INCOME TAX OFFICER v. S.L. BATRA
[Citation -1986-LL-0717-6]

Citation 1986-LL-0717-6
Appellant Name INCOME TAX OFFICER
Respondent Name S.L. BATRA
Court ITAT
Relevant Act Income-tax
Date of Order 17/07/1986
Assessment Year 1981-82
Judgment View Judgment
Keyword Tags test of enduring benefit • business expenditure • temporary structure • revenue expenditure • capital expenditure • transport operator • enduring advantage • judicial opinion • rented premises • revenue account • lease agreement • revenue nature • capital nature • capital asset • lease deed
Bot Summary: The ITO held following the decision of the Hon'ble Delhi High Court in the case of Hotel Diplomat v. CIT 1980 125 ITR 781 that expenditure incurred by the assessee was not on current repairs but was an expenditure of capital nature or for obtaining an advantage of endearing nature. After referring to a catena of decisions of the various High Courts on which reliance had been placed before him by the assessee, the Commissioner held that the expenditure incurred by the assessee on making the tenanted premises usable for office purposes was a revenue expenditure allowable under the provisions of section 37(1) of the Income-tax Act, 1981. According to him, the expenditure incurred by the assessee was initial expenditure for making the premises usable and that the view taken by the ITO should be preferred to the view taken by the Commissioner. Mr. Sharam has also referred to the provisions of section 32(1A) of the Act, in order to contend that the expenditure incurred by the assessee in the premises taken on lease was a capital expenditure. The allocation of Rs. 75,000 between revenue expenditure and capital expenditure has already been given by us in an earlier portion of this order and now we would proceed to decide as to whether the expenditure incurred by the assessee as per details given above was capital or revenue in nature. After instructing ourselves with the law laid down in the above mentioned cases and after looking, in particular, to the law laid down by the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. and after once again carefully going through the details of expenses, we are of the view that the expenditure claimed was an allowable business expenditure which was incurred i n order that the assessee's profession could be carried on with greater facility and efficiency. The provisions of section 32(1A) are no doubt indicative of the law that any capital expenditure incurred by an assessee in the premises taken on lease or on the basis of any other rights of occupancy would be inadmissible expenditure and would be eligible for grant of depreciation only, but in the present case the details of the expenditure incurred by the assessee do not show that those were capital in nature.


In only one ground raised in this appeal by revenue, objection taken to order dated 8-10-1984 passed by Commissioner (Appeals) is following terms: "On facts and in circumstances of case learned Commissioner (Appeals) has erred in treating sum of Rs. 61,982 spent by assessee on renovation of office, taken on lease from his son as revenue expenditure as against capitals expenditure rightly held by ITO in view of Delhi High Court judgment in case of Hotel Diplomat v. CIT [1980] 125 ITR 781." 2. In accounting year relevant to assessment year 1981-82, assessee claimed expenditure of Rs. 61,982 towards cost of providing wooden partitions, panelling of walls, false ceiling, fixing book cases and platform type tables on walls and on painting, polishing, white-washing and floor polishing, etc. contract was given by assessee to firm named Vibgyor of New Delhi for sum of Rs. 75,000 for getting above work executed and for making of same furniture. expenditure of Rs. 75,000 was allocated by assessee as follows: Rs. (1) Cost of making partition, wooden panelling, false ceiling, painting and white-washing, etc. 60,990 (2) Cost of furniture 14,010 -------- Total 75,000 -------- Besides expenditure of Rs. 60,990 allocated as above, assessee incurred further expenditure of nearly Rs. 1,000 on cost of plywood painting, lights, labour charges, miscellaneous material and table making charges. In all expenditure of Rs. 61,982 was claimed to be expenditure of revenue nature. ITO held following decision of Hon'ble Delhi High Court in case of Hotel Diplomat v. CIT [1980] 125 ITR 781 that expenditure incurred by assessee was not on current repairs but was expenditure of capital nature or for obtaining advantage of endearing nature. On appeal, Commissioner (Appeals) held that facts in case of Hotel Diplomat (supra) were different and, therefor, law laid down by Hon'ble Delhi High Court in that case was not applicable. After referring to catena of decisions of various High Courts on which reliance had been placed before him by assessee, Commissioner (Appeals) held that expenditure incurred by assessee on making tenanted premises usable for office purposes was revenue expenditure allowable under provisions of section 37(1) of Income-tax Act, 1981 ('the Act'). 3. appeal by revenue has been filed in background of abovementioned facts. Shri K. K. Sharma, learned departmental representative has supported order passed by ITO by submitting that law laid down by Hon'ble Delhi High Court in case of Hotel Diplomat (supra) squarely applied to facts of case and against assessee. Mr. Sharma has also placed reliance on decision of Hon'ble Punjab High Court in Uttar Bharat Exchange Ltd. v. CIT [1965] 55 ITR 550 in order to contend that expenditure claimed by assessee was capital in nature. According to him, expenditure incurred by assessee was initial expenditure for making premises usable and that, therefore, view taken by ITO should be preferred to view taken by Commissioner (Appeals). Mr. Sharam has also referred to provisions of section 32(1A) of Act, in order to contend that expenditure incurred by assessee in premises taken on lease was capital expenditure. 4. On other hand, Shri S. L. Batra has contended that expenditure was of revenue nature. In order to support his contention Shri Batra has taken us through paper book and in particular through details of expenses which were incurred through Vigyor. He has also taken us through lease agreement by virtue of which premises in question were tenanted and through written note which had been submitted before Commissioner (Appeals). He has placed reliance on decision of there Hon'ble Supreme Court in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 and on decision of Hon'ble High Court in CIT v. Kisenchand Chellaram (India) (P.) Ltd. [1981] 130 ITR 385 (Mad.), Girdhari Dass & Sons v. CIT [1976] 105 ITR 339 (All.), CIT v. J. K. Industries (P.) Ltd. [1980] 125 ITR 218 (cal.) and CIT v. Mehta Transport Co. [1986] 160 ITR 35 (Guj.), in support of his contentions. He has also placed reliance on certain decisions of Tribunal, copies of which have been furnished as part of paper book. Referring to provisions of section 32(1A), Mr. Batra submits that those provisions relate to grant of depreciation on capital expenditure incurred by occupant of any premises taken on lease or on rent. According to him, those provisions do not in any way stand in way of assessee's claim because latter had not, while incurring expenditure in question, made any extension or improvement in building or on construction of any 'pakka' structure. 5. We have considered rival submissions. Since according to us, question raised in departmental appeal is primarily question of fact, we have minutely examined details o expenses incurred by assessee in premises taken on lease. We find that expenditure had, in fact, been incurred on making partitions of teak commercial ply and on paneling of cemented walls by kail wood. Apart from these, expenditure had also been incurred on providing false ceiling in cabins which were put up by installation of partition walls. major expenditure had been incurred on these items. Besides, expenditure had also been incurred on distempering of walls, minor repairs, painting of doors, windows and almirahs, polishing of wooden fixtures, white-washing, distempering and polishing of floors. part of expenditure had also been incurred on providing settee in reception room, tables for stenographers and on providing almirahs in kitchen. total expenditure, thus, incurred, in fact, amounted to Rs. 99,033 and assessee had been able to settle account by paying limp sum of Rs. 75,000. allocation of Rs. 75,000 between revenue expenditure and capital expenditure has already been given by us in earlier portion of this order and now we would proceed to decide as to whether expenditure incurred by assessee as per details given above was capital or revenue in nature. Before we do so, we may take notice of various decisions on which reliance has been places by contending parties. 6. In case of Hotel Diplomat (supra) it had been held by their Lordships 6. In case of Hotel Diplomat (supra) it had been held by their Lordships of Hon'ble Delhi High Court that expenditure of Rs. 3,361 for construction of bathrooms was capital expenditure. Since apparently facts in that case were entirely different, from facts found in present case, we would agree with viewpoint of Commissioner (Appeals) that reliance placed by ITO on this decision, does not in any way help department's case. decision in case of Uttar Bharat Exchange Ltd. (supra) on which reliance has been placed by learned departmental representative supports case of department. In that case, assessee had taken premises on lease for period of two years and as per terms of lease agreement, it had been permitted to erect shades, partitions, and temporary structure for carrying on its exchange business Their Lordships of Punjab High Court held that expenditure was essentially capital in nature. 7. Referring to cases on which reliance has been placed by assessee, we have first of all looked into law which has been laid down by Hon'ble Supreme Court in case of Empire Jute Co. Ltd. (supra). It has been held by their Lordships as follows: "There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and t h e test of enduring benefit may break down. It is not every advantage of enduring nature acquired by assessee that brings case within principle laid down in this test. What is material to consider is nature of advantage in commercial sense and it is only where advantage is in capital field that expenditure would be disallowable on application of this test. If advantage consists merely in facilitating assessee's trading operations or enabling management and conduct of assessee's business to be carried on more efficiently or more profitably while leaving fixed capital untouched, expenditure would be on revenue account, even though advantage may endure for indefinite future. test of enduring benefit is, therefore, not certain or conclusive test and it cannot be applied blindly and mechanically without regard to particular facts and circumstances of given case." (p. 2) In decision of Hon'ble Allahabad High Court in case of Girdhari Dass & Sons (supra) assessee had made some structural changes by renovating, furnishing, and remodeling of its business premises. Their Lordships of Hon'ble Allahabad High Court held if tenant of premises incurs any expenditure on rented building for its renovation or alteration, it does not acquire any capital asset and that ordinarily such expenditure is revenue in nature. Hon'ble Allahabad High Court further held that expenditure, thus, incurred was not expenditure resulting in any enduring advantage to assessee. In case of J. K. Industries (P.) Ltd. (supra) assessee-company had incurred certain expenditure on paneling walls with plywood. It was held by their Lordships of Hon'ble Calcutta High Court that expenditure incurred in putting up Wooden paneling did not result in any enduring benefit to assessee and was deductible as revenue expenditure. In case of Kisenchand Chellaram (India) (P.) Ltd. (supra) assessee had taken three buildings on lease and effected improvements in those buildings by construction of partition walls and by providing wall panellings and show-windows, etc. Their Lordships of Madras High Court held that expenditure, thus, incurred was of revenue nature. In case of Mehta Transport Co. (supra) assessee was transport operator having branch office in rented premises. loft construction inside office premises was made for providing adequate accommodation to staff. Their Lordships of Hon'ble Gujarat High Court held that available office space was put to optimum use resulting in greater efficiency and in improvement of working conditions and that therefore expenditure incurred by assessee did not bring into existence any enduring benefit and was allowable as revenue expenditure. In decision of Tribunal in case of Kapur & Co [IT Appeal No. 4137 (Delhi) of 1984, decided on 10-4-1986], assessee had incurred expenditure of Rs. 21,919 for providing new front walls and doors and on replacement of wooden log by iron girder and on panelling of office premises. Tribunal held that expenditure, thus, incurred was on revenue account. As regards provisions of section 32(1A), Tribunal held that those provisions deal with grant of depreciation on capital expenditure incurred in rented premises by way of extension or improvement to building. According to Tribunal, provisions of section 32(1A) did not in any way stand in way of that assessee's claim. 8. After instructing ourselves with law laid down in above mentioned cases and after looking, in particular, to law laid down by Hon'ble Supreme Court in case of Empire Jute Co. Ltd. (supra) and after once again carefully going through details of expenses, we are of view that expenditure claimed was allowable business expenditure which was incurred i n order that assessee's profession could be carried on with greater facility and efficiency. Even though advantage obtained by assessee in bifurcating office space into convenient wooden cabins might endure during period of lease of five years or any extended period of lease, it could not be said to have resulted in incurring of expenditure in capital field. expenditure which was incurred by assessee on properly utilizing office space and on facilitating assessee's professional activities was nothing, but part of assessee's working expenses or expenses incurred wholly and exclusively for purposes of assessee's profession. Judging from practical and business point of view and on analogy of decisions referred above it appears to us that bifurcation of expenditure of Rs. 75,000 as made by assessee and as reproduced in paragraph 2 of this order was properly made between revenue and capital expenditure. As already stated in earlier portion of this order, Vibgyor had billed assessee in all for sum of Rs. 99,033 for doing various jobs of revenue nature and capital nature. assessee had settled account of above named firm by paying sum of Rs. 75,000 only. Having regard to expenditure which can be related to manufacture of furniture, allocation of capital expenditure at Rs. 14,010 was in order and that rest of expenses were allowable as revenue expenses. 9. We have gone through agreement of lease entered into between assessee on one hand and his son on other. It is evident from that deed that assessee, who was lessee of premises was allowed to make minor alterations and attach fixtures, etc., inside hall taken on lease and that major structural changes or repairs to building were to be undertaken only by lessor. In accordance with terms of lease deed, assessee had structured its office space by making wooden cabins and by incurring other expenses on distempering and white-washing of inside of building which was nothing, but revenue expenditure. provisions of section 32(1A) are no doubt indicative of law that any capital expenditure incurred by assessee in premises taken on lease or on basis of any other rights of occupancy would be inadmissible expenditure and would be eligible for grant of depreciation only, but in present case details of expenditure incurred by assessee do not show that those were capital in nature. assessee had not made any renovation, extension or improvement to building or structure which had been taken on lease. What had been done by assessee was that it had made certain cabins in hall in order that it could utilize space with optimum advantage. In such circumstances provisions of section 32(1A) would not in any way advance case of revenue. decision of Hon'ble Punjab High Court in Uttar Bharat Exchange Ltd.'s case (supra) no doubt helps case of revenue, but as against that there are several other decisions of Hon'ble High Courts and of Hon'ble Supreme Court which, as discussed above, support case of assessee. preponderance of judicial opinion is in favour of assessee. 10. On above facts and in circumstances, we would upheld order passed by Commissioner (Appeals) and dismiss departmental appeal. *** INCOME TAX OFFICER v. S.L. BATRA
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