Madras High Court
Commissioner Of Income Tax Ii vs K.V. Nellaiappan on 25 November, 2021
T.C.A.No. 303 of 2009
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 25.11.2021
CORAM
THE HONOURABLE MR.JUSTICE R.MAHADEVAN
and
THE HONOURABLE MR.JUSTICE MOHAMMED SHAFFIQ
T.C.A. No. 303 of 2009
Commissioner of Income Tax II
Madurai. .. Appellant
Vs.
K.V. Nellaiappan,
Prop.M/s. Rm K V Enterprises,
North Car Street,
Tirunelveli,
PAN: AAJPN827511 ..
Respondent
Tax Case Appeal filed under Section 260A of the Income Tax Act,
1961 against the order of the Income Tax Appellate Tribunal 'B' Bench,
Chennai dated 12.09.2008 in ITA No.2214/Mds/2007 for the assessment
year 2003-04.
For Appellant : Mr. M.Swaminthan
Senior Standing Counsel
assisted by Ms.V.Pushpa
Standing Counsel
1/8
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T.C.A.No. 303 of 2009
For Respondent : No appearance
JUDGMENT
(Judgment was delivered by R.MAHADEVAN, J.)
This tax case appeal has been filed by the appellant / Revenue,
challenging the order dated 12.09.2008 passed by the Income Tax Appellate
Tribunal, 'B' Bench, Chennai, in I.T.A.No.2214/Mds/2007, relating to the
assessment year 2003-04.
2.By order dated 28.04.2009, this court admitted the aforesaid tax
case appeal on the following substantial question of law:
“Whether in the facts and circumstances of the
case, the Tribunal was right in holding that expenditure on
construction of building in a leasehold premises would
amount to revenue expenditure, contrary to the clear
provisions of Explanation 1 to Section 32(1) of the
Income Tax Act?”
3.When the matter was taken up for consideration, the learned
senior standing counsel appearing for the appellant / Revenue submitted that
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T.C.A.No. 303 of 2009
the issue raised in this appeal is squarely covered by the judgment of this
Court in Commissioner of Income Tax, Madurai -vs- Viswams [[2019]
105 taxmann.com 289 (Madras)], where identical question was decided
against the assessee and the appeal filed by the Revenue was allowed. The
relevant paragraphs of the said judgment are usefully extracted hereunder:
“17. A further examination of the facts of the case
shows that the Assessees have actually put up substantial
construction of enduring benefit and also renovated the
building for the purpose of their business. Explanation 1 to
Section 32(1) is as follows:-
“[Explanation 1.- Where the business or profession of
the assessee is carried on in a building not owned by him but in
respect of which the assessee holds a lease or other right of
occupancy and any capital expenditure is incurred by the
assessee for the purposes of the business or profession on the
construction of any structure 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 or work is a building owned
by the assessee.”
18. This Explanation had been inserted by the
Taxation Laws (Amendment and Miscellaneous Provisions)
Act 1986 with effect from 01.04.1988. The Judgement
heavily relied on by the learned counsel for the Assessees,
namely, Madras Auto Services (P) Ltd., cited supra related
to the Assessment Year 1968- 1969 before the above
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T.C.A.No. 303 of 2009
provision was brought into effect. The further Judgement
relied on by the learned counsel for the Assessees in Hari
Vignesh Motors (P) Ltd., cited supra in the course of the
said Judgement did not consider the said Explanation. The
other Judgement relied on by the learned counsel in TVS
Lean Logistics Ltd., cited supra related to totally
distinguishable set of facts. In that case, the Assessee had
put up construction of a building on a lease hold land. The
building was not taken on lease. Consequently, it was held
as follows:-
“4.1. It is not in dispute that the assessee had put up
the impugned construction of building only on the leasehold
land and no building was taken on lease by the assessee.
Therefore, the fiction created by Expln. 1 that the building put
up by him in the leasehold land or structure or work shall be
construed as if the same is owned by the assessee, is not
applicable to the case of the assessee and the Expln. 1 to
S.32(1) of the Act is not attracted to the instant case of the
assessee at all.”
The aforesaid Judgement cited by the learned counsel for the
Assessee are therefore not applicable to the facts of the
present 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 incurred on repairs to chairs, renovation of
building and modernisation of cinema house taken on lease
by the Assessee, it was held that they are capital expenditure
since it brought an enduring benefit. The relevant discussion
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T.C.A.No. 303 of 2009
on this aspect is quoted below:-
“It cannot be denied that the amount spent for the
construction of the verandh, office room, side room and bath
rooms brought into existence an asset of an enduring nature. It is
no one's case that only the existing verandah, office, side room or
bath rooms were repaired. What appears is that these
constructions were brought into being for the purpose of
modernising the cinema hall. Therefore, the construction of
verandah, office, side room, etc., for the purpose of modernising
the cinema hall brought into existence are asset of enduring
nature in the true sense of the word. The object of the assessee in
replacing the old wooden chairs by steel chairs was to attract
larger and better customers. This was in fact an outlay for the
purpose of earning profits or, in other words for the purpose of
better business. It was not an expense which was of a recurring
nature, and therefore, it can be safely said that the lessee brought
into being an asset of an enduring nature. Undoubtedly, it was an
improvement. The wooden chairs were replaced. No evidence
had been led to show that the wooden chairs had been useless
and could not be used for seating the cinema-goers. On the other
hand, the stand taken was that the whole object was to modernise
the cinema house to bring it in line with the modern show
business. The replacement was an improvement of an enduring
nature and not mere replacement. Capital expense with regard to
a short-term venture, such as a lease for a period, had to be
viewed in the context of that lease, namely, its purpose coupled
with its duration. Expenditure incurred by the assessee is an
expenditure of a capital nature and it brought into being an
advantage of an enduring nature and thus it had been rightly
treated as such by the Tribunal, except to the extent of the
amount found by the Tribunal being on account of repairs.”
20. In view of the above propositions, we are of the
considered view that the expenditure incurred by the
Assessee in the present case are Capital in nature and come
within the mischief of Explanation 1 to Section 32(1) of the
Act. The alternate submission advanced by Mr.M.P.Senthil
Kumar that the repairs to the premises cannot be capitalised
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T.C.A.No. 303 of 2009
in view of Section 30(a)(i) of the Act is rejected since the
renovations made are Capital in nature in the first
Assessment Year and only further repairs may attract the
provisions under Section 30(a)(i) of the Act. Section 30(a)(i)
of the Act is as follows:-
“30. 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.”
21. In the present case, the Assesses had incurred
substantial expenditure towards renovation leading to
enduring benefit. They are not merely repairs. The Assessees
had also incurred expenditures towards improvement and
construction of the building. These cannot be termed as
'repairs'. Consequently, this alternate submission is rejected
by us. The second alternate submission advanced by
Mr.M.P.Senthil Kumar that the case should be remitted back
to the Assessing Officer is also rejected since the fact have
been addressed and settled by the Authorities below and it
had been concurrently found that the expenditure were
capital in nature. The issue of bifurcating the said expenses
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T.C.A.No. 303 of 2009
as capital and revenue would therefore not arise.
22. In view of the above reasons, we hold that the
substantial questions of law have to be answered in favour
of the Revenue and against the Assessee and the Appeals
filed by the Revenue have to be allowed. Accordingly, the
Appeals are allowed. No costs.”
4.In the light of the above judgement, which holds the field, the
substantial question of law is answered against the assessee and the appeal
filed by the appellant / Revenue is allowed. No costs.
[R.M.D., J.] [M.S.Q., J.]
25.11.2021
Index : Yes/No
Speaking/Non-Speaking Order
Maya
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T.C.A.No. 303 of 2009
R. MAHADEVAN, J.
and
MOHAMMED SHAFFIQ, J.
Maya
To
1.Commissioner of Income Tax II
Madurai.
2.The Income Tax Appellate Tribunal,
'B' Bench, Chennai.
T.C.A. No. 303 of 2009
Dated : 25.11.2021
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