Commissioner Of Income Tax,Chennai v. M/S.savera Industries Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MR.JUSTICE N.SATHISH KUMAR Tax Case (Appeal) Nos.594 and 595 of 2018and C.M.P.No.11880 of 2018 Commissioner of Income Tax,Chennai. ... Appellantin both the Appeals -vs- M/s.Savera Industries Ltd.,146, Radhakrishnan Road,Chennai-600 004.PAN: .... Respondentin both the Appeals Tax Case Appeals filed under Section 260-A of the Income TaxAct, 1961 against the common order of the Income-tax AppellateTribunal 'B' Bench, Chennai, dated 23.11.2016 in I.T.A.Nos.576and 577/Mds/2016 for the assessment years 2006-07 and 2012-13respectively. against the Commissioner of Income Tax (Apeals)-15, Chennai600 034 ITA No.227/CIT(A)-15/ 14-15 Dated 14/12/2015 PANNo.AAECS9541D Assessment Year 2012-2013 against ITA No.132/CIT/(A)-15/14-15 dated 14/12/2015, and against the order of theDeputy Commissioner of Income Tax, dated 24.10.2014, 03.02.2015made in PAN No. for the Assesment Year 2006-2007 and2012-2013 respectively. These appeals, filed by the Revenue under Section 260A ofthe Income-tax Act, 1961 (hereinafter referred to as “the Act”), https://hcservices.ecourts.gov.in/hcservices/ are directed against the common order passed by the Income-taxAppellate Tribunal 'B' Bench, Chennai, dated 23.11.2016 inI.T.A.Nos.576 and 577/Mds/2016 for the assessment years 2006-07and 2012-13 respectively. 2.T.C.A.No.594 of 2018 has been filed raising the followingsubstantial questions of law:-“(i) Whether on the facts and in thecircumstances of the case, the order of theTribunal is not perverse on facts.(ii) Whether on the facts and in thecircumstances of the case, the Tribunal was rightin holding that relaying of marble flooring in theplace of mosaic flooring is the revenueexpenditure.” 3.T.C.A.No.595 of 2018 has been filed raising the followingsubstantial questions of law:-“(i) Whether on the facts and in thecircumstances of the case, the order of theTribunal is not perverse on facts.(ii) Whether on the facts and in thecircumstances of the case the Tribunal was rightin holding that the expenditure towards airconditioning in Lobby and Resto Pub andexpenditure towards dish washing machine andaudio/video equipment in Resto Pub is to betreated as revenue expenditure.” 4.The Assessing Officer, for the assessment year 2006-07,made certain additions and disallowances on the ground that theexpenditure incurred by the assessee for relaying of marblefloor in the place of mosaic flooring was treated as capitalexpenditure, similarly, the wood work done by the assessee,purchase of grinder and kitchen equipment, and television.Accordingly, a sum of Rs.58.4 lakhs was treated as capitalexpenditure. For the assessment year 2012-13, the AssessingOfficer found that the assessee incurred expenditure towards airconditioning in Lobby and Resto Pub and also towards dishwashing machine and audio/video equipment in Resto Pub. TheAssessing Officer treated the expenditure of Rs.64,33,151/- ascapital expenditure and allowed depreciation. The assesseepreferred appeal before the Commissioner of Income-tax(Appeals)-15 (for brevity “the CIT(A)”), which was allowed infavour of the assessee against which, the Revenue preferredappeal before the Tribunal. The Tribunal had dismissed theappeal filed by the Revenue. Challenging the same, the Revenueis before us by way of these appeals. 5.Heard Mr.T.R.Senthil Kumar, learned Senior StandingCounsel for the appellant and Ms.K.C.Neelayadakshi, learnedcounsel appearing for Mr.Sandeep Bagmar, learned counsel for therespondent. 5.Heard Mr.T.R.Senthil Kumar, learned Senior StandingCounsel for the appellant and Ms.K.C.Neelayadakshi, learnedcounsel appearing for Mr.Sandeep Bagmar, learned counsel for therespondent. 6.The assessee, running a four star hotel in the city ofChennai, had incurred expenditure for re-place of flooring andpurchase of air conditioner, dish washing machine, andaudio/video equipments in the pub etc. The question was whetherthese expenditures should be treated as 'capital' or 'revenue'. 7.We are guided by the decision of the Hon'ble DivisionBench of this Court in the case of Commissioner of Income-taxvs. Dasaprakash, [1978] 114 ITR 210 (Mad.). In the said case,the assessee-firm was running a hotel and it incurredexpenditure for putting decorated mirros with pictures, puttingup plaster-moulded roof decoration, fixing plywood panels in therestaurant halls and in some living rooms, fixing carpets in thereception hall, putting frosted glass in an exclusively dininghall, etc. The Income-tax Officer held that these expenditurecannot be said to be on account of current repairs to thebuilding and it brings into existence an asset of endurance innature. The Commissioner affirmed the view taken by theAssessing Officer, which was reversed by the Tribunal. Onappeal by the Revenue before the Hon'ble Division Bench, theDivision Bench held that these items are in the nature of pettyreplacement of items which already existed and, therefore, thesecould not be taken as capital expenditure at all. 8.Further, it was held that expenditure like putting ofdecorated mirrors with pictures of religious personages orputting of plaster-moulded roof decoration in the dining-cum-lecture hall was incurred with a view to beautify the premisesand this would have to be recorded as revenue expenditure havingregard to the nature of business carried on by the assessee.Furthermore, it was pointed out that this fixtures and fittingscannot be removed and used again, and taking note of the natureof business carried on by the assessee and nature ofexpenditure, the Hon'ble Division Bench held that the Tribunalcame to the correct conclusion in holding that those items asrevenue expenditure allowable as deduction under Section 37 ofthe Act. 9.In CIT vs. Ooty Dasaprakash, [1999] 237 ITR 902 (Mad.),the expenditure incurred was for repairs and modernising thehotel by replacing the existing components of the building,furniture and fittings. The Hon'ble Division Bench of thisCourt, after taking note of the decision in the case ofDasaprakash (supra), held that the expenditure was incurredsolely for repairs and modernising the hotel and replacing the existing components of the building, furniture and fittings,with a view to create a conducive and beautiful atmosphere forthe purpose of running the business of a hotel. Accordingly,held that the expenditure would fall under the category of'revenue expenditure' and to be allowed as a deduction underSection 37 of the Act. 10.In Comfort Living Hotels (P.) Ltd. vs. CIT, [2014] 363ITR 182 (Delhi), the assessee, who had undertaken extensiverepairs on the ground floor, removed walls in the rear room andconstructed a bar. The question was whether the expenditure wascapital in nature or revenue. In the said decision, it was heldthat the Hon'ble Division Bench after taking into considerationthe decision of the Hon'ble Supreme Court in the case of EmpireJute Co. Ltd. vs. CIT, [1980] 124 ITR 1 (SC), held that anaction merely facilitates the assessee's business making itprofitable, whilst leaving the fixed capital untouched, is to betreated as revenue expenditure. 10.In Comfort Living Hotels (P.) Ltd. vs. CIT, [2014] 363ITR 182 (Delhi), the assessee, who had undertaken extensiverepairs on the ground floor, removed walls in the rear room andconstructed a bar. The question was whether the expenditure wascapital in nature or revenue. In the said decision, it was heldthat the Hon'ble Division Bench after taking into considerationthe decision of the Hon'ble Supreme Court in the case of EmpireJute Co. Ltd. vs. CIT, [1980] 124 ITR 1 (SC), held that anaction merely facilitates the assessee's business making itprofitable, whilst leaving the fixed capital untouched, is to betreated as revenue expenditure. 11.In CIT vs. Lake Palace Hotels and Motels (P.) Ltd.,[2002] 258 ITR 562 (Rajasthan), the assessee incurredexpenditure towards repairs and renovations for the hotels,which were necessitated on account of the Commonwealth ForeignMinisters' Conference. The question was whether the expenditureincurred by the assessee-company, for the purpose ofmodernisation, fall in the category of 'revenue expenditure' or'capital expenditure'. Taking into consideration all thedecisions on the point including the decision in the case ofEmpire Jute Co. Ltd. (supra), and Dasaprakash (supra), it washeld that the finding recorded by the Tribunal holding that theexpenditure is revenue does not call for. The above decisionswould squarely support the case of the assessee. 12.It is relevant to point out that the Hon'ble Apex Courtin Assam Bengal Cement Co. Ltd. vs. CIT, [1955] 27 ITR 34,explained as to how to determine whether the expenditure wascapital or revenue. It held that the aim and object of theexpenditure would determine the character, namely, whether itwas capital expenditure or revenue expenditure. If theexpenditure was made for acquiring or bringing into existence anasset or advantage for the enduring benefit of the business, itwas properly attributable to capital and was of the nature ofcapital expenditure. If, on the other hand, it was made forrunning the business or working it with a view to produceprofits, it was revenue expenditure. 13.The learned Senior Standing Counsel for the Revenueplaced reliance on the decision of the Hon'ble Division Bench ofthe High Court of Allahabad in the case of U.P.Hotels Ltd. vs.CIT, [2017] 88 taxmann.com 621 (Allahabad). In the said case, the assessee incurred expenditure for repairs, replacement andrenovation of hotel rooms. The Court followed the decision ofthe Hon'ble Supreme Court in CIT vs. Sri Mangayarkarasi Mills(P.) Ltd., [2009] 182 Taxman 141 (SC) and allowed the appeal infavour of the Revenue. 14.We have examined the said decision and we find that nospecific reasons have been assigned as to how the decision inthe case of Sri Mangayarkarasi Mills (P.) Ltd. (supra) wouldapply to the facts and circumstances of the said case.Furthermore, the decision of the Hon'ble Supreme Court in EmpireJute Co. Ltd. (supra) as well as other decisions on the point inDasaprakash (supra) and Ooty Dasaprakash (supra) were notbrought to the notice of the Division Bench. Therefore, we findthe said decision is distinguishable. the assessee incurred expenditure for repairs, replacement andrenovation of hotel rooms. The Court followed the decision ofthe Hon'ble Supreme Court in CIT vs. Sri Mangayarkarasi Mills(P.) Ltd., [2009] 182 Taxman 141 (SC) and allowed the appeal infavour of the Revenue. 14.We have examined the said decision and we find that nospecific reasons have been assigned as to how the decision inthe case of Sri Mangayarkarasi Mills (P.) Ltd. (supra) wouldapply to the facts and circumstances of the said case.Furthermore, the decision of the Hon'ble Supreme Court in EmpireJute Co. Ltd. (supra) as well as other decisions on the point inDasaprakash (supra) and Ooty Dasaprakash (supra) were notbrought to the notice of the Division Bench. Therefore, we findthe said decision is distinguishable. 15.Apart from the above, in the assessee's own case, in CITvs. Savera Industries Limited (T.C.A.No.839 of 2016: Dated11.01.2017), the Hon'ble Division Bench of this Court dismissedthe appeal filed by the Department challenging the order passedby the Tribunal, which set aside the order passed by theCommissioner of Income Tax invoking his power under Section 263of the Act, in respect of the assessment year 2010-11. Thoughthe Revenue may be right in stating that the decision arises outof an order under Section 263, what is important to note is thatthe revision was done by the Commissioner on the ground that theexpenses incurred by the assessee for renovation of the hotelhas to be treated as capital expenditure. The Hon'ble DivisionBench held that the invocation of the power under Section 263was impermissible in the given facts and circumstances of thecase. Thus, as a consequence of which, the assessment, whichwas framed for the year 2010-11 in favour of the assessee, stoodconfirmed. Therefore, we are of the view that the decision inT.C.A.No.839 of 2016 will also aid the assessee in the presentcase. 16.Thus, for the above reasons, we find the Tribunal wasfully justified in dismissing the appeal filed by the Revenue.In the result, the appeal filed by the Revenue, is dismissed andthe substantial questions of law are answered against theRevenue. No costs. Consequently, the connected miscellaneouspetition is closed. Sd/- Assistant Registrar(CS VI) //True Copy// Sub Assistant Registrar To 1.The Income-tax Appellate Tribunal 'B' Bench, Chennai. 2.The Commissioner of Income Tax (Appeal)-15, Chennai 600 034. Chennai 600 034. 3.The Deputy Commissioner of Income Tax, Corporate Circle 6(1), Chennai 600 034. Corporate Circle 6(1), Chennai 600 034. 4.The Assistant Commissioner of Income Tax Compny Circle VI(1) Chennai. Chennai. +1cc to M/S.Sandeep Bagmar, Advocate Sr.87607 +1cc to M/S.T.R.Senthilkumar, advocate sr.87673 T.C.(A) Nos.594 and 595 of 2018 vsn Ii[co]srg 24/01/2019