Bombay High Court
Rpg Enterprises Ltd vs Deputy Commissioner Of I-Tax on 29 June, 2016
Bench: M.S. Sanklecha
ITA NO.416 OF 2001.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 416 OF 2001
RPG Enterprises Ltd. ]
A Company Incorporated under the ]
Companies Act, 1956 and having its ]
Registered Office at Ceat Mahal, 463, ]
Dr. Annie Besant Road, ]
Worli, Mumbai - 400 025 ] .. Appellant
v/s.
Deputy Commissioner of Income Tax, ]
Circle 5(6), Aayakar Bhavan, ]
M.K. Road, ig ]
New Marine Lines, Mumbai - 400 020 ] .. Respondent
Mr. B.V. Jhaveri a/w B.G. Yewale i/b Rajesh Shah for the appellant
None for the respondent
CORAM : M.S. SANKLECHA &
A.K. MENON, J.J.
Judgment Reserved on : 23rd June, 2016.
Judgment Pronounced on : 29th June, 2016
Judgment : (Per M.S. Sanklecha, J.)
1. This appeal under Section 260A of the Income Tax Act, 1961 (the
Act) challenges the order dated 18 th April, 2001 of the Income Tax
Appellate Tribunal (Tribunal). The impugned order dated 18 April 2001
relates to A.Y. 1996-97.
2. On 30 July 2004 this appeal was admitted on the following
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substantial question of law :-
"Whether on the facts and in the circumstances of the case and
in law, Income Tax Appellate Tribunal was correct in holding
that the expenditure to the extent of 75% of Rs.31,32,841/-
was capital in nature?"
3. Brief facts leading to this appeal are as under :-
(a) Since the year 1995, the appellant was in occupation as a tenant
of 7th floor of Ceat Mahal, Worli, Mumbai(said premises ). The
appellant was paying a monthly rent of Rs.73,530/-. In the A.Y.
1996-97, the appellant filed its return of income declaring an
income of Rs.17.46 lakhs. The appellant had debited a sum of
Rs.47.63 lakhs to the Profit and Loss account under the head
"Repairs and Maintenance" while determining its income. Out of
the aforesaid amount of Rs.47.63 lakhs as expenditure, an
amount of Rs.31.32 lakhs related to the said premises. The
Assessing Officer on examination of the nature of expenses found
that the same were substantially capital in nature i.e. renovating
the said premises by doing civil work. However, some part of its
expenditure were found to be revenue in nature, example
plastering. Therefore, the Assessing officer attributed 75% of
the expenditure claimed as capital and 25% as revenue i.e.
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Rs.23.49 lakhs (capital expenditure) and Rs. 7.83 lakhs (revenue
expenditure) aggregating to Rs.31.32 lakhs. The Assessing
Officer allowed 10% depreciation i.e. Rs.2.34 lakhs on the capital
expenditure of Rs.23.49 lakhs under Section 32 of the Act and an
further amount of Rs. 7.83 lakhs as revenue expenditure. The
aforesaid exercise resulted in the Assessing officer passing an
order dated 18th July 1999 determining the appellant's income at
Rs.41.25 lakhs.
(b)
Being aggrieved, the appellant carried the issue of repairs and
maintenance, in appeal to the Commissioner of Income Tax
(Appeal) [CIT(A)]. On consideration of the nature of
expenditure incurred by the appellant, the CIT(A) held that
substantial expenses incurred on the said premises was on
account of major structural renovation. Thus, capital in nature.
Therefore the CIT(A) by order dated 24th February 2000 upheld
the Assessment order dated 18th July 2004 of the Assessing
Officer disallowing the claim of Rs. 23.49 lakhs as Revenue
expenditure.
(c) Being aggrieved, the appellant carried the issue of nature of
expenditure in appeal to the Tribunal. The impugned order of
the Tribunal on facts found that substantially, the expenditure on
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renovation gives a benefit or advantage of enduring nature.
Therefore substantially on capital account qualifying for
depreciation in terms of Explanation-I to Section 32 of the Act. In
the circumstances , it upheld the order of the CIT(A), holding
that the expenditure to the extent of Rs.23.49 lakhs out of
Rs.31.32 lakhs is on capital account and cannot be allowed as
revenue expenditure.
4.
Being aggrieved, the appellant is in appeal and the appeal has
been admitted on the above question of law. Mr. Jhaveri, learned
Counsel appearing for the appellant in support submits as under :-
(a) The expenditure of Rs.31.32 lakhs claimed on account of repairs and
maintenance of the said premises is allowable as revenue
expenditure. This is no longer res integra in view of the decisions of
this Court in Commissioner of Income Tax Vs. Talathi and
Panthaky Associated P. Ltd. 343 ITR 309 and Commissioner of
Income Tax Vs. Hede Consultancy Pvt. Ltd. and Anr. 250 ITR 350.
In the above cases, it is submitted that on an identical factual
situation the expenditure on renovation of tenanted premises has
been allowed as revenue expenditure under Section 37 of the Act;
(b) The expenditure of Rs. 31.32 lakhs incurred on renovation of the
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said premises being repairs is allowable under Section 30 of the
Act; and
(c) In any case there is no basis indicated for apportioning the
expenditure in the ratio of 75% and 25% between capital and
revenue account. Therefore, the finding of the authorities is not
sustainable;
5. We find that the appellant was a tenant of the said premises. It
was paying monthly rent of Rs.73,530/- from April, 1995 onwards
under the agreement dated 15 th February, 1995. Further the agreement
provided that the cost of repairs and renovation i.e. civil, electrical,
plumbing, polishing etc. would be carried out by the appellant at its
own expenses after taking prior permission from the landlord. All the
Authorities under the Act have rendered a finding of fact that the so
called "repairs and maintenance" were in fact extensive renovation
involving civil work. This expense resulted in an advantage / benefit of
a enduring nature in as much as it inter alia resulted in the appellant
being able to accommodate more number of employees and facilitate
improving its trading operations. Thus the benefit obtained by the
appellant, according to the Authorities was substantially in the capital
field and could not be entirely allowed as revenue expenditure. The
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submission on behalf of the appellant, before us, that as the appellant
does not own the premises the expenditure incurred on renovation goes
to the benefit of the owner of the said premises, therefore in the hands
of the tenant it can only be revenue expenditure is more then met by
the impugned order of the Tribunal. This in view of the fact that the
impugned order places reliance upon Explanation-I to Section 32 of
the Act, which allows depreciation to a tenant in case of any capital
expenditure incurred for renovation / improvement to the building in
the hands of the tenant by deeming the tenant to be the owner of the
premises. In this case the benefit of depreciation has been given to the
appellant on the capital expenditure incurred for renovation.
6. Mr. Jhaveri, learned Counsel for the appellant-assessee then
submits that on an identical fact situation expenditure incurred by
tenant has been allowed as revenue expenditure by this Court.
Therefore it is submitted that the entire issue is no longer open to
debate as it stands concluded in favour of the appellant by the decisions
of this Court in Talathi & Panthaki Associates Pvt. Ltd. (supra) and Hede
consultancy Pvt. Ltd. (supra). In Talathi & Panthaki Associates Pvt. Ltd.
(supra) the tenant of the premises had contributed a sum of Rs.1.50
crores to the work of repairs and restoration/reconstruction of the
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building in which it was a tenant. The entire amount of Rs.1.50 crores
was claimed as revenue expenditure. The assessee therein had entered
into an agreement with the developer to contribute Rs.1.50crores for
the reconstruction / repairs / restoration of the building in
consideration of there being no increase in the rent payable by the
assessee in the new structure to that being paid in the old structure. It
was in the aforesaid facts that it was held that where a lump-sum
payment of Rs.1.50 crores gets rid of annual business expenses
chargeable against revenue then the lumpsum is to be regarded as a
revenue/business expenditure. The benefit obtained by the assessee in
the above case was premises at a lower rent in view of the contribution
made to the developer for repairing / reconstructing the premises.
Thus, the expenditure was in the revenue field and allowable under
Section 37 of the Act. In the present facts, nothing is on record to
indicate that there was any advantage secured by the appellant in the
revenue field. There was no decrease in the rent nor was there any
embargo on future increase in the rent in consideration of the
expenditure for renovation. Therefore, the above decision would not
apply to the facts of the present case.
7. Similarly, the decision of this Court in Hede consultancy Pvt. Ltd.
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(supra) upon which also reliance is placed upon also dealt with the
situation where the amount expended for interior decoration and
renovating of a godown premises so as to be converted into an office
premises was allowed as a revenue expenditure, will not apply to the
present facts. This is because in that case the tenant got the benefit of
lower rent in view of the expenditure incurred on renovation. It was in
that context that this Court upheld the view of the Tribunal that the
expenditure for repairs and renovation was in the revenue field. As
pointed out above, in the present case, there is nothing on record to
indicate that any benefit was obtained by the assessee in the revenue
field for having expended the amount of Rs.31.32 lakhs for repairs /
renovation of the office premises. Thus, the aforesaid decisions would
have no application to the facts of the present case.
8. It was next contended there is no basis indicated by the
Authorities under the Act for apportioning the expenditure in the ratio
of 75% and 25% between capital and revenue account by the Revenue.
We find that the authorities on facts found that some of the expenditure
incurred out of Rs.31.32 lakhs was incurred for maintenance such as
plastering etc. This allowing of 25% was on the basis of an estimate.
Nothing has been shown to us that the estimation by the authorities on
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the basis of facts found was in any way arbitrary or perverse. Thus we
find no merit in the above submission.
9. In the view taken by us that the expenditure of 75% of Rs. 31.32
lacs i.e. Rs. 23.49 lakhs is on capital account, the submission to claim
deduction on account of Section 30 of the Act made by the Appellant
need not be examined. Nor the decision of the Delhi High Court in
Commissioner of Income Tax Vs. Hi Line Pens Pvt. Ltd. 306, ITR 182
relied upon for interpretation of Section 30 of the Act need be
examined. This for the reason that the Explanation to Section 30 of
the Act itself provides that the amount paid on the cost of repairs
would not include any expenditure which is in the nature of capital
expenditure. Although this Explanation to Section 30 of the Act was
introduced in 2004 w.e.f. 1st April, 2004, the Explanation itself clarifies
that it has been introduced for removal of doubts. Therefore, it would
be applicable even for the period prior 1 st April, 2004 including the
subject Assessment year. It is for the above reason the learned Counsel
for the appellant very fairly did not even attempt to suggest that
deduction under Section 30 of the Act would be available even in
respect of capital expenditure.
10. In the above view, the concurrent finding of fact by the
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Authorities under the Act that the expenditure incurred claiming to be
the repairs and maintenance was in fact on account of renovation of the
premises, leading to enduring benefit to the appellant assessee in as
much as it enabled the appellant to accommodate larger number of
employees and also facilitate its trading operations. This benefit would
be available to it for a long period of time and thus, was capital in
nature. It was in the above view that the Tribunal granted the benefit
of depreciation to the extent the claim as revenue expenditure was
disallowed.
11. In the above view, we find that the view taken by the Authorities
under the Act including the Tribunal, cannot be faulted as the appellant
has failed to establish that the expenditure of Rs.31.32 lakhs claimed as
"Repairs and Maintenance" was in the revenue field. In the above view,
the substantial question of law as framed hereinabove in paragraph 2 is
answered in the affirmative i.e. in favour of the respondent Revenue
and against the appellant assessee.
12. The appeal is disposed of in the above terms.
(A.K. MENON, J.) (M.S. SANKLECHA, J.)
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