Joy Alukkas India (P) Ltd v. Assistant Commissioner Of Incometax [(2016) 282 Ctr (Ker) 551

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY, THE 5TH DAY OF DECEMBER 2017/14TH AGRAHAYANA, 1939 I.T.A.No.4 of 2015 ------------------------ AGAINST THE COMMON ORDER DATED 25-07-2014 IN I.T.A.212/COCH/2014OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH, COCHIN.ASSESSMENT YEAR 2007-08. ---------- APPELLANT(S)/RESPONDENT: ----------------------- INDUS MOTOR COMPANY PVT. LTD.,INDUS HOUSE, WEST HILL, KOZHIKODE, PAN AAACI 4904J. BY ADVS.SRI.JOSEPH MARKOSE (SR.) SRI.V.ABRAHAM MARKOSSRI.BINU MATHEWSRI.TOM THOMAS (KAKKUZHIYIL)SRI.ABRAHAM JOSEPH MARKOSSRI.ISAAC THOMASSRI.NOBY THOMAS CYRIAC RESPONDENT(S)/APPELLANT:- ------------------------ THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1), KOZHIKODE - 673 001. BY SENIOR COUNSEL FOR GOVERNMENT OF INDIA (TAXES) SRI.P.K.R.MENONBY STANDING COUNSEL FOR GOVERNMENT OF INDIA (TAXES) SRI.JOSE JOSEPH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 05-12-2017, ALONG WITH I.T.A.NOS.14/2015, 15/2015 & 29/2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:- I.T.A.NO.4 OF 2015 APPENDIX APPELLANT'S ANNEXURES:- ------------------------ K. Vinod Chandran & Ashok Menon, JJ. -------------------------------------------------------------- I.T.A.Nos.4/2015, 14/2015, 15/2015 & 29/2016 --------------------------------------------------------------- Dated, this the 05[th] day of December, 2017 JUDGMENT Vinod Chandran,J: Identical assessee is before this Court raising questionsof law from the orders of the Tribunal for the assessment years2007-08, 2008-09, 2009-10 and 2010-11. The appellant-assessee isa dealer in vehicles, spares and accessories of Maruti Suzuki and anauthorized Service Centre for its vehicles. In the present appeals thequestions raised are with respect to the expenditure made by theassessee on leasehold buildings for refurbishment of the same asalso the constructions made, again on lease hold properties; both tocarry on the business of the assessee. Whether the expensesincurred are to be treated as revenue expenditure or capitalexpenditure, is the issue common to all the assessment years. Twoappeals, I.T.A.Nos.15/2015 and 29/2016, raise different questions,which will be dealt with after answering the main questions commonto the appeals. 2. The question raised for all the assessments years, for consideration of this Court, as re-framed by us, are the following: (i) Whether, on the facts and in the circumstances of thecase, the Appellate Tribunal is right in confirming thedisallowance of expenses incurred for repairs, refurbishingand making improvements on the buildings taken on lease,treating them as capital expenditure.case, the Appellate Tribunal is right in confirming thedisallowance of expenses incurred for repairs, refurbishingand making improvements on the buildings taken on lease,treating them as capital expenditure. (ii)Whether, on the facts and in the circumstances of thecase, the Appellate Tribunal was right in confirming thedisallowance of expenses incurred for construction ofbuildings in leased out lands as capital expenditure? 3. The issue with respect to expenses made on leased out buildings to refurbish the same for the purpose of carrying on theday-to-day business was considered by a Division Bench of thisCourt and the questions were answered in favour of the assessee in Joy Alukkas India (P) Ltd. v. Assistant Commissioner of IncomeTax [(2016) 282 CTR (Ker) 551]. 4. When the instant appeals came up for hearing beforeanother Division Bench, a doubt was raised as to whether the dictumlaid down in Joy Alukkas; was correct or not in the teeth ofExplanation 1 to Section 32(1) of the Income Tax Act, 1961 [for - 3 - 3. The issue with respect to expenses made on leased out buildings to refurbish the same for the purpose of carrying on theday-to-day business was considered by a Division Bench of thisCourt and the questions were answered in favour of the assessee in Joy Alukkas India (P) Ltd. v. Assistant Commissioner of IncomeTax [(2016) 282 CTR (Ker) 551]. 4. When the instant appeals came up for hearing beforeanother Division Bench, a doubt was raised as to whether the dictumlaid down in Joy Alukkas; was correct or not in the teeth ofExplanation 1 to Section 32(1) of the Income Tax Act, 1961 [for - 3 - brevity “the Act”]. A reconsideration was directed, upon which a FullBench of this Court considered the issue and affirmed the earlierDivision Bench in Joy Alukkas, as per order dated 17.02.2016. Weare considering the issue on the basis of the interpretation placed onExplanation 1 to Section 32(1) by the Full Bench. 5. The learned Senior Counsel, Government of India(Taxes) asserts that the matter having been sent back to the DivisionBench for consideration, the decision as to whether the expenses areto be treated as capital expenditure or revenue expenditure, is to bearrived at from the facts in the individual cases. Reference is alsomade to Arvind Mills Ltd. v. C.I.T. [(1992) 197 ITR 422 (SC)] tocontend that the issue has to be looked at on the basis of theenduring benefit that the assessee obtains by way of the expenditureincurred. Specific reference is made to the observation made inArvind Mills:“In our view, the learned counsel for the respondent isjustified in submitting that the capital expenditure incurred inconnection with the business activities ultimately results in efficientlycarrying on the business and, by that process, gives aid in therunning of the day-to-day business more efficiently but, simply on - 4 - that score, a capital expenditure does not become a revenueexpenditure”. Therein, the question considered was whether thebetterment charges paid to the local authority for a Town PlanningScheme was revenue expenditure or not. The Supreme Court foundthat it cannot be treated as revenue expenditure since theexpenditure has no nexus with the day-to-day business of theassessee. This does not have any application to the present case. 6. The first question raised is as to whether therefurbishing of buildings leased out by the assessee and theexpenses incurred could be treated as a capital expenditure. Thedoubt expressed by another Division Bench, as to the legality of thedictum in Joy Alukkas, was based on Explanation 1 to Section 32(1). Section 32 deals with depreciation as a deduction; the aspectson which, the manner in which and the rates at which it can beclaimed. Explanation 1, which is relevant is extracted hereunder: “Where the business or profession of the assessee iscarried on in a building not owned by him but in respect of whichthe assessee holds a lease or other right of occupancy and anycapital expenditure is incurred by the assessee for the purposesof the business or profession and the construction of anystructure or doing of any work, in or in relation to, and by way of renovation or extension of, or improvement to, the building, then,the provisions of this clause shall apply as if the said structure orwork is a building owned by the assessee”. “Where the business or profession of the assessee iscarried on in a building not owned by him but in respect of whichthe assessee holds a lease or other right of occupancy and anycapital expenditure is incurred by the assessee for the purposesof the business or profession and the construction of anystructure or doing of any work, in or in relation to, and by way of renovation or extension of, or improvement to, the building, then,the provisions of this clause shall apply as if the said structure orwork is a building owned by the assessee”. 7. We are not called upon to interpret the aforesaidExplanation, since the Full Bench has interpreted it to find that it isonly a fiction created insofar as permitting a lessee to claim thecapital expenditure made in a building, leased out for its business;just as the owner of the building would claim it, if it were his businessthat was run in the building. The view expressed by the referringBench that the introduction of the Explanation manifested thelegislative intent to treat all expenditure incurred on a lease holdbuilding as capital expenditure of the assessee was not accepted.The Full Bench specifically found that the Explanation does notcreate a fiction insofar as any expenditure made in a leased outpremises being treated as a capital expenditure. It would be appositeto extract paragraph 28 of the decision of the Full Bench: “28. The plain reading of the language of Explanation 1indicates that the legal fiction was created as if the saidstructure or work is the building owned by the assessee. Thereis no warrant of reading the Explanation 1 in a manner to readthat when assessee who holds a lease or other right of occupancy incurs any expenditure for purposes of thebusiness or profession on the construction of any structure ordoing of any work, in or in relation to and by way of renovationor extension or improvement to the building, then the saidexpenditure has to be treated as capital expenditure. The legalfiction has not been created to treat the said 'such work' asmentioned therein as capital expenditure rather, the fiction hasbeen created that when such work is carried out, it shall betreated as structure or work owned by the assessee. Thewords “any capital expenditure” used in Explanation 1 indicatethat the legal fiction has to be read when any capitalexpenditure is incurred. Thus whether any capital expenditurehas been incurred is a question which has to be decided onthe basis of facts of each case and relevant tests applicable.Explanation 1 cannot be read as to mean that when worksmentioned therein are carried out by the assessee, it shall betreated as capital expenditure. Explanation 1 however shall beattracted when expenditure is treated as capital expenditure.The use of word “any” before the capital expenditureemphasises that the provision is attracted when there is anycapital expenditure”. 8. Whether the expenditure is in the nature of a capitalexpenditure or a revenue expenditure is not to be decided by thelegal fiction in the Explanation. If the expenditure is in the nature ofcapital expenditure, then the lessee; despite, not being the owner of the building, can claim depreciation. The Full Bench havinginterpreted the Explanation in the afore-cited manner, the factsrelevant to be noticed in this appeal, with respect to the firstquestion, are only that the assessee had taken out leaseholdbuildings which were refurbished and improvements made for thepurpose of carrying on the day-to-day business. 8. Whether the expenditure is in the nature of a capitalexpenditure or a revenue expenditure is not to be decided by thelegal fiction in the Explanation. If the expenditure is in the nature ofcapital expenditure, then the lessee; despite, not being the owner of the building, can claim depreciation. The Full Bench havinginterpreted the Explanation in the afore-cited manner, the factsrelevant to be noticed in this appeal, with respect to the firstquestion, are only that the assessee had taken out leaseholdbuildings which were refurbished and improvements made for thepurpose of carrying on the day-to-day business. 9. The learned Senior Counsel for the assessee wouldpoint out that any item which would revert back to the assessee wastreated as a capital and depreciation alone was claimed treating it asa capital expenditure. However, with respect to the otherimprovements made to the building, like painting and constructionsmade or alterations carried out, were treated as revenue expendituresince the assessee does not get any enduring benefit out of thesame. They are also recurring expenditure since the business of theassessee, to a great extent, depends upon the ambiance provided,which varies with time, consumers and very many factors which arenot constant. True the Full Bench has directed the Division Bench,hearing the case, to look into whether on facts the claim issustainable or not. The Full Bench has affirmed the view taken by another Division Bench in Joy Alukkas, on identical facts. Thediscussion on facts and law in para 25 applies squarely: “The appellants-assessees are conducting theirbusiness in rented premises. They claim to have madeimprovements to the premises taken on lease in order tocreate good ambience by spending money on interiordecoration which has resulted in expenditure on many items.Out of those items, some of them could be retrieved at theend of the lease and could be used by the appellants-assessees again. Some of the improvements made cannotbe taken away along with the lessee assessee at the end ofthe term of the lease. Though in some of the decisionsenduring benefit irrespective of creating an asset or not wasalone the criterion and later on the Apex Court, while dealingwith the subject exhaustively in Empire Jute Co.Ltd's case(Supra), has held that theory of enduring benefit oradvantage may break depending upon the facts andcircumstances of the case. Therefore, the stand andargument of the revenue that as long as there is incomeearning effort by whatever means or name you call it, whetherit could be expansion or extension of the business, the samehas to be considered as capital investment has to be lookedinto from the facts of the present case. As a matter of fact, inEmpire 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 thedeciding factor to arrive at a conclusion whether a particularexpenditure is revenue or capital. Every advantage ofenduring nature acquired by an assessee need not be thecriterion. What is relevant is the nature of advantage in acommercial world which is the determining factor. Unless theadvantage is in the capital field, such claim cannot bedisallowed. If the capital is left untouched in spite ofadvantage to the assessee for a long duration, theexpenditure would be of revenue account. Therefore,enduring benefit cannot be a conclusive test and it cannot bemechanically applied without referring to facts of a particularcase. If money is spent to produce extra or additional quantityof goods or augment the income of the assessee, in theabsence of the assessee able to retrieve infrastructure orcarry the advantage with him at the end of the term of leaseirrespective of number of years in which he would be able toearn profits, it cannot amount to capital expenditure.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,unless and until it ultimately leads to acquisition of an assetor a right of permanent character irrespective of thepossession of the same for a long period, it would not amountto capital expenditure. In the process of renovation andrepairs of the premises taken on lease, expenditure may beon different items like flooring, panelling of walls, electricalwiring and fittings, air conditioning, setting up of cupboards, showcases etc. Though electrical fittings could be removedand taken, so also cupboards, showcases, electrical wiring,painting and flooring cannot be taken away by the assessee.Hence, at the end of the day, it has to be an asset in thehands of the assessee which could be called as capital asset.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 whichexpenditure was made must be able to come back to theassessee at the end of the day”. 10.The decision of the Division Bench in Joy Alukkasbinds us inexorably with respect to the question raised on expensesincurred for refurbishing and making improvements of a leaseholdbuilding. The questions of law raised by the Division Bench admittingthe instant appeals as also the reference order indicates that theadditions made were on two counts: (i) the expenditure incurred onrefurbishment, repairs and improvements and (ii) the superstructuresconstructed on leased out immovable property. The revenueexpenditure made on leased out buildings has to be allowed as arevenue expenditure and not as a capital expenditure. We answerthe first question in favour of the assessee and against the Department. 11. The other question raised is with respect to the landstaken on lease and constructions made thereon. The learned SeniorCounsel for the assessee would refer to C.I.T. v. Madras AutoService (P.) Ltd. [(1998) 233 ITR 468 (SC)], wherein a similar issuewas considered and the expenditure incurred in construction of thebuildings was allowed as revenue expenditure. The learned SeniorCounsel would also specifically point out that the assessment yearswere prior to the introduction of Explanation 1 to Section 32(1) of theAct. Reliance also is placed on the decision of the Madras HighCourt in C.I.T. v. TVS Lean Logistics Ltd. [(2007) 293 ITR 432(Mad]. 12. The learned Senior Counsel for Government of India(Taxes) would take us through the Constitution Bench decision inAssam Bengal Cement Co. Ltd. v. C.I.T., West Bengal [(1955) 27ITR 34 (SC)] and submit that the two-Judge Bench decision of theSupreme Court in Madras Auto Service has propounded a principledeviating from that laid down by the Constitution Bench. The learnedSenior Counsel specifically referred to the Full Bench judgment and 12. The learned Senior Counsel for Government of India(Taxes) would take us through the Constitution Bench decision inAssam Bengal Cement Co. Ltd. v. C.I.T., West Bengal [(1955) 27ITR 34 (SC)] and submit that the two-Judge Bench decision of theSupreme Court in Madras Auto Service has propounded a principledeviating from that laid down by the Constitution Bench. The learnedSenior Counsel specifically referred to the Full Bench judgment and the reservation in so far as the matter being placed before theappropriate Division Bench to consider the issue on merits. 13. The Full Bench specifically found that whether anexpenditure incurred by the assessee is a capital expenditure orrevenue expenditure has to be decided on the facts of each case byapplying the relevant decisions. Explanation 1 to Section 32(1) of theAct does not intend to lay down that whenever expenditure has beenincurred by the assessee in a leased out building, then suchexpenditure has to be mandatorily treated as capital expenditure.The explanation only meant that in the event of any capitalexpenditure incurred by the assessee, who is only a lessee, theprovisions of Section 32(1) shall be applicable as if the leased outpremises is owned by the assessee. The explanation was interpretedas one enabling even a lessee to claim depreciation if capitalexpenditure is made on a building or in a property, which is leasedout from the real owner. It is not to say that the Explanation deemedany expenditure made by the lessee on a leasehold building or on aleasehold property as capital expenditure. Nor does the decision ofthe Full Bench or the Division Bench in Joy Alukkas, hold that such expenditure would necessarily be a revenue expenditure. 14. We do not see any deviation having been made bythe two-Judge Bench of the Supreme Court in Madras AutoService, especially when they had referred to Assam BengalCement Co. to come to such a finding. The facts in Madras AutoService are relevant and are noticed for clarity. Therein theassessee, again a Company engaged in sale of motor parts, hadtaken on lease certain lands wherein a building was constructedinvesting sufficient funds in two years, which were claimedalternatively as capital loss, depreciation on capital investment or asbusiness expenditure, as an extra rent for the lease. Apposite wouldbe reference to the following consideration made by the Hon'bleSupreme Court [at page 472]: “In order to decide whether this expenditure isrevenue expenditure or capital expenditure, one has tolook at the expenditure from a commercial point of view.What advantage did the assessee get by constructing abuilding which belonged to somebody else and spendingmoney for such construction? The assessee got a longlease of a newly constructed building suitable to its ownbusiness at a very concessional rent. The expenditure, therefore, was made in order to secure a long lease ofnew and more suitable business premises at a lowerrent. In other words, the assessee made substantialsavings in monthly rent for a period of 39 years byexpending these amounts. The saving in expenditure wasa saving in revenue expenditure in the form of rent.Whatever substitutes for revenue expenditure shouldnormally be considered as revenue expenditure.Moreover, the assessee in the present case did not getany capital asset by spending the said amounts. Theassessee, therefore, could not have claimed anydepreciation. Looking to the nature of the advantagewhich the assessee obtained in a commercial sense, theexpenditure appears to be revenue expenditure”. therefore, was made in order to secure a long lease ofnew and more suitable business premises at a lowerrent. In other words, the assessee made substantialsavings in monthly rent for a period of 39 years byexpending these amounts. The saving in expenditure wasa saving in revenue expenditure in the form of rent.Whatever substitutes for revenue expenditure shouldnormally be considered as revenue expenditure.Moreover, the assessee in the present case did not getany capital asset by spending the said amounts. Theassessee, therefore, could not have claimed anydepreciation. Looking to the nature of the advantagewhich the assessee obtained in a commercial sense, theexpenditure appears to be revenue expenditure”. 15. After relying on Assam Bengal Cement Co., it wasfound that the issue of whether an expense has to be treated ascapital expenditure or revenue expenditure would depend upon thefacts of each case. Examining the lease deeds, it was found that thelease rent was minimal, which indicated it as a concession for reasonof the construction made in the land with the investment of thelessee themselves. The expenditure having been incurred ascompensation, in the form of an enduring construction having been made on behalf of the lessor, it was found that the expenses,substituted the rent due on the building. When the rents were to betreated as revenue expenditure, any expenses in substitution of suchrents would also be treated as revenue expenditure, was the finding.We have to also observe that the finding, the assessee having notacquired any capital, could not have claimed depreciation; standsaltered in so far as the introduction of Explanation I. It rectifies theprecise anomaly noticed in Madras Auto Service. 16. By virtue of the Explanation, any expenditure incurredby a lessee, which could be treated as capital expenditure in thehands of the owner, would be so entitled to be treated as capitalexpenditure in the hands of the lessee also. The interpretation givento the Explanation and the decision in Madras Auto Service readtogether puts the issue in the correct perspective. The Explanationdoes not alter the dictum, laid down by Madras Auto Service, onthe peculiar facts,but rectifies the anomaly in so far as a lesseebeing entitled to claim depreciation on capital expenditure made in aleased out building. In Madras Auto Service lands were taken onlease and investments were made on the said lands by way of constructions. The Hon'ble Supreme Court found that the lease rentwas very minimal and investments were to be deemed as setting offthe actual lease rent payable over a period of time. It was in suchcircumstances that the expenditure made on making constructions inleased out lands were held to be revenue expenditure and not capitalexpenditure. We are of the opinion that the explanation brought inlater to the aforesaid decision would not detract from the aboveposition. If the expenditure could be treated as revenue expenditure,necessarily the lessee, the assessee, would be entitled to show thesame as revenue expenditure in its books of accounts. Merelybecause the property was leased out and constructions carried out,having no enduring benefit to the assessee; would not be the test forfinding a revenue expenditure. The test of enduring benefit has beenheld by the Hon'ble Supreme Court to be not applicable in all cases.17. In this context we have to refer to the decision in TVSLean Logistics Ltd. of the Madras High Court. Therein, the DivisionBench of the Madras High Court had considered the Explanation andfound it to be not applicable in the case of landed properties, sinceonly buildings were referred to. The Explanation would not apply in the case of constructions made on leased out properties, was thespecific finding. A corollary to the said finding would be that theconstruction made on a leased out property cannot be treated ascapital expenditure in the hands of the lessee. The said construction,according to us, with due respect, cannot hold good. The Explanationspeaks of the business or profession of the assessee, being carriedon in a building not owned by him but in respect of which he holds alease and the capital expenditure incurred by the assessee, inter aliaof “construction of any structure”. This would necessarily bring withinits ambit the business being carried on in a building, constructed bythe assessee on lease hold landed property. 18. The Explanation, enables any expenditure, which ifmade by the owner of the property to be capital expenditure in thehands of the owner, to be treated as capital expenditure in the handsof the lessee; if it is the lessee who expended the amounts. TheExplanation, in other words enables such consideration of theexpenditure made by the lessee on another's property to be capitalexpenditure. In such circumstances, what would be relevant is thenature and scope of the agreements entered into. To ascertain whether the principle as laid down by the Hon'ble Supreme Court inMadras Auto Service would apply or not, necessarily a verificationof the agreements would be necessitated. The learned SeniorCounsel appearing for the assessee produced a number ofagreements, before this Court, to support the case of lease havingbeen taken of properties, in which superstructures were build, oninvestments made by the assessee themselves. It will not be properfor us to look into the agreements, when the Assessing Officer at thefirst instance has not done it. The agreements' were also producedbefore the Assessing Officer as evidence, to substantiate the claim ofthe assessee. 19. Merely to understand the nature of the lease, we wentthrough one of the agreements, which indicates almost 60cents ofproperty having been taken on lease for Rs.25,000/- per month. Thesuperstructures were also built on the said property the actual plintharea of which is not disclosed. The money invested for making suchconstruction is what is claimed as revenue expenditure. We have toobserve that, prima facie, considering the extent of property theamount of Rs.25,000/- could be treated as minimal rent, which all the same would have to be verified with the total plinth area constructedin the property and the period for which the lease is permitted. Thegoing market rent for buildings, in the specified locations, would alsohave to be looked into by the Assessing Officer to arrive at a properdetermination of whether the expenditure is a capital expenditure orrevenue expenditure. If the Assessing Officer finds that theinvestments made in the property spread over the period of lease,together with the lease rent payable as per the agreement, wouldconstitute the ostensible lease rent for the building, then investmentmade for constructing superstructures, has to be deemed to berevenue expenditure, otherwise it should be treated as capitalexpenditure and in the latter event allowable as depreciation underthe Explanation I to Section 31(1). 20. Before leaving the matter we have to notice that thelease deeds produced before this Court are not registered. TheRegistration Act, 1908 mandates under Section 17, that any leasefrom year to year or beyond one year to be compulsorily registrable,failing which it shall not be received in evidence as per Section 49. Ithas also to be duly stamped under the Kerala Stamp Act, 1959 [for 20. Before leaving the matter we have to notice that thelease deeds produced before this Court are not registered. TheRegistration Act, 1908 mandates under Section 17, that any leasefrom year to year or beyond one year to be compulsorily registrable,failing which it shall not be received in evidence as per Section 49. Ithas also to be duly stamped under the Kerala Stamp Act, 1959 [for brevity, the Stamp Act]. The lease deeds; for periods in excess of oneyear cannot be accepted in evidence unless registered. The leasedeeds also have been termed agreements and stampedinsufficiently. The deeds have to be considered as not duly stampedand impounded under Section 33 of the Stamp Act. The documentshave been produced before the Assessing Officer, as evidence of thelease and we are dealing with an appeal, which is a continuance ofthe assessment proceeding. The Assessing Officer is one holding apublic office, before whom the evidence was produced for supportingthe claim of the assessee. The person in charge of a public office isobliged to impound the documents and send it to the DistrictRegistrar for proper stamping under Section 33 of the Stamp Act, if itis not duly stamped. The assessee cannot also rely on thedocuments unless they are properly stamped and registered. Sub-Clause (b) of Section 33(2) empowers the High Court to delegate thefunction of examining and impounding any instrument under theprovision to such Officer as the Court appoints. Hence there shall bea direction to the respondent, the Deputy Commissioner Circle-1(1)Kozhikode to impound the documents produced and refer it to the District Registrar for proper stamping and the assessee would alsobe obliged to register the same. 21. Considering the fact that the said procedure beforethe various District Registrars would result in different orders ofpenalty being passed and the assessments would also be keptpending for long, we alternatively pass the following orders. Theassessee shall produce the lease deeds of period one year or abovebefore the concerned Sub-Registrars, who shall calculate the dutypayable under Article 33 of the Stamp Act and levy penalty ofRs.10,000/- each. If the assessee pays up the amounts then theprocedure as prescribed in Section 37(1) shall be complied with. TheSub-Registrar shall also register the document de-hors Sections 23and 25 of the Registration Act, but levying registration fees asapplicable and an amount of Rs.5,000/- each as penalty. Theassessee then shall produce the registered documents before therespondent A.O, who shall finalise the assessment on the principlesherein above stated, determining whether the expenditure made bythe assessee can be treated as a capital expenditure or revenueexpenditure. If the assessee does not comply with the above directions then the respondent shall impound the documents andsend it for stamping under the provisions of Section 33 of the StampAct to the respective District Registrars who shall pass orders at theirdiscretion under powers conferred by Section 39 of the Stamp Act, inwhich event the determination of penalty will be left to the DistrictRegistrar. The assessment will also then be without looking into thedocuments, since the Registration Act does not provide forregistration beyond eight months from the execution. 22. Two other questions which arise in the appeals for theassessment years 2009-10 and 2010-11 [I.T.A.Nos.15/2015 and29/2016] are dealt with separately. For the assessment year2009-10, the question raised as seen from I.T.A.No.15 of 2015, is asunder: “Whether, on the facts and in the circumstances ofthe case, the Appellate Tribunal; is right in confirmingthe disallowance of expenses incurred on showrooms/service stations which was written off/discardedsince the requisite permission for commencing theoperations could not be obtained?”. 22. Two other questions which arise in the appeals for theassessment years 2009-10 and 2010-11 [I.T.A.Nos.15/2015 and29/2016] are dealt with separately. For the assessment year2009-10, the question raised as seen from I.T.A.No.15 of 2015, is asunder: “Whether, on the facts and in the circumstances ofthe case, the Appellate Tribunal; is right in confirmingthe disallowance of expenses incurred on showrooms/service stations which was written off/discardedsince the requisite permission for commencing theoperations could not be obtained?”. The assessee had incurred expenses on showrooms or servicestations leased out by the assessee; but, however, the business having not been commenced, the said expenses were written off.The Tribunal, on the very same principle with respect to the leasedout buildings, found that it is a capital loss and cannot be treated asa revenue loss. We are unable to agree with the Tribunal, since theassessee had spent money and could not get any benefit from thesaid expenses incurred for reason of the business having not beencommenced in the said premises which were also leased out. If at allthe business was commenced, then going by the dictum in JoyAlukkas it would have to be treated as revenue expenditure. Merelybecause the assessee could not commence the business it cannotbe treated as capital loss. Hence, we answer the aforesaid issue infavour of the assessee and against the Department. 23. The other question raised for the assessment year2010-11 in I.T.A.No.29 of 2016 is as follows: “Whether, on the facts and circumstances of the case,the Appellate Tribunal is right in confirming the disallowance ofprovision for free service expenses amounting toRs.36,00,000/-”. The Tribunal has rightly considered the issue in the followingmanner: “9. On a query from the bench whether actualexpenditure has been incurred or expenditure has beenaccrued during the year, the Ld.AR could not offer any cogentexplanation or reply to the Bench in this regard. In the factsand circumstances of the case, the expenditure claimed by theassessee is only a provision and was not accrued during theyear and therefore, cannot be claimed as allowableexpenditure u/s.37 of the Act. Accordingly, we find no infirmityin the order of the CIT(A) who has rightly confirmed the actionof the Assessing Officer”. We decline to answer the said question as the same is one purely onfacts and not on law. The Tribunals order would stand confirmed onthis factual issue. In the result, the first question raised in all the appeals isanswered, in favour of the asssessee and against the revenue,reversing the order of the Tribunal; to the extent the question isdecided in favour of the assessee. The second question is answeredin principle and on the basis of the interpretation placed by the FullBench, the issue is directed to be considered on merits by theAssessing Officer by examining the nature and scope of theagreements executed between the parties; subject to the assesseecomplying with the directions hereinabove.. The different question raised in I.T.A. No.15 of 2015 is answered in favour of the assesseeand against the revenue, reversing the contrary view taken by theTribunal. As to the particular question raised in I.T.A.No.29 of 2016we decline to answer the same and confirm the order of the Tribunalon that aspect. Both the learned Senior Counsel would point out thatthere are certain anomalies in the exact amounts which are to betreated as capital expenditure and revenue expenditure. This couldbe gone into by the Assessing Officer by making rectifications inaccordance with the law declared by this Court. Ordered accordingly.Parties are left to suffer their respective costs. vku/- Sd/-K.Vinod ChandranJudge Sd/- Ashok MenonJudge [ true copy ]