Income Tax Appellate Tribunal - Delhi
Amway India Enterprises Pvt. Ltd.,, New ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : A' NEW DELHI
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND
SHRI K.G. BANSAL, ACCOUNTANT MEMEBR
I.T.A No. 23/Del/2010
Asstt. year - 2005-06
DCIT, Vs. Amway India Enterprises Pvt.
Ltd.
Circle 1 (1), Room No. 390,
Plot No. 5 DDA LSC,
C.R. Building, I.P. Estate,
Okhla Indl. Estate,
New Delhi.
Phase-II,
New Delhi.
(Appellant) (Respondent)
Appellant by: Shri P.C. Gupta, Sr. DR
Respondent by: Shri Tarandeep Singh, CA
ORDER
PER RAJPAL YADAV, JM:
The revenue is in appeal before us against the order of Ld. CIT(A) dated 29.10.2009 passed for asstt. year 2005-06. The solitary grievance of the revenue is that Ld. CIT(A) has erred in treating the expenditure of 2 ITA No. 23/Del/2010 Asstt. year 2005-06 Rs. 28,77,270/- as a revenue expenditure out of the total expenditure of Rs. 3856075/- which has been incurred by the assessee on improvement of lease hold premises. The Ld. Counsel for the assessee at the very outset submitted that issue in dispute is squarely covered in favour of the assessee by the order of ITAT passed in asstt. year 2001- 02 and 2002-03. The order of the ITAT is reported in 27SOT 344. He further pointed out that in asstt. year 2004-05, the Tribunal has followed the order of ITAT passed in asstt. year 2001-02 and 2002-03. The details of expenses exhibiting various heads under which the expenses were incurred, was not available before the Tribunal in those years therefore, for a limited purpose issue has been set aside to the file of AO. The Tribunal has upheld the disallowance of expenditure in respect of wooden furniture and air conditioning. In the present asstt. year the details of expenses have duly been noticed by the Ld. CIT(A) on page 3. Out of these total expenses Ld. CIT(A) already disallowed sum of Rs. 504376/- attributable to wooden furniture, Rs. 414029/- for panel work and lights, Rs. 60400/- in respect of Neonsign Board. Ld. CIT(A) has also followed the order of the ITAT while upholding the capitalization of Rs. 978805/-. Ld. DR was unable to controvert the contention of Ld. Counsel for the assessee .
3 ITA No. 23/Del/2010
Asstt. year 2005-06
2. We have duly considered the rival contention and gone through the record carefully. We find that an identical issue has been considered by the Tribunal in ITA No. 164/Del/2008 for the asstt. year 2003-04 wherein the Tribunal has followed the order of the ITAT in the case of assessee for asstt. year 2001-02 and 2002-03. The observations of the Tribunal in these years read as under :-
"4. A common ground has been taken both by assessee and revenue with regard to treatment of expenditure incurred on leasehold improvement. With regard to disallowance of expenditure incurred on lease hold improvements amounting to Rs. 2,46,57,910, the Assessing Officer has observed that on perusal of the details of lease hold improvement filed by the assessee company, it is seen that expenditure has been incurred on flooring, partition, wiring, plumbing, false ceiling, roofing, interior work, air-conditioning duct, networking for computer purposes, electric wiring etc. As per Assessing Officer the argument of the assessee that no capital asset came into existence is not correct as most of the work, which have been done will give enduring benefit to the assessee. For example, flooring, false ceiling, air-conditioning duct, network cabling and electrical fittings etc., do not get bad in a year or even in three/four years time. It is not important to note that these buildings are not owned by the assessee company as it is having same premises for lasts several years and intends to keep these premises for coming years also. In fact, modern offices maintained by Multinational companies like the assessee company, there is no concept of providing separate rooms. In these offices, only wooden partitions are provided. Just because they are made of wood or aluminium, they cannot be said to be of temporary in nature because wood of the highest quality is used in their construction. Further, the assessee has also claimed expenditure on account of AC unit, furniture etc. In this lease hold improvement, which came to notice only when the details were called for. Moreover, the expenditure on carpets, Venetian blinds, LAN installation cannot be said to be of revenue in nature. By the impugned order, CIT(A) upheld the action of the Assessing Officer.
5. It was contended by the Ld. A.R. after highlighting the details of the renovation expenditure as placed on record with respect to various premises taken by it on lease and claimed as revenue expenditure that all these expenses do not bring into existence the asset of enduring nature, and the expenditure so 4 ITA No. 23/Del/2010 Asstt. year 2005-06 incurred was on account of commercial expediency, for commercial use of the leased premises and also to give proper outlook to the office and to create international standard and good working environment as per the multinational work culture. After spending various expenses on refurbishment such as wooden partition, panelling, flooring, plumbing etc., he contended that these expenses were incurred in respect of leased premises from where assessee did not get any enduring benefit. Our attention was also drawn to the clause in the lease deed according to which vacant possession was required to be given to the landlord, meaning thereby whatever temporary renovation/refurbishment was done, was required to be removed while giving possession back to the landlord. Reliance was placed on the decision of Hon'ble Supreme Court in case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 11 wherein it was observed that even if a benefit spread over a number of years, the expenditure would be on revenue account, where the expenditure merely facilitate assessee's trading operation or enabling the management and control of the assessee's business to be carried on more efficiently and more profitability while leaving the physical capital untouched, such expenditure would be on revenue account even though the advantage may endure for an indefinite future. Accordingly, test of enduring benefit was held to be not to apply blindly and mechanically without regard to the particular facts and circumstances of the given case. Reliance was also placed on the decision of Delhi High Court in case of Modi Spg. & Wvg. Mills Co. Ltd. v. CIT [1993] 200 ITR 544, wherein the revenue expenditure incurred on lease hold improvement for the purpose of facilitating the business was held to be revenue in nature.
6. On the other hand, contention of Ld. D.R. was that huge expenditure have been incurred, which resulted into enduring benefit, therefore, the same was correctly held as capital in nature and lower authorities were justified in allowing claim of depreciation thereon. Reliance was also placed on the decision of ITAT Delhi Bench in case of Asian Hotels wherein expenditure on renovation and refurbishing the hotel building was held to be capital expenditure.
7. We have considered the rival contentions, carefully gone through the orders of authorities below and also deliberated on the case laws referred to by the lower authorities in their respective orders and cited by the Ld. A.R. and Ld. D.R. during the course of hearing before us, in the context of factual matrix of the instant case. From the records, we found that assessee- company is engaged in the business of direct selling of personal care, home care, cosmetic, nutrition and wellness products through its chain of distributors all over India. During the course of scrutiny assessment, the 5 ITA No. 23/Del/2010 Asstt. year 2005-06 Assessing Officer found that assessee has claimed huge expenditure on account of lease hold improvement amounting to Rs. 2.59 crores in respect of its Delhi, Mumbai and Calcutta offices. As required by the Assessing Officer, the assessee filed complete details of lease hold improvements incurred in respect of different offices. The premises on which the alleged expenditure was incurred were undisputedly not owned by the assessee but were on lease, the Assessing Officer observed that as per Explanation (1) to section 32, the provisions of section 32 applies even in the cases where the building, on which capital expenditure is incurred, is not owned by the assessee. Accordingly, he held that expenditure incurred for renovation, improvement, of any structure in the building is in the nature of capital expenditure and the same are eligible only for claim of depreciation. As per the details filed, we found that the expenditure were incurred on flooring, partition, wiring, false ceiling, roofing, entire work of air-conditioning duct, networking for computer purposes, electric wiring etc. As the assessee company was operating as per concept of multinational companies, there were no concept of providing separate rooms and only wooden partition were provided. After going through the nature of expenditure so incurred, we found that by incurring these expenditure except expenditure. Air- conditioning duct and furniture, no new asset has come into existence and the expenditure so incurred was on account of commercial expediency and for the commercial use of the lease hold premises and to give proper outlook to the office and to create international standard of good working environment on multinational work culture. The expenditure was claimed under section 37(1) which provide that any expenditure, not in the nature described under sections 30 to 36 and not being in the nature of capital expenditure or personal expenditure and which is laid out wholly and exclusively for the purpose of business, shall be allowed in computing the income chargeable under the head "Profit and gains of business and profession". The nature of expenditure which was on account of refurbishment, wooden partition/panelling, flooring, plumbing work, electric work, laying down of cables etc., are essentially revenue in nature. As the expenditure were incurred on lease hold premises, assessee did not get any enduring benefit on account of such expenditure. The expenditure so incurred could not be removed or reused at the time of vacating the leased premises. In case of Modi Spg. & Wvg. Mills Co. Ltd. (supra), the Hon'ble Delhi High Court has observed that where assessee had taken two flats of the building for a period of 11 months, but renewable for 10 periods of 11 months each, the expenditure incurred by the assessee on items like fixing false ceiling, painting, making some structural changes, fixing of doors in the common walls between the flats etc. it was held to be incurred for the purpose of facilitating carrying out of its business, accordingly revenue in nature.6 ITA No. 23/Del/2010
Asstt. year 2005-06
8. Where assessee was running business of road transport, constructed a loft in the ground floor of the office premises taken on lease and which was disallowed by the Assessing Officer on the ground of expenditure being capital in nature, the Hon'ble High Court observed that expenditure incurred on construction of loft was neither for existing nor for addition to the premises. The assessee was putting the available office space to its optimum use for accommodating the large staff of 30 members, which would result in greater efficiency by improving the working conditions by constructing the loft and the assessee did not bring into existence any asset of a permanent nature because on the surrender of lease, the option of the lessor of the premises in which the improvements were made, was either to pay compensation of the taken over improvements or to permit the lessee to remove the improvements. Following was the observation of the Hon'ble High Court :
"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 taken over the improvement or to permit the lessee to take away and remove the improvement. We do not think, having regard to the nature of the tenure of the lessee in the premises and the internal structural changes made therein, and particularly the sole aim and purpose of such changes, that it can be successfully claimed, what is sought to be claimed by the revenue, that the expenses are of capital nature. . . ."
9. Even the expenditure on construction of rooms and improvements for enjoyment of lease hold premises, the Hon'ble Madras High Court in case of Malabar Mills 288 ITR 815 (sic) held that expenditure so incurred was of revenue in nature as the assessee carried some improvements for better enjoyment of the property. Since the benefits derived by the assessee were co- terminus with the lease, there could not be any; enduring benefit to the assessee, the same was therefore, held to be deductible as revenue expenditure. Contention of the revenue to allow the claim of depreciation was dismissed.
10. A fine distinction was made by the Ld. A.R. with respect to the expenditure incurred on 'repairs' and 'current repairs'. He submitted that under clause (1) of sub-section (a) of section 30, assessee is eligible to claim expenditure on account of repairs if the premises are occupied as a tenant whereas under clause (ii) if the premises are occupied otherwise then as a 7 ITA No. 23/Del/2010 Asstt. year 2005-06 tenant, meaning thereby as owner, the amount paid by him on account of only current repairs of the premises is to be allowed. Thus, in case of 'owners' occupied property only current repairs is to be allowed whereas in case of occupants other than owners, all repairs whether current or accumulated repairs, is to be allowed as deduction under section 30. Taking the same analogy, we are inclined to agree with the contention of Ld. A.R. that since assessee was in occupation of the building on lease, whole of the repairs is required to be allowed and not only the 'current repairs'. For this purpose reliance was placed on decision of Hon'ble Delhi High Court in the case of CIT v. Hi Line Pens (P.) Ltd. [2008] 175 Taxman 132, order dated 15-9-2008, wherein it was held that there is a clear distinction between expression repairs and current repairs and the word 'repair' is much wider then expression current repairs. What the assessee has done in the present case, can be construed to be repairs, it has not brought about any new asset nor advantage of enduring benefit. The expenditure incurred by the assessee was towards repairing and upgraded of the premises taken on lease so as to make it more conductive to its business activities.
11. Recently, Hon'ble Delhi High Court in case of Export Finance Ltd. 206 (IT4)-GJX-0341-Delhi, held that expenditure incurred on providing wooden partition, painting, glass work and other repairs to the lease hold premises was revenue expenditure.
12. In view of the above discussion, we do not find any merit in the action of lower authorities for disallowing assessee's claim for expenditure incurred on improvement of the lease hold premises, except the expenditure incurred on air-conditioning unit and furniture."
3. In the immediate preceding year we did not find the details of expenses debited by the assessee on account of improvement in lease hold premises. However in the present year Ld. CIT(A) has noticed all these aspects. The details have duly been noticed on page 3 of the Impugned order. Taking into consideration these details we are satisfied that order of the Ld. CIT(A) is in the line of finding of ITAT in asstt. year 8 ITA No. 23/Del/2010 Asstt. year 2005-06 2001-02 and 2002-03. Thus we do not find any reason to interfere in this order. The appeal of the revenue is dismissed.
Order pronounced in the open court on 23.7.2010.
Sd/-
[K.G. BANSAL ] [RAJPAL YADAV]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 23.7.2010
Veena
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT TRUE COPY By Order,
Deputy Registrar,
ITAT