme Court and the Hon ble Madras High Court came to the conclusion that cost of construction incurred on leasehold land is revenue in nature, which is deductible under the Act. The learned DR further referring to the provisions of section 37 of the Income Tax Act, 1961 has submitted that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held. As regards arguments of the learned DR, in light of certain judicial precedents on application of right provisions of the Act, the AR submitted that since there is clear direction from the Tribunal on non-application of Explanation (1) to section 32(1) of the Act, the question whether section 37(1) is applicable or not is academic in nature. Therefore, he submitted that there is no merit in arguments of the learned DR that Tribunal has every right to compute correct tax liability of the assessee in accordance with law. He further submitted that no doubt, the Tribunal being final fact finding authority is having right to examine the issue which is subject matter of appeal before the Tribunal, but it cannot improve order of the Assessing Officer to bring into tax any income which is not at all subject matter of appeal or the case of the Assessing Officer. Therefore, cases laws relied upon by the learned DR are not applicable to the facts of the present case and needs to be rejected. 8. We have heard both the parties, perused materials available on record and gone through orders of the authorities below along with case laws cited by both sides. The issue whether constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made by the Assessing Officer between the case of the assessee and the cases before the Apex Court and the Madras High Court is not correct. This Tribunal is of the considered opinion that the facts of the case are identical to that of the Madras High Court and Apex Court. 6. We have carefully gone through the judgment of Apex Court in the case of Madras Auto Service (P) Ltd. (supra). The Apex Court at para 6 of its judgment observed as follows:- 6. The test for distinguishing between capital expenditure and revenue expenditure in our country was laid down by this court in Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 . In that case, the appellant-company had acquired from the Government of Assam lease of certain limestone quarries for a period of 20 years for the purpose of manufacture of cement. The lessee had, inter alia, agreed to pay an annual sum during the whole period of the lease as a protection fee and in consideration of that payment, the lessor undertook not to grant to any person any lease, permit or prospecting licence for limestone. This court examined tests laid down in various cases for distinguishing between capital expenditure and rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, by spending this money, the assessee did not acquire any capital asset. The only advantage which the assessee derived by spending the money was that it got the lease of a new building at a low rent. From the business point of view, therefore, the assessee got the benefit of reduced rent. The High Court has, therefore, rightly considered this as obtaining a business advantage. The expenditure is, therefore, to be treated as revenue expenditure. 7. We have gone through the judgment of Madras High Court in TVS Lean Logistics Ltd. (supra). The Madras High Court after considering Explanation 1 to Section 32(1) of the Act and the judgments of Apex Court in Nasiruddin v. Sita Ram Agarwal (2003) 2 SCC 577 and Raghunath Rai Bareja v. Punjab National Bank (2007) 2 SCC 230, found that similar expenditure is revenue in nature. In fact, the Madras High Court has observed as follows:- 7. Similarly, there should be a literal rule of interpretation of a statute, which is the first and foremost principle of interpretation and where the words of a statute are absolutely clear and unambiguous, recourse cannot be had to the principles of interpretation other than the liter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uto Service (P) Ltd. (supra) has held that when the assessee constructs building on leasehold land without ownership, then cost incurred for construction of building is revenue expenditure which deductible. The said findings of the learned CIT(A) is supported by the decision of the Hon'ble Supreme Court in the case of M/s. Madras Auto Service (P) Ltd. (supra) and the decision of Hon'ble High Court of Madras in the case of TVS Lean Logistics Ltd. (supra). The learned CIT(A) has also recorded categorical finding of fact that the assessee has derived clear advantage of saving in rent by incurring expenditure on construction of building in lieu of rent. Further, there is clear commercial advantage in terms of saving in rent payments as narrated by the ld. CIT(A) in her order. Therefore, we are of the considered view that there is no error in the findings recorded by the learned CIT(A) in deleting additions made by the Assessing Officer towards disallowance of cost of construction on leasehold land. Hence, we are inclined to uphold findings of the learned CIT(A) and reject arguments of the revenue. 10. As regards arguments of the learned DR in light of the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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