Commissioner Of Income Taxappellant Inchennai...both Appeals v. M/S. Tvs Lean Logistics Ltd.7B, West Veli Streetmadurai 625 001

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 27.6.2007 THE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA Commissioner of Income TaxAppellant inChennai...both appeals Vs. M/s. TVS Lean Logistics Ltd.7B, West Veli StreetMadurai 625 001. Respondent in..both appeals----- Appeals under Section 260A of the Income Tax Act, 1961against the order of the Income Tax Appellate Tribunal, Madras 'C'Bench dated 31.10.2006 in ITA Nos.2692 & 2693/Mds/2005 for theassessment years 2001-02 and 2002-03 against the order of theCommissioner of Income Tax (Appeals I) Madurai dated 21.9.2005 inITA NO. 40 and 243/2004-05 for the Assessment year 2001-02 and2002-03 respectively and assessment order in PA NO. AABCT 2536QDATED 29.3.2004 and 7.2.2005. -----For Appellant: Mrs.Pushya Sitaraman, Sr.S.C.-----J U D G M E N T (Delivered by P.D.DINAKARAN,J.) The Revenue has preferred these appeals on a vexedsubstantial question of law as to whether the expenditure onconstruction of building in a leasehold premises would amount torevenue expenditure, contrary to the clear provisions ofExplanation 1 to Section 32(1) of the Income Tax Act, under thefollowing facts and circumstances of the case. 2.1. The relevant assessment years are 2001-02 and 2002-03respectively. The assessee claimed the expenditure incurred by iton construction of a building, concededly on leasehold land, as https://hcservices.ecourts.gov.in/hcservices/ revenue in nature. But, the Assessing Officer treated it ascapital expenditure by orders dated 23.3.2004 and 7.2.2005respectively. Against the said orders, the assessee preferredappeals, which were, by common order dated 21.9.2005 dismissed bythe Commissioner, upholding the order of the Assessing Officer. 2.2. Contending that Explanation 1 to Section 32(1) of theAct would cover the situations of construction on premises takenon lease, since the assessee was not the owner of the building,the expenditure could only be treated as revenue in nature, theassessee preferred further appeals before the Tribunal.Appreciating the contention made on behalf of the assessee, theTribunal allowed the appeal and held that the expenditure incurredby the assessee on the construction of the building on theleasehold land was not attracted by Explanation 1 to Section 32(1)of the Act, as it was inserted by the Taxation Laws (Amendment andMiscellaneous Provisions) Act, 1986 with effect from 1.4.1988 andtherefore, the said expenditure was revenue in nature. Hence, thepresent appeal raising the above mentioned substantial question oflaw. 3. Before proceeding further, it is apt to refer Explanation1 of Section 32(1) of the Act. "32. Depreciation(1) In respect of depreciation of -(i) buildings, machinery, plant or furniture, beingtangible assets; (ii)know-how, patents, copyrights, trade marks,licences, franchises or any other business orcommercial rights of similar nature, beingintangible assets acquired on or after the 1[st]day of April, 1998, owned, wholly or partly, by the assessee and used forthe purposes of the business or profession, thefollowing deductions shall be allowed - (i) in the case of assets of an undertaking engagedin generation or generation and distribution ofpower, such percentage on the actual costthereof to the assessee as may be prescribed;(ii)in the case of any block of assets, suchpercentage on the written down value thereof asmay be prescribed:... Explanation 1 - Where the business or profession of theassessee is carried on in a building not owned by himbut in respect of which the assessee holds a lease orother right of occupancy and any capital expenditure is https://hcservices.ecourts.gov.in/hcservices/ owned, wholly or partly, by the assessee and used forthe purposes of the business or profession, thefollowing deductions shall be allowed - (i) in the case of assets of an undertaking engagedin generation or generation and distribution ofpower, such percentage on the actual costthereof to the assessee as may be prescribed;(ii)in the case of any block of assets, suchpercentage on the written down value thereof asmay be prescribed:... Explanation 1 - Where the business or profession of theassessee is carried on in a building not owned by himbut in respect of which the assessee holds a lease orother right of occupancy and any capital expenditure is https://hcservices.ecourts.gov.in/hcservices/ incurred by the assessee for the purposes of thebusiness or profession on the construction of anystructure or doing of any work in or in relation to, andby way of renovation or extension of, or improvement to,the building, then, the provisions of this clause shallapply as if the said structure or work is a buildingowned by the assessee.... " 4.1. It is not in dispute that the assessee had put up theimpugned construction of building only on the leasehold land andno building was taken on lease by the assessee. Therefore, thefiction created by Explanation 1 that the building put up by himin the leasehold land or structure or work shall be construed asif the same is owned by the assessee, is not applicable to thecase of the assessee and the Explanation 1 to Section 32(1) of theAct is not attracted to the instant case of the assessee at all. 4.2. Of course, an argument was advanced on behalf of theRevenue that the words "where the business or profession iscarried on in a building not owned by him but in respect of whichthe assessee holds a lease or other right of occupancy" would alsoinclude lands and would be read as "where the business orprofession of the assessee is carried on in a land not owned byhim but in respect of which the assessee holds a lease or otherright of occupancy" and in such case, explanation 1 to Section 32(1) of the Act is squarely applicable to the instant case of theassessee. But, we are unable to appreciate the said argument.In a case where the statutory provision is plain and unambiguous,the Court shall not interpret the same in a different manner, onlybecause of harsh consequences arising therefrom; and it is wellknown that the Court can iron out the creases but it cannot changethe texture of the fabric, cannot enlarge the scope of legislationor intention when the language of the provision is plain andunambiguous, cannot add or subtract words to a statute or readsomething into it which is not there and cannot rewrite or recastlegislation, vide NASIRUDDIN v. SITA RAM AGARWAL [2003] 2 SCC 577. 4.3. Similarly, there should be a literal rule ofinterpretation of a statute, which is the first and foremostprinciple of interpretation and where the words of a statute areabsolutely clear and unambiguous, recourse cannot be had to theprinciples of interpretation other than the literal rule and evenif the literal interpretation results in hardship orinconvenience, it has to be followed. The language employed in astatute is the determinative factor of the legislative event andeven assuming there is a defect or any omission in the words usedin the legislature, the Court cannot correct or make up thedeficiency, especially when a literal reading thereof produces anintelligible result and any departure from the literal rule would really be amending the law in the garb of interpretation, which isnot permissible and which would be destructive of judicialdiscipline, vide RAGHUNATH RAI BAREJA v. PUNJAB NATIONAL BANK[2007] 2 SCC 230. really be amending the law in the garb of interpretation, which isnot permissible and which would be destructive of judicialdiscipline, vide RAGHUNATH RAI BAREJA v. PUNJAB NATIONAL BANK[2007] 2 SCC 230. 4.4. What constitutes a capital expenditure and what doesnot, to attract Explanation 1 to Section 32(1) of the Act dependsupon the construction of any structure or doing any work or inrelation to and by way of renovation, extension or improvement tothe building which is put up in a building taken on lease by himfor carrying on his business and profession of the assessee, butnot in a case of construction of any structure or doing any workor relation to where such building is put up/constructed for thepurpose of business or the profession of the assessee in a landtaken on lease by the assessee. Because the assessee did notacquire a capital asset, viz. the land in the instant case, buthave put up a construction of the building only for the businessadvantage, with the result the entire construction cost isadmissible as the revenue expenditure. 4.5. The Apex Court in L.H.Sugar Factory and Oil Mills (P)Ltd. v. Commissioner of Income Tax [(1980) 125 ITR 293] held thatthe construction of roads in the case of Sugar Mill as revenueexpenditure. Similarly, contribution to the State Housing Boardfor construction of tenements for the workers also held to be therevenue expenditure by the Apex Court in the case of Commissionerof Income Tax v. Bombay Dyeing and Manufacturing Co. Ltd. [(1996)219 ITR 521]. 4.6. Seeing through the pipelines of the above ratio in thefacts and circumstances of the instant case, we do not see anysubstantial question of law as raised by the Tribunal, for ourconsideration, as the Explanation 1 to Section 32(1) of the Act isnot attracted. Accordingly, these appeals are dismissed.Consequently, M.P.No.1 of 2007 is also dismissed.kpl Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar To 1. The Commissioner of Income Tax, Madurai 2. The Deputy Commissioner of Income Tax Company Circle IMadurai 625 002. 3. The Assistant RegistrarOffice of the Commissioner of Income TaxShastri Bhavan, Rajaji BhavanRajaji Salai, Chennai 4. The Commissioner of Income tax (Appeals) I, Madurai + one cc to Ms. Pushya Sitaraman, Advocate sr no. 38831 GG(CO) NM(19.07.07) TC (A) No.876 & 877 of 2007.