In Silver Screen Enterprises v. Kv Nellaiappan

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 25.11.2021 CORAM THE HONOURABLE MR.JUSTICE R.MAHADEVANandTHE HONOURABLE MR.JUSTICE MOHAMMED SHAFFIQ T.C.A. No. 303 of 2009 Commissioner of Income Tax IIMadurai. K.V. Nellaiappan,Prop.M/s. Rm K V Enterprises, North Car Street, Tirunelveli, PAN: AAJPN827511 .. AppellantVs. .. Respondent Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax Appellate Tribunal'B' Bench, Chennai dated 12.09.2008 in ITA No.2214/Mds/2007 forthe assessment year 2003-04. Appeal against the order of theCommissioner of Income Tax (Appeals) – II, Madurai, PANNo.AAJPN8275H, dated 31.08.2007 in ITA No.106/2007-08 for theAssessment Year 2003-2004 against the order of the AssistantCommissioner of Income Tax, Tirunelveli, dated 08.06.2007 PANNo.AAJPN8275H in Assessment Year 2003-2004 (Judgment was delivered by R.MAHADEVAN, J.) This tax case appeal has been filed by the appellant /Revenue, challenging the order dated 12.09.2008 passed by theIncome Tax Appellate Tribunal, 'B' Bench, Chennai, in https://hcservices.ecourts.gov.in/hcservices/ I.T.A.No.2214/Mds/2007, relating to the assessment year 2003-04. 2.By order dated 28.04.2009, this court admitted theaforesaid tax case appeal on the following substantial questionof law:“Whether in the facts and circumstances ofthe case, the Tribunal was right in holding thatexpenditure on construction of building in aleasehold premises would amount to revenueexpenditure, contrary to the clear provisions ofExplanation 1 to Section 32(1) of the Income TaxAct?” 3.When the matter was taken up for consideration, thelearned senior standing counsel appearing for the appellant /Revenue submitted that the issue raised in this appeal issquarely covered by the judgment of this Court in Commissionerof Income Tax, Madurai -vs- Viswams [[2019] 105 taxmann.com 289(Madras)], where identical question was decided against theassessee and the appeal filed by the Revenue was allowed. Therelevant paragraphs of the said judgment are usefully extractedhereunder: “17. A further examination of the facts of thecase shows that the Assessees have actually put upsubstantial construction of enduring benefit andalso renovated the building for the purpose of theirbusiness. Explanation 1 to Section 32(1) is asfollows:- “[Explanation 1.- Where the business orprofession of the assessee is carried on in abuilding not owned by him but in respect ofwhich the assessee holds a lease or otherright of occupancy and any capital expenditureis incurred by the assessee for the purposesof the business or profession on theconstruction of any structure or doing of anywork in or in relation to, and by way ofrenovation or extension of, or improvement to,the building, then, the provisions of thisclause shall apply as if the said structure orwork is a building owned by the assessee.” 18. This Explanation had been inserted by theTaxation Laws (Amendment and MiscellaneousProvisions) Act 1986 with effect from 01.04.1988.The Judgement heavily relied on by the learned counsel for the Assessees, namely, Madras AutoServices (P) Ltd., cited supra related to theAssessment Year 1968- 1969 before the aboveprovision was brought into effect. The furtherJudgement relied on by the learned counsel for theAssessees in Hari Vignesh Motors (P) Ltd., citedsupra in the course of the said Judgement did notconsider the said Explanation. The other Judgementrelied on by the learned counsel in TVS LeanLogistics Ltd., cited supra related to totallydistinguishable set of facts. In that case, theAssessee had put up construction of a building on alease hold land. The building was not taken onlease. Consequently, it was held as follows:- counsel for the Assessees, namely, Madras AutoServices (P) Ltd., cited supra related to theAssessment Year 1968- 1969 before the aboveprovision was brought into effect. The furtherJudgement relied on by the learned counsel for theAssessees in Hari Vignesh Motors (P) Ltd., citedsupra in the course of the said Judgement did notconsider the said Explanation. The other Judgementrelied on by the learned counsel in TVS LeanLogistics Ltd., cited supra related to totallydistinguishable set of facts. In that case, theAssessee had put up construction of a building on alease hold land. The building was not taken onlease. Consequently, it was held as follows:- “4.1. It is not in dispute that theassessee had put up the impugned constructionof building only on the leasehold land and nobuilding was taken on lease by the assessee.Therefore, the fiction created by Expln. 1that the building put up by him in theleasehold land or structure or work shall beconstrued as if the same is owned by theassessee, is not applicable to the case of theassessee and the Expln. 1 to S.32(1) of theAct is not attracted to the instant case ofthe assessee at all.” The aforesaid Judgement cited by the learned counselfor the Assessee are therefore not applicable to thefacts of the present case in view of amended law. 19. In Silver Screen Enterprises Vs. CIT, 85ITR 0578, (High Court of P & H), while examiningwhether expenditure incurred on repairs to chairs,renovation of building and modernisation of cinemahouse taken on lease by the Assessee, it was heldthat they are capital expenditure since it broughtan enduring benefit. The relevant discussion on thisaspect is quoted below:- “It cannot be denied that the amountspent for the construction of the verandh,office room, side room and bath rooms broughtinto existence an asset of an enduring nature.It is no one's case that only the existingverandah, office, side room or bath rooms wererepaired. What appears is that theseconstructions were brought into being for thepurpose 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 assetof enduring nature in the true sense of theword. The object of the assessee in replacingthe old wooden chairs by steel chairs was toattract larger and better customers. This was infact an outlay for the purpose of earningprofits or, in other words for the purpose ofbetter business. It was not an expense which wasof a recurring nature, and therefore, it can besafely said that the lessee brought into beingan asset of an enduring nature. Undoubtedly, itwas an improvement. The wooden chairs werereplaced. No evidence had been led to show thatthe wooden chairs had been useless and could notbe used for seating the cinema-goers. On theother hand, the stand taken was that the wholeobject was to modernise the cinema house tobring it in line with the modern show business.The replacement was an improvement of anenduring nature and not mere replacement.Capital expense with regard to a short-termventure, such as a lease for a period, had to beviewed in the context of that lease, namely, itspurpose coupled with its duration. Expenditureincurred by the assessee is an expenditure of acapital nature and it brought into being anadvantage of an enduring nature and thus it hadbeen rightly treated as such by the Tribunal,except to the extent of the amount found by theTribunal being on account of repairs.” 20. In view of the above propositions, we areof the considered view that the expenditure incurredby the Assessee in the present case are Capital innature and come within the mischief of Explanation 1to Section 32(1) of the Act. The alternatesubmission advanced by Mr.M.P.Senthil Kumar that therepairs to the premises cannot be capitalised inview of Section 30(a)(i) of the Act is rejectedsince the renovations made are Capital in nature inthe first Assessment Year and only further repairsmay attract the provisions under Section 30(a)(i) ofthe Act. Section 30(a)(i) of the Act is as follows:- “30. In respect of rent, rates, taxes,repairs and insurance for premises, used forthe purposes of the business or profession,the following deductions shall be allowed- (a). Where the premises are occupied bythe assessee- (i) as a tenant, the rent paid for suchpremises; and further if he has undertaken tobear the cost of repairs to the premises, theamount paid on account of such repairs.” 21. In the present case, the Assesses hadincurred substantial expenditure towards renovationleading to enduring benefit. They are not merelyrepairs. The Assessees had also incurredexpenditures towards improvement and construction ofthe building. These cannot be termed as 'repairs'.Consequently, this alternate submission is rejectedby us. The second alternate submission advanced byMr.M.P.Senthil Kumar that the case should beremitted back to the Assessing Officer is alsorejected since the fact have been addressed andsettled by the Authorities below and it had beenconcurrently found that the expenditure were capitalin nature. The issue of bifurcating the saidexpenses as capital and revenue would therefore notarise. 22. In view of the above reasons, we hold thatthe substantial questions of law have to be answeredin favour of the Revenue and against the Assesseeand the Appeals filed by the Revenue have to beallowed. Accordingly, the Appeals are allowed. Nocosts.” 4.In the light of the above judgement, which holds thefield, the substantial question of law is answered against theassessee and the appeal filed by the appellant / Revenue isallowed. No costs. Sd/-Assistant Registrar(CS-VI) //True Copy// Sub Assistant Registrar Maya To 1. The Commissioner of Income Tax II Madurai. Madurai. 2. The Income Tax Appellate Tribunal, 'B' Bench, Chennai. 3. The Assistant Commissioner of Income Tax, Circle – I, Tirunelveli. T.C.A. No. 303 of 2009 VSN-II(CO)SU(17/12/2021)