FAB INDIA OVERSEAS P. LTD. vs. THE COMMISSIONER OF INCOMET AX


IN THE HIGH COURT OF DELHI AT NEW DELHI

Reserved on: 13th October, 2009 Pronounced on: 6th November, 2009

FAB India Overseas P. Ltd.

. . Appellant

through:

Mr. Rajan Bhatia, Advocate.

VERSUS

Commissioner of Income Tax

... Respondent

through:

Mr. N.P. Sahini and Mr. P.C. Yadav,

Advocates.

CORAM:-

THE HON'BLE MR. JUSTICE A.K. SIKRI THE HON'BLE MR. JUSTICE SIDDHARTH MRIDUL

- 1. Whether Reporters of Local newspapers may be allowed to see the Judgment? - 2. To be referred to the Reporter or not? - 3. Whether the Judgment should be reported in the Digest?

A.K. SIKRI, J.

Page 1 of 12

हैन टेन

in nature. According to the assessee/appellant, the expendit incurred was revenue in nature and there was no need to remit the case back to the CIT(A) for this purpose.

"<u>HO</u>

Aluminum and wooden partitions on 2^nd floor, electric work etc. 398973

Interior for mock show room, electric fitting etc.

215876

<u>G.K.</u>


Renovation | 542010 Renovation N 14 & N 13 | 84095 <b>v</b> <u>Bangalore</u> Tera tiles purchased | 22689 <u>Hyderabad</u> Sundry granite works in pantry counter and steps | 15935 Replacement of switches, wires & lights | 490017 Plastering & Painting of inner and out walls ceiling etc. | 287255 Repair of false ceiling | 263935 repair or anot coming <u>Kolkata</u> Painting of shop and plaster of pairs work | 271677 Grinding and polishing of floor | 57064 Changing of electric wire and light | 333467 Changing of window glass | 163314 External glazing of doors and windows | 38700 Block of existing doors | 92235 Replacement of single holders | 58540 Renovation of entrance area | 38700 Replacement of telephone and intercom | 38700 Replacement of pantry equipment | 19350 Civil work of pantry | 25800 Replacement of dividers, door handles and fans | 25155 Floor grinding and repair charges | 41280


modalities of the assessee's trade entail the need of maintair good show rooms with fine interiors to meet the standards of the elite class who are the customers of the assessee. Therefore, the expenditure was carried out for business more efficiently. The advantage obtained for the business purpose and not for acquisition of any asset.

It is clear from the expenditure incurred on different items, enumerated above, that the expenditure incurred by the assessee is claimed as revenue expenditure on the ground that the same was for the purposes of repair and renovation of its show-rooms and head office. The principle that has to be kept in mind for determining as to whether such an expenditure is capital or revenue is succinctly stated by Bombay High Court in the case of New Shorrock Spinning and Manufacturing Co. Ltd. Vs.


Commissioner of Income-tax, Bombay North, [1956] 30 1

"The simple test that must be constantly borne in mind is that as a result of the expenditure which is claimed as an expenditure for repairs what in really being done is to preserve and maintain an already existing asset. The object of the expenditure is not to bring new asset into existence, nor is its object the obtaining of a new or fresh advantage. This can be the only definition of "repairs" because it is only by reason of this definition of repairs that the expenditure is a revenue expenditure.

If the amount spent was for the purpose of bringing into existence new asset or obtaining a new advantage, then obviously such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure, and it is clear that the deduction which the Legislature has permitted under section 10(2)(v) is a deduction where the expenditure is a revenue expenditure and not a capital expenditure."

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premises taken on lease so as to make it more conducive to its business activity. Such expenses would clearly fall within the expression of repairs to the premises as appearing in Section 30(a)(i). The legislature has made a distinction between expenses incurred by a tenant for 'repairs' of the premises and expenses incurred by a person who is not a tenant towards 'current repairs' to the premises. This distinction has to be given meaning. Perhaps the logic behind the distinction was that a tenant would, by the very nature of his status as a tenant, not undertake expenditures as would endure beyond his likely period of tenancy or create a new asset. Whereas, an owner may undertake expenditures so as to even bring about new assets of capital nature. It was, therefore, necessary to qualify the expenditure on repairs. The deduction was, therefore, limited to expenditure on 'current repairs' only. It follows, therefore, that the cost of repairs that have been incurred by a tenant in respect of such premises would have to be allowed under Section 30(a)(i). The question of disallowing such an expenditure and relegating the assessee to claim depreciation under Section 32 does not arise. The assessee has not claimed depreciation. It has claimed deduction under Section Once the assessee's claim falls within that provision there is no question of considering the question of applicability of Section 32. Consequently, the question that has been framed is answered in favour of the assessee and against the revenue. The appeal is dismissed."

Taking note of the aforesaid principles, the Tribunal found that in the present case, the assessee had taken on lease the residential house at Kolkata, which was completed into a show-room. In the process, the assessee incurred Rs.21.55 lakhs for opening to set




expenditure. However, the basis of bifurcation; is not clear There can be no dispute that expenditure on shifting of office from one place to another, loading & unloading and polishing of old furniture etc. cannot be taken as capital expenditure. But it is not clear whether polishing etc. was carried for the first time. What has been brought into existence was to be seen with details of expenditure. For lack of clear details, we are unable to finally determine the issue. It would meet interest of justice if impugned order is set aside and learned CIT (Appeals) is directed to re-examine the details of expenditure incurred and give clear basis for working them out into revenue and capital expenditure. For all the above reasons, impugned order is set aside and matter is restored to the file of learned CIT (Appeals) for reexamination of the issue."

"Whether the ITAT was correct in law in setting aside the order of the CIT (A) and remitting the case back to the CIT (A) with direction to re-examine the details of expenditure incurred for determining as to whether the expenditure incurred by the assessee is revenue or capital expenditure?"

Necessary exercise to ascertain as to whether various expenditure

5,6

by the CIT (A). Therefore, to this extent, the order of the Tribunal does not call for any interference.

- 9. At the same time, we find that the impugned order of the Tribunal does not discuss anything about the expenditure incurred on the head office as well as Greater Kailash, Bangalore and Hyderabad show-rooms. Likewise, no details are given in respect of expenditure incurred on the renovation. However, the expenditure incurred on the renovation of the Head Office, Greater Kailash, Bangalore and Hyderabad show-rooms on the face of its appears to be revenue in nature. These are merely expenditure, which can be treated as expenses incurred for repairs to preserve and maintaining the assets which are already existing. The object was not to obtain a new or fresh advantage. - 10. Finding of fact recorded by the CIT (A) has not been questioned by the Tribunal insofar as these expenditures are concerned.

Thus, while holding that the Tribunal was right in remitting the case back to the CIT (A), we make it clear that the inquiry of the CIT

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(A) would be restricted to the expenditure incurred on Kolk branch. Insofar as other expenses are concerned, the same would be treated as revenue expenditure as held by the CIT (A) and benefit thereof shall be given to the assessee. As a result, this appeal is allowed partly in the aforesaid terms.

A.R. SIKRI

JUDGE

(SIDDHARTH MRIDUL) JUDGE

November 06, 2009.