M/S. Bony Rubber Co. Pvt. Ltd v. The Commissioner Of Income Taxfaridabad

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ---- Income-tax Appeal No. 305 of 2005Date of decision: 8.11.2010 M/s. Bony Rubber Co. Pvt. Ltd. --- Appellant Versus The Commissioner of Income TaxFaridabad --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL ---- PRESENT:Mr. Sanjay Bansal, Sr. Advocate withMs. Sweta Malhotra, Advocate for the appellant. Ms. Urvashi Dhugga, Govt. Standing Counselfor the respondent-Revenue. ---- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-tax Act,1961 (for short “the Act’”) has been filed by the assessee against theorder dated 28.3.2005, passed by the Income Tax Appellate Tribunal,Delhi Bench “B”, New Delhi (in short “the Tribunal”) in ITA No.28/Del/2001 relating to assessment year 1997-98. The appeal was admitted on 21.11.2006, fordetermination of the following substantial question of law: “Whether on an application of the correct principles oflaw, was the Tribunal legally correct on the facts in thecircumstances of the case, in holding that the expenditure incurred by the assessee-Company on the repairs of the building was capital expenditure?” In brief, the facts necessary for adjudicating the appeal are that during the assessment year under consideration, theassessee-appellant incurred an expenditure of Rs. 6,04,886/-carrying out renovation in its building so as to bring it within the ambitof quality standard ISO 9002. The assessing officer treated the saidamount as capital expenditure as the assessee had derived enduringbenefit from that development. The Commissioner of Income Tax(Appeals), [for short “CIT(A)”], however, after examination of thematter did not feel satisfied with the approach of the assessing officerand accordingly, deleted the disallowance made by the assessingofficer, vide order dated 18.10.2000. The Revenue preferred appeal whereas the appellant- assessee filed cross-objections against the order of the CIT(A),before the Tribunal. Tribunal accepted both, the appeal as well asthe cross-objections, vide order under appeal. This is how thepresent appeal has been filed by assessee. We have heard learned counsel for the parties and haveperused the record. Learned counsel for the appellant submitted that theexpenditure for repairs incurred by the assessee was revenue innature and the Tribunal had wrongly held it to be capital. He placedreliance on the following judgments: 1-Empire Jute Co. Ltd. Vs. Commissioner of Income Tax,124 ITR 1 (SC); 2-Commissioner of Income Tax, Kerala v. MalayalamPlantations Ltd. (1964) 53 ITR 140 (SC); Plantations Ltd. (1964) 53 ITR 140 (SC); 3-Commissioner of Income-tax v. Madras Auto Service (P)Ltd. (1998) 233 ITR 459; Ltd. (1998) 233 ITR 459; 4-Commissioner of Income Tax v. TVS Lewan LogisticsLtd. (2007) 293 ITR 432 (Mad.); Ltd. (2007) 293 ITR 432 (Mad.); 5-Commissioner of Income Tax v. Hari Vignesh Motors P.Ltd. (2006) 282 ITR 338 (Mad.); Ltd. (2006) 282 ITR 338 (Mad.); 6-Goger Enterprises (P) Ltd. v. Commissioner of IncomeTax, (2008) 169 Taxman 41 (Delhi); Tax, (2008) 169 Taxman 41 (Delhi); 7-Commissioner of Income Tax vs. HEDE Consultancy (P)Ltd. (2003) 127 Tazman 597 (Bom); Ltd. (2003) 127 Tazman 597 (Bom); 8-Commissioner of Income Tax v. Khimline Pumps Ltd.(2002) 125 Taxman 104 (Bom.); (2002) 125 Taxman 104 (Bom.); 9-Commissioner of Income Tax v. Laxmi Talkies (2006)151 Taxman 99 (Guj.); 151 Taxman 99 (Guj.); 10-Commissioner of Income-Tax (Central), Madras vs.Dasaprakash, (1978) 114 ITR 210 (Madras); Dasaprakash, (1978) 114 ITR 210 (Madras); 11-Commissioner of Income-Tax v. Ooty Dasaprakash,(1999) 237 ITR 902 (Madras); (1999) 237 ITR 902 (Madras); 12-B and A Planatation and Industries Ltd. vs.Commissioner of Income tax, (2000) 242 ITR 22Commissioner of Income tax, (2000) 242 ITR 22 (Gauhati); 13-Commissioner of Income Tax v. Porrits and Spencer (A)Ltd. (2002) 257 ITR 49 (P&H); Ltd. (2002) 257 ITR 49 (P&H); 8-Commissioner of Income Tax v. Khimline Pumps Ltd.(2002) 125 Taxman 104 (Bom.); (2002) 125 Taxman 104 (Bom.); 9-Commissioner of Income Tax v. Laxmi Talkies (2006)151 Taxman 99 (Guj.); 151 Taxman 99 (Guj.); 10-Commissioner of Income-Tax (Central), Madras vs.Dasaprakash, (1978) 114 ITR 210 (Madras); Dasaprakash, (1978) 114 ITR 210 (Madras); 11-Commissioner of Income-Tax v. Ooty Dasaprakash,(1999) 237 ITR 902 (Madras); (1999) 237 ITR 902 (Madras); 12-B and A Planatation and Industries Ltd. vs.Commissioner of Income tax, (2000) 242 ITR 22Commissioner of Income tax, (2000) 242 ITR 22 (Gauhati); 13-Commissioner of Income Tax v. Porrits and Spencer (A)Ltd. (2002) 257 ITR 49 (P&H); Ltd. (2002) 257 ITR 49 (P&H); 14- Commissioner of Income Tax v. Lake Palace Hotels andMotels P. Ltd. (2002) 258 ITR 562 (Rajasthan) Motels P. Ltd. (2002) 258 ITR 562 (Rajasthan) 15-Assam Bengal Cement Co. Ltd. v. Commissioner ofIncome Tax, West Bengal, (1955) 27 ITR 34. On the other hand, learned counsel for the Revenuesupported the order passed by the Tribunal. The Tribunal after perusing the record came to theconclusion that the expenditure incurred by the assessee on therenovation and maintenance of the building was capital expenditurein nature and in view of the provisions of Explanation 1 to Section 32of the Act, which was inserted by the Taxation Laws (Amendment andMiscellaneous Provisions) Act, 1986, w.e.f. 1.4.1986, the assesseewas entitled to depreciation only and the entire expenditure was notadmissible in the year in question. The relevant findings recorded bythe Tribunal in para 4 of its order read thus: “We have heard the parties with reference to material onrecord. Essentially by incurring an expenditure onrenovation, the assessee gave effect of a quality buildingwhich conformed to the norms assets for obtaining ISO9002 certificate. This resulted into the improvement ofvalue of the building. The expenditure incurred was not inthe nature of current repairs. As the expenditure incurredhas resulted in improvement of the building value relatingto the business of the assessee and in the improvementbeing permanent, the same was capital in nature. The Ld.CIT (A), therefore, has erred in holding it revenueexpenditure merely because the assessee has incurredexpenditure in rented premises. Such a reasoning taken by the Ld. CIT(A) after the amendment inserted by theTaxation Laws (Amendment & Misc. Provision) act, 1986,w.e.f. 1.4.1988 does not conform to the legal position.Explanation-I that has been appended below Section 32of the Act w.e.f. 1.4.1988 reads as under: “Where the business or profession of the assesseeis carried on in a building not owned by him but inrespect of which the assessee holds a lease orother right of occupancy and any capitalexpenditure is incurred by the assessee for thepurpose of the business or profession on theconstruction of any structure or doing of any work inor in relation to and by way of renovation orextension of, or improvement to, the building, thenthe provisions of this clause shall apply as if thesaid structure or work is a building owned by theassessee.” According to the aforesaid explanation if the expenditureis capital in nature and the same is incurred by theassessee for the purpose of business in a premises ofwhich the assessee holds lease or other right ofoccupancy then any expenditure incurred on renovationand improvement of the building shall be treated as if thesaid contract or work is in a building owned by theassessee. Going by the aforesaid amendment it wouldnot be material if the assessee carried out renovation orimprovement in rented premises. By that reason alone, According to the aforesaid explanation if the expenditureis capital in nature and the same is incurred by theassessee for the purpose of business in a premises ofwhich the assessee holds lease or other right ofoccupancy then any expenditure incurred on renovationand improvement of the building shall be treated as if thesaid contract or work is in a building owned by theassessee. Going by the aforesaid amendment it wouldnot be material if the assessee carried out renovation orimprovement in rented premises. By that reason alone, the expenditure incurred cannot be characterized asrevenue in nature. In the present case, we have alreadyreached a conclusion that the amount spent was in thenature of capital expenditure. The decision taken by theLd. CIT(A) therefore, has to be set aside and the decisiontaken by the Ld. assessing authority is hereby restored.The AO, however, shall allow depreciation to theassessee in accordance with provisions of law.” The aforesaid finding was not shown to be erroneous orperverse in any manner. Reference is now made to the judgmentsrelied upon by the learned counsel for the appellant-assessee. Thelegal propositions laid down in those pronouncements are wellrecognized, but they do not come to the rescue of the assessee inthe light of the finding recorded by the Tribunal as noticed above. Accordingly, the substantial question of law is answeredagainst the assessee and finding no merit in the appeal, the same ishereby dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) November 8, 2010 JUDGE *rkmalik*