The Commissioner Of Income Tax, Incomed Tax Circle 1, Tirunelveli v. Shri.n.viswanath

In the High Court of Judicature at Madras The Honourable Mr.Justice T.S.SIVAGNANAM The Honourable Mrs.Justice V.BHAVANI SUBBAROYAN The Commissioner of Income Tax, Incomed Tax Circle 1, Tirunelveli ...Appellant/Appellant in both TCA Vs Shri.N.Viswanath ...Respondent/Respondent in both TCA APPEALS under Section 260A of the Income Tax Act, 1961against the common order dated 12.7.2018 made in ITA.Nos.1934 &1935/ Chny/2017 on the file of the Income Tax AppellateTribunal, Chennai 'B' Bench respectively for the assessmentyears 2008-09 and 2009-10 and against the order of theCommissioner of Income Tax (Appeals)-3, Madurai dated 16/05/2017in ITA.No. 319/2016-17 (TCA.104/2019) in ITA.No. 318/2016-17(TCA.105/2019) and against the Order of the Deputy commissionerof Income Tax Central Circle -1 (1), Chennai – 34 dated31/03/2016 in PAN.AAJPN 8275H ((TCA.104/2019) & (105/2019))respectively. For Appellant :Mrs.V.Pushpa, SC For Respondent: Mr.Venkatanarayanan forM/s.Subbaraya Aiyer PadmanabhanCOMMON JUDGMENT(Judgment was delivered by T.S.Sivagnanam,J) We have heard Mrs.V.Pushpa, learned Standing Counselappearing for the appellant – Revenue and Mr.Venkatanarayanan,learned counsel appearing on behalf of the respondent – assessee. 2. These appeals, filed by the Revenue under Section 260A of https://hcservices.ecourts.gov.in/hcservices/ the Income Tax Act, 1961 (for short, the Act) are directedagainst the common order dated 12.7.2018 made in ITA.Nos.1934 &1935/ Mds/ 2017 on the file of the Income Tax AppellateTribunal, Chennai 'B' Bench (for brevity, the Tribunal)respectively for the assessment years 2008-09 and 2009-10. 3. The Revenue has filed these appeals by raising thefollowing substantial question of law :“Whether the Tribunal is right in law tohold that the expenditure incurred by theassessee on the lease premises towards civilworks, furniture, etc., is a revenueexpenditure, when Explanation 1 to Clause(ii) of Sub-Section (1) of Section 32 of theIncome Tax Act, 1961 provides that anycapital expenditure on the lease premises isto be taken as capital expenditure?” 4. The respondent – assessee is the legal heir of one lateMr.K.V. Nellaiappan, who was the respondent in TCA.No.1937 of2008. The said tax case appeal along with TCA.Nos.1929 to 1936of 2008 were allowed by the Hon'ble Division Bench of this Courtvide common judgment dated 15.4.2019. 5. The learned counsel appearing on behalf of the respondent– assessee has sought to distinguish the said common judgment bycontending that these cases come under 'low tax effect' and thatthey are different in facts. 6. The matters arose pursuant to an order under Section 254of the Act and the business concern, in which, the assessee wasa partner, was subjected to search and seizure operations, inthe appeals before him, the CIT(A) followed the orders passed byTribunal in the earlier cases, which were the subject matter ofTCA.Nos.1929 to 1937 of 2008. 7. The relevant portions in the said common judgment read asfollows : “15. The primary basis on which theTribunal had answered the issues in favourof the Assessee was that this Court in HariVignesh Motor (P) Ltd., cited supra,following the earlier Judgment of theHon'ble Supreme Court in Madras AutoServices (P) Ltd., cited supra had held thatexpenditure incurred in the nature asincurred by the Assessee herein cannot beconsidered as Capital expenditure. However,as pointed out by Mr.M.Swaminathan, learnedSenior Standing Counsel for the Revenue, Madras Auto Service (P) Ltd., related to theAssessment Year 1968-1969. Thereafter,Section 32(1A) had been inserted with effectfrom 01.04.1970 and this provision had beenclarified by Explanation 1 with effect from01.04.1988.Consequently,thecorrectprovision which is applicable to these casesare Explanation 1 to Section 32(1) of theAct. Madras Auto Service (P) Ltd., related to theAssessment Year 1968-1969. Thereafter,Section 32(1A) had been inserted with effectfrom 01.04.1970 and this provision had beenclarified by Explanation 1 with effect from01.04.1988.Consequently,thecorrectprovision which is applicable to these casesare Explanation 1 to Section 32(1) of theAct. 16. It is not in dispute that theAssessees had taken on lease the premisesand had put up further additionalconstruction and had also renovated andincurred expenses for improvement of thebuilding. The contention of Mr.M.P.SenthilKumar, learned counsel placed only in thewritten submissions and not advanced duringoral arguments that the Court cannot examinethe lease agreements since they were notregistered has to be rejected because, thelease documents are being examined only todetermine a collateral transaction viz.,nature of expenditure incurred by Assessee.It is a fact that the Assessee had taken onlease the premises in consideration. Theyare not the owners. They always claimed tobe lessees only. Consequently, thissubmission, raised by way of writtensubmission has to be rejected. It had beenan admitted stand before the AssessingOfficer and before the CIT (Appeals) andbefore the Tribunal that the Assessee isonly a Lessee of the premises in question.This being a fact which had been settled,cannot be re-examined on the basis of thespecious argument advanced. 17. A further examination of the factsof the case shows that the Assessees haveactually put up substantial construction ofenduring benefit and also renovated thebuilding for the purpose of their business.Explanation 1 to Section 32(1) is asfollows:-“[Explanation 1.- Where the business orprofession of the assessee is carried on ina building not owned by him but in respectof which the assessee holds a lease or otherright of occupancy and any capitalexpenditure is incurred by the assessee forthe purposes of the business or profession https://hcservices.ecourts.gov.in/hcservices/ 17. A further examination of the factsof the case shows that the Assessees haveactually put up substantial construction ofenduring benefit and also renovated thebuilding for the purpose of their business.Explanation 1 to Section 32(1) is asfollows:-“[Explanation 1.- Where the business orprofession of the assessee is carried on ina building not owned by him but in respectof which the assessee holds a lease or otherright of occupancy and any capitalexpenditure is incurred by the assessee forthe purposes of the business or profession https://hcservices.ecourts.gov.in/hcservices/ on the construction of any structure ordoing of any work in or in relation to, andby way of renovation or extension of, orimprovement to, the building, then, theprovisions of this clause shall apply as ifthe said structure or work is a buildingowned by the assessee.” 18. This Explanation had been insertedby the Taxation Laws (Amendment andMiscellaneous Provisions) Act 1986 witheffect from 01.04.1988. The Judgementheavily relied on by the learned counsel forthe Assessees, namely, Madras Auto Services(P) Ltd., cited supra related to theAssessment Year 1968- 1969 before the aboveprovision was brought into effect. Thefurther Judgement relied on by the learnedcounsel for the Assessees in Hari VigneshMotors (P) Ltd., cited supra in the courseof the said Judgement did not consider thesaid Explanation. The other Judgement reliedon by the learned counsel in TVS LeanLogistics Ltd., cited supra related tototally distinguishable set of facts. Inthat case, the Assessee had put upconstruction of a building on a lease holdland. The building was not taken onlease.Consequently, it was held as follows:-“4.1. It is not in dispute that theassessee had put up the impugnedconstruction of building only on theleasehold land and no building was taken onlease by the assessee. Therefore, thefiction created by Expln. 1 that thebuilding put up by him in the leasehold landor structure or work shall be construed asif the same is owned by the assessee, is notapplicable to the case of the assessee andthe Expln. 1 to S.32(1) of the Act is notattracted to the instant case of theassessee at all.”The aforesaid Judgement cited by thelearned counsel for the Assessee aretherefore not applicable to the facts of thepresent case in view of amended law. 19. In Silver Screen Enterprises Vs.CIT, 85 ITR 0578, (High Court of P & H),while examining whether expenditure incurredon repairs to chairs, renovation of buildingand modernisation of cinema house taken on lease by the Assessee, it was held that theyare capital expenditure since it brought anenduring benefit. The relevant discussion onthis aspect is quoted below:- lease by the Assessee, it was held that theyare capital expenditure since it brought anenduring benefit. The relevant discussion onthis aspect is quoted below:- “It cannot be denied that the amountspent for the construction of the verandh,office room, side room and bath roomsbrought into existence an asset of anenduring nature. It is no one's case thatonly the existing verandah, office, sideroom or bath rooms were repaired. Whatappears is that these constructions werebrought into being for the purpose ofmodernising the cinema hall. Therefore, theconstruction of verandah, office, side room,etc., for the purpose of modernising thecinema hall brought into existence are assetof enduring nature in the true sense of theword. The object of the assessee inreplacing the old wooden chairs by steelchairs was to attract larger and bettercustomers. This was in fact an outlay forthe purpose of earning profits or, in otherwords for the purpose of better business. Itwas not an expense which was of a recurringnature, and therefore, it can be safely saidthat the lessee brought into being an assetof an enduring nature. Undoubtedly, it wasan improvement. The wooden chairs werereplaced. No evidence had been led to showthat the wooden chairs had been useless andcould not be used for seating the cinema-goers. On the other hand, the stand takenwas that the whole object was to modernisethe cinema house to bring it in line withthe modern show business. The replacementwas an improvement of an enduring nature andnot mere replacement. Capital expense withregard to a short-term venture, such as alease for a period, had to be viewed in thecontext of that lease, namely, its purposecoupled with its duration. Expenditureincurred by the assessee is an expenditureof a capital nature and it brought intobeing an advantage of an enduring nature andthus it had been rightly treated as such bythe Tribunal, except to the extent of theamount found by the Tribunal being onaccount of repairs.”20. In view of the above propositions, we are of the considered view that theexpenditure incurred by the Assessee in thepresent case are Capital in nature and comewithin the mischief of Explanation 1 toSection 32(1) of the Act. The alternatesubmission advanced by Mr.M.P.Senthil Kumarthat the repairs to the premises cannot becapitalised in view of Section 30(a)(i) ofthe Act is rejected since the renovationsmade are Capital in nature in the firstAssessment Year and only further repairs mayattract the provisions under Section 30(a)(i) of the Act. Section 30(a)(i) of the Actis as follows:-“30. In respect of rent, rates, taxes,repairs and insurance for premises, used forthe purposes of the business or profession,the following deductions shall be allowed-(a). Where the premises are occupied bythe assessee- (i) as a tenant, the rent paidfor such premises; and further if he hasundertaken to bear the cost of repairs tothe premises, the amount paid on account ofsuch repairs.”21. In the present case, the Assesseshad incurred substantial expenditure towardsrenovation leading to enduring benefit. Theyare not merely repairs. The Assessees hadalsoincurredexpenditurestowardsimprovement and construction of thebuilding. These cannot be termed as'repairs'. Consequently, this alternatesubmission is rejected by us. The secondalternatesubmissionadvancedbyMr.M.P.Senthil Kumar that the case should beremitted back to the Assessing Officer isalso rejected since the fact have beenaddressed and settled by the Authoritiesbelow and it had been concurrently foundthat the expenditure were capital in nature.The issue of bifurcating the said expensesas capital and revenue would therefore notarise.22. In view of the above reasons, wehold that the substantial questions of lawhave to be answered in favour of the Revenueand against the Assessee and the Appealsfiled by the Revenue have to be allowed.Accordingly, the Appeals are allowed.” 8. Following the same, the above tax case appeals are allowed and the substantial question of law is answered in favour of theRevenue. No costs. Consequently, the connected CMP is closed. //True Copy// Sd/-Assistant Registrar Sub Assistant Registrar To 1.The Income Tax Appellate Tribunal, Chennai 'B' Bench.2.The Deputy commissioner of Income Tax, Central Circle – 1(1), Chennai – 34.3.The Commissioner of Income Tax (Appeals)-3, Madurai.+1cc to Mr.Subbaraya Aiyar, Advocate, S.R.No.32834 +1cc to Mr.M.Swaminathan, Advocate, S.R.No. 32837RSTCA.Nos.104 & 105 of 2019and CMP.No.2705 of 2019 KK(CO)GN(19/11/2020)