Income Tax Appellate Tribunal - Delhi
Income-Tax Officer vs S.L. Batra on 17 July, 1986
Equivalent citations: [1986]19ITD342(DELHI)
ORDER
B. Gupta, Accountant Member
1. In the only one ground raised in this appeal by the revenue, objection taken to the order dated 8-10-1984 passed by the Commissioner (Appeals) is in the following terms :
On the facts and in the circumstances of the case the learned Commissioner (Appeals) has erred in treating the sum of Rs. 61,982 spent by the assessee on renovation of office, taken on lease from his son as revenue expenditure as against capital expenditure rightly held by the ITO in view of the Delhi High Court judgment in the case of Hotel Diplomat v. CIT [1980] 125 ITR 781.
2. In the accounting year relevant to the assessment year 1981-82, the assessee claimed an expenditure of Rs. 61,982 towards the cost of providing wooden partitions, panelling of walls, false ceiling, fixing book cases and platform type tables on the walls and on painting, polishing, whitewashing and floor polishing, etc. A contract was given by the assessee to a firm named Vibgyor of New Delhi for a sum of Rs. 75,000 for getting the above work executed and for making of some furniture. The expenditure of Rs. 75,000 was allocated by the assessee as follows :
Rs.
(1) Cost of making partition, wooden panelling, false ceiling, painting and white-washing, etc. 60,990 (2) Cost of furniture 14,010
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Total 75,000
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Besides the expenditure of Rs. 60,990 allocated as above, the assessee incurred a further expenditure of nearly Rs. 1,000 on cost of ply wood painting, lights, labour charges, miscellaneous material and table making charges. In all an expenditure of Rs. 61,982 was claimed to be expenditure of revenue nature. The ITO held following the decision of the Hon'ble Delhi High Court in the case of Hotel Diplomat v. CIT [1980] 125 ITR 781 that expenditure incurred by the assessee was not on current repairs but was an expenditure of capital nature or for obtaining an advantage of enduring nature. On appeal, the Commissioner (Appeals) held that the facts in the case of Hotel Diplomat (supra) were different and, therefore, the law laid down by the Hon'ble Delhi High Court in that case was not applicable. After referring to a catena of decisions of the various High Courts on which reliance had been placed before him by the assessee, the Commissioner (Appeals) held that the expenditure incurred by the assessee on making the tenanted premises usable for office purposes was a revenue expenditure allowable under the provisions of Section 37(1) of the Income-tax Act, 1961 ('the Act').
3. The appeal by the revenue has been filed in the background of the abovementioned facts. Shri K.K. Sharma, the learned departmental representative has supported the order passed by the ITO by submitting that the law laid down by the Hon'ble Delhi High Court in the case of Hotel Diplomat (supra) squarely applied to the facts of the case and against the assessee. Mr. Sharma has also placed reliance on a decision of the Hon'ble Punjab High Court in Uttar Bharat Exchange Ltd. v. CIT [1965] 55 ITR 550 in order to contend that the expenditure claimed by the assessee was capital in nature. According to him, the expenditure incurred by the assessee was initial expenditure for making the premises usable and that, therefore, the view taken by the ITO should be preferred to the view taken by the Commissioner (Appeals). Mr. Sharma has also referred to the provisions of Section 32(1 A) of the Act, in order to contend that the expenditure incurred by the assessee in the premises taken on lease was a capital expenditure.
4. On the other hand, Shri S.L. Batra has contended that the expenditure was of revenue nature. In order to support his contention Shri Batra has taken us through a paper book and in particular through the details of expenses which were incurred through Vibgyor. He has also taken us through the lease agreement by virtue of which the premises in question were tenanted and through a written note which had been submitted before the Commissioner (Appeals). He has placed reliance on the decision of the Hon'ble Supreme Court in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 and on the decisions of the Hon'ble High Courts in CIT v. Kisenchand Chellaram (India) (P.) Ltd. [1981] 130 ITR 385 (Mad.), Girdhari Dass & Sons v. CIT [1976] 105 ITR 339 (All.), CIT v. J.K. Industries (P.) Ltd. [1980] 125 ITR 218 (Cal.) and CIT v, Mehta Transport Co. [1986] 160 ITR 35 (Guj.), in support of his contentions. He has also placed reliance on certain decisions of the Tribunal, copies of which have been furnished as part of the paper book. Referring to the provisions of Section 32(1 A), Mr. Batra submits that those provisions relate to the grant of depreciation on capital expenditure incurred by the occupant of any premises taken on lease or on rent. According to him, those provisions do not in any way stand in the way of the assessee's claim because" the latter had not, while incurring the expenditure in question, made any extension or improvement in the building or on the construction of any 'pakka' structure.
5. We have considered the rival submissions. Since according to us, the question raised in the departmental appeal is primarily a question of fact, we have minutely examined the details of expenses incurred by the assessee in the premises taken on lease. We find that the expenditure had, in fact, been incurred on making partitions of teak commercial ply and on panelling of cemented walls by kail wood. Apart from these, expenditure had also been incurred on providing false ceiling in the cabins which were put up by installation of partition walls. The major expenditure had been incurred on these items. Besides, expenditure had also been incurred on distempering of walls, minor repairs, painting of doors, windows and almirahs, polishing of wooden fixtures, white-washing, distempering and polishing of the floors. A part of the expenditure had also been incurred on providing a settee in the reception room, tables for stenographers and on providing almirahs in the kitchen. The total expenditure, thus, incurred, in fact, amounted to Rs. 99,033 and the assessee had been able to settle the account by paying a lump sum of Rs. 75,000. The allocation of Rs. 75,000 between revenue expenditure and capital expenditure has already been given by us in an earlier portion of this order and now we would proceed to decide as to whether the expenditure incurred by the assessee as per details given above was capital or revenue in nature. Before we do so, we may take notice of the various decisions on which reliance has been placed by the contending parties.
6. In the case of Hotel Diplomat (supra) it had been held by their Lordships of the Hon'ble Delhi High Court that the expenditure of Rs. 3,361 for construction of bathrooms was a capital expenditure. Since apparently the facts in that case were entirely different, from the facts found in the present case, we would agree with the viewpoint of the Commissioner (Appeals) that the reliance placed by the ITO on this decision, does not in any way help the department's case. The decision in the case of Uttar Bharat Exchange Ltd. (supra) on which reliance has been placed by the learned departmental representative supports the case of the department. In that case, the assessee had taken premises on lease for a period of two years and as per the terms of the lease agreement, it had been permitted to erect shades, partitions, and temporary structure for carrying on its exchange business Their Lordships of the Punjab High Court held that the expenditure was essentially capital in nature.
7. Referring to the cases on which reliance has been placed by the asses-see, we have first of all looked into the law which has been laid down by the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. (supra). It has been held by their Lordships as follows :
There may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be dis-allowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case.(p. 2) In the decision of the Hon'ble Allahabad High Court in the case of Girdhari Dass & Sons (supra) the assessee had made some structural changes by renovating, furnishing, and remodelling of its business premises. Their Lordships of the Hon'ble Allahabad High Court held if a tenant of the premises incurs any expenditure on a rented building for its renovation or alteration, it does not acquire any capital asset and that ordinarily such an expenditure is revenue in nature. The Hon'ble Allahabad High Court further held that the expenditure, thus, incurred was not an expenditure resulting in any enduring advantage to the assessee. In the case of J.K. Industries (P.) Ltd. (supra) the assessee-company had incurred certain expenditure on panelling the walls with plywood. It was held by their Lordships of the Hon'ble Calcutta High Court that the expenditure incurred in putting up the wooden panelling did not result in any enduring benefit to the assessee and was deductible as a revenue expenditure. In the case of Kisenchand Chellaram (India) (P.) Ltd. (supra) the assessee had taken three buildings on lease and effected improvements in those buildings by construction of partition walls and by providing wall panellings and show-windows, etc. Their Lordships of the Madras High Court held that the expenditure, thus, incurred was of revenue nature. In the case of Mehta Transport Co. (supra) the assessee was a transport operator having a branch office in rented premises. A loft construction inside the office premises was made for providing adequate accommodation to the staff. Their Lordships of the Hon'ble Gujarat High Court held that the available office space was put to optimum use resulting in greater efficiency and in improvement of working conditions and that therefore the expenditure incurred by the assessee did not bring into existence any enduring benefit and was allowable as revenue expenditure. In the decision of the Tribunal in the case of Kapur & Co. [IT Appeal No. 4137 (Delhi) of 1984, decided on 10-4-1986], the assessee had incurred an expenditure of Rs. 21,919 for providing new front walls and doors and on replacement of a wooden log by an iron girder and on panelling of the office premises. The Tribunal held that the expenditure, thus, incurred was on revenue account. As regards the provisions of Section 32(1A), the Tribunal held that those provisions deal with the grant of depreciation on capital expenditure incurred in a rented premises by way of extension or improvement to the building. According to the Tribunal, the provisions of Section 32(1A) did not in any way stand in the way of that assessee's claim.
8. After instructing ourselves with the law laid down in the abovementioned cases and after looking, in particular, to the law laid down by the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. (supra) and after once again carefully going through the details of expenses, we are of the view that the expenditure claimed was an allowable business expenditure which was incurred in order that the assessee's profession could be carried on with greater facility and efficiency. Even though the advantage obtained by the assessee in bifurcating the office space into convenient wooden cabins might endure during the period of lease of five years or any extended period of lease, it could not be said to have resulted in incurring of an expenditure in the capital field. The expenditure which was incurred by the assessee on properly utilising the office space and on facilitating the assessee's professional activities was nothing, but a part of the assessee's working expenses or expenses incurred wholly and exclusively for the purposes of assessee's profession. Judging from the practical and business point of view and on the analogy of decisions referred above it appears to us that the bifurcation of expenditure of Rs. 75,000 as made by the assessee and as reproduced in paragraph 2 of this order was properly made between revenue and capital expenditure. As already stated in an earlier portion of this order, Vibgyor had billed the assessee in all for a sum of Rs. 99,033 for doing various jobs of revenue nature and capital nature. The assessee had settled the account of the abovenamed firm by paying a sum of Rs. 75,000 only. Having regard to the expenditure which can be related to the manufacture of furniture, allocation of capital expenditure at Rs. 14,010 was in order and that the rest of the expenses were allowable as revenue expenses.
9. We have gone through the agreement of lease entered into between the assessee on one hand and his son on the other. It is evident from that deed that the assessee, who was the lessee of the premises was allowed to make minor alterations and attach fixtures, etc., inside the hall taken on lease and that major structural changes or repairs to the building were to be undertaken only by the lessor. In accordance with the terras of the lease deed, the assessee had structured its office space by making wooden cabins and by incurring other expenses on distempering and white-washing of the inside of the building which was nothing, but a revenue expenditure. The provisions of Section 32(1 A) are no doubt indicative of the law that any capital expenditure incurred by an assessee in the premises taken on lease or on the basis of any other rights of occupancy would be inadmissible expenditure and would be eligible for grant of depreciation only, but in the present case the details of the expenditure incurred by the assessee do not show that those were capital in nature. The assessee had not made any renovation, extension or improvement to the building or the structure which had been taken on lease. What had been done by the assessee was that it had made certain cabins in the hall in order that it could utilise the space with optimum advantage. In such circumstances the provisions of Section 32(1 A) would not in any way advance the case of the revenue. The decision of the Hon'ble Punjab High Court in Uttar Bharat Exchange Ltd.'s case (supra) no doubt helps the case of the revenue, but as against that there are several other decisions of the Hon'ble High Courts and of the Hon'ble Supreme Court which, as discussed above, support the case of the assessee. The preponderance of judicial opinion is in favour of the assessee.
10. On the above facts and in the circumstances, we would upheld the order passed by the Commissioner (Appeals) and dismiss the departmental appeal.