Ita/82/2005 Of M/S Associated Engineers Th. Harvinder v. Commr. Of Income Tax, Asr

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.82 of 2005 (O&M)Date of decision: 16.7.2014 M/s Associated Engineers 0 -$1$ ...Appellant Commissioner of Income Tax, Income Tax Office, Aaykar Bhavan,Amritsar ...Respondent CORAM: HON'BLE MR.JUSTICEK AJAY KUMAR MITTAHON'BLE MR. JUSTICE JASPAL SINGH Present: Mr. Rajiv Sharma, Advocate for the appellant. Mr. Ashish Kashyap, Advocate for Mr. Denesh Goyal, Advocate for the respondent. Ajay Kumar Mittal, J 1.This appeal has been preferred by the assessee"appellant under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against theorder dated 17.9.2004, Annexure A.1, passed by the Income Tax AppellateTribunal, Chandigarh Bench in ITA No.529/ASR/2000 for the assessment year 1997"98, claiming following substantial questions of law:" “A. Whether on the facts and in the circumstances of the casethe Income tax Appellate Tribunal was justified in law inreversing the action of CIT(A) by holding that the expendituresincurred by the appellant are capital in nature? B. Whether on the facts and in the circumstances of the case, the findings of the Income Tax Appellate Tribunal in acceptingthe appeal of the department are perverse and coloured byirrelevant considerations and erroneous criteria? 2.Briefly, the facts necessary for adjudication of the controversy involved, as narrated in the appeal, may be noticed. The assessee is apartnership firm. During the year under consideration, the firm was dealer ofLML scooters manufactured and supplied to it by LML Limited as per thedealership agreement entered into. The assessee was carrying out the saiddealership business in rented premises. The major competitor of M/s LMLLimited was considered to be M/s Bajaj Limited who had a very wide salesnetwork through its dealers throughout the country having the most ultramodern showrooms. M/s LML Limited realizing the significance of havingattractive showrooms as a marketing strategy persuaded its dealers to makesome changes in their showrooms.The assessee also received advice fromM/s LML Limited for making modification in the showroom by changingthe flooring and having marble flooring, plaster of paris, painting etc. Thesewere got done by the assessee as it was compulsory for continuation of thedealership agreement and thus was a business necessity. At the time offinalization of accounts and before filing the return in mid of September1997, the assessee left those premises alongwith all the modifications andshifted to a new showroom constructed by him. The expenditure was thusfor modernization and better conduct of business and improving the sales.The renovation expenditure amounting to ��2,37,572/" was claimed asrevenue in the income tax return filed on 24.10.1997 and income of �5,33,880/" was disclosed therein after this claim. The Assessing Officer vide enduring benefit to the assessee and was of capital in nature. As a result, theamount of ��2,37,572/" was disallowed. Aggrieved by the order, the assesseefiled appeal before the Commissioner of Income tax (Appeals) [CIT(A)].Vide order dated 11.10.2000, Annexure A.3, the appeal was allowed. Notsatisfied with the order, the revenue filed appeal before the Tribunal. Videorder dated 17.9.2004, Annexure A.1, the Tribunal partly allowed the appealholding that the expenditure was capital in nature. Hence the present appealby the assessee. 3.Learned counsel for the appellant"assessee submitted that the appellant had carried out expenditure which was incurred towards marbleflooring, plaster of paris, painting, wood work etc. Relying upon judgmentof the Delhi High Court in ����������������������������������(2008) 13DTR Judgments 233, it was urged that the expenditure fell under Section 30(a) (i) of the Act and therefore cost of renovation incurred by the assessee inrespect of the said premises was revenue expenditure. 4.We find force in the submissions made by learned counsel forthe appellant. 3.Learned counsel for the appellant"assessee submitted that the appellant had carried out expenditure which was incurred towards marbleflooring, plaster of paris, painting, wood work etc. Relying upon judgmentof the Delhi High Court in ����������������������������������(2008) 13DTR Judgments 233, it was urged that the expenditure fell under Section 30(a) (i) of the Act and therefore cost of renovation incurred by the assessee inrespect of the said premises was revenue expenditure. 4.We find force in the submissions made by learned counsel forthe appellant. 5.It would be expedient to reproduce Section 30 of the Act:" >; "�#�% �?������4 �����;4 ���@�;4 �������; ����;��������������:����;��In respect of rent, rates,taxes, repairs and insurance for premises, used for the purposesof the business or profession, the following deductions shall beallowed "��;��������������:����;��In respect of rent, rates,taxes, repairs and insurance for premises, used for the purposesof the business or profession, the following deductions shall beallowed " (a)Where the premises are occupied by the assessee " (i) as a tenant, the rent paid for such premises; and furtherif he has undertaken to bear the cost of repairs to thepremises, the amount paid on account of such repairs;(ii) Otherwise than as a tenant, the amount paid by him onif he has undertaken to bear the cost of repairs to thepremises, the amount paid on account of such repairs;(ii) Otherwise than as a tenant, the amount paid by him on account of current repairs to the premises; (b) Any sums paid on account of land revenue, local rates ormunicipal taxes; (c) The amount of any premium paid in respect of insuranceagainst risk of damage or destruction of the premises.” 6. The case of the assessee herein falls under Section 30(a) (i) ofthe Act as the assessee has taken the premises on rent and had claimeddeduction of the amount paid on account of repairs. The assessee hadexpended amount on marble flooring, plaster of paris, painting and woodwork etc. so that the rented premises i.e. Showroom was made moreattractive as a marketing strategy and to meet the challenge of competitionfrom their major competitor M/s Bajaj Limited. According to plain readingof Section 30(a) (i) of the Act, any expenditure incurred by the assesseetowards repairing the premises taken on rent if he has undertaken to bearthe cost of the repairs so as to make it more conducive to its businessactivity falls within the expression 'repairs to the premises' and the cost ofsuch repairs is allowable as deduction under the said provision. 7. Limited's case (supra) would be relevant:" The following observations recorded in ���������������� “What the assessee has done in the present case has beenconstrued to be repairs by the Tribunal as a finding of fact. Ithas not brought about any new asset and more importantly itwas not the intention of the assessee to bring about any newcapital asset. The expenses that were incurred by the assesseewere towards repairing the premises taken on lease so as tomake it more conducive to its business activity. Such expenseswould clearly fall within the expression of repairs to thepremises as appearing in Section 30(a)(i). The legislature hasmade a distinction between expenses incurred by a tenant for “repairs” of the premises and expenses incurred by a personwho is not a tenant towards “current repairs” to the premises.This distinction has to be given meaning. Perhaps the logicbehind the distinction was that a tenant would, by the verynature of his status as a tenant, not undertake expenditures aswould endure beyond his likely period of tenancy or create anew asset. Whereas, an owner may undertake expenditures soas to even bring about new assets of capital nature.” 8. Further, the Tribunal had relied upon judgment of Apex Courtin Ballimal Naval Kishore and another v, CIT, (1997) 224 ITR 414 whichwas distinguished by the Delhi High Court in Hi Line Pens (P) Limited'scase (supra) in the following terms:" “repairs” of the premises and expenses incurred by a personwho is not a tenant towards “current repairs” to the premises.This distinction has to be given meaning. Perhaps the logicbehind the distinction was that a tenant would, by the verynature of his status as a tenant, not undertake expenditures aswould endure beyond his likely period of tenancy or create anew asset. Whereas, an owner may undertake expenditures soas to even bring about new assets of capital nature.” 8. Further, the Tribunal had relied upon judgment of Apex Courtin Ballimal Naval Kishore and another v, CIT, (1997) 224 ITR 414 whichwas distinguished by the Delhi High Court in Hi Line Pens (P) Limited'scase (supra) in the following terms:" “12. The learned counsel for the revenue also placed reliance onthe Supreme Court decision in Ballimal Naval kishore andAnother v. Commissioner of Income flax: 224 ITR 41. Thisdecision is also noted in Saravana Spinning Mills P.Ltd.(supra). The decision in Ballimal Naval kishoreapproved thetest formulated by Chagla, CJ in the case of New ShorrockSpinning and Manufacturing Co. Ltd. v. CIT(1956) sO TTR335 (Bombay)as to when could an expenditure be said to havebeen incurred on “current repairs”. In New Shorrock Spinningand Manufacturing Co. Ltd.(supra), it was observed that theexpression “current repairs” means expenditure on buildings,machinery, plant or furniture which is not for the purpose ofrenewal or ITA No.1202"2006 restoration but which is only forthe purpose of preserving or maintaining an already existingasset and which does not bring a new asset into existence ordoes not give to the assessee a new or different advantage. Itwas further observed that „current repairs‟ are such repairs asone attended to as and when the need arises and that thequestion as to when a building etc. required repairs and whenthe need arises must be decided not by any academic or theoretical test but by the test of commercial expediency. 13.However, the decision in �������������������������������wasalso with regard to the expression “current repairs” appearing inSection 10(2)(v) of the 1922 Act which is similar to theexpression appearing in Section 30(a)(ii) and Section 31(i) ofthe Income Tax Act, 1961. Whereas it is Section 10(2)(ii) of the1922 Act which is similar to the provisions of Section 30(a)(i),which is applicable in the present case. Both, Section 10(2)(ii)of the 1922 Act and Section 30(a)(i) of the 1961 Act, speak onlyof “repairs” and not “current repairs”. Thus, the decision in�������������������������������would also be of no help to therevenue in as much as the facts are entirely different.” 9. In �����������������������������, (1980) 121 ITR 165 (P&H), thisCourt had held that amount spent on the cost of replacement of false ceilingwas an expenditure of revenue nature. Following the aforesaid decision,another Division Bench of this Court in �������(���������+�����������������������, (1982) 437 ITR 689 (P&H) observed as under:" “In the case in hand, the assessee was not the owner of thepremises, but was only a lessee for a period of five years. Even ifthe repairs of the roof be taken as an accretion of an enduringnature, it did not acquire any interest of a permanent nature in it.The AAC found that the roof was leaky. The landlord, for themeagreness or insufficiency of the rate of rent, did not seem to bein favour of investing a sizeable amount of nearly Rs. 23,000 onthe repairs. Such a business, as the assessee was doing, cannot beadvantageously carried out under a leaking roof and the assesseein the best interests of his business had to undertake it. Businessis always done for the best and the maximum attainment ofprofits. A lessee, the period of whose lease is limited, has tostrive to get the maximum profit during the continuance of hislease in the premises. The assessee in this case, therefore, hadtwo options open to it, either to carry out the repairs and get the maximum return or remain content with the disadvantageouscondition of the premises. The interest of the business beingparamount, the assessee went in to invest the amount for therepairs and incurred this expenditure, which was wholly andexclusively for the purpose of its business. In view of thedecision of the Supreme Court in Empire Jute Company's case[1980] 124 ITR 1 and L. H. Sugar Factory's case [1980] 125 ITR293 (SC), and the decisions of this court in Bharat Cinema[1980] 121 ITR 165 (P&H) and Bhagat Industries Corporation[1980] 126 ITR 645 (P & H), the benefit even if it is taken to beof an enduring nature, though it was not, does not fall within therealm of capital expenditure for taxation. It was revenueexpenditure wholly and exclusively spent for the business of theassessee and is thus an expenditure of revenue nature. Theassessee was entitled to claim its exemption and the decision ofthe Tribunal was not correct.” 10.In view of the above, the substantial question of law isanswered in favour of the assessee and against the revenue. Consequently, the appeal stands allowed. ������������������������ �������������A,$B �������������������1!,