Madras High Court
Commissioner Of Income Tax vs M/S. Viswams on 15 April, 2019
Author: Vineet Kothari
Bench: Vineet Kothari, C.V.Karthikeyan
1 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON: 04.04.2019
DATED: 15.04.2019
CORAM
THE HON'BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON'BLE MR.JUSTICE C.V.KARTHIKEYAN
Tax Case Appeal Nos. 1929 to 1937 of 2008
Commissioner of Income Tax
Madurai.
Appellant/Respondent in all T.C.A.Nos.
Vs.
M/s. Viswams Respondent/Appellant in T.C.A.Nos.
1929 & 1930 of 2008
Shri Rm K Viswanatha Pillai & Sons
Respondent/Appellant in
T.C.A.Nos. 1931 & 1932 of 2008
M/s. Aremkay
Respondent/Appellant in T.C.A.Nos.
1933 & 1934 of 2008
M/s. Kajah Enterprises (P) Limited.,
(Successors of Rajah Company)
64, South Car Street
Tirunelveli Town
PAN : AABFR1306D
Respondent/Appellant in T.C.A.No. 1935 of 2008
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2 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
Shri K. Sivakumar
Respondent/Appellant in T.C.A.No. 1936 of 2008
Shri K.V. Nellaiyappan
Respondent/Appellant in T.C.a.No. 1937 of 2008
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PRAYER IN T.C.A.No. 1929 of 2008: Tax Case Appeal filed
under Section 260A of the Income Tax Act, 1961 against the order
of the Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai,
dated 14.03.2008 made in ITA No.1460/Mds/2007.
PRAYER IN T.C.A.No. 1930 of 2008: Tax Case Appeal filed
under Section 260A of the Income Tax Act, 1961 against the order
of the Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai,
dated 14.03.2008 made in ITA No.2164/Mds/2007.
PRAYER IN T.C.A.No. 1931 of 2008: Tax Case Appeal filed
under Section 260A of the Income Tax Act, 1961 against the order
of the Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai,
dated 14.03.2008 made in ITA No.1457/Mds/2007.
PRAYER IN T.C.A.No. 1932 of 2008: Tax Case Appeal filed
under Section 260A of the Income Tax Act, 1961 against the order
of the Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai,
dated 14.03.2008 made in ITA No.1458/Mds/2007.
PRAYER IN T.C.A.No. 1933 of 2008: Tax Case Appeal filed
under Section 260A of the Income Tax Act, 1961 against the order
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3 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
of the Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai,
dated 14.03.2008 made in ITA No. 2165/Mds/2007.
PRAYER IN T.C.A.No. 1934 of 2008: Tax Case Appeal filed
under Section 260A of the Income Tax Act, 1961 against the order
of the Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai,
dated 14.03.2008 made in ITA No.1461/Mds/2007.
PRAYER IN T.C.A.No. 1935 of 2008: Tax Case Appeal filed
under Section 260A of the Income Tax Act, 1961 against the order
of the Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai,
dated 14.03.2008 made in ITA No.1456/Mds/2007.
PRAYER IN T.C.A.No. 1936 of 2008: Tax Case Appeal filed
under Section 260A of the Income Tax Act, 1961 against the order
of the Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai,
dated 14.03.2008 made in ITA No.1459/Mds/2007.
PRAYER IN T.C.A.No. 1937 of 2008: Tax Case Appeal filed
under Section 260A of the Income Tax Act, 1961 against the order
of the Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai,
dated 14.03.2008 made in ITA No.1462/Mds/2007.
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For Appellant in
all T.C.A.Nos. : Mr. M.Swaminathan
Senior Standing Counsel
For Respondent in
all T.C.A.Nos. : Mr.M.P.Senthil Kumar
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4 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
COMMONJUDGMENT
(Delivered by C.V.KARTHIKEYAN, J.)
The Revenue had filed these Appeals against the order of the
learned Income Tax Appellate Tribunal dated 14.03.2008 allowing
the Appeals filed by the Asessee with respect to the Assessment
Years 2002-2003 and 2003-2004. These Appeals had been
admitted by a Co-ordinate Bench of this Court on 16.12.2008 on
the following substantial questions of law:-
“(i). Whether in the facts and in the
circumstances of the case, the Tribunal was
right in holing that expenditure on
construction of building in a leasehold
premises would amount to revenue
expenditure, contrary to the clear
provisions of Explanation 1 to Section 32(1)
of the Income-tax Act?; and
(ii). Whether in the facts and
circumstances of the case, the Tribunal was
right in holding that even though the
introduction of Explanation 1, to Section 32
was not brought to the notice of this Court
in the case of Hari Vignesh Motors (282
ITR 338) and the appeal was dismissed as
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5 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
covered by the Supreme Court Judgement
in the case of Madras Auto Service (233
ITR 468) for a year subsequent to the
amendment, it would form a binding
precedent?”
2. Since common questions of law are involved in all the
Appeals, the Appeals are taken up together for discussion and
consideration.
3. The brief facts in T.C.A.No. 1931 of 2008 arising with
respect to a partnership Firm Shri Rm K Viswanatha Pillai and
Sons is discussed herein as being illustrating of the facts of all the
other Appeals also.
4. The Assessee was a firm carrying on business at
Tirunelveli and during the relevant Assessment Year had debited a
sum of Rs.2,99,36,364/- as 'maintenance' allowance. They had
taken on lease a building which consisted of RC structure upto
third floor at T.Nagar, Chennai and thereafter, the firm put up
further construction raising the building upto 5 floors. The cost of
construction and the cost of interior improvements were debited
under the head 'maintenance'. The Assessee's claim was
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6 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
considered by the Joint Commissioner of Income Tax, who gave a
direction under Section 144(A) holding that the expenditure has to
be considered as Revenue since the Assessee does not own the
premises and consequently, did not get to enjoy a capital asset.
The CIT (Appeals) considering Explanation 1 to Section 32 held
that the said Explanation specifically provides that where such
expenditure is incurred in a premises taken on lease, the said
structure or building is deemed to be owned by the Assessees.
Consequently, what was material was the nature of the expenditure
and not the ownership of the premises. While holding so, the CIT
(Appeals) held that the Judgement relied on by the Assessees in
CIT Vs. Madras Auto Services Private Limited., (1998) 233
ITR 468 (SC) would not apply to the facts of the present case
since it related to the Assessment Year 1968-1969, which was prior
to the insertion of Section 32(1A) with effect from 01.04.1970 and
its substitution by Explanation 1 with effect from 01.04.1988. The
CIT (Appeals) held that the expenditure has to be treated as a
capital expenditure since the same had been incurred for the
purpose of bringing into existence an asset providing enduring
advantage for a considerable period of time. The relevant portion
of the order of the CIT (Appeals) is quoted below:-
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7 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
“The main concern of this group M/s.
RMKV Pillai and Sons took one premises at
Door No. 125 to 127 at North Usman Road,
T.Nagar on lease for 20 years from the
following persons. Shri K.Viswanathan,
Shri K.Shivakumar, Shri. K.Ponnanand,
Shri.K.Mahesh, Shri N.Viswanathan and
Shri N.Manickavasagam. M/s. RMKV Pillai
and Sons constructed a 5 storeyed building
again for a show room on the unfinished
RCC structure constructed upto 3 storey in
the said premises. A part of the premises
was sub leased to the assessee firm for 19
years. The cost of construction of the show
room in both the places mentioned earlier
was allocated among the users of the
premises and accordingly claimed a sum of
Rs.33,59,142/- and debited the same under
head “maintenance”. The assessee's claim
was considered by the then Joint
Commissioner of Income Tax who gave a
direction under Section 144A holding that
the expenditure has to be considered as
revenue since the assessee does not own
the premises and therefore does not get to
enjoy a capital asset and while so holding
reliance was placed on the decision of the
Apex Court of CIT vs. Madras Auto
Services (P) Ltd., (1998) 233 ITR 468.
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8 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
The similar issue had arisen in the
case of the main concern M/s. RMKV Pillai
and Sons and assessee's detailed
submissions on all aspects of the matter
and the allowability of the claim had been
discussed at length in my order u/s 263 for
A.Y. 2003-04 in that case. The assessee's
submission in response to notice u/s 263 is
also on the same line as in the main case.
Both the assessee as well as the Joint
Commissioner who allowed the claim u/s
144A were oblivious of Explanation 1 to
Section 32 which provides
“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.”
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9 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
There are other differences as well
between the facts of this case and that of
Madras Auto Service (P) Ltd. In the
latter case the transaction was at arms
length between two strangers whereas in
the instant case the lessor and lessee are
the same. Secondly, in the latter case the
assessee derived advantage of concessional
rent for a period of 39 years by spending a
nominal sum on reconstruction whereas in
the instant case no such benefit or
concession has been obtained by the
assessee firm on revenue account and
rather the lessor gets to own value property
at the expense of the assessee.
After the insertion of Explanation 1 to
Section 32 it is immaterial whether
expenditure has been incurred in a leased
premises as Explanation specifically
provides where such expenditure had been
incurred the Act deems that the said
structure or building is owned by the
assessee. Therefore what is material is the
nature of expenditure and not the
ownership of the premises. Following the
definition of capital expenditure as first
mentioned in the case of New Shorrock
Spinning and Manufacturing Co. Ltd.,
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10 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
(30 ITR P 338) which has been widely
quoted and approved by the Apex Court in
the case of Ballimal Naval Kishore and
Another v. CIT 224 ITR pg 414. The
construction expenditure has to be treated
as capital expenditure since the same was
incurred for the purpose of bringing into
existence a new asset and also obtaining a
new advantage for a considerable period.”
5. The Assessee then took the matter before the Income
Tax Appellate Tribunal. By a common Judgement dated
14.03.2008, the Tribunal allowed the Appeals. The reasoning of
the Tribunal is given below:-
“9. We have considered the rival
submissions carefully in the light of the
material on record. Sec. 144A reads as
under:-
“144A. A Joint Commissioner may,
on his own motion or on a reference being
made to him by the (Assessing) Officer or
on the application of an assessee, call for
and examine the record of any proceeding
in which an assessment is pending and, if
he considers that, having regard to the
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11 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
nature of the case or the amount involved
or for any other reason, it is necessary or
expedient so to do, he may issue such
directions as he thinks fit for the guidance
of the (Assessing) Officer to enable him to
complete the assessment and such
directions shall be binding on the
(Assessing) Officer.
Provided that no directions, which
are prejudicial to the assessee shall be
issued before an opportunity is given to the
assessee to be heard.
Explanation: For the purposes of this
Section, no direction as to the lines on
which an investigation connected with the
assessment should be made, shall be
deemed to be direction prejudicial to the
assessee.”
A reading of the above provision very
clearly shows that direction issued by the
Jt.CIT are binding on the Assessing Officer.
The only two riders provided in the powers
of Jt.CIT., are (i) to issue any directions, and
if the directions are prejudicial to the
Assessee, then opportunity be allowed to
the Assessee and (ii) that no direction can
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12 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
be issued on the lines in which an
investigation should be conducted.
Admittedly, the Jt.CIT had very clearly
issued the direction that the expenditure
incurred by the Assessee should be allowed
as revenue expenditure. Therefore, the
Assessing Officer was bound to follow such
direction. However, we further find that
the CIT has dealt with this issue in his order
passed under Sec. 263 of the Act, the
relevant para of which reads as under:-
“The construction put by the
Assessee on 144A r.w.s. 263 is not borne
out by the plain words of the relevant
section. The act no where says that the
Joint Commission cannot commit any
mistake of either facts or law and
Commissioner's power of revision does not
extent to a case which has been completed
as per his direction. The legal provision is
just the opposite of what has been argued
by the Assessee. Explanation to section 263
clearly says that an order by the Assessing
Officer shall include an order of assessment
made by the Asst. Commissioner or Deputy
Commissioner or the Income Tax Officer on
the basis of the directions issued by the
Joint Commissioner u/s. 144A. Since in the
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13 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
instant case the assessment completed u/s.
143(3) as per the direction of the Joint
Commissioner is found to be erroneous, the
reversionary power of the Commissioner is
rightly invoked u/s. 263.“
We agree with the above observations
of the CIT because Explanation to Section
263(1) reads as under :-
(1) The Commissioner may call for
and examine the record of any proceeding
under this Act, and if he considers that any
order passed therein by the Assessing]
Officer is erroneous in so far as it is
prejudicial to the interests of the revenue,
he, may, after giving the assessee an
opportunity of being heard and after
making or causing to be made such inquiry
as he deems necessary, pass such order
thereon as the circumstances of the case
justify, including an order enhancing or
modifying the assessment, or cancelling the
assessment and directing a fresh
assessment.
Explanation.- For the removal of
doubts, it is hereby declared that, for the
purposes of this sub- section,-
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14 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
(a) an order passed 4 on or before or
after the 1st day of June, 1988 ] by the
Assessing Officer shall include-
(i) an order of assessment made by
the Assistant Commissioner or the Income-
tax Officer on the basis of the directions
issued by the Deputy Commissioner under
section 144A;
(ii) xxxxxx xxxxx xxxx
xxxx
The above Explanation makes it clear
that the power of revision extends even to
the Assessment Orders which had been
passed on the basis of the directions issued
by the JCIT under Section 144A. Therefore,
the CIT had power to revise even the
Assessment Orders before us. However,
still the issue is covered by the decision of
the Hon'ble High Court in the case of Hari
Vignesh Motors (P) Ltd., (supra) and in that
case the Asst. Year involved was 1997-98,
whereas Explanation (1) to Sec. 32(1) was
introduced by Taxation Law (amendment
and Miscellaneous Provisions) Act, 1986
with effect from 01.04.1988. We would not
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15 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
like to comment as to whey the new law
was not brought to the notice of the Hon'ble
High Court. But the fact which has come to
our notice as admitted by the Id.
Departmental Representative is that no
appeal has been filed against this decision
before the Hon'ble Supreme Court. We, at
Tribunal, are bound by the decision
rendered by the Hon'ble Jurisdictional High
Court and, therefore, following this
decision, we decide this issue in favour of
the Assessee. In these circumstances, we
quash the revisionary order passed by the
CIT. Since the facts in all these appeals are
identical, all the revisionary orders passed
by the CIT against which the Assesssees
have come in appeal before us are
quashed.
10. These appeals are allowed.
11. ITANos.2164to 2167/Mds/2007:
In these appeals, the Assessee has raised
the following common ground:-
“The CIT (Appeals) erred in not
following the jurisdictional Madras High
Court decision in the case of Hari Vignesh
Motors Pvt. Ltd., (282 ITR 338) and the
decision of the jurisdictional Bench of the
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16 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
ITAT in the Assessee's group case for the
Asst. Year 1996 and thus erred in
disallowing the expenditure of
Rs.29,96,947/- (total expenditure disallowed
Rs.31,54,681/- less depreciation
Rs.1,57,734/-) claimed as revenue by the
Assessee.”
12. After hearing both the parties
we hold that since we have already quashed
the revisionary orders and the assessments
made in pursuance of such revisionary
orders have to be cancelled, we set aside
the order of the CIT (Appeals) and allow
these appeals.”
6. Nothing on merits about depreciation was discussed by
the Tribunal. Therefore, the Revenue is in Appeals before us under
Section 260-A of the Act.
7. Heard arguments advanced by Mr.M.Swaminathan,
learned Senior Standing Counsel for the Revenue and
Mr.M.P.Senthil Kumar, learned counsel for the Assessees.
8. The main thrust of the arguments of
Mr.M.Swaminathan was that the Tribunal had relied on the earlier
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17 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
Judgment of this Court in CIT Vs. Hari Vignesh Motors (P)
Limited., (2006) 282 ITR 228 (Madras), wherein similar
circumstances, this Court had followed the ratio laid down in CIT
vs. Madras Auto Service (P) Limited., (1998) 233 ITR 468
(SC) and had allowed the appeal of the Assessees. Unfortunately,
Explanation 1 to Section 32(i) which was introduced by a Taxation
Law (Amendment and Miscellaneous Provisions) Act 1986 with
effect from 01.04.1988 had not been discussed in Hari Vignesh
Motors (P) Limited., cited supra. Moreover Madras Auto
Service (P) Ltd., cited supra dealt with the Assessment Year
1968-1969 before the insertion of Explanation 1 to Section 32(1).
Mr.M.Swaminathan therefore urged that the order of the Tribunal
requires interference since the Explanation 1 to Section 32(1) of
the Act very clearly provides that where any construction is put up
for the purpose of business in a premises which had been taken out
on lease, then it should be deemed to be a capital expenditure
since it gives enduring benefit to the Assessee as if he was the
owner of the building.
9. It was further argued that in the present case
admittedly, the Assessees had taken on lease a building which
originally consisted of two floors and a partially completed third
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18 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
floor. The Assessee had put up further construction raising the
building up to the fifth floor. Further the Assessee also incurred
huge expenditure in interior renovations and these constructions
/renovation were directly related to the business of the Assessee
and consequently, the total expenditure of Rs.2,99,36,364/-
incurred towards construction/renovation/ or improvement of the
building can only be considered as capital expenses.
10. This argument had been very seriously disputed by
Mr.M.P.Senthil Kumar, learned counsel for the Assessee, who also
filed written submissions. The learned counsel placed reliance on
the Judgement in the case of Hari Vignesh Motors (P) Ltd., cited
supra and pointed out that the Revenue had not filed any further
Appeal against the said Judgment. The learned counsel stated that
for expansion of business which they had been carrying from 1980
they had taken the premises on leave and license basis. The
learned counsel also advanced an alternate submission that the
lease agreements were not registered and consequently, cannot be
considered as admissible evidence. It was also stated that the
Assessees did not gain enduring benefit and consequently the
expenses cannot be treated as capital expenses. The learned
counsel also relied on the case of CIT vs. TVS Lean Logistics
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19 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
Ltd., reported in (2007) 212 CTR 536 (Mad) wherein, it had
been held that expenditure on construction of building on lease
hold land and where no building had been taken on lease would not
attract Explanation 1 to Section 32(1).
11. The learned counsel also relied on the case of Alembic
Chemicals Works Company Ltd., Vs. CIT reported in (1989)
177 ITR 377 (SC) wherein the Hon'ble Supreme Court had held
that there cannot be a definite criteria to determine whether a
particular outlay is Capital or Revenue. It was stated that the real
test would be to examine whether there is an enduring benefit to
the Assessees. The learned counsel stated that the order of the
Tribunal has to be upheld.
12. Mr.M.P.Senthil Kumar also advanced a further
alternate submission that the Assessees have not created any
tangible or intangible assets having an enduring advantage by the
construction of the further floors in the building and in carrying out
interior works which were done only to produce the right ambience
to attract customers in his textile business. He therefore argued
that expenditure incurred in 'repairing' the premises taken on lease
would fall within the expression “repairs to the premises” as
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20 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
provided in Section 30(a)(i). Such expenditure cannot be
capitalised as they are temporary in nature. The interior
decorations could not be durable for a long period of time and
would require consistent maintenance and upkeep which also
involves costs.
13. The learned counsel stated that the Assessee had
submitted the details of cost of construction and expenditure
incurred towards interiors. It was stated that the CIT (Appeals) had
directed the Assessing Officer to treat the entire expenditure as
'Capital'. The learned counsel therefore pointed out that the issue
may be remanded back to the Assessing Officer to consider the
bifurcation of expenditure with respect to cost of the civil
construction as well as interiors.
14. We have carefully considered the rival arguments
advanced.
15. The primary basis on which the Tribunal had answered
the issues in favour of the Assessee was that this Court in Hari
Vignesh Motor (P) Ltd., cited supra, following the earlier
Judgment of the Hon'ble Supreme Court in Madras Auto Services
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21 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
(P) Ltd., cited supra had held that expenditure incurred in the
nature as incurred by the Assessee herein cannot be considered as
Capital expenditure. However, as pointed out by
Mr.M.Swaminathan, learned Senior Standing Counsel for the
Revenue, Madras Auto Service (P) Ltd., related to the
Assessment Year 1968-1969. Thereafter, Section 32(1A) had been
inserted with effect from 01.04.1970 and this provision had been
clarified by Explanation 1 with effect from 01.04.1988.
Consequently, the correct provision which is applicable to these
cases are Explanation 1 to Section 32(1) of the Act.
16. It is not in dispute that the Assessees had taken on
lease the premises and had put up further additional construction
and had also renovated and incurred expenses for improvement of
the building. The contention of Mr.M.P.Senthil Kumar, learned
counsel placed only in the written submissions and not advanced
during oral arguments that the Court cannot examine the lease
agreements since they were not registered has to be rejected
because, the lease documents are being examined only to
determine a collateral transaction viz., nature of expenditure
incurred by Assessee. It is a fact that the Assessee had taken on
lease the premises in consideration. They are not the owners.
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22 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
They always claimed to be lessees only. Consequently, this
submission, raised by way of written submission has to be rejected.
It had been an admitted stand before the Assessing Officer and
before the CIT (Appeals) and before the Tribunal that the Assessee
is only a Lessee of the premises in question. This being a fact
which had been settled, cannot be re-examined on the basis of the
specious argument advanced.
17. A further examination of the facts of the case shows
that the Assessees have actually put up substantial construction of
enduring benefit and also renovated the building for the purpose of
their business. Explanation 1 to Section 32(1) is as follows:-
“[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,
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23 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
then, the provisions of this clause shall
apply as if the said structure or work is
a building owned by the assessee.”
18. This Explanation had been inserted by the Taxation
Laws (Amendment and Miscellaneous Provisions) Act 1986 with
effect from 01.04.1988. The Judgement heavily relied on by the
learned counsel for the Assessees, namely, Madras Auto Services
(P) Ltd., cited supra related to the Assessment Year 1968- 1969
before the above provision was brought into effect. The further
Judgement relied on by the learned counsel for the Assessees in
Hari Vignesh Motors (P) Ltd., cited supra in the course of the
said Judgement did not consider the said Explanation. The other
Judgement relied on by the learned counsel in TVS Lean
Logistics Ltd., cited supra related to totally distinguishable set of
facts. In that case, the Assessee had put up construction of a
building on a lease hold land. The building was not taken on lease.
Consequently, it was held as follows:-
“4.1. It is not in dispute that the
assessee had put up the impugned
construction of building only on the
leasehold land and no building was taken
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24 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
on lease by the assessee. Therefore, the
fiction created by Expln. 1 that the building
put up by him in the leasehold land or
structure or work shall be construed as if
the same is owned by the assessee, is not
applicable to the case of the assessee and
the Expln. 1 to S.32(1) of the Act is not
attracted to the instant case of the assessee
at all.”
The aforesaid Judgement cited by the learned counsel for the
Assessee are therefore not applicable to the facts of the present
case in view of amended law.
19. In Silver Screen Enterprises Vs. CIT, 85 ITR 0578,
(High Court of P & H), while examining whether expenditure
incurred on repairs to chairs, renovation of building and
modernisation of cinema house taken on lease by the Assessee, it
was held that they are capital expenditure since it brought an
enduring benefit. The relevant discussion on this aspect is quoted
below:-
“It cannot be denied that the amount
spent for the construction of the verandh,
office room, side room and bath rooms
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25 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
brought into existence an asset of an
enduring nature. It is no one's case that
only the existing verandah, office, side
room or bath rooms were repaired. What
appears is that these constructions were
brought into being for the purpose of
modernising the cinema hall. Therefore,
the construction of verandah, office, side
room, etc., for the purpose of modernising
the cinema hall brought into existence are
asset of enduring nature in the true sense
of the word. The object of the assessee in
replacing the old wooden chairs by steel
chairs was to attract larger and better
customers. This was in fact an outlay for
the purpose of earning profits or, in other
words for the purpose of better business.
It was not an expense which was of a
recurring nature, and therefore, it can be
safely said that the lessee brought into
being an asset of an enduring nature.
Undoubtedly, it was an improvement. The
wooden chairs were replaced. No evidence
had been led to show that the wooden
chairs had been useless and could not be
used for seating the cinema-goers. On the
other hand, the stand taken was that the
whole object was to modernise the cinema
house to bring it in line with the modern
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26 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
show business. The replacement was an
improvement of an enduring nature and not
mere replacement. Capital expense with
regard to a short-term venture, such as a
lease for a period, had to be viewed in the
context of that lease, namely, its purpose
coupled with its duration. Expenditure
incurred by the assessee is an expenditure
of a capital nature and it brought into
being an advantage of an enduring nature
and thus it had been rightly treated as such
by the Tribunal, except to the extent of the
amount found by the Tribunal being on
account of repairs.”
20. In view of the above propositions, we are of the
considered view that the expenditure incurred by the Assessee in
the present case are Capital in nature and come within the
mischief of Explanation 1 to Section 32(1) of the Act. The alternate
submission advanced by Mr.M.P.Senthil Kumar that the repairs to
the premises cannot be capitalised in view of Section 30(a)(i) of the
Act is rejected since the renovations made are Capital in nature in
the first Assessment Year and only further repairs may attract the
provisions under Section 30(a)(i) of the Act. Section 30(a)(i) of the
Act is as follows:-
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27 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
“30. In respect of rent, rates, taxes,
repairs and insurance for premises, used
for the purposes of the business or
profession, the following deductions shall
be allowed-
(a). Where the premises are
occupied by the assessee-
(i) as a tenant, the rent paid for such
premises; and further if he has undertaken
to bear the cost of repairs to the premises,
the amount paid on account of such
repairs.”
21. In the present case, the Assesses had incurred
substantial expenditure towards renovation leading to enduring
benefit. They are not merely repairs. The Assessees had also
incurred expenditures towards improvement and construction of
the building. These cannot be termed as 'repairs'. Consequently,
this alternate submission is rejected by us. The second alternate
submission advanced by Mr.M.P.Senthil Kumar that the case
should be remitted back to the Assessing Officer is also rejected
since the fact have been addressed and settled by the Authorities
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28 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009
DR.VINEET KOTHARI, J.
and C.V.KARTHIKEYAN, J.
vsg below and it had been concurrently found that the expenditure were capital in nature. The issue of bifurcating the said expenses as capital and revenue would therefore not arise.
22. In view of the above reasons, we hold that the substantial questions of law have to be answered in favour of the Revenue and against the Assessee and the Appeals filed by the Revenue have to be allowed. Accordingly, the Appeals are allowed. No costs.
(V.K., J.) (C.V.K., J.)
15.04.2019
Index : Yes/No
Internet : Yes/No
vsg
Pre-Delivery Judgement made in Tax Case Appeal Nos. 1929 to 1937 of 2008 http://www.judis.nic.in 29 Judgement dated 15 .04.2019 in T.C.A.Nos.
1929 to 1937 of 2009 http://www.judis.nic.in