TMI Blog1985 (7) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... ged to revenue account. The assessee also claimed a sum of Rs. 3,307 as expenses incurred for supplying tea to the customers. The Income-tax Officer disallowed this claim also. The assessee, therefore, carried the matter in appeal before the Appellate Assistant Commissioner, who confirmed the order of the Income-tax Officer in respect of the disallowance of Rs. 16,748. The Appellate Assistant Commissioner, however, in respect of the entertainment expenses, restricted the disallowance to Rs. 2,000 only. The assessee, therefore, carried the matter in further appeal to the Income-tax Appellate Tribunal. Before the Tribunal, it was urged on behalf of the assessee that after obtaining the office premises in Amir Building, the same were required to be renovated and put on proper shape for which the assessee was required to incur the expenses of Rs. 16,748. On the other hand, the Revenue contended that since a new asset in the nature of addition of a loft, or, in any case, an advantage of enduring benefit came into existence, the impugned expenses are capital in nature and, therefore, the AAC was justified in affirming the order the Incometax Officer disallowing the said claim. The Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sight of the perspective of the dispute between the Revenue and the assessee. It should be recalled that the assessee had, for purposes of setting up its office at Bombay, taken on lease four shops bearing Nos. 4, 5, 6 and 7 in the building known as Amir Building at Bombay. The assessee had taken these shops on lease in the accounting year 2027 corresponding to the assessment year 1972-73. The shop premises consist only of ground-floor admeasuring 450 sq. feet and, therefore, the assessee, in order to provide adequate accommodation to its staff members numbering as many as 30, constructed a loft admeasuring 300 to 350 sq. feet inside the premises. In other words, the expenses which have been entailed for construction of the loft were neither for extension nor for addition to the premises and were in respect of the construction of the loft inside the premises. It is in this factual perspective that we have to determine as to whether the Tribunal was justified in holding that the expenses of Rs. 16,748 were properly debitable to the revenue account. What is the money wholly and exclusively laid out for the purposes of business is a question which must be determined upon the princi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenditure may by regarded as revenue expenditure (see Bombay Steam Navigation Co. (1953) P. Ltd. v. CIT [1965] 56 ITR 52 (SC)). One of the relevant questions which the court has to ask is that: is the disbursement made for acquisition of a source of profit or income, or is it for facilitating the trading operation, or carrying it on in a more efficient manner ? (Empire Jute Co. Ltd.'s case [1980] 124 ITR 1 (SC)): In view of the above settled legal position, we are of the opinion that the Tribunal was justified in treating these expenses as a proper charge on the revenue account for the reasons stated hereinafter, over and above those which weighed with the Tribunal. On behalf of the Revenue, the learned standing counsel attempted to persuade us that the Tribunal committed an error of law in treating this amount as a proper charge on the revenue account since it overlooked two important facts which have been clearly established before the income-tax authorities. In the first place, a permanent new loft admeasuring about 300 to 350 sq. feet was brought into existence. It was neither repair nor renovation but altogether a new asset, or, in any case, an advantage or facility w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... think rightly--for accommodating such a large staff of 30 persons, he has tried to put the available space to its optimum use which would result in greater efficiency by improvement of the working conditions. One of the positive tests indicated by the Division Bench of this court in CIT v. Navsari Cotton and Silk Mills Ltd. [1982] 135 ITR 546, for determining the true character of a given item of expenditure is to find out whether the same has been entailed for increasing efficiency or for removing the inefficiency in the working. We have no doubt, in our mind, that the aim and purpose of this item of expenses entailed in the construction of a loft is to attain greater efficiency and avoid inefficiency that may result by making the administrative staff work in a cramped space. By no stretch of imagination and without violence to the language, can it be urged that the assessee, by constructing the loft, was seeking to bring into existence an asset of a permanent nature because on the surrender of the lease, the option of the lessor of the premises in which the same improvements are made is either to pay compensation and take over the improvement or to permit the lessee to take away ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... included consultation fees paid to the structural engineer who was engaged for purposes of advising on the safety measures to be adopted in the building. The redesigning comprised conversion of small rooms into a big hall, to make it more suitable for the office purposes. In that fact situation, the Income-tax Officer allowed only Rs. 7,788 estimated to have been spent for repairs and the balance amount of Rs. 30,000 was disallowed as they were of capital nature. The Appellate Assistant Commissioner, however, accepted the claim of the assessee that they should be treated as revenue expenses. He, therefore, deleted the addition made by the Income-tax Officer. On appeal to the Tribunal by the Department, it was held that the expenses were of capital nature since they were entailed for effecting a complete change of structure which brought into existence advantage of an enduring benefit and, therefore, rightly disallowed by the Income-tax Officer. On a reference, the Division Bench found the approach of the Tribunal was legally erroneous, and the question of the improvements, in the opinion of the Division Bench, ought to have been considered in the larger context of the business nec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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