Income Tax Appellate Tribunal - Mumbai
Urban Infrastructure Venture Capital ... vs Assessee on 12 May, 2014
आयकर अपीलीय अिधकरण, अिधकरण, मुंबई Ûयायपीठ 'एफ एफ ', मुंबई ।
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES "F", MUMBAI सव[ौी आय.पी. बंसल, Ûयाियक सदःय एवं एन. के. ǒबलैáया, लेखा सदःय, के सम¢ ।
Before Shri I.P.Bansal, JM and Shri N.K.Billaiya, AM ITA No.8397/Mum/2011 : Asst.Year 2008-2009 M/s.Urban Infrastructure The Dy.Commissioner of Venture Capital Ltd. बनाम/ बनाम Income-tax 121-123 Free Press House, 12th Central Circle - 39 Vs. Floor Mumbai.
Free Press Journal Marg Nariman Point, Mumbai - 400
021. PAN : AAACU8061E.
(अपीलाथȸ /Appellant) (ू×यथȸ/Respondent) अपीलाथȸ कȧ ओर से /Appellant by : S/Shri Percy Pardiwala & Nitesh Joshi ू×यथȸ कȧ ओर से /Respondent by : Shri Ravi Prakash सुनवाई कȧ तारȣख / घोषणा कȧ तारȣख / Date of Hearing : 12.05.2014 Date of Pronouncement :
21/5/2014 आदे श / O R D E R Per I.P.Bansal (JM) :
This appeal is filed by the assessee. It is directed against the order passed by the Commissioner of Income-tax (Appeals) - 41, Mumbai, dated 26.09.2011 for assessment year 2008-2009.
2. Grounds of appeal read as under:-
"1(a) The learned Commissioner of Income-tax (Appeals) erred in upholding the action of the learned Deputy Commissioner of Income-tax - CC - 39, Mumbai (hereinafter referred to as "the Assessing Officer") in treating an expenditure of a sum of Rs.86,48,765/- incurred by the appellant for temporary repairs and maintenance on leased premises as capital expenditure.
(b) The appellant submits that the learned Commissioner of Income-tax (Appeals) ought to have held that the aforesaid expenditure of a sum of Rs.86,48,765/- is an allowable revenue expenditure following the decision of the Income Tax Appellate Tribunal in the case of DCIT v. Lazard India P. Ltd. [(2010) 41 SOT 72 (Bom)] & other cases relied upon by the appellant, 2 ITA No.8397/Mum/2011. M/s.Urban Infrastructure Venture Capital Ltd.
wherein on similar facts, the expenses were held to be of revenue nature and hence allowable as a deduction.
2. Without prejudice to what is stated above, the learned Commissioner of Income-tax (Appeals) erred in not directing the Assessing Officer to allow a sum of Rs.6,78,015/- being society maintenance charges (included in the total repairs and maintenance expenses of Rs.86,48,765/-), which are clearly of routine repair and maintenance nature.
3. The appellant submits that the Assessing Officer is directed :
(i) to delete the addition of Rs.86,48,765/- being expenses incurred by the appellant as temporary repairs and maintenance on leased premises;
(ii) without prejudice to what is stated above, to allow society maintenance charges of Rs.6,78,015/-;
and to modify the assessment in accordance with the provisions of the Act.
4. Each of the above grounds of appeal are independent and without prejudice to each other."
3. The assessee is engaged in the business of investment manager / advisor. During the year under consideration the assessee has taken a new premises on rent and has incurred total expenses of Rs.86,48,765 on repair & renovation etc. as follows:-
Sr. Name of the Address of the Total (Rs.) Purpose No. supplier supplier A Building and Other maintenance Expenses
1. Free Press Free Press 4,71,171 Quarterly House House, 215, building Limited Nariman Point maintenance Mumbai-400 charges to the
021. society
2. Mittal Tower Basement, 1,90,138 Quarterly Premises Co- Mittal Towers, building op. Society 210, Nariman maintenance Ltd. Point, Mumbai - charges to the 3 ITA No.8397/Mum/2011. M/s.Urban Infrastructure Venture Capital Ltd.
400 021. society.
3. HCL Mumbai 16,706 Maintenance charges Total (A) 6,78,015 B. Repairs & Renovation Expenses
4. K.G.N.Star Room No.H-122, 1,00,000 Labour charges Scrap S.G.Nagar, of breaking of Shabana wall and Compound, clearing of General AKV flooring etc. Marg, Malad (E), Mumbai 97
5. Rudamal Shuja Mansion, 27,499 Labour charges K.Bansal 324/330, for removing Maulana Azad old floor Road, 3rd Floor, breaking, Room No.101, marble fixing in Mumbai - 400 floor and wall.
004. 6 Kalpana Shivshakti 15,25,080 Interior & Interiors Welfare, Opp. Allied Work Hanjar Nagar, includes Jija Mata Road, wooden Pump House, carpenter work, Andheri (E) false ceiling Mumbai - 400 plumbing work, 058. masonry work, flooring work, paint and polish, labour expenses etc. 7. Intercraft 3,Parshva 47,02,476 Interior and Sadan, 228, Allied work Dr.A.B.Road, including Worli, Mmbai - painting, 400 030 carpenter material, civil plumbing, masonry work and labour expenses. 8. Varmora 8-A National 66,222 Supply of Granito Pvt. Highway, vitrified tiles. Ltd At.Dhuva, Tal. Wankener, Dist Rajkot (Gujarat) India. 9. Murudeshwar Murudeshwar 1,99,149 Supply of 4 ITA No.8397/Mum/2011.
M/s.Urban Infrastructure Venture Capital Ltd.
Ceramics Ltd. Bhawan, Gokul Vitrified Tiles.
Road, Hubli 580 030
10. Classic Bhandup 6,42,438 Marble Slabs, Marble Village Road, Bathroom Subhash Nagar flooring and (Next to CEAT wall tiles.
Tyre Factory)
Bhandup (W)
Mumbai - 400
782
11. Antares 7, Jadav 4,43,664 Supply of
Building Bhavan, 62/B vitrified / floor
Products Gowalia Tank tiles.
Pvt.Ltd. Road, Mumbai -
400 026.
12 Anurup Anurup House, 2,64,222 Professional
Designs plot 96, Lane 3, fees.
Pvt.Ltd. Hindu Colony,
Dadar (E)
Mumbai - 400
014.
Total (B) 79,70,750
Total (A) + 86,48,765
(B)
3.1 The A.O. required the assessee to show cause as to why the office renovation expenses should not be capitalized. Vide letter dated 25th November, 2010, it was submitted that these expenses are incurred on tiling, plumbing, false ceiling, etc. which could not be reused on vacation of premises. However, resorting to Explanation 1 to section 32, the A.O. observed that the expenses are in respect of civil work, tiling work, marble work, fittings, fixtures, interior work, etc. cannot be taken as revenue expenditure as claimed by the assessee as these are major renovation expenses in the nature of capital and since the property was taken on lease on 7th December, 2007, the assessee entitled to depreciation at the rate of ½ of the normal depreciation. In this manner the learned A.O. allowed the depreciation to the extent of Rs.4,32,438 and disallowed balance amount of Rs.82,16,327. The disallowance has been sustained by the learned CIT(A) mainly on the basis of Explanation 1 to section 32 and relying upon the decision of the Mumbai Bench of the Tribunal in the case of Free India 5 ITA No.8397/Mum/2011. M/s.Urban Infrastructure Venture Capital Ltd.
Assurance Services Ltd. v. DCIT (12 Taxman.com 424). The assessee is aggrieved, hence has filed the aforementioned grounds of appeal.
4. After narrating the facts and referring to the nature of expenditure as described in the aforementioned table, it was submitted by the learned Senior Counsel for the assessee that Rs.6,78,015 described in serial nos.1 to 3 of the table cannot be disallowed at all as these charges pertain to maintenance charges which in any case is allowable even in respect of leased premises. Referring to the above details it was submitted by him that these expenses are in revenue nature. No new asset has been created which can be said to have been given any enduring benefit. It was submitted that the leave and license agreement entered into by the assessee with the owner of the premises was only for a term of 33 months and all the renovation was done by the assessee to effectively carry on its business activity. None of the items on which the expenses incurred could be reused. Thus, it was submitted by the learned Senior Counsel that the A.O. as well as the learned CIT(A) have committed an error in making and upholding the disallowance. The learned AR relied on the following decisions to contend that keeping in view the nature of these expenses, all these expenses were allowable as business expenditure:-
(i) HEDE Consultancy Pvt. Ltd. And Another [(2002) 258 ITR 380 (Bom)] In the said the case, the assessee had taken a godown on lease and spent an amount of Rs.9,20,436 for converting the godown premises into office by renovating it, incurring expenses on interior decoration, which resulted in replacement of the existing roof with that of cement sheets, replacement of floor with that of marble, plastering of walls and construction of bathrooms and W.C., etc. The Assessing Officer disallowed the same, but the Tribunal allowed it and it was held that since the assets created by spending the said amounts did not belong to the assessee but the assessee got the business advantage of using modern business premises at a low rent, 6 ITA No.8397/Mum/2011. M/s.Urban Infrastructure Venture Capital Ltd.
thus saving considerable revenue expenditure for a considerably long period, the Tribunal was held to be perfectly justified in coming to the conclusion that the expenditure should be looked upon as revenue expenditure.
(ii) Talathi And Panthaky Associates P.Ltd. [(2012) 343 ITR 309 (Bom.)] In the said case, the assessee was a tenant in a building and was in the occupation of an area admeasuring 5,000 sq.ft. The building was declared by the Municipal Corporation to be unsafe for occupation and an eviction notice was served on the occupants. A suit was instituted for partition between the owners of the property. A developer came to be impleaded as a party respondent and was a party to the consent terms. Under the consent terms, the developer agreed to repair and reconstruct the building at his cost. Under the agreement, the tenancy of the assessee in respect of the sixth floor in its possession was confirmed and the assessee assumed an obligation to contribute a sum of Rs.1.50 crore for the work of repair and restoration of the structure. It was agreed that there would be no increase in the rent payable by the assessee which continued to be Rs.11,300 per month. The amount was disallowed by the A.O. on the ground that the said amount was capital expenditure. However, the CIT(A) reversed the view of the A.O. by holding that the assessee did not acquire any capital asset and the expenditure was allowable as revenue in nature. The Tribunal confirmed the order passed by the CIT(A). In Departmental appeal the Hon'ble High Court upheld the order of the Tribunal on the ground that since there was no acquisition of a capital asset, the expenditure could not be regarded as being of capital nature.
(iii) CIT v. Amway India Enterprises [(2012) 346 ITR 341 (Del.)] 7 ITA No.8397/Mum/2011. M/s.Urban Infrastructure Venture Capital Ltd.
In this case, the assessee had incurred expenses on flooring, partition, wiring, false ceiling, roofing, air-conditioning unit and duct, electric wiring, laying network for setting up computers and, on purchase of furniture. The A.O. as well as the CIT(A) disallowed these expenses on the ground that they were incurred on capital account. The Tribunal allowed the entire expenditure incurred on improvement of leasehold premises save and except that which was incurred on air-conditioning units and furniture. The Departmental appeal against the order of Tribunal was dismissed.
(iv) CIT v. Ayesha Hospitals P.Ltd. [(2007) 292 ITR 266 (Mad.)] The assessee was running hospital in leased premises. The expenses were incurred on flooring, partition etc. for the newly extended area of space and claimed as revenue expenditure. The A.O. disallowed the same and reference was made especially to Explanation 1 to section 32. Finding that the nature of expenditure was in the revenue expenditure for the purpose of carrying on business, their Lordship held that the same were allowable as business expenditure. On an alternate plea regarding application of Explanation 1 to section 32(1), their Lordships have observed that the reading of Explanation 1 would make it clear that if the lessee incurs capital expenditure on the building of the nature mentioned in Explanation, then it will be treated as if the building is owned by the assessee. It was observed that the Explanation is an exceptional one which permits depreciation in cases where the assessee does not own a building. However, the Tribunal in the present case had given its finding that it is a revenue expenditure on the ground that the expenditure is incurred only towards painting, re-laying of the damaged floors, partitions, etc., which can never considered to be capital expenditure of the nature mentioned in the above Explanation and thus the appeal filed by the Revenue was dismissed.
(v) CIT v. Mehta Transport Company [(1986) 160 ITR 35 (Guj)] 8 ITA No.8397/Mum/2011. M/s.Urban Infrastructure Venture Capital Ltd.
An expenditure of Rs.16,748 was laid out on construction of loft admeasuring about 350 sq.ft. on the ground floor office premises taken on lease in Bombay. The said amount was disallowed on the ground that it is in the nature of capital expenditure. As per the finding given by the Tribunal, construction of loft was not in the nature of renovation but was a new construction. However, the Tribunal held that the expenditure incurred by the assessee was with a view to make the leased premises more suitable for business purposes and they could not be treated as capital expenditure. Their Lordship observed that the expenditure incurred for construction of loft was neither for extending nor for addition to the premises. The assessee was putting the available office space to its optimum use for accommodating a large staff of 30 members which would result in greater efficiency by improvement of the working conditions. By constructing the loft, the assessee did not 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 improvements were made was either to pay compensation and take over the improvement or to permit the lessee to remove the improvement. Thus, it was held that the amount expended on loft was revenue expenditure.
(vi) CIT v. Oxford University Press [(1977) 108 ITR 166 (Bom.)] It was held that expression "repair" must be understood in contradistinction to renewal or restoration and the test to be applied is to see whether as a result of the expenditure what is being done is to preserve and maintain an already existing asset or whether as a result of the expenditure a new asset or a new advantage is being brought into existence. The mere quantum of expenditure is not by itself decisive of the question whether it is of the nature of revenue or capital. In the said case, the assessee during assessment year 1963- 64 had incurred an expenditure of Rs.59,000 in the form of payment 9 ITA No.8397/Mum/2011. M/s.Urban Infrastructure Venture Capital Ltd.
made for guniting work carried on in its building known as "Oxford House" and also a sum of Rs.3,680 as fees paid to the architects in connection with the guniting work undertaken on the advice of the architects. Both these items were claimed as expenditure incurred for repair to their building. The A.O. observed that the same could not be called as current repairs but the assessee had undertaken major structural repairs which had the effect of prolonging the life of the building for at lease 15 years and as the repairs resulted in extension of the period of the serviceableness of the asset and in the creation of an enduring benefit, the expenditure was a capital expenditure. Their Lordship observed that no new asset or new advantage as such could be said to have been brought into existence by reason of expenditure incurred for doing the guniting work. As a result of guniting work done, the assessee had not changed the nature of the asset, viz., the building as a whole and the same in no way increased the accommodation or earning capacity of the building in that sense, no new advantage of enduring benefit had been brought into existence. The repairs also could not be regarded as heavy structural repairs. Simply because of repairs the life of the building was prolonged for at least 15 years, it could not be said that the expenditure was in the nature of a capital expenditure and thus, it was held that the said amount was allowable as business expenditure.
5. The learned AR further distinguished the decision of the Tribunal relied upon by the learned CIT(A) in the case of Free India Assurance Services Ltd. v. DCIT (supra). The learned AR produced before us the copy of the said decision and it was submitted that the following facts distinguishable from the decision. (i) The expenditure was incurred before the assessee started business in its office and these expenses were not of routine nature but of one time expenditure. (ii) The wooden partitions, cabins, cubicles, desks are in the nature of permanent furniture and fixtures for starting the business. (iii) The said premises was owned by the Directors of the company who had more than 50 per cent of the shares of the company. This premises was going to be remained with the assessee 10 ITA No.8397/Mum/2011. M/s.Urban Infrastructure Venture Capital Ltd.
permanently for all practical purposes. Thus, it had resulted in enduring benefit of the company. It was pleaded by him that the facts of the present case are entirely different and keeping in view the nature of expenses, it cannot be said that any enduring benefit has been derived by the assessee by incurring these expenses.
6. On the other hand, the learned Departmental Representative referring to the order passed by the learned CIT(A), submitted that the expenditure incurred by the assessee was in the nature of capital. He submitted that the assessee carried out major renovation work by replacing the floor tiles etc. and making cabins. Thus it was submitted by him that the learned CIT(A) has rightly held that these expenses were in the nature of capital and his order should be upheld and the appeal filed by the assessee should be dismissed. The learned DR also referred to the provisions of Explanation 1 to section 32(1) and contended that the assessee for the purpose of depreciation has be considered as the owner of the premises in view of the nature of expenditure made by the assessee on the leased premises.
7. We have heard both the parties and their contentions have carefully been considered. The assessee is engaged in the business of investment manager / advisor. As per the submissions made by the assessee before the CIT(A), it acquired office in the locality of Nariman Point with a view to enhance its business. Accordingly the assessee had taken on lease two adjecement premises viz. B-11 and B-12 Mittal Towers, Nariman Point, Mumbai, from where it started carrying on its business operation. The total rent payable for the premises was Rs.1,97,40,000 per annum. As per the lease agreement the assessee was not permitted to structural alterations, changes in the leased premises and lease agreement was submitted. It was submitted that the assessee did not do any construction / improvement of building structure and the said expenses did not bring into existence any new asset and are allowable as deduction u/s 30. In order to make the premises conclusive to the business needs, it was required to make some renovation / changes including refurnishing. The nature of business of the assessee needs a posh office as the visitors / clients are normally corporate 11 ITA No.8397/Mum/2011. M/s.Urban Infrastructure Venture Capital Ltd.
executives and high net-worth individuals. It was submitted that during the course of its business, the assessee had to cater high profile clients both Indian as well as foreign. In the circumstances, the office premises are required to be kept to a good standard. The expenditure incurred by the assessee was in order to meet these business requirements. The renovation expenses were in connection with modifying the cabins, cubicles, laying good marbles, painting and other related expenditure. These expenditure were incurred and were necessary for the purpose of business to carry it more efficiently and also for creating good environment for the staff as well as the clients. These expenditure were incurred wholly and exclusively for the purpose of business. The repair / renovation work carried out at the premises which were not owned by the assessee but were taken on lease. The expenditure incurred, as can be seen from the details furnished, has not created any capital asset nor it has given the benefit of enduring nature. None of the expenditure entails any structural change or extension or improvement of the building, therefore, Explanation 1 to section 32(1) will not be applicable. These submissions of the assessee are recorded by the Ld. CIT(A) in para 6.2 of the impugned order.
7.1 If the above submissions of the assessee are considered in the light of the details of expenses submitted in the aforementioned chart, which is reproduced in para 3 of this order, it will be revealed that the assessee did not carry out any structural change in the building. The nature of expenditure is labour charges, breaking of walls and clearing of flooring etc; labour charges for removing old floor breaking, marble fixing on floor and wall; Interior and allied work includes wooden carpenter work, false ceiling, plumbing work, masonry work, flooring work, paint and polish, labour expenses etc; Interior and allied work including painting carpenter material, civil, plumbing, masonry work and labour expenses; supply of vitrified tiles; marble slabs, bathroom flooring and wall tiles, and professional fees. All these changes are made in the internal part of the structure. It is not the case of the department that this expenditure has not been genuinely incurred by the assessee. As per the submission of the assessee, these changes were made in connection with the modifying 12 ITA No.8397/Mum/2011. M/s.Urban Infrastructure Venture Capital Ltd.
cabins, cubicles, laying good marbles, painting and other related expenditure in order to meet its business requirements of keeping a good standard office. No capital asset has been created and no enduring benefit has been derived. According to the facts of the present case, we see justification in the case of the assessee. The learned A.O. as well as learned CIT(A) have failed to properly appreciate the facts of the case and have incorrectly arrived at a conclusion that these expenses were in the nature of capital. The case laws relied upon by the learned AR supports the case of the assessee. By incurring these expenses the assessee did not bring into existence an asset of a permanent nature. Therefore, the expenditure cannot be called into the nature of capital as per the decision of the Hon'ble Bombay High Court in the case of CIT v. Oxford University Press (supra). Their Lordship observed that "repair" must be understood in contradistinction of renewal or restoration and the test to be applied is to see whether as a result of the expenditure what is being done is to preserve and maintain an already existing asset or whether as a result of the expenditure a new asset or a new advantage is being brought into existence. Their Lordship also observed that the mere quantum of expenditure is not by itself decisive of the question whether the expenditure is in the nature of revenue or capital. Since in the present case no new asset or new advantage has been brought into existence by the assessee, it cannot be said that the assessee has incurred capital expenditure and quantum of expenditure alone also cannot be considered sufficient to arrive at a conclusion that the expenditure is in the nature of capital. What is necessary to see is as to whether the expenditure is in the nature of capital or it is in the nature of revenue.
7.2 In the case of CIT v. Talathi and Panthaky Associates P.Ltd. (supra), despite making payment of Rs.1.5 crore towards reconstruction of the tenanted premises, their Lordship have held that the expenditure was not in the nature of capital. The assessee obtained a commercial advantage of securing tenancy of an equivalent area of premises on the same rent as before. Since there was no acquisition of capital asset and the occupation of the assessee continued in the character of tenancy, the expenditure was in 13 ITA No.8397/Mum/2011. M/s.Urban Infrastructure Venture Capital Ltd.
the nature of capital. In the present case also the assessee did not acquire any capital asset but made the leased premises more suitable for its business.
7.3 In the case of CIT v. Amway India Enterprises (supra) Their Lordship have considered the earlier decision of the Delhi High Court in the case of CIT v. Hi Line Pens Pvt. Ltd. [(2008) 306 ITR 182 (Delhi)], where the expression "repairs of the premises" was interpreted. It was held that "repairs" was wider than "current repairs". What would be relevant to bear in mind will be that what is the nature of expenditure whether it is incurred for maintenance or renovation of an asset or was it expended otherwise and the order of the Tribunal was upheld and the expenses incurred on flooring, partition, wiring false ceiling, roofing was held to be in the nature of revenue expenditure.
7.4 Therefore, in view of the aforementioned position of law, it has to be held that the nature of expenditure incurred by the assessee on the premises taken on rent was in the nature of revenue since no new asset has been created and the changes were made by the assessee for efficiently carrying on its business and the items on which expenditure was made could not be reused on vacation of premises. The contention that the items on which the expenditure was made could not be reused on vacation was even raised before AO in the assessment order. Therefore, it cannot be said that the expenditure incurred by the assessee on repair and renovation was in the nature of capital. The decision ITAT in the case of Free India Assurance Services Ltd. (supra), relied upon by Ld. CIT(A) also does not support the case of the Revenue as the facts in that case were entirely different from the facts of the present case. The premises in that case belonged to the directors of the company who had more than 50 percent share. In the present case no such case is made out by the Revenue.
7.5 Now we are left with the question that whether on the basis of explanation-1 to Section 32(1) it can be said that despite being expenditure in the nature of revenue the assessee will only be entitled for 14 ITA No.8397/Mum/2011. M/s.Urban Infrastructure Venture Capital Ltd.
depreciation as it has been the case of AO and Ld. CIT(A) that due to application of explanation-1 to section 32(1) the assessee is entitled to claim only depreciation on the expenditure incurred by it. We have carefully considered such submission of Ld. DR. Similar provisions as these are contained in explanation-1 to section 32(1) were incorporated into the statute for the first time by the Taxation Laws (Amendment) Act 1970 by inserting new Sub-section (1A)in section 32 by section 5 of the Amending Act w.e.f. 1/4/1971. Its scope was explained in Circular No.56 dated 19/3/1971. It was described that under the existing provisions of Income Tax Act, the assessee was not entitled to depreciation or any other deductions in respect of capital expenditure incurred by him on extension or renovation or improvement of a building not belonging to him which is used for the purpose of business or profession. Therefore, new sub-section (1A) is being inserted w.e.f. 1/4/1971. Later on sub-section (1A) was omitted and explanation-1 was inserted after the second proviso to section 32(1)(iii) of the Act in view of switch over to block concept by the Taxation Laws (Amendment and Miscellaneous provisions) Act 1986 and the reason for amending sub-section (1A) of section 32 and insertion of explanation has been stated in the Circular No.469 dated 23/9/1986.
7.6 The relevant part of both aforementioned Circulars are reproduced below.
"CIRCULAR NO.56, dated 19/03/1971.
Amortisation of expenditure on renovation or extension of, or improvement to, leased business premises.
56. Under the existing provisions of the IT Act, an assessee is not entitled to depreciation or any other deduction in respect of capital expenditure incurred by him on renovation or extension of, or improvements to, a building not belonging to him which is used for the purpose of his business or profession. Under a new sub-s. (1A), inserted ins. 32 by s. 5 of the Amending Act, w.e.f. 1st April, 1971, provision has been made for the grant of depreciation on capital expenditure incurred by the assessee for the purpose of his 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, any building which is used for the purpose of the business or profession, where such building is not owned by the assessee but in respect of which the assessee holds a lease or other right of occupancy. The depreciation will be allowed only in respect of capital expenditure incurred after 31st March, 1970 and it will be allowed with reference to the written down value of the 15 ITA No.8397/Mum/2011. M/s.Urban Infrastructure Venture Capital Ltd.
structure or work at rates to be prescribed iii the IT Rules. Where the structure or work is sold, discarded, demolished, destroyed or surrendered as a result of the determination of the lease or other right of occupancy in respect of the building (in any previous year other than the previous year in which it was constructed or done), the assessee will be entitled to a "terminal allowance"
equal to the shortfall of the moneys payable taken together with the scrap value, if any, from the written down value of the structure or work. The term "moneys payable", in respect of any structure or work, has been defined to include any insurance or compensation moneys payable in respect thereof and, where the structure or work is sold, the price for which it is sold. The word "sold" will have the same meaning as it has under the existing provisions of s. 32, i.e. it will include a transfer by way of exchange or a compulsory acquisition under any law but would not include a transfer from a company to an Indian company in a scheme of amalgamation. (emphasis ours)
57. The following consequential amendments have also been made to the other provisions of the IT Act in this connection:
CIRCULAR NO. 469, dated 23/09/1986.
6.4 The amendments relating to depreciation allowance are as follows:--
(a) to (g).....................
(h) Sec. 32(1A) of the IT Act provides for depreciation allowance in respect of any addition, renovation or extension of or improvement to a building which an assessee does not own but in respect of which he holds a lease or other right of occupancy. As a result of the switch over to the block concept, this provision has been omitted. By the newly inserted Expln. 1 after the second proviso to s. 32(1)(iii) of the IT Act, it has been provided that depreciation will be allowed in respect of such a structure or work as if it is a building owned by the assessee."
The reading of above explanatory notes will make it clear that Sub-section (1A) and subsequent omission of Sub-section (1A) and insertion of explanation-1 after the second proviso to Section 32(1)(iii) are brought to the statute only for the reason that in a case where capital expenditure is incurred by the assessee in respect of building not owned by him in that case there was no provision in the Act for grant of depreciation or any other deduction and to meet such hardship faced by such assessee, the benefit of depreciation was provided. The pre-condition to invoke the provision of explanation-1 after the second proviso to Section 32(1)(iii) is that expenditure itself should be capital in nature. If the expenditure by its nature itself is not capital in nature and its nature is revenue then provisions of explanation-1 after second proviso to section 32(1)(iii) will not 16 ITA No.8397/Mum/2011. M/s.Urban Infrastructure Venture Capital Ltd.
be applicable at all. It has already been pointed out that the nature of expenditure incurred by the assessee in respect of renovation, or extension or improvement to the building not belonging to assessee are in the nature of revenue. Therefore, it is held that even on the basis of explanation - 1 after the second proviso to Section 32(1)(iii), the assessee cannot be denied for the deduction of impugned expenses which are revenue in nature.
7.7 In view of above discussion, the issue is decided in favour of the assessee. Therefore, Ground No.1 is allowed. Since entire expenses have been held to be allowable, the alternative ground raised by the assessee in respect of a sum of Rs.6,78,015/- has become infructuous.
8. In the result, the appeal filed by the assessee is allowed in the manner aforesaid.
Order pronounced on this 21st day of May, 2014.
आदे श कȧ घोषणा Ǒदनांकः को कȧ गई ।
Sd/- Sd/-
(N.K.Billaiya) (I.P.Bansal)
लेखा सदःय / ACCOUNTANT Ûयाियक सदःय / JUDICIAL MEMBER
MEMBER
मुंबई Mumbai; Ǒदनांक Dated : 21st May, 2014.
VM.
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. ू×यथȸ / The Respondent.
3. आयकर आयुƠ(अपील) / The CIT, Mumbai.
4. आयकर आयुƠ / CIT(A)-29, Mumbai
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai
6. गाड[ फाईल / Guard file.
आदे शानुसार/ ार BY ORDER, स×याǒपत ूित //True Copy// उप/ उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण, मुंबई / ITAT, Mumbai