THE COMMISSIONER OF INCOME vs. N. RAGHUNATH

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TCA/862/2017HC Madras28 February 2020Bench: HONOURABLE DR.JUSTICE VINEET KOTHARI4 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court dismissed the appeal filed by the Revenue. The primary reason for dismissal was the issuance of CBDT Circular No. 17/2019 dated August 8, 2019. This circular stipulates that the Department shall not file or pursue appeals before the High Court if the tax effect does not exceed Rs. 1,00,00,000/- (Rupees One Crore). In the present case, the tax effect was found to be less than this monetary limit. Consequently, the appeal was dismissed as withdrawn. The Court explicitly stated that the substantial questions of law were kept open for determination in appropriate cases. No costs were awarded.

What were the facts?

This case involves a Tax Case Appeal filed by the Revenue (Commissioner of Income Tax, Chennai) against an order of the Income Tax Appellate Tribunal (ITAT), Madras 'A' Bench, dated March 7, 2017. The appeal concerns assessment year(s) not explicitly stated in the provided text. The dispute revolves around whether certain expenditures incurred by the assessee, Mr. N. Raghunath, for interior decoration and temporary wooden structures on leased premises, which allegedly provided enduring benefit, should be treated as revenue expenditure or capital expenditure. The ITAT had ruled in favour of the assessee, classifying these as revenue expenditure. The Revenue is challenging this finding.

What were the issues?

1. Whether the Tribunal was correct in holding that large sums spent on interior decoration and temporary wooden structures, which provided enduring benefit, constitute revenue expenditure and not capital expenditure, as per Section 37 of the Income Tax Act, 1961? 2. Whether the Tribunal's finding is flawed because the assessee claimed only 10% depreciation in its books of accounts but claimed 100% depreciation for income-tax purposes on temporary partitions, indicating a differential and incorrect treatment? 3. Whether the Tribunal should have applied the principles laid down by the Supreme Court in CIT Vs Mangayargarsi (315 ITR 114) concerning huge expenditures on leased premises yielding enduring benefits, thereby being capital in nature? Assessee's Contentions: Not recorded in the judgment. Revenue's Contentions: The Tribunal erred in treating the expenditure as revenue. The expenditure on interior decoration and temporary structures on leased premises resulted in enduring benefit, hence capital in nature. The assessee's inconsistent depreciation claims (10% in books vs. 100% for tax) also render the Tribunal's finding incorrect. Reliance was placed on CIT Vs Mangayargarsi.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 37

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Madras A

Order dt.28.8.2020 in TCA.No.862/2017 [CIT V. N.Raghunath] IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 28.08.2020 CORAM THE HONOURABLE DR.JUSTICE VINEET KOTHARI & THE HONOURABLE MR.JUSTICE KRISHNAN RAMASAMY

T.C.A.No.862 of 2017 The Commissioner of Income Tax, Chennai ... Appellant Vs Mr. N. Raghunath, New No.19, Old No.9, Judge Jambulingam Street, Mylapore, Chennai 600 004. PAN No: ACCPR4059E

... Respondent Prayer: Tax Case Appeal filed under Section 260-A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal, Madras 'A' Bench, dated 07.03.2017 in I.T.A.No.3223/Mds/2016.

For Appellant : Mr.T. Ravikumar Sr. Standing counsel

For Respondent : Mr.R.Kumar

O R D E R (Delivered by Dr.Vineet Kothari, J.) The Court was held by Video Conference, as per the Resolution of the Full Court dated 3 July 2020, by Judges at their respective residences and the counsel, staff of the Court appearing from their respective residences. 1/4 http://www.judis.nic.in Order dt.28.8.2020 in TCA.No.862/2017 [CIT V. N.Raghunath]

2.

This Tax Case Appeal has been filed by the Revenue, calling in question the correctness of the order passed by the Income Tax Appellate Tribunal, Madras “A' Bench by raising the following substantial questions of law: "(a) Whether the Tribunal was right in holding that the large sums of money incurred towards interior decoration, temporary wooden structure erected which give to a enduring benefit to the assessee are revenue expenditure and not capital?

(b) Is not the finding of the Tribunal bad since the assessee in its books of accounts maintained had claimed only 10 % depreciation but for the purpose of income-tax had claimed 100% depreciation on temporary partition adopting differential treatment which is not correct?

(c) Should not the Tribunal apply the principles laid down in the decision of the Apex Court in the case of CIT Vs Mangayargarsi reported in 315 ITR page 114 especially when huge expenditure were incurred by the Assessee on leased premises which has resulted in enduring benefit and therefore capital nature? 2/4 http://www.judis.nic.in Order dt.28.8.2020 in TCA.No.862/2017 [CIT V. N.Raghunath] 3. When the matter is taken up for hearing, learned Standing Counsel brought to our notice the Circular issued by the Central Board of Direct Taxes vide Circular No.17/2019 dated 8 August 2019, wherein, it is stipulated that appeals shall not be filed/pursued by the Department before the High Court in cases where the tax effect does not exceed Rs.1,00,00,000/- (Rupees One Crore). 4.In the instant case, the tax effect is said to be less than the monetary limit imposed and therefore, the Appeal filed by the Revenue is dismissed as withdrawn, keeping open the substantial questions of law for determination in appropriate cases. No costs. 5.Registry is directed to send a copy of the judgment to the Respondent/ Assessee in the address given in the Appeal.

[V.K.,J.] [K.R.,J.] 28.08.2020 msr Index:yes/no Internet:yes/no 3/4 http://www.judis.nic.in Order dt.28.8.2020 in TCA.No.862/2017 [CIT V. N.Raghunath] DR. VINEET KOTHARI, J. & KRISHNAN RAMASAMY,J.

Msr

T.C.A.No.862 of 2017

28.08.2020 4/4 http://www.judis.nic.in

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