The Commissioner Of Income Tax ... vs M/S Hi Line Pens Pvt. Ltd.
2008 Latest Caselaw 1651 Del

*            THE HIGH COURT OF DELHI : NEW DELHI

+                                 ITA No. 1202/2006

%                                      Judgment delivered on: 15.09.2008

THE COMMISSIONER OF
INCOME TAX, DELHI-IV.                                ..... APPELLANT

                                       Versus


M/S HI LINE PENS PVT. LTD.                           ..... RESPONDENT

Advocates who appeared in this case:

For the Appellant          :     Ms Prem Lata Bansal
For the Respondent         :     Mr Rakesh Gupta, Ms PoonamAhuja
                                 & Ms Aarti Saini

CORAM :

HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE RAJIV SHAKDHER

1. Whether the Reporters of local papers may
   be allowed to see the judgment ?                                Yes

2. To be referred to Reporters or not ?                            Yes

3. Whether the judgment should be reported
   in the Digest ?                                                 Yes

Badar Durrez Ahmed, J. (Oral)

1. Admit.

2. The following substantial question of law arises for our

consideration:-

ITA No.1202-2006 1 of 12 "Whether the Income Tax Appellate Tribunal was correct in accepting the assessee‟s claim of expenditure of Rs.14,03,835/- towards renovation of rented premises under Section 30(a)(i) of the Income Tax Act, 1961 and in holding that the Assessing Officer had wrongly disallowed the same on the ground that the same was allowable as a deduction towards depreciation under Section 32 of the said Act?"

3. The counsel for the parties agreed that no paper books would be

necessary and that this appeal be heard straight away.

4. The facts of the case are that the assessee had claimed the

aforesaid expenditure of Rs.14,03,835/- as a deduction under Section

30(a)(i) of the said Act. The expenditure was in respect of tenanted

premises which had been taken by the assessee on lease for the

purposes of its business. The expenditure was towards false ceiling,

fixing tiles, replacing glasses, wooden partitions, replacement of

electric wiring, earthing, replacement of GI pipes etc. As per the

assessee since the premises were not in use for a long time, the assessee

was required to make these expenditures to make the premises usable

for the purposes of its business. The assessee‟s contention was that

these expenses were not incurred for creating any new asset but for

making the premises usable for the purposes of its business. The

assessee‟s claim was also that the expenditure was in the nature of

ITA No.1202-2006 2 of 12 revenue expenditure and was not of a capital nature as no new asset

was brought into existence.

5. The said expenditure was disallowed by the Assessing Officer

because in his view Explanation (1) to Section 32(i) of the said Act

would come into play. According to the Assessing Officer, the

expenditure was to be treated as capital expenditure as it had been

incurred on improvement of rented premises as it was the first year of

the business of the assessee.

6. Being aggrieved by the order passed by the Assessing Officer,

the assessee preferred an appeal before the Commissioner Income Tax

(Appeals) who decided in favour of the assessee by holding that the

expenses incurred by the assessee on the rented premises did not bring

into existence any new asset and that the same were allowable as

revenue expenses. Consequently, the CIT (Appeals) deleted the

disallowance made by the Assessing Officer.

7. The revenue took the matter in appeal before the Tribunal, which

also agreed with the view taken by the Commissioner Income Tax

(Appeals) and held in favour of the assessee. The Tribunal found that

the assessee had incurred expenditure on renovation of rented premises.

The expenditure was incurred in relation to the fixing of false ceiling,

ITA No.1202-2006 3 of 12 tiles, replacing glasses, partitions, electrical wiring replacements,

internal wire replacement, earthing and GI pipe replacement etc. The

Tribunal returned a finding that the advantage obtained by the assessee

was for the purpose of the business of the assessee and was not for the

acquisition of a capital asset. The Tribunal placed reliance on the

decision of this Court in the case of Installment Supply Pvt. Ltd. v.

Commissioner of Income-Tax, Delhi-II; 149 ITR 52 (Delhi) and held

in favour of the assessee and against the revenue.

8. It is against this order of the Tribunal dated 16.9.2005 pertaining

to the assessment year 1997-98 that the revenue has preferred this

appeal. The learned counsel for the appellant (Revenue), first of all,

placed reliance on the decision of the Supreme Court in the case of CIT

v. Saravana Spinning Mills P.Ltd.;293 ITR 201. However, we find

that decision of the Supreme Court was in relation to the expression

„current repairs‟ used in Section 31(i) of the said Act, which reads as

under :--

"Section 31 REPAIRS AND INSURANCE OF MACHINERY, PLANT AND FURNITURE.

In respect of repairs and insurance of machinery, plant or furniture used for the purposes of the business or profession, the following deductions shall be allowed -

(i) The amount paid on account of current repairs thereto;

     (ii) xxxxx    xxxxxxx    xxxxxx      xxxxxx      xxxxxx."

ITA No.1202-2006                                            4 of 12

9. It is apparent that the provision pertains to repairs and insurance

of machinery, plant or furniture used for the purposes of business or

profession and by virtue of Section 31(i) a deduction is allowed for the

amount paid on account of „current repairs‟ thereto. The Supreme

Court decision is immediately distinguishable in as much as in the

present case we are not concerned with the expression „current repairs‟

but only with the expression „repairs‟ as appearing in Section 30 and,

particularly, in Section 30 (a) (i) which relates to repairs to premises

undertaken by a tenant. The expression „current repairs‟ appearing in

Section 30 (a) (ii) relates to repairs undertaken by a person other than a

tenant. The distinction between „current repairs‟ and „repairs‟ is borne

out by the provision itself and would be apparent upon a plain reading

of Section 30 :-

"Section 30 RENT, RATES, TAXES, REPAIRS & INSURANCE FOR BUILDINGS.

In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed -

(a)Where the premises are occupied by the assessee -

(i) As a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, 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 or municipal taxes;

ITA No.1202-2006 5 of 12

(c) The amount of any premium paid in respect of insurance against risk of damage or destruction of the premises."

10. The decision in Sarvana Spinning Mills (supra) is also

distinguishable because in that case the Supreme Court was considering

the replacement of one of the machines of a textile mill which

comprised of 25 independent machines. The machine which was

replaced was the ring frame. The question arose, as to whether the

replacement of this ring frame would fall within the expression „current

repairs‟ as provided in Section 31(i) of the said Act. The Supreme

Court held that it did not and, therefore, the expenditure incurred for

this purpose was not allowable under Section 31(i) of the said Act. The

Supreme Court came to this conclusion, as would be apparent from its

observations at Page 209 of the said report, on the basis of the fact that

the ring frame was one of the 25 independent machines which formed

part of the textile plant. The Supreme Court used the following words:-

"In our view, the Assessing Officer was right in holding that each machine including the ring frame was an independent and separate machine capable of independent and specific function and, therefore, the expenditure incurred for replacement of the new machine would not come within the meaning of the words "current repairs". In the present case, it is not the case of the assessee that a part of the machine (out of 25 machines) needed repairs. The entire machine had been replaced. Therefore, the expenditure incurred by

ITA No.1202-2006 6 of 12 the assessee did not fall within the meaning of "current repairs" in section 31(i)."

11. The above extract immediately makes it clear that the case before

the Supreme Court was entirely different from the one before us. The

expression „current repairs‟ is not under consideration in the present

case, whereas before the Supreme Court it was that very expression

which was considered. Moreover, in the present case the replacement

was not of the premises but of certain „parts‟ such as the internal wires

and GI Pipes. The analogy of replacement of the entire machine is,

therefore, not applicable to the facts of the present case.

12. The learned counsel for the revenue also placed reliance on the

Supreme Court decision in Ballimal Naval Kishore and Another v.

Commissioner of Income Tax: 224 ITR 414. This decision is also

noted in Saravana Spinning Mills P.Ltd. (supra). The decision in

Ballimal Naval Kishore approved the test formulated by Chagla, CJ in

the case of New Shorrock Spinning and Manufacturing Co. Ltd. v.

CIT : (1956) 30 ITR 338 (Bombay) as to when could an expenditure be

said to have been incurred on „current repairs‟. In New Shorrock

Spinning and Manufacturing Co. Ltd. (supra), it was observed that

the expression „current repairs‟ means expenditure on buildings,

machinery, plant or furniture which is not for the purpose of renewal or ITA No.1202-2006 7 of 12 restoration but which is only for the purpose of preserving or

maintaining an already existing asset and which does not bring a new

asset into existence or does not give to the assessee a new or different

advantage. It was further observed that „current repairs‟ are such

repairs as one attended to as and when the need arises and that the

question as to when a building etc. required repairs and when the need

arises must be decided not by any academic or theoretical test but by

the test of commercial expediency.

13. However, the decision in Ballimal Naval Kishore (supra) was

also with regard to the expression „current repairs‟ appearing in Section

10(2)(v) of the 1922 Act which is similar to the expression appearing in

Section 30(a)(ii) and Section 31(i) of the Income Tax Act, 1961.

Whereas it is Section 10(2)(ii) of the 1922 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 only of „repairs‟ and not „current repairs‟. Thus, the

decision in Ballimal Naval Kishore (supra) would also be of no help to

the revenue in as much as the facts are entirely different.

14. On the other hand, the learned counsel for the assessee placed

reliance on the decisions of this Court in the case of Instalment Supply

Pvt. Ltd. (supra) and CIT v. Escorts Finance Ltd.: 2006 (205) CTR ITA No.1202-2006 8 of 12 Del 574. In CIT v. Escorts Finance Ltd. (supra) this Court was

considering the amount spent on providing wooden partition, painting,

glass work etc. in leased premises so as to make the premises usable.

This Court took the view that such repairs were of a revenue nature and

it was for the businessmen to see in what manner the leased premises

were to be maintained and what were the necessary repairs which were

required to be done. This Court, therefore, agreed with the view taken

by the Tribunal that the expenditure incurred on painting, polishing of

the floor, providing wooden panelling etc., were not in the nature of

repairs which were of such an enduring character so as to characterize

the same as capital expenditure.

15. In the case of Instalment Supply Pvt. Ltd. (supra), the

expenditure was towards sanitary fittings, flooring, painting, wood

work, electrical fittings etc. Applying the test laid down by the

Supreme Court in Empire Jute Co. Ltd. v. Commissioner of Income

Tax; [1980] 124 ITR 1, the Court was of the opinion that the assessee

had only obtained an advantage in a commercial sense by re-designing

the premises and providing better fittings, better material and marble

flooring. The advantage obtained by the assessee was for the purposes

of the business of the assessee and not for the acquisition of a capital

asset. The Court also observed that the legislature had used different ITA No.1202-2006 9 of 12 language in the provisions of Section 30(a)(i) and 30(a)(ii). It observed

that a tenant is entitled to the deduction of the amount spent on account

of the cost of the repairs to the premises when he has undertaken to

bear the cost of the repairs. If the amount is spent by the assessee,

otherwise than as a tenant, the amount paid by him on account of only

„current repairs‟ would be allowable. It was further observed that the

latter provision applies to the assessee occupying the premises

otherwise than as a tenant, as an owner or mortgagee in possession, and

in those cases the deduction is restricted in respect of the „current

repairs‟ to the premises. So far as a tenant was concerned, it was held

that the „repairs‟ to the premises would be allowable expenditure.

16. After having considered the arguments advanced by the learned

counsel for the parties and examined the decisions cited by them, we

are of the view that the assessee‟s claim for deduction under Section

30(a)(i) has been rightly allowed by the Tribunal. The decisions cited

by the learned counsel for the revenue relate to „current repairs‟. There

is a clear distinction between the expression „repairs‟ and the

expression „current repairs‟. It is obvious that the word „repairs‟ is

much wider than the expression „current repairs‟. This fact has also

been taken note of by the Supreme Court in the case of Saravana

Spinning Mills P.Ltd. (supra). The expression „current repairs‟ is ITA No.1202-2006 10 of 12 much more restricted than the word „repairs‟ because the latter is

qualified by the word „current‟. What the assessee has done in the

present case has been construed to be repairs by the Tribunal as a

finding of fact. It has not brought about any new asset and more

importantly it was not the intention of the assessee to bring about any

new capital asset. The expenses that were incurred by the assessee

were towards repairing the premises taken on lease so as to make it

more conducive to its business activity. Such expenses would clearly

fall within the expression of repairs to the premises as appearing in

Section 30(a)(i). The legislature has made a distinction between

expenses incurred by a tenant for „repairs‟ of the premises and expenses

incurred by a person who is not a tenant towards „current repairs‟ to the

premises. This distinction has to be given meaning. Perhaps the logic

behind the distinction was that a tenant would, by the very nature of his

status as a tenant, not undertake expenditures as would endure beyond

his likely period of tenancy or create a new asset. Whereas, an owner

may undertake expenditures so as to even bring about new assets of

capital nature. It was, therefore, necessary to qualify the expenditure

on repairs. The deduction was, therefore, limited to expenditure on

„current repairs‟ only. It follows, therefore, that the cost of repairs that

have been incurred by a tenant in respect of such premises would have

ITA No.1202-2006 11 of 12 to be allowed under Section 30(a)(i). The question of disallowing such

an expenditure and relegating the assessee to claim depreciation under

Section 32 does not arise. The assessee has not claimed depreciation. It

has claimed deduction under Section 30(a)(i). Once the assessee‟s

claim falls within that provision there is no question of considering the

question of applicability of Section 32. Consequently, the question that

has been framed is answered in favour of the assessee and against the

revenue. The appeal is dismissed.

                                       BADAR DURREZ AHMED, J




                                               RAJIV SHAKDHER, J

September 15, 2008
mb




ITA No.1202-2006                                            12 of 12