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TMI Blog2025 (5) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... sq.ft. 3. Learned counsel for the appellant has taken us through the clauses in the rental agreement which is on record before the authorities, pointing out that the lease was on a per annum basis at a figure of Rs.20/- per sq.ft., which was highly subsidised having regard to the area in which the property was located. 4. The appellant was permitted to make the building suitable for its use, by modifying the interiors by erecting partitions, installing suitable electrical fittings etc, making it clear that such modifications were to be cosmetic, such that the structural nature of the building was not affected. The deed provided that the modifications to the building would be left in the building when the appellant vacated the premises at the end of the lease period. 5. The appellant filed a Return of Income in terms of the provisions of the Income Tax Act, 1961 (in short 'Act') on 25.09.2008 and an order of assessment under Section 143(3) had been passed on 19.12.2010 disallowing the expenses under Section 40(a)(ia) of the Act. Notice under Section 148 of the Act was issued on 26.03.2012 for reopening of the assessment. 6. The appellant had filed a letter dated 27.11.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reverse the order of the CIT(A) accepting the appeal filed by the revenue and rejecting the assessee's appeal, being of the view that the alterations made to the property were substantial and must be taken cumulatively. 14. The Tribunal opines that if the alterations were taken piece meal, they would be revenue in nature. However, since the alteration of the building impacted the building as a whole, it is the overall impact that must be taken into account. According to the Tribunal, the effect of the expenses was to convert an 'old unusable building into a new usable building', and hence the claim would have to be treated as capital and enduring. Aggrieved with the aforesaid conclusion, the assessee is before us with these appeals. 15. We have heard Mr. S. P. Chidambaram, learned counsel for the assessee/appellant and Mr. J. Narayanasamy, learned Senior Standing Counsel for the Income Tax Department. 16. The expenses have been categorised by the CIT(A) at internal page 9 of order dated 16.12.2013 as follows: Details of expenses incurred by Shivsu Canadian Clear International ltd. For A.Y. 2008-09 Sl. No. Nature of expenses Amount 1 Carpentry Work 3,650,954 2 Electrica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the appellant and reliance upon the same by the Department does not advance its case in any way. 22. Section 32 provides for grant of depreciation, and Explanation (1), which was inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from 01.04.1988 reads thus: 32. Depreciation - . . . . . . . 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. 23. The purport of the Explanation is laudable and enables even a lessee of a building to seek grant of depreciation, despite the premises being leasehold in nature. However, the attempt of the revenue is to interpret Explanation (1) such that, when an assessee is deemed to be the of the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation (1), whether a particular item of expenditure is capital or revenue is to be found based on the facts of each case and the settled decisions in this regard. 29. The above decision of the Full Bench of the Kerala High Court has been applied by the Division Bench in the case of that very assessee, in a decision reported as Indus Motors Co. (P) Ltd. V. Deputy Commissioner of Income-tax, Circle-1(1) (88 taxmann.com 229). As against the decision of the Division Bench, the revenue has filed a Special Leave Petition before the Supreme Court which has been admitted, as reported in Deputy Commissioner of Income-tax V. Indus Motor Co. (P) Ltd. (96 taxmann.com 220). 30. The position as on date thus, is that the object and purpose of Explanation (1) is to facilitate even a lessee of leasehold property to seek and obtain depreciation which is normally available only to the owner of a property. There is nothing in Explanation 1 to suggest that it was intended to deny a legitimate claim of a lessee for grant of revenue expenditure, should that assessee be in a position to establish such claim. Thus, if the argument of the revenue was to be accepted, it would distort the purpose and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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