Case: Commissioner of Income-Tax, Panaji, Goa Vs. Hede Consultancy Private Limited &amp; Another

FACTS IN BRIEF2.The brief facts pertaining to the case are as under:The assessee is a Pvt. Ltd. Company carrying on business at various places, inter alia at Mumbai. The assessment year involved isThe assessee filed its return on 30th June 1988, declaring taxable income of Rs.The assessee spend Rs.9,20,436/for converting the godown premises into office by renovating it, incurring expenses on interior decoration, which resulted in replacement of existing roof with that of cement sheets, replacement of floor with that of marble, plastering of walls and construction of bathrooms and W.C., etc. The assessee claimed the said expenditure of Rs.9,20,436/as revenue expenditure and thereby refused to treat it as capital expenditure, since in his belief it was towards repairs and maintenance of the said premises taken on rent by theresponse to the Notice under sections 142(1) and 143(2) of the Income Tax Act, 1961. (hereinafter referred to as the "IT Act") the assessee furnished various details. However, the Assessing Officer disallowed the claim and allowed depreciation on the said amount under section 32 of the IT Act, holding the said expenditure to be of capital inappeal was carried at the instance of the assessee to the Commissioner of Income Tax (Appeals). ("C.I.T. (A)", for short). The C.I.T. (A), by Order dated 31st October, 1991, allowed 1/6th of the rental value as maximum possible amount attributable towards repairs and the balance of the amount was treated as capitalaggrieved, the assessee filed an appeal before Income Tax Appellate Tribunal ("ITAT" for short). The ITAT by Order dated 28th September, 2001, deleted the additions made by the Assessment Officer, holding that the expenditure incurred on the rented building for the renovation or alteration is ordinarily of a revenue inaggrieved by the aforesaid Order of the ITAT the Revenue is in appeal before us under section 620 A of the IT Act and has raised the question of law set out hereinabove.

Reasoning: 13.The Apex Court while dealing with this question relied on the following cases:(i) Lakshmiji Sugar Mills co. P. Ltd. vs. CIT, (1971) 82 ITR 376 (SC); wherein the assessee company was carrying on business of manufacture and sale of sugar. It paid to the Cane Development Council certain amounts by way of contribution for the construction and development of roads between the variouscenters and the sugar factories of the assessee. The road remained the property of the Government. The Apex Court held that the expenditure was not of capital nature and had to be allowed as an admissible deduction in computing the profits of the assessees business. The expenditure was incurred for the purpose of facilitating the running of the assessees motor vehicles and other means employed for transportation of sugarcane to itsIn the case of L.H. Sugar Factory and Oils Mills (P) Ltd. vs. CIT, (1980) 125 ITR 293 (SC), the assessee was carrying on the business of manufacture and sale of sugar. It had its factory in U.P. The assessee paid a contribution towards meeting the cost of construction of roads in the area around it factory under a sugarcane development scheme. The question was whether this amount was deductible in computing the assessees profits. The Apex Court held that it was, because although the advantage secured was of long duration, it was not an advantage in the capital field because no tangible or intangible asset was acquired by the assessee; nor was there any profit to or expansion of theapparatus of the assessee. The amount was contributed for the purpose of facilitating the business of the assessee and making it more efficient and profitable. It was, therefore, held to be expenditure of revenueIn another case CIT vs. Associated Cement Co. Ltd., (1988) 172 ITR 257 (SC), theentered into an agreement to supply water to the municipality and provide water pipelines as also to supply electricity for street lighting and put up a transmission line for that purpose. The assessee also agreed to concrete the main road from the factory to the railway station. The amounts expended for these purposes were held to be revenue expenditure since the installations and accessories were the assets of the Municipality and not of the assessee. The expenditure, therefore was held to be not of capital nature. The advantage secured by the respondent was immunity from liability to pay municipal rates and taxes for a period of 15 years. The Apex Court said that had these liabilities been paid the payment would have been on revenue account. Therefore, the advantage secured was in the field of revenue and notIn the case.of CIT vs. Bombay Dyeing and Manufacturing Co. Ltd., (1996) 219 ITR 521 (SC), the company contributed to the State Housing Board certain amounts for construction of tenements for its workers. The tenements remained the property of the Housing Board. It was held that the expenditure was incurred wholly and exclusively on the welfare of the employees and, therefore, constituted legitimate business expenditure. As theacquired no ownership rights in the tenements, the Apex Court said that the expenditure was incurred merely with a view to carry on the business of the company more efficiently by having a contented labourthese cases have looked upon expenditure which did bring about some kind of an enduring benefit to the company as a revenue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expenses have been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully. As in the present case also since the assets created by spending the said amount did not belong to the assessee but the assessee got the business advantage of using modern business premises at a low rent, thus saving considerable revenue expenditure for a considerably long period, the Tribunal was perfectly justified in coming to the conclusion that the expenditure should be looked upon as revenue expenditure. No fault can be found with the findings recorded by the tribunal.