Commissioner of Income Tax vs Bharat Commercial Corporation

At the instance of the Revenue, the Income Tax Appellate Tribunal, Patna Bench, has referred to this court for its opinion the following question

:

Whether, on the facts and in the circumstances of the case, the expenditure incurred of Rs. 42,000 over the renovation charges of the show-room

was capital expenditure or revenue expenditure specially in view of the provisions contained in Section 32(1A) ?

This reference has been made u/s 256 of the Income Tax Act, 1961 (in short, ""the Act""), for the assessment year 1980-81.

The assessee, an authorised dealer of Godrej Products, claimed renovation charges of its rented show-room at Rs. 42,000. The Income Tax

Officer held that the expenditure was of capital nature as the benefit for renovation would last from year to year. He, therefore, added the

expenditure but he allowed the depreciation at the rate of five per cent. The Commissioner of Income Tax (Appeals) did not agree with this view.

He held that the renovation in the rented premises did not become the property of the assessee and he, therefore, held that the expenditure of

renovation was revenue expenditure. The Revenue filed an appeal before the Tribunal. In the quantum appeal, the Tribunal observed that the

assessee, the tenant, had made certain renovation for the show-room and the rented premises did not become the property of the assessee merely

by an act of renovation. The Tribunal upholding the finding of the Commissioner of Income Tax (Appeals) also held that the expenditure incurred

on renovation of the rented shop was revenue expenditure.

We are not quite happy with the observation made by the Tribunal except to note that there is no finding to the contrary that any capital

expenditure of increasing (sic) in nature was incurred by the assessee.

Had that been so the provision of Section 32(1A) of the Act would have become directly applicable in the present case.

Section 32(1A) was omitted with effect from April 1, 1988. Our attention has been drawn to Section 32(1A) of the Act which we quote as

under :

(1A) Where the business or profession is carried on in a building not owned by the assessee 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 after the 31st day of

March, 1970, 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, in respect of depreciation of such structure or work, the following deductions shall, subject to the provisions of

Section 34, be allowed -

(i) such percentage on the written down value of the structure or work as may in any case or class of cases be prescribed ;

(ii) in the case of any such structure or work which is sold, discarded, demolished, destroyed or is surrendered as a result of the determination of

the lease or other right of occupancy in respect of the building in the previous year (other than the previous year in which it is constructed or done)

the amount by which the moneys payable in respect of such structure or work together with the amount of scrap value, if any, fall short of the

written down value thereof :

Provided that such deficiency is actually written off in the books of the assessee.

Explanation. -- For the purposes of this clause, --

(i) ''moneys payable'', in respect of any structure or work, includes -

(a) any insurance or compensation moneys payable in respect thereof ;

(b) where the structure or work is sold, the price for which it is sold ; and

(ii) ''sold'' shall have the meaning assigned to it in the Explanation to Clause (iii) of Sub-section (1).

On the basis of the aforesaid provision it was sought to be argued by the Revenue that the amount of Rs. 42,000 would be capital expenditure.

Since there is no finding of fact that the assessee had incurred any capital expenditure by way of renovation, we hold that Section 32(1A) would

not be applicable in the present case. Our attention has also been drawn to the decision of the Delhi High Court 78 ITR 200 (sic) though the same

relates to Section 30(a)(ii). Accordingly, we answer the question in the affirmative, in favour of the assessee.

There shall be no order as to costs.