Thiru Arooran Sugars Ltd. vs Deputy Commissioner of Income Tax

Chitra Venkataraman, J.—The assessee has preferred the present tax case (appeal) as against the order of the income tax Appellate Tribunal, raising the following substantial question of law:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the repairs and renovation expenses incurred on the leased business premises as capital expenditure?

The assessee, herein, who is in occupation of the leased premises, carried on renovation work by providing false ceiling and furniture modification to the extent of Rs. 1.71 lakhs and Rs. 9.19 lakhs. The assessee claimed that they were eligible for depreciation at 100 per cent. However, this expenditure was treated as capital expenditure. Thus, the assessment made on the assessee holding that part of the furniture and fittings were eligible for depreciation at the rate of 10 per cent. Aggrieved by the same, the assessee preferred an appeal before the Commissioner of income tax (Appeals), who agreed with the contention of the assessee and deleted the addition made. As against the order of the Commissioner of income tax (Appeals), the Revenue preferred an appeal before the income tax Appellate Tribunal. Distinguishing the judgment relied on by the assessee in the case of Commissioner of Income Tax Vs. Kisenchand Chellaram (India) P. Ltd., the Tribunal held that after the amendment to Explanation 1 to section 32(1)(ii) of the income tax Act, the said judgment could not be of any assistance of the assessee''s case and, hence, only the Explanation would apply. In the circumstances, the Tribunal held that the assessee was entitled to depreciation at 10 per cent. Accordingly, the matter was remitted back to the Assessing Officer for recomputation. Aggrieved by the same, the assessee has preferred the present tax case (appeal).

Learned counsel appearing for the assessee placed reliance on the decision of this court reported in Commissioner of Income Tax Vs. Ayesha Hospitals P. Ltd., wherein in respect of the claim made for the assessment year 1991-92, the assessee claimed the amounts spent on painting, relaying of the damaged floors, partitions, etc., as revenue expenditure. On an appeal before this court by the Revenue, it was pointed out that the assessee incurred expenditure for relaying of the damaged floors, painting and partition in respect of the leased property. Referring to the decision of the apex court reported in Commissioner of Income Tax, Tamil Nadu II, Madras Vs. Madras Auto Service (P) Ltd., , this court pointed out that the expenditure incurred in respect of the maintenance of the leased premises was deductible as revenue expenditure.

As regards the contention taken by the Revenue placing reliance on Explanation 1 to section 32(1)(ii) of the income tax Act, which was inserted with effect from April 1, 1988, this court pointed out that the Explanation is an exceptional one which permits depreciation in cases where the assessee does not own a building, in respect of which the assessee incurs capital expenditure 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. Applying the above said decision of this court to the facts of the present case, we hold that the temporary structure by means of false ceiling and office renovation had not resulted in any capital expenditure. The benefit of the above said decision of this court hence, applies to the facts of the case. Accordingly, the question is answered in favour of the assessee and the tax case (appeal) stands allowed. No costs.