Ita/230/2013 Of Joy Alukkas India Pvt. Ltd v. The Assistant Commissioner Of Income Tax, Circle-1(2)

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 MONDAY, THE 20TH DAY OF JANUARY 2014/30TH POUSHA, 1935 ITA.No. 230 of 2013 --------------------------- [ARISING OUT OF ORDER DATED 29/05/2013 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN IN I.T (T.P) A.NO.02/COCH/2012 ASSESSMENT YEAR 2007-08] .................. APPELLANT: ------------------ JOY ALUKKAS INDIA PVT. LTD., (FORMERLY JOY ALUKKAS TRADERS (INDIA) PVT. LTD.), 40/2096, PEEVEES TRITON, MARINE DRIVE, SHANMUGHAM ROAD, ERNAKULAM, PAN: . BY SRI.JOSEPH MARKOSE, SENIOR ADVOCATE, ADVS.SRI.V.ABRAHAM MARKOS, SRI.BINU MATHEW, SRI.TOM THOMAS (KAKKUZHIYIL), SRI.ABRAHAM JOSEPH MARKOS, SRI.ABRAHAM VARGHESE THARAKAN. RESPONDENT: --------------------- THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(2), KOCHI. BY SRI.P.K.RAVEENDRANATHA MENON, SR. S.C, I.T, ADV.SRI.JOSE JOSEPH, S.C. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 10-12-2013, ALONG WITH I.T.A.NO. 263/2013, THE COURT ON 20-01-2014 DELIVERED THE FOLLOWING: Prv. I.T.A. NO.230/2013: APPENDIX PETITIONER'S ANNEXURES: ANNEXURE-A: TRUE COPY OF THE ORDER DATED 31/10/2011 PASSED BY THETRANSFER PRICING OFFICER-II, KOCHI.TRANSFER PRICING OFFICER-II, KOCHI. ANNEXURE-B: TRUE COPY OF DRAFT ASSESSMENT ORDER DATED 28/11/2011PASSED BY THE JOINT COMMISSIONER OF INCOME-TAX (OSD), CIRCLE-1 (2), KOCHI.PASSED BY THE JOINT COMMISSIONER OF INCOME-TAX (OSD), CIRCLE-1 (2), KOCHI. ANNEXURE-C: TRUE COPY OF THE STATEMENT DETAILING THE NATURE AND BREAK OF EXPENSES INCURRED.BREAK OF EXPENSES INCURRED. ANNEXURE-D: TRUE COPY OF THE ORDER DATED 28/08/2012 OF THE DISPUTE RESOLUTION PANEL, BANGALORE.DISPUTE RESOLUTION PANEL, BANGALORE. ANNEXURE-E: TRUE COPY OF THE ORDER DATED 22/10/2012 PASSED UNDER SECTION 144C BY THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(2), KOCHI.SECTION 144C BY THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(2), KOCHI. ANNEXURE-F: TRUE COPY OF THE IMPUGNED ORDER DATED 29/05/2013 PASSED BY THE ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN IN I.T (T.P). A.NO.02/COCH/2012.PASSED BY THE ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN IN I.T (T.P). A.NO.02/COCH/2012. ANNEXURE-G: TRUE COPY OF THE ORDER DATED 01/03/2013 PASSED BY THEASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN IN S.A. NO.100/COCH/2012 ARISING OUT OF I.T. (T.P).A.NO.02/COCH/2012.ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN IN S.A. NO.100/COCH/2012 ARISING OUT OF I.T. (T.P).A.NO.02/COCH/2012. ANNEXURE-H: TRUE COPY OF THE BANK GUARANTEE DATED 06/03/2013. RESPONDENTS' ANNEXURES: NIL. //TRUE COPY// P.A. TO JUDGE. Prv. MANJULA CHELLUR, C.J & A.M.SHAFFIQUE, J. ---------------------------------------------- I.T.A.Nos. 230 and 263 of 2013 ---------------------------------------------- Dated this the 20[th] January, 2014JUDGMENT Manjula Chellur, C.J. The above two appeals involve common substantialquestions of law pertaining to deductions under Section 37 of theIncome Tax Act so far as the expenditure spent by the appellants-assessees on the premises taken on lease towards repairs,fixtures etc. The consistent claim of the appellants-assesseesbefore the authorities was that the expenditure incurred by theassessees towards refurnishing repairs and improvements of theleased premises used for business purpose can always be arevenue expenditure and not capital expenditure. Theimprovements made by the appellants-assessees which are oftemporary nature and which cannot be retrieved by the assesseesat the end of the term of the lease can only be revenue expenditure. Manjula Chellur, C.J. The above two appeals involve common substantialquestions of law pertaining to deductions under Section 37 of theIncome Tax Act so far as the expenditure spent by the appellants-assessees on the premises taken on lease towards repairs,fixtures etc. The consistent claim of the appellants-assesseesbefore the authorities was that the expenditure incurred by theassessees towards refurnishing repairs and improvements of theleased premises used for business purpose can always be arevenue expenditure and not capital expenditure. Theimprovements made by the appellants-assessees which are oftemporary nature and which cannot be retrieved by the assesseesat the end of the term of the lease can only be revenue expenditure. 2. So far as I.T.A.230 of 2013, assessee has also challengedthe additions made on account of adjustment for transfer pricingmade with respect to international transactions ignoring the ITA.230 & 263/13 comparable cases produced by the appellant-assessee. Thefollowing substantial questions of law arise for consideration ofthis Court: “1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal isright in confirming the disallowance of 6,48,70,634/-₹incurred by the appellant in repairs and improvementsworks in leased premises? 2. Whether, on the facts and in the circumstancesof the case, there is any material or evidence onrecord to justify the finding of the appellate Tribunalthat the sum of ₹6,48,70,634/- incurred by theAppellant in repairs and improvements works in leasedpremises is capital expenses? 3. Whether on the facts and in the circumstancesof the case the Appellate Tribunal is right in confirmingthe addition of 31,68,298/- under transfer pricing₹adjustment? 4. Whether on the facts and in the circumstancesof the case, there is any evidence or material onrecord before the Appellate Tribunal to justify theaddition of ₹31,68,298/- under transfer pricingadjustment?” 3. Learned Senior Counsel Sri.S.Ganesh arguing forappellants contend that the expenditure in controversy consists of ITA.230 & 263/13 two types, one giving rise to distinct capital assets, i.e., airconditioners, jewellery display cases, cupboards, removable lightfittings, which could be taken away by the appellant-assessee atthe conclusion of the lease period. The other type of expenditureis towards the improvements made to the tenanted premiseswhich does not result in any asset owned by the appellants andfurther cannot be taken away by the assessee on termination oflease, i.e., expenditure on flooring, plastering and painting on thewalls, electrical wiring, plumbing, sanitary facilities etc. Accordingto the appellants-assessees, the test of enduring benefit oradvantage cannot be applied to the facts of the present case andby virtue of settled position, each case has to be analyseddepending upon the nature of expenditure irrespective of benefitof long duration or enduring benefit or advantage. According tothem, irrespective of enduring benefit lasting for many years, inthe absence of creation of an asset said to be belonging to theassessee, such expenditure can never be termed as capitalexpenditure and can always be a revenue expenditure. 4. So far as transfer pricing, according to learned SeniorCounsel Sri.S.Ganesh, there was no justification for the Tribunal to ITA.230 & 263/13 refuse to consider the computations of two assessees solely onthe ground that they had losses in some years. Once comparablecomputations of 18 similarly placed assessees are placed onrecord pertaining to jewellery and also textile business all thecases have to be taken into consideration without anydiscrimination based on facts. 4. So far as transfer pricing, according to learned SeniorCounsel Sri.S.Ganesh, there was no justification for the Tribunal to ITA.230 & 263/13 refuse to consider the computations of two assessees solely onthe ground that they had losses in some years. Once comparablecomputations of 18 similarly placed assessees are placed onrecord pertaining to jewellery and also textile business all thecases have to be taken into consideration without anydiscrimination based on facts. 5. As against this, learned Senior Standing CounselSri.P.K.Raveendranatha Menon contends that wheneverexpenditure is made to make or bring out sales outlets, if it is anincome earning effort, irrespective of whether it is expansion orextension of the business or not, it has to be considered as capitalinvestment, as it augments income and the benefit is enduring.According to learned Senior Counsel, the expenditure spent foracquiring an asset for the first time including repairs andrenovations has to be considered with reference to explanation toSection 32(1) of the Income Tax Act, which certainly would bringthe expenditure as a capital expenditure. Learned Senior Counselappearing for the appellants-assessees as well as revenuereferred to several decisions which are discussed hereunder inorder to arrive at a conclusion whether the expenses claimed by ITA.230 & 263/13 5 the appellants herein would amount to revenue expenditure orcapital expenditure. 6. Learned Counsel arguing for the appellants-assesseesplaces reliance on certain decisions in support of theircontentions. Reliance is placed onVeeraraghavan v. Commissioner of Income-Tax, Kerala [(1967)64 ITR 63] todistinguish the law laid down in the said judgment by this Courtfrom the law laid down by the Apex Court in the later decisionscontending that the law laid down in Veeraraghavan's case(Supra) cannot be applied universally. The question that arosebefore this Court was whether the amounts spent by the assesseefor reclaiming a piece of land over which licence was granted infavour of the assessee to install a petroleum pump by an oildistributing company could be taken as business expenditure.The improvements claimed by the assessee were effected on theland which include filling up of the ditches and making the landlevelled for the purpose of constructing a wall. The assesseeclaimed the expenditure and sought for deduction. TheirLordships rejected the said contention of the assessee on theground that the assessee had only leave and licence over the ITA.230 & 263/13 land, the expenditure incurred, therefore, could not be allowed asbusiness expenditure. The said claim of the assessee, accordingto this Court, was not maintainable, as the changes effected wereof an enduring nature, therefore, such expenditure has to beconsidered as capital expenditure. 7. In Empire Jute Co. Ltd. v. Commissioner of Income- Tax [(1980)124 ITR 1 (SC)], the issue was whether the transactionof transfer of allotment of hours of work per week which wascommonly known as sale of loom hours by one member toanother would constitute a capital expenditure or revenueexpenditure. Their Lordships, by referring to Section 10(2)(xv) ofthe Indian Income Tax Act, 1922 while considering what amountscould be deductible had an occasion to deal with the entirematter from every angle including decisions of other countriesacross the world on similar controversy. It was held that anexpenditure incurred by an assessee can qualify for deduction byvirtue of Section 10(2)(xv) of the Act only if it is incurred whollyand exclusively for the purpose of his business, but fulfillment ofthis requirement alone is not enough, as it has to be furtherclarified whether such business expenditure comes within the ITA.230 & 263/13 ITA.230 & 263/13 ambit of revenue expenditure or expenditure of capital nature.The amount claimed in the said case was 2,03,255/- paid by the₹assessee. They referred to CIT v. Maheshwari Devi Jute MillsLtd. [(1965)57 ITR 36] wherein it was opined that the claim of theassessee has to be brought under the expenditure of capitalnature. In the case of Maheshwari Devi Jute Mills' case(Supra) assessee was the receiver of amount for sale of loomhours and the question was whether it was revenue receipt orcapital receipt. As it was held as capital receipt, the SupremeCourt opined, it was not deductible. The said decision ofMaheshwari devi Jute Mills' case (Supra) was pressed intoservice by the revenue in Empire Jute Co. Ltd's case (Supra).In that context, Their Lordships opining that said argument suffersfrom fallacy, proceeded to hold, in the first place there cannot bea universally true proposition that what may be a capital receiptin the hands of the payee must necessarily be capital expenditurein relation to the payer. The fact that certain payment constitutesincome or capital receipt in the hands of the recipient is notmaterial in determining whether the payment is revenue orcapital disbursement qua the payer. Referring to Racecourse ITA.230 & 263/13 8 Betting Control Board v. Wild [(1938)22 TC 182, 188 (KB)wherein Macnaghten, J. pointed out that payment may be revenuepayment from the point of view of the payer and a capitalpayment from the point of view of the receiver and vice versa.Therefore, they opined that the position in Maheshwari DeviJute Mills' case (Supra) cannot be regarded as an authority forthe proposition. In the case of Maheshwari Devi Jute Mills'(Supra), the payment for sale of loom hours was treated as capitalasset and the decision was handed over on that basis. Referringto judgment of Lord Radcliffe in Commissioner of Taxes v.Nchanga Consolidated Copper Mines Ltd. [(1965)58 ITR 241(PC)] on the principle of enduring benefit, learned Senior Counselstresses upon the following: “....There may be cases where expenditure, even ifincurred for obtaining advantage of enduring benefit,may, none the less, be on revenue account and the testof enduring benefit may break down. It is not everyadvantage of enduring nature acquired by an assesseethat brings the case within the principle laid down in thistest. What is material to consider is the nature of theadvantage in a commercial sense and it is only wherethe advantage is in the capital field that the expenditurewould be disallowable on an application of this test. If ITA.230 & 263/13 the advantage consists merely in facilitating theassessee's trading operations or enabling themanagement and conduct of the assessee's business tobe carried on more efficiently or more profitably whileleaving the fixed capital untouched, the expenditurewould be on revenue account, even though theadvantage may endure for an indefinite future. The testof enduring benefit is, therefore, not a certain orconclusive test and it cannot be applied blindly andmechanically without regard to the particular facts andcircumstances of a given case.......” 8. In the case of Empire Jute Co.Ltd's case (Supra), the stand of the revenue was by purchase of loom hours the assesseeacquired a right to produce more than what it otherwise wouldhave been entitled to do and this right to produce additionalquantity of goods constituted addition to or augmentation of itsprofit-making structure. Their Lordships opined that though it istrue that if disbursement is made for acquisition of a source ofprofit or income, it would ordinarily, in the absence of any othercountervailing circumstances, be in the nature of capitalexpenditure, but the same cannot be universally applied and inEmpire Jute Co.Ltd's case (Supra) the situation was, assesseeacquired a source of profit or income, when he purchased loom ITA.230 & 263/13 hours. It is different from the case of Maheshwari Devi Jute stand of the revenue was by purchase of loom hours the assesseeacquired a right to produce more than what it otherwise wouldhave been entitled to do and this right to produce additionalquantity of goods constituted addition to or augmentation of itsprofit-making structure. Their Lordships opined that though it istrue that if disbursement is made for acquisition of a source ofprofit or income, it would ordinarily, in the absence of any othercountervailing circumstances, be in the nature of capitalexpenditure, but the same cannot be universally applied and inEmpire Jute Co.Ltd's case (Supra) the situation was, assesseeacquired a source of profit or income, when he purchased loom ITA.230 & 263/13 hours. It is different from the case of Maheshwari Devi Jute Mills (Supra), as the assessee was the payer of the amounts andnot the payee. Their Lordships opined, there was no enlargementof the permanent structure of which the income would be theproduce or fruit. What the assessee acquired was merely anadvantage in the nature of relaxation of restriction on workinghours imposed by the working time agreement, so that theassessee could operate its profit-earning structure for a longernumber of hours. Though, undoubtedly, the profit-earningstructure of the assessee was enabled to produce more goods,but that was not because of any addition or augmentation in theprofit-making structure, but because the profit making structurecould be operated for longer working hours. 9. Their Lordships also referred to the judgment in Hallstorm's Property Ltd. v. Federal Commissioner ofTaxation (72 CLR 634). In the said case, Justice Dixon held, whatis an outgoing of capital and what is an outgoing on account ofrevenue depends on what the expenditure is calculated to effectfrom a practical and business point of view rather than upon thejuristic classification of the legal rights, if any, secured, employed ITA.230 & 263/13 or exhausted in the process. Opining that the question must beviewed in the larger context of business necessity or expediency,it was held that if the outgoing expenditure is so related to thecarrying on or the conduct of the business that it may beregarded as an integral part of the profit-earning process and notfor acquisition of an asset or a right of a permanent character, thepossession of which is a condition, it is revenue expenditure.Ultimately, what we can gather is, the Apex Court as opined inEmpire Jute Co.Ltd's case (Supra) there cannot be a universalproposition that what may be capital receipt in the hands of thepayee must necessarily be capital expenditure in relation to thepayer. They further held that though expenditure incurred forobtaining an advantage of enduring benefit, may, nonetheless, beon revenue account and the test of enduring benefit may breakdown. It was held that it is not every advantage of enduringnature acquired by an assessee that brings the case within theprinciple laid down in this test. It must be considered from thepoint of advantage in a commercial sense and only when itamounts to advantage in the capital field that the expenditurewould be disallowable on an application of enduring benefit test. ITA.230 & 263/13 In the converse, if the advantage merely facilitates the assessee'strading operations in a way to operations to be carried onprofitably while leaving the fixed capital untouched, theexpenditure would be on revenue account, even though theadvantage may endure for an indefinite future. ITA.230 & 263/13 In the converse, if the advantage merely facilitates the assessee'strading operations in a way to operations to be carried onprofitably while leaving the fixed capital untouched, theexpenditure would be on revenue account, even though theadvantage may endure for an indefinite future. 10. Other relevant case referred to is Alembic ChemicalWorks Co.Ltd. v. Commissioner of Income-Tax, Gujarat[(1989)177 ITR 377 (SC)]. The appellant-assessee Company in theabove case was engaged in manufacturing of antibiotics andpharmaceuticals. A licence was granted for the manufacture ofpenicillin. This manufacturing outlay commenced in 1963 andinitially only moderate yields of penicillin was achieved. In orderto increase the yield, the assessee negotiated with a reputedJapanese enterprise engaged in the manufacture of antibiotics,which ultimately resulted in an agreement between the partiesdated 9.10.1963. The Japanese Company is one Meiji. Once for allpayment was agreed to supply to the appellant-assessee thesubcultures of Meiji's most suitable penicillin producing strains, ina pilot plant, the technical information, know-how and writtendescription of Meiji's process for fermentation of penicillin ITA.230 & 263/13 including the design and specifications of the main equipment, soalso training of the appellant's representatives in their plant atJapan at appellant's expenses and advice. Appellant was able toproduce more quantities of penicillin. In 1964-1965 the appellantclaimed deduction of 2,39,625/- (equivalent to US $ 50,000 then)₹as revenue expenditure. This came to be rejected by both, thedepartment and Tribunal holding that the expenditure was capitalin nature. Tribunal interpreted the terms of agreement saying thatthe appellant had to install a larger plant modelled on the pilotplant and the payment was not made in the course of carrying outan existing business but was for the purpose of setting up a newplant and a new process. It also opined that the expenditure onoutlay was incurred for complete replacement of the equipment ofthe business inasmuch as a new process with a new type of plantwas set up in the place of old process and old plant. Even Highcourt on a reference concurred with the opinion of the Tribunalrejecting the claim of the assessee that it was revenue expenditure. 11. The Apex Court opined that High Court fell in error onthe ground that there was no material before the Tribunal tocome to the finding that the appellant had obtained under the ITA.230 & 263/13 agreement a completely new plant with a completely new processand a completely new technical know-how from JapaneseCompany. The business of the appellant from the commencementof its plant in 1961 was manufacturing penicillin and even afterthe agreement, the product continued to be penicillin and theagreement only assisted the appellant-assessee to augment theyield of penicillin. It also held that there was no material to opinethat improvisation was not part of the existing business butcompletely a different process. The Apex Court, so far as therestrictions on the right of the appellant in dealing with the know-how, opined that the conditions were mostly in relation toconfidentiality and secrecy of the know-how than to its exclusiveacquisition. The improvisation in the process and technology washeld as supplemental to the existing process and technology andthere was no material indicating new or fresh venture. Theagreement was in respect of a product already in the line of theappellant's established business and not a new product.Therefore, Their Lordships held, the improvement of the existingbusiness was an outcome of the financial outlay under theagreement, therefore, it was revenue in nature and was allowable as deduction in computing the business profits of the appellant.Their Lordships further opined in the above case as under: as deduction in computing the business profits of the appellant.Their Lordships further opined in the above case as under: “(i) 'It would be unrealistic to ignore the rapidadvances in research in antibiotic medicalmicrobiology and to attribute a degree of endurabilityand permanence to the technical know-how at anyparticular stage in this fast changing area of medicalscience. The state of the art in some of these areas ofhigh priority research is constantly updated so thatthe know-how could not be said to bear the element of the requisite degree of durability andnonephemerality to share the requirements andqualifications of an enduring capital asset. The rapidstrides in science and technology in the field shouldmake us a little slow and circumspect in too readilypigeonholing an outlay, such as this, as capital.' (ii) 'In the infinite variety of situationaldiversities in which the concept of what is capitalexpenditure and what is revenue arises, it is well nighimpossible to formulate any general rule, even in thegenerality of cases, sufficiently accurate andreasonably comprehensive, to draw any clear line ofdemarcation. However, some broad and general testshave been suggested from time to time to ascertainon which side of the line the outlay in any particularcase might reasonably be held to fall. These tests are ITA.230 & 263/13 generally efficacious and serve as useful servants; butas masters they tend to be overexacting.' (iii) ' The question in each case would necessarilybe whether the tests relevant and significant in one setof circumstances are relevant and significant in thecase on hand also. Judicial metaphors are narrowly tobe watched, for, starting as devices to liberate thought,they end often by enslaving it.' The idea of “once for all” payment and“enduring benefit” are not to be treated as somethingakin to statutory conditions; nor are the notions of“capital” or “revenue” a judicial fetish. What is capitalexpenditure and what is revenue are not eternalverities but must needs be flexible so as to respond tothe changing economic realities of business. Theexpression “asset or advantage of an enduringnature” was evolved to emphasise the element of asufficient degree of durability appropriate to thecontext. There is also no single definitive criterion which,by itself, is determinative whether a particular outlayis capital or revenue. The “once for all” payment testis also inconclusive. What is relevant is the purpose ofthe outlay and its intended object and effect,considered in a common-sense way having regard tothe business realities. In a given case, the test of“enduring benefit” might break down.” ITA.230 & 263/13 12. During the course of judgment, Their Lordships referredto the case of Assam Bengal Cement Companies Ltd. v. CIT[(1955)27 ITR 34] wherein it was held that unless the expenditureis made for acquiring or bringing into existence an asset for thebenefit of the business, it is properly attributable to capital and isof the nature of capital expenditure, if on the other hand, it is notmade for the purpose of bringing into existence any such asset oradvantage but for running the business or working it with a viewto produce the profits, it is revenue expenditure. Reference is alsomade to the case of CIT v. Ciba of India Ltd. [(1968)69 ITR 692(SC)] with regard to financial outlay and other agreement. In thesaid case it was held that there is no single definitive criterionwhich, by itself, is determinative as to whether a particular outlayis capital or revenue. The once for all payment test is alsoinconclusive. What is relevant is the purpose of the outlay and itsintended object and effect, considered in a common sense wayhaving regard to the business realities. Therefore, they opined, ina given case the test of enduring benefit might break down. Theyalso referred to Empire Jute Co.Ltd's case (Supra), which isalready discussed above. ITA.230 & 263/13 18 ITA.230 & 263/13 18 13. Another judgment referred to by the appellant isCommissioner of Income Tax, Madras v. T.V.SundaramIyengar and Sons P. Ltd. [(1990)186 ITR 276 (SC)]. In this caseassessee spent amounts for purchasing land in the name ofgovernment for the purpose of construction of houses foremployees under subsidised scheme of government. The ApexCourt opined that the amounts spent by the respondent wasrevenue expenditure. The respondent was not the owner of theland and only contributed a portion of the construction costtowards the subsidised welfare scheme. The fact that thescheme was not for any temporary or particular duration hasmade little difference to the nature of expenditure. In otherwords, facts and circumstances under which expenditure wasmade determine whether it is revenue expenditure or capitalexpenditure. 14. In the case of CIT v. Premier Cotton spinning MillsLtd. [(1997)223 ITR 440 (Ker.)] an occasion arose for this Courtto refer to Section 37 of the Income-Tax Act wherein theexpression used is “for the purpose of business” and theycompared the same with the expression “for the purpose of ITA.230 & 263/13 earning profits”. According to Their Lordships, its range is wide.After referring to Assam Bengal Cement Company's case(Supra), T.V.Sundaram Iyengar and Sons' case (Supra) andother cases they opined that unless the expenditure brings intoexistence a new asset or advantage or enduring benefit of thebusiness, it is properly attributable to capital and is of the natureof capital expenditure. On the other hand, if the purpose is forrunning the business or working it with a view to produce profits,it is revenue expenditure. The source or the manner of thepayment would then be of no relevance as the character of theexpenditure alone would determine the nature of expenditure. 15. They also rely upon CIT v. Bongaigaon Refinery andPetro-Chemicals Ltd. [(1996) 222 ITR 208 (Gauhati)]. Theassessee was running a refinery. It made contributions to refinerydepartment for construction of railway track and siding, whichwas obviously necessary for the purpose of smooth running ofbusiness of the assessee in a profitable and advantageousmanner. High Court opined that it was an expenditure incurredin the relevant year and assessment should be allowedas revenue expenditure by referring toL.H.Sugar Factory and Oil Mills (P) Ltd. v. CIT [(1980) 125 ITR 293 (SC)].In the said case contribution was made for construction of roads inthe area around a factory which were wholly and exclusively laid outfor business. The Supreme Court held that it was not a capitalexpenditure but a revenue expenditure and the entire expenditurewas allowed. After referring to L.H.Sugar Factory and Oil Mills'scase (Supra) and CIT v. Associated Cement Companies Ltd.[(1988) 172 ITR 257 (SC)], Gauhati High Court opined that theexpenditure incurred for the purpose of construction of railway trackand siding was revenue expenditure and not capital expenditure. 16. CIT, A.P.-I v. Singareni Collieries Co. Ltd. [(1980)121 ITR 466 (A.P)] is also relevant for the purpose ofunderstanding the present case. Houses were constructed as perthe scheme of Coal Mine Labour Housing Board for the employeesof the colliery. Expenditure was also substantially repaid by theHousing Board. It was opined that said expenditure was notbringing into existence any enduring benefit but was incurred forcarrying on its business, therefore, it amounts to revenueexpenditure. They arrived at this conclusion by opining that in thelight of possible and probable long span of company's life, theindirect profit which the assessee-company may derive through ITA.230 & 263/13 contented workmen for a limited period of just 15 years cannotconstitute such a lasting benefit as to classify the expenditure ascapital in nature. 17. CIT v. Birla Jute Manufacturing Co. Ltd. [(1990) 182 ITA.230 & 263/13 contented workmen for a limited period of just 15 years cannotconstitute such a lasting benefit as to classify the expenditure ascapital in nature. 17. CIT v. Birla Jute Manufacturing Co. Ltd. [(1990) 182 ITR 497 (Cal)] is a judgment of the Calcutta High Court. For layingof service lines, an agreement was entered into between theassessee and West Bengal Electricity Board. The Apex Court heldthat the expenditure incurred by the assessee could not betreated in the commercial sense bringing an advantage in thecapital field with monthly payment towards cost of asset whichnever belonged to assessee. In spite of such payment isattributable to the user of the service lines and apparatus forcontinued supply of energy by the Board to enable the assesseeto carry on its business operation, it was treated as revenueexpenditure and not capital expenditure. 18. The High Court of Bombay in the case of CIT v.Bombay City-I v. Hingir Rampur Coal Co. Ltd. [(1983) 140ITR 73] had an occasion to deal with a case where the assesseeagreed with Coal Mines Labour Housing Board to acquire land andconstruct tenements for workers and staff under low cost housing ITA.230 & 263/13 scheme. Their Lordships held that as the purpose of agreementwas to provide certain amenities to labour to keep themcontented, to ensure good relations between employer and labourfor purpose of carrying on business more efficiently, expenditurewas to be allowed as business expenditure and not capitalexpenditure. 19. In Regal Theatre v. CIT, New Delhi [(1996)59 ITR 449(SN) 15] Delhi Bench of Punjab High Court opined that expensesfor paneling walls to cover up cracks and ugly spots, as theassessee has taken cinema theatre on lease was considered asbusiness expenditure. The wooden panels on removal were not ofmuch value and could not be re-installed in the same conditionelsewhere. The amounts spent by the assessee in fixing thewooden panels was allowed as expenditure of revenue naturegiving deduction under Section 10 of the Indian Income-Tax Act,1922. 20. Gauhati High Court in B and A Plantations and Industries Ltd. v. CIT [(2000) 242 ITR 22 (Gauhati)] had anoccasion to consider whether the assessee who had taken newlyconstructed premises on lease incurring expenses towards wall papers, partition walls, marble flooring provided in the premiseswould be assets or not. It was held that when the premises wasvacated, it would not be the assets of the assessee, therefore,expenditure incurred on interior decoration of the premises was arevenue expenditure. 21. In the case of CIT & another v. Infosys Technologies Ltd [(2012) 349 ITR 588 (Karn)] expenditure of 15,89,613/- was₹incurred by the assessee company towards brick work, cement,plastering, painting walls, laying ceramic tiles, steel grill, internalsanitary fixtures etc. The assessing officer held this as capitalexpenditure, as it had enduring nature so far as benefit isconcerned. Their Lordships held that as the premises was takenon lease by the assessee and the repairs were carried out for thepurpose of business to create ambience and carry out repairs tothe premises used as the office of the assessee as there was stiffcompetition in the business, therefore, the opinion of the Tribunalopining it as revenue expenditure was upheld. 22.Learned Senior Standing Counsel Sri.P.K.RaveendranathaMenon places reliance on the following decisions, apart fromreferring to certain portions of the decisions in Empire Jute ITA.230 & 263/13 22.Learned Senior Standing Counsel Sri.P.K.RaveendranathaMenon places reliance on the following decisions, apart fromreferring to certain portions of the decisions in Empire Jute ITA.230 & 263/13 Co.Ltd's case (Supra) and also Alembic Chemical WorksCo.Ltd'S case (Supra). He places reliance on Commissioner ofIncome Tax, Kerala-1 v. Jacobs (P) Ltd. [(1979) 120 ITR 197].In this case the assessee Company, by agreement dated24.7.1970 undertook to take over some of the assets andliabilities of wholesale business in liquor, which was being carriedon by a firm. The agreement in unequivocal and clear termsreferred to two distinct items. One is an ongoing concern of theassets, rights and the liabilities of the vendors described in theschedule and the second one is sale of the right to carry onbusiness as wholeselling agent of M & Co., Sherthallai, togetherwith the right to carry on the said business in continuation ofvendors' business. Referring to second clause Their Lordshipsopined that as per the third clause, the vendors are undertakingto pay 2,31,000/- in fully paid 231 equity shares of 1,000/- each₹₹as residue or the remaining part of what was sold by the vendors,Their Lordships held that assessee was not entitled todeduction of receipts under this clause, as it represents capitalpayment for the purpose of a capital asset for carryingon the business, i.e., clause 2. Accordingly, opinion of the Tribunal was set aside. Their Lordships while analysing the factswith reference to the question of law to be decided made generalobservations as under: “The question that we have to consider iswhether the amount sought to be deducted representsa capital expenditure or a revenue expenditure. Theproblem is a familiar one that has haunted the courtstime and again for determination, and which, eachtime has proved to be an elusive will-of-the-wisp.Decisions are numerous, which have dealt with, andexplained, the principle to be applied in telling onetype of expenditure from the other. We do notpropose at this point of time, and at this stage of thedevelopment of the law, to survey the history of thesedecisions. We venture to quote the observations madeby Mr.Justice Hidayatullah (as he then was) in AbdulKayoom's case (1962)44 ITR 689 (SC) at 703, wherethe learned Judge observed: 'None of the tests is either exhaustive oruniversal. Each case depends on its own facts, and aclose similarity between one case and another is notenough, because even a single significant detail mayalter the entire aspect. In deciding such cases, oneshould avoid the temptation to decide cases (as saidby Cordozo) by matching the colour of one caseagainst the colour of another'” 23. He also places reliance in the case of CIT, Nagpur v. Agrawal Trading Company [(1984) 149 ITR 222]. In this casethe assessee claimed the expenditure incurred for constructionof a new shop as revenue expenditure, as he was compulsorilyrequired to build a new shop on land which was not his ownproperty. Their Lordships, after referring to CIT v. VasantScreens [(1980) 124 ITR 835(Bom)], wherein BenarsidasJagannath, In re [(1947)15 ITR 185 (Lah)(FB)] was referred to,opined that if capital is spent only once and for all, but with a viewto bring in an asset or an advantage for the enduring benefit of atrade, it amounts to capital expenditure and not revenueexpenditure. They also opined that the question as to whether aparticular benefit can be said to be of enduring character has tobe determined on the facts of each case. Their Lordships opinedthat as there was no evidence to prove that the owner was underan obligation to incur expenditure, the expenditure incurred bythe assessee for construction of the shop was not deductible. Healso refers to Delhi Cloth & General Mills Co. Ltd. v. Addl.Commissioner of Income-Tax[(1986) 160 ITR 857).Expenditure was on electric fittings in retail cloth depots of the ITA.230 & 263/13 ITA.230 & 263/13 assessee and the expenses for purchase of new furniture andracks replacing the old ones in the existing retail depots of theassessee. The Tribunal allowed the deductions on account ofexpenditure on electric fittings to such expenses as related to olddepots only and disallowed the expenses for purchase of furnitureand racks as they amount to capital expenses. 24. From the above decisions, we have to appreciate facts ofthe present case. Appellant in ITA.No.230 of 2013 owns about 37jewellery shops situated only in tenanted premises located all overIndia. It is also on record that about 4 to 5 new shops are openedevery year. During the relevant assessment year 2007-2008, heopened four new shops. As the jewelery shops are required tomaintain high standard of interior decor, appellant had incurred aconsiderable amount of expenditure for renovation and interiordecoration of shop before it can be used. Therefore, they claimedtwo types of expenditure. So far as the amounts spent towardspurchase of air conditioners, jewelery display cases, cupboards,removable light fittings, depreciation was claimed capitalising theexpenditure. So far as improvements made by spending moneyon flooring, plastering and painting the walls, electrical wiring, ITA.230 & 263/13 plumbing, sanitary facilities, they claimed as revenueexpenditure. According to appellant, though this system ofaccounting was consistently followed by the appellant in the past,which was accepted by the income-tax authorities and even theassessments were completed, only for 2007-2008, the assessingofficer took a completely different view categorising the entireexpenditure on the premises taken on lease as capitalexpenditure. When the said order came to be challenged beforethe first appellate authority, the order of the assessing officer wasupheld. The basis for the opinion was Explanation to Section 32(1)of the Income Tax Act, which allows depreciation of capitalexpenditure incurred on tenanted premises. It also placed relianceon the decision of this Court in Veeraraghavan's case (Supra)where the test of enduring benefit or advantage for constructionof a petrol pump was considered as capital expenditure. 25. So far as appellant in I.T.A.No. 263 of 2013, it is a textilebusiness. The premises was taken on lease by appellant-assesseeand spent money for fixtures and furniture to make the propertyfit for business. A portion of the claim was allowed as deductionunder Section 37 of the Income Tax Act rejecting the other ITA.230 & 263/13 portion. According to the assessee, the disallowance ofexpenditure on the ground that the repairs or renovation was acapital expenditure is erroneous and he has challenged the ordersof the Tribunal before us. 26. The appellants-assessees are conducting their businessin rented premises. They claim to have made improvements tothe premises taken on lease in order to create good ambience byspending money on interior decoration which has resulted inexpenditure on many items. Out of those items, some of themcould be retrieved at the end of the lease and could be used bythe appellants-assessees again. Some of the improvements madecannot be taken away along with the lessee assessee at the endof the term of the lease. Though in some of the decisionsenduring benefit irrespective of creating an asset or not was alonethe criterion and later on the Apex Court, while dealing with thesubject exhaustively in Empire Jute Co.Ltd's case (Supra), hasheld that theory of enduring benefit or advantage may breakdepending upon the facts and circumstances of the case.Therefore, the stand and argument of the revenue that as long asthere is income earning effort by whatever means or name you ITA.230 & 263/13 ITA.230 & 263/13 call it, whether it could be expansion or extension of the business,the same has to be considered as capital investment has to belooked into from the facts of the present case. As a matter of fact,in Empire Jute Co.Ltd's case (Supra) distinguishing the factsfrom the facts of Maheshwari Devi Jute Mills' case (Supra) itwas held, what amounts to capital receipt in the hands of thepayee need not be capital expenditure so far as the payer.Therefore, payment of certain amounts would not be the decidingfactor to arrive at a conclusion whether a particular expenditure isrevenue or capital. Every advantage of enduring nature acquiredby an assessee need not be the criterion. What is relevant is thenature of advantage in a commercial world which is thedetermining factor. Unless the advantage is in the capital field,such claim cannot be disallowed. If the capital is left untouched inspite of advantage to the assessee for a long duration, theexpenditure would be of revenue account. Therefore, enduringbenefit cannot be a conclusive test and it cannot be mechanicallyapplied without referring to facts of a particular case. If money isspent to produce extra or additional quantity of goods or augmentthe income of the assessee, in the absence of the assessee able ITA.230 & 263/13 to retrieve infrastructure or carry the advantage with him at theend of the term of lease irrespective of number of years in whichhe would be able to earn profits, it cannot amount to capitalexpenditure. Therefore, though income earning effort that is theexpenditure spent on different items would be the basis toascertain whether it is a capital or revenue expenditure, unlessand until it ultimately leads to acquisition of an asset or a right ofpermanent character irrespective of the possession of the samefor a long period, it would not amount to capital expenditure. Inthe process of renovation and repairs of the premises taken onlease, expenditure may be on different items like flooring,panelling of walls, electrical wiring and fittings, air conditioning,setting up of cupboards, showcases etc. Though electrical fittingscould be removed and taken, so also cupboards, showcases,electrical wiring, painting and flooring cannot be taken away bythe assessee. Hence, at the end of the day, it has to be an assetin the hands of the assessee which could be called as capitalasset. The fact that assessee with creation of a new ambiencewould earn more profits in the premises cannot be thecriterion to decide the issue. Ultimately, the items on which ITA.230 & 263/13 expenditure was made must be able to come back to theassessee at the end of the day. 27. Learned Senior Standing Cou