Madras High Court
The Commissioner Of Income Tax vs Hari Vignesh Motors (P) Limited on 11 November, 2005
Equivalent citations: [2006]282ITR338(MAD)
Author: P.D. Dinakaran
Bench: P.D. Dinakaran, T.V. Masilamani
JUDGMENT P.D. Dinakaran, J.
Page 2064
1. The above tax case appeal is directed against the order of the Income-tax Appellate Tribunal in 1314/Mds/2001 dated 17.5.2005 for the assessment year 1997-98.
2. The Revenue is the appellant. The assessee is a dealer in two wheelers manufactured by TVS Suzuki Limited and was doing business in lease-hold premises. During the relevant period, the assessee constructed a ground floor over the existing basement floor at a cost of Rs. 4,82,688/-, according to the specifications given by TVS Suzuki Limited to all its dealers. The assessee claimed the said sum as revenue expenditure. The assessing officer disallowed the said claim as not relating to business, inasmuch as a new permanent capital asset has been brought into existence and added to the income. Against that order, the assessee preferred an appeal to the Commissioner of Income-Tax (Appeals), who deleted the additions and held the issue in favour Page 2065 of the assessee, which was confirmed by the Income-tax Appellate Tribunal, on an appeal by the Revenue.
3. Aggrieved by the same, the Revenue has preferred the above Tax Case Appeal raising the following substantial question of law:
" Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law, in allowing the expenditure a sum of Rs. 4,82,688/- on constructing the ground floor over existing basement floor as revenue expenditure, under Section 37(1) of the Income-tax Act, even though a new permanent capital asset has been brought into existence ?"
4. It is fairly conceded by the learned counsel appearing for the Revenue that the issue raised in the question is covered by the decision of the Supreme Court rendered in Commissioner of Income-Tax v. Madras Auto Service (P) Ltd. . The Supreme Court, in the said case, while considering whether a particular expenditure is capital or revenue, held as follows:-
" The general principles applicable in determining whether a particular expenditure is capital or revenue expenditure are as follows: (1) Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment; (2) Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade. If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether; (3) Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business"
Applying the above principles, the Supreme Court, while dismissing the appeal, held as follows:-
" Right from inception, the building was of the ownership of the lessor. 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 had, therefore, rightly considered this as obtaining a business advantage. The expenditure was, therefore, to be treated as revenue expenditure."
5. Following the above principles laid down by the Supreme Court, when we analyse the case, it is to be stated, as rightly pointed out by the Appellate Tribunal, that the assessee had put up the ground floor over the existing basement floor only to have the business premises according to the specifications put forth by TVS Suzuki Limited and further, there is a clear-cut stipulation in the lease deed that reimbursement of the expenditure is Page 2066 not possible from the owner of the premises. Hence, in view of the business exigencies, the assessee had put up the construction, in and by which, the assessee would not get any capital asset.
6. In view of the above, following the principles laid down by the Supreme Court in the decision cited supra, the question is answered in the affirmative, against the Revenue and in favour of the assessee. The appeal stands dismissed. No costs.