Income-Tax Appeal No. 305 of 2005 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ---- Income-tax Appeal No. 305 of 2005 Date of decision: 8.11.2010 M/s. Bony Rubber Co. Pvt. Ltd. --- Appellant Versus The Commissioner of Income Tax Faridabad --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL ---- PRESENT: Mr. Sanjay Bansal, Sr. Advocate with Ms. Sweta Malhotra, Advocate for the appellant. Ms. Urvashi Dhugga, Govt. Standing Counsel for the respondent-Revenue. ---- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-tax Act, 1961 (for short “the Act’”) has been filed by the assessee against the order dated 28.3.2005, passed by the Income Tax Appellate Tribunal, Delhi Bench “B”, New Delhi (in short “the Tribunal”) in ITA No. 28/Del/2001 relating to assessment year 1997-98. The appeal was admitted on 21.11.2006, for determination of the following substantial question of law: “Whether on an application of the correct principles of law, was the Tribunal legally correct on the facts in the circumstances of the case, in holding that the expenditure Income-Tax Appeal No. 305 of 2005 2 incurred by the assessee-Company on the repairs of the building was capital expenditure?” In brief, the facts necessary for adjudicating the appeal are that during the assessment year under consideration, the assessee-appellant incurred an expenditure of Rs. 6,04,886/- carrying out renovation in its building so as to bring it within the ambit of quality standard ISO 9002. The assessing officer treated the said amount as capital expenditure as the assessee had derived enduring benefit from that development. The Commissioner of Income Tax (Appeals), [for short “CIT(A)”], however, after examination of the matter did not feel satisfied with the approach of the assessing officer and accordingly, deleted the disallowance made by the assessing officer, vide order dated 18.10.2000. The Revenue preferred appeal whereas the appellant- assessee filed cross-objections against the order of the CIT(A), before the Tribunal. Tribunal accepted both, the appeal as well as the cross-objections, vide order under appeal. This is how the present appeal has been filed by assessee. We have heard learned counsel for the parties and have perused the record. Learned counsel for the appellant submitted that the expenditure for repairs incurred by the assessee was revenue in nature and the Tribunal had wrongly held it to be capital. He placed reliance on the following judgments: 1- Empire Jute Co. Ltd. Vs. Commissioner of Income Tax, 124 ITR 1 (SC); Income-Tax Appeal No. 305 of 2005 3 2- Commissioner of Income Tax, Kerala v. Malayalam Plantations Ltd. (1964) 53 ITR 140 (SC); 3- Commissioner of Income-tax v. Madras Auto Service (P) Ltd. (1998) 233 ITR 459; 4- Commissioner of Income Tax v. TVS Lewan Logistics Ltd. (2007) 293 ITR 432 (Mad.); 5- Commissioner of Income Tax v. Hari Vignesh Motors P. Ltd. (2006) 282 ITR 338 (Mad.); 6- Goger Enterprises (P) Ltd. v. Commissioner of Income Tax, (2008) 169 Taxman 41 (Delhi); 7- Commissioner of Income Tax vs. HEDE Consultancy (P) Ltd. (2003) 127 Tazman 597 (Bom); 8- Commissioner of Income Tax v. Khimline Pumps Ltd. (2002) 125 Taxman 104 (Bom.); 9- Commissioner of Income Tax v. Laxmi Talkies (2006) 151 Taxman 99 (Guj.); 10- Commissioner of Income-Tax (Central), Madras vs. Dasaprakash, (1978) 114 ITR 210 (Madras); 11- Commissioner of Income-Tax v. Ooty Dasaprakash, (1999) 237 ITR 902 (Madras); 12- B and A Planatation and Industries Ltd. vs. Commissioner of Income tax, (2000) 242 ITR 22 (Gauhati); 13- Commissioner of Income Tax v. Porrits and Spencer (A) Ltd. (2002) 257 ITR 49 (P&H); 14- Commissioner of Income Tax v. Lake Palace Hotels and Motels P. Ltd. (2002) 258 ITR 562 (Rajasthan) Income-Tax Appeal No. 305 of 2005 4 15- Assam Bengal Cement Co. Ltd. v. Commissioner of Income Tax, West Bengal, (1955) 27 ITR 34. On the other hand, learned counsel for the Revenue supported the order passed by the Tribunal. The Tribunal after perusing the record came to the conclusion that the expenditure incurred by the assessee on the renovation and maintenance of the building was capital expenditure in nature and in view of the provisions of Explanation 1 to Section 32 of the Act, which was inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1.4.1986, the assessee was entitled to depreciation only and the entire expenditure was not admissible in the year in question. The relevant findings recorded by the Tribunal in para 4 of its order read thus: “We have heard the parties with reference to material on record. Essentially by incurring an expenditure on renovation, the assessee gave effect of a quality building which conformed to the norms assets for obtaining ISO 9002 certificate. This resulted into the improvement of value of the building. The expenditure incurred was not in the nature of current repairs. As the expenditure incurred has resulted in improvement of the building value relating to the business of the assessee and in the improvement being permanent, the same was capital in nature. The Ld. CIT (A), therefore, has erred in holding it revenue expenditure merely because the assessee has incurred expenditure in rented premises. Such a reasoning taken Income-Tax Appeal No. 305 of 2005 5 by the Ld. CIT(A) after the amendment inserted by the Taxation Laws (Amendment & Misc. Provision) act, 1986, w.e.f. 1.4.1988 does not conform to the legal position. Explanation-I that has been appended below Section 32 of the Act w.e.f. 1.4.1988 reads as under: “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 purpose 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.” According to the aforesaid explanation if the expenditure is capital in nature and the same is incurred by the assessee for the purpose of business in a premises of which the assessee holds lease or other right of occupancy then any expenditure incurred on renovation and improvement of the building shall be treated as if the said contract or work is in a building owned by the assessee. Going by the aforesaid amendment it would not be material if the assessee carried out renovation or improvement in rented premises. By that reason alone, Income-Tax Appeal No. 305 of 2005 6 the expenditure incurred cannot be characterized as revenue in nature. In the present case, we have already reached a conclusion that the amount spent was in the nature of capital expenditure. The decision taken by the Ld. CIT(A) therefore, has to be set aside and the decision taken by the Ld. assessing authority is hereby restored. The AO, however, shall allow depreciation to the assessee in accordance with provisions of law.” The aforesaid finding was not shown to be erroneous or perverse in any manner. Reference is now made to the judgments relied upon by the learned counsel for the appellant-assessee. The legal propositions laid down in those pronouncements are well recognized, but they do not come to the rescue of the assessee in the light of the finding recorded by the Tribunal as noticed above. Accordingly, the substantial question of law is answered against the assessee and finding no merit in the appeal, the same is hereby dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) November 8, 2010 JUDGE *rkmalik*