I.t. Appeal v. I.t. Appeal

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE WEDNESDAY, THE 8TH DAY OF JANUARY 2014/18TH POUSHA, 1935 ITA.No. 308 of 2010 ------------------------ AGAINST THE ORDER IN C.O. NO. 124/COCH/2008 IN ITA 906/COCH/2008 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 19-03-2010. APPELLANT(S)/RESPONDENT: -------------------------- COMMISSIONER OF TAX INCOME TAX,KOTTAYAM BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S)/APPELLANT: ------------------------- M/S.M.M.PUBLICATIONS LTD KOTTAYAM. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 08-01-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Manjula Chellur, C.J. & A.M. Shaffique, J.=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-= I.T. Appeal No. 308 of 2010=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=Dated this, the 8[th]day of January, 2014.J U D G M E N T Shaffique, J. This is an appeal filed by the revenue against the orderpassed by the Income-tax Appellate Authority, CochinBench in C.O.No.124/Coch/2008 in I.T.A. No.906/Coch/2008 with reference to the assessment year 2005-2006 of the assessee-company. 2.For the assessment year 2005-2006, assessmentwas completed under Section 143(3) of the Income-tax Act(for short ‘the Act’) fixing a total income of the assessee atRs. 2,03,17,130/- as against the return income ofRs.1,61,35,990/-. At the time of completing the assessment,the assessing officer disallowed the expenses amounting toRs. 35,62,049/- as expenses on foreign travel andRs.6,51,670/- as expenses on repairs claimed as revenueexpenditure. 3.The assessee preferred an appeal before theCommissioner of Income-tax (Appeals), who held that sincethe assessee does not have any existing asset, there cannotbe any renovation. Since expenses incurred were allowableexpenditure, it is revenue expenditure, which could be I.T. Appeal No. 308 of 2010 -: 2 :- allowed under Section 37 of the Act. The Tribunalupheld the said finding. 4.In respect of expenditure incurred for foreigntranvel, the same was deleted by the appellateauthority, which stands confirmed by the Tribunal. Thisappeal is filed only with reference to deletion ofexpenses on repairs, which is held to be revenueexpenditure. Following substantial questions of law hadbeen raised in the present appeal: “Whether, on the facts and in the circumstances of thecase, (a) the assessee is entitled to claim the expenditureas revenue expenditure;as revenue expenditure; (b) for the reasons stated in the statement of case,ground raised and tests laid down in variousdecisions, is not the expenditure capital innature and the Tribunal is right in law in holdingotherwise and is not the conclusion of ITATperverse and against law?”ground raised and tests laid down in variousdecisions, is not the expenditure capital innature and the Tribunal is right in law in holdingotherwise and is not the conclusion of ITATperverse and against law?” 5.The Tribunal has come to a finding that theassessee has renovated rented premises. It is alsofound that the Department has no case that theamounts spent by the assessee will be reimbursed orcompensated by the lessor. 6.The original space which did not meet the I.T. Appeal No. 308 of 2010 5.The Tribunal has come to a finding that theassessee has renovated rented premises. It is alsofound that the Department has no case that theamounts spent by the assessee will be reimbursed orcompensated by the lessor. 6.The original space which did not meet the I.T. Appeal No. 308 of 2010 requirement of a proper recreation area was convertedto conform to the standards of proper recreationfacility. It is found by the Tribunal that the re-designedarea at the end of the lease period will have to behanded over to the lessor. It is therefore found thatadditional facility thus acquired by the assesseecompany was for the purpose of running the businessmore efficiently. Reference is also made to thejudgment of the Rajastan High Court in C.I.T. v. Dr.A.M. Singhvi, (2008) 3 ITR 26. The issue involvedwas whether such amount otherwise spent by theassessee was a capital expenditure or a revenueexpenditure. The learned counsel for the appellantrelied upon Explanation 1 to Section 32(1) of the Act inorder to contend that there is no difference withreference to the assessee having ownership or takingproperty on lease. But, on a reference to Explanation 1of Section 32(1) clearly indicates that the saidExplanation applies only if the assessee incurs anycapital expenditure. The issue is whether the expensesincurred by the assessee is a capital expenditure ofrevenue expenditure. The Tribunal referred to thejudgment of the Madras High Court in CIT v. TVS I.T. Appeal No. 308 of 2010 -: 4 :- Lean Logistics Ltd., (2007) 293 ITR 432, wherein theMadras High Court narrated the difference, inter alia,indicated as under: “What constitutes capital expenditure and whatdoes not, to attract Explanation 1 to section 32(1) ofthe Act depends upon the construction of anystructure or work in relation to and by way ofrenovation, extension or improvement to a buildingtaken on lease by the assessee for carrying on hisbusiness and profession but not in a case ofconstruction of any structure or doing any workwhere such building is put up or constructed for thepurpose of the business or profession of the assesseein land taken on lease by the assessee. Theassessee did not acquire a capital asset but had putup a construction of the building only for businessadvantage with the result that the entire constructioncost was admissible as revenue expenditure.” 7.As long as the authorities below have foundthat the assessee had incurred the expenditure for thepurpose of business or profession of the assessee inthe property taken on lease, the assessee did notacquire any capital asset but was only making certainexpenditure for business advantages. In suchcircumstances, we do not think that the authoritiesbelow had committed any illegality in treating the saidexpenditure as revenue expenditure. 8.That apart, this Court had elaborately I.T. Appeal No. 308 of 2010 -: 5 :- considered this issue in I.T.A. Nos. 230 & 263 of 2013and answered against the Department. In the result, the questions of law are answeredagainst the Department and this appeal is dismissed. Sd/- Manjula Chellur, Chief Justice. Sd/- A.M. Shaffique, Judge. Tds/ [True copy] P.S to Judge.