DCIT, NEW DELHI vs. M/S. C.B. RICHARD ELLIS SOUTH ASIA PVT. LTD., NEW DELHI

8. The relevant facts are that there were two shareholders of assessee in the year under consideration, namely, Anshuman Magazine (99%) and Rashmi Magazine (1%). Out of two shareholders, Anshuman Magazine was being paid salary, which included incentive of Rs. 2.85 crores. He is w.e.f. 01.06.2003 is the Managing Director of the company. As per resolution of the Board dated 27.05.2003, Anshuman Magazine is entitled to incentive in the form of commission at 30% of the net profits for each year after adding back depreciation. Similar incentive paid in earlier to other employees stands allowed as deduction including incentive of Rs.2.21 crores to Manish Kashyap in the instant year. The AO observed in the case of assessee company profit of Rs. 28,41,79,791/- has been worked out for this financial year as per the statement of taxable income filed along with the return, however no dividend has been proposed or distributed among the shareholders who are also director of the company.

He thus was of the opinion that, sum of Rs.2,85,55,000/- has been apparently paid as commission and bonus and not as dividend to reduce the income of the company and to avoid dividend distribution tax.

Thereafter, he directed the assessee to show cause for admissibility of bonus/ commission to directors and on consideration of the reply, he disallowed the claim of deduction by holding that, had the company declared dividend, Sh. Anshuman Magazine would have got the majority share of the dividend and the company would also have to pay dividend distribution tax on the same which has not been done by the company. He held that, the assessee’s argument that the entire arrangement is tax neutral is not correct because maximum marginal rate in the case of companies is more than the maximum marginal rate in the case of individuals. The CIT(A) deleted the disallowance made of Rs.2,85,55,000/- u/s 36(1)(ii) of the Act. carefully gone through the material placed on the record. The CIT(A) has deleted the disallowance for the following reasons stated in the order:-

“i) That learned Officer has disallowed the claim of deduction essentially on the assumption that appellant company has not declared dividend and paid dividend distribution tax and as such the claim of the appellant that the arrangement is tax neutral is not tenable. It was submitted that, in holding so, the learned officer overlooked that in the year under consideration appellant company had declared dividend of Rs. 13,89,93,870 and also paid dividend distribution tax of Rs. 1,94,93,890/- and as such the basis adopted is in disregard of the facts on record and thus not tenable. A chart tabulating details of the dividend paid along with dividend distribution tax paid for Assessment year 004-05 to Assessment year 2007-08 was also placed on record and is as under:-

Assessment Dividend paid (Rs.) Dividend distribution tax paid (Rs.) year 2004-05 1,22,64,165/- 1,573,346/- 2005-06 2,04,40,275/- 26,71,286/ 2006-07 2,24,84,303/- 31,53,424/- 2007-08 13,88,93,870/- 1,94,93,890/- ii)) That under sub clause ii) of section 36(1) of the Act, it is provided that, where any sum is paid to an employee as bonus or commission for services rendered, the limb that, a deduction shall be allowed, in respect of an amount paid to an employee as bonus or commission for services rendered and, since it was as a result of effort of Shri Anshuman Magazine that there is tremendous increase of turnover, year after year, as he relentlessly made efforts to take the company to greater heights the same is allowable as deduction. Reference was made to chart tabulating the sales, profit and, incentive paid to Shri Anshuman Magazine from Assessment year 2004-05 to Assessment Year 2007-08, which is as under:

A.Y. Sales(Rs.) Profit (Rs) Incentive paid to Shri Anshuman Magazine (Rs.) 2004-05 54,35,88,969/- 10,40,92,862/- 1,19,48,350/- 2005-06 72,17,39,964/- 10,69,57,576/- 1,91,75,160/- 2006-07 1,02,42,92,452/- 18,53,73,829/- 3,81,76,000/- 2007-08 1,55,45,13,626/- 24,86,29,998/- 2,89,55,000/-

It was submitted that, no –doubt second limb of the said clause provide that, where such sum should not have been payable to him, as profits or dividend, had it not been paid as bonus or commission, however the same is not the fact in the instant case. iii) That in the instant case, the amount claimed as deduction has been provided to be paid because of the resolution passed by the Board of Directors to pay commission on account of excellent performance of the employee and, therefore there was no justification to have disallowed the claim of expenditure, whatsoever as it is not a case where such amount was payable to director by way of dividend. In the context it was submitted that, Shri Anshuman Magazine w.e.f. 1.06.2003 relevant to Assessment year 2004-05 became managing director of the appellant company, as would be evident from resolution of the Board dated 7.05.2003 (pages 43 to 44 of Paper book). It is submitted that, as per the resolution, he was entitled to commission at 30% of the net profits for each year after adding back depreciation. It was submitted that, the incentive so paid to Shri Anshuman Magazine from Assessment year 2004-05 has been assessed as “salary” as would be evident from the tabular chart hereunder:

A.Y. Incentive Total salary Declared and Assessment u/s (Rs) assessed as (Pages of paper salary by book) Anshuman Magazine in his return of income (Pages of Paper Book) 2004-05 1,19,48,350/- 1,82,95,160/- 72 143(3) (74) (90-92) 2005-06 1,91,75,160/- 2,69,01,560/- 93 143(1) (94) 2006-07 3,81,76,000/- 4,72,10,880/- 102 143(3) (104) (113) 2007-08 2,89,55,000/- 4,07,24,000/- 113 143(1) (115) iv) That similar incentive has been paid to various other senior employees of appellant company, as would be evident from tabulation hereunder:

A.Y. Number of Total salary for the Total incentive for Employees to whom year to such the year incentive given employees 2004-05 344 11,46,72,189/- 2,55,71,348/- 2005-06 536 18,27,78,117/- 5,64,39,455/- 2006-07 601 29,84,15,605/- 9,59,43,058/- 2007-08 680 55,79,07,291/- 24,19,96,004/-

On illustrative basis, incentive paid to Shri Manish Kashyap, one of the employee was also paid, the detail of which is as under:-

./2012 ITA No.775/Del./2013 F.Y. A.Y. Sale (Rs) Profit (Rs) Incentive paid to Shri Manish Kashyap (Rs.) 2003-04 2004-05 54,35,88,969/- 10,40,92,862/- 8,65,000/- 2004-05 2005-06 72,17,39,964/- 10,69,57,576/- 61,36,000/- 2005-06 2006-07 1,02,42,92,452/- 18,53,73,829/- 1,02,57,037/- 2006-07 2007-08 1,55,45,13,626/- 24,86,29,998/- 2,21,76,276/- v) That incentive paid in the form of commission to Shri Anshuman Magazine, has been allowed in the past as would be evident tabular chart hereunder:

A.Y. Incentive (Rs.) Disallowance if Assessment u/s any (Rs.) 2001-02 23,00,000/- --- 143(1) 2002-03 28,50,000/- --- 143(1) 2003-04 25,00,000/- --- 143(3 (49-58) 2004-05 1,19,48,350/- --- 143(1) (78) 2005-06 1,91,75,160/- --- 143(3) (58A-58G) 2006-07 3,81,76,000/- --- 143(1)

Reliance was placed on rule of consistency as held by Hon'ble Apex Court in the case of Radha Saomi Satsang vs. CIT 193 ITR 321 and CIT vs. J. K. Charitable Trust 308 ITR 161 vi) That burden was upon the Assessing Officer and not on the assessee to establish that, what had been paid by way of commission would have been payable by way of dividend, which on the facts of appellant remains undischarged vii) That since there existed no statutory requirement under the Income Tax Act , 1961 or even under the Companies Act' 1956 for a company to declare this sum of Rs. 2,85,55,000/- as dividend out of the profits, particularly when dividend has been separately declared. It was submitted that, unless a dividend is declared, which can only be declared out of profits, which profits can be determined only after deducting all legitimate expenses, there is no question of any sum payable as dividend viii) Reliance was also placed on the following judicial pronouncements: a) Creative Travel (P) Ltd. vs. ALIT for Assessment Year 2006-07 dated 13.05.2011 b) DCIT vs Celsius Refrigeration (P) Ltd. for Assessment Year 2007-2008 c) 139 TTJ 48 (Del) ACIT vs Career Launcher India Ltd. d) 36 SOT 456 (Del) ACIT vs. Bony Polymers (P) Ltd. ix) That, the revenue cannot adopt inconsistent positions since the sum of Rs. 2,85,55,000/- has been assessed on "salary" in the hands of Shri Anshurnan Magazine and therefore, the same cannot be now regarded as dividend. Intact, the Assessing Officer since Assessment Year 2004-05, even in the hands of the appellant company, has held such sum to be eligible deduction u/s 36(1)(ii) of the Act in all the preceding and succeeding years. x) That, even otherwise, the entire disallowance is revenue neutral as there is no variation in tax rates. It has been held that, if the disallowance made is revenue neutral that no such disallowance is warranted. Reliance is placed on following judicial pronouncements: a) 33 ITR 681 (Born) CFI vs. Nagri Mills Co. Ltd. b) 331 ITR 10 (Del) CIT vs Dinesh Kumar Goel c) 196 Taxman 94 (Del) CIT vs Triveni E igd. and Industries Ltd. d) 53 DTR 1 (Del) Cyber Media (India) Ltd vs. CIT

In view of the aforesaid submissions, it was most respectfully submitted commission paid to Shri Anshuman Magazine for the aforesaid years be allowed and disallowance of Rs. 2,85,55,0001- may kindly be deleted. I have carefully considered the facts of the case, material placed on record, order of assessment and submissions made by the learned counsel for the assessee. In the year under consideration, appellant company has paid salary of Rs. 4,07,24,000/- including commission of Rs. 2,85,55,0001- to Sh. Anshuman Magazine. Sh. Anshuman Magazine is Managing Director of the appellant company. He also holds 99.99% shareholding of the appellant company. The aforesaid sum has been paid under resolution of the Board dated 27.05.2003 appointing him the Managing Director of the appellant company. However, the learned Additional Commissioner of Income Tax has held that sum is not allowable in view of section 36(1)(ii) of the Act. According to the learned officer, appellant company has through worked out profit of Rs. 28.42 crores but no dividend has been proposed or distributed amongst the shareholder and therefore sum of Rs. 2,85,55,000/- has been paid as commission and not as dividend to reduce the income and avoid dividend distribution tax. He has observed in para 3.2 as under:

“In the case of the assessee company profit of Rs. 28,41,79,791/- has been worked out for this financial year as per the statement of taxable income filed alongiwth the return. However, no dividend has been proposed of distributed among the share holders who are also directors of the company sums mentioned above have been apparently paid as commission and bonus and not as dividend to reduce the income of the company and to avoid dividend distribution tax”.

./2012 ITA No.775/Del./2013 5.4 I have perused through the financial statement filed by the appellant company for the financial year 2006-07 relevant to the instant assessment year. It is evident there form that, profit declared for the instant year is Rs. 24.46 crores and for the preceding year is of Rs. 18.54 crores. It is further seen that on the aforesaid profit, the assessee had declared dividend of Rs. 13.90 crores in the instant year and Rs. 31.53 lacs in the preceding year has been paid. The challans for distribution tax paid were also called for in the course of appellate proceedings and placed on record. It is thus not a case where the appellant has not proposed or distributed any dividend either in the instant year or preceding year. The assessing Officer essentially has adopted the figure of profit at Rs. 28.40 crores which was the income declared under the head profit and gain from business or profession in computation of income and thus, overlooked the figure of profit of Rs. 24.46 crores in the profit and loss account. Therefore, the basis adopted to deny the claim of deduction overlooks the factual position. Even otherwise, it is seen that commission alongwith salary has been paid to Sh. Anshuman Magazine year after year based on the improved financial position of the company, as is evident from the chart hereunder:

A.Y. Sales (Rs) Profit (Rs) Salary Commission Total salary 2004-05 54,35,88,969/- 10,40,92,862/- 63,46,810 1,19,48,350 1,82,95,160 2005-06 72,17,39,964/- 10,69,57,576/- 77,26,400 1,91,75,160 2,69,01,560 2006-07 1,02,42,92,452/- 18,53,73,829/- 90,34,880 3,81,76,000 4,72,10,880 2007-08 1,55,45,13,626/- 24,86,29,998/- 1,17,69,000 2,89,55,000 4,07,24,000

5.5 The above salary including incentive has been assessment u/s 143(3) for above, similar incentives has also been paid to other employees. Infact, out of total salary of Rs. 55.79 crores incentive paid in the year under consideration was of Rs. 24.20 crores. It may be relevant to state here that, one of the employees Sh. Manish Kashyap has received incentive of Rs. 1.02 crores in the instant year. Moreover dividend has been declared consistently by the appellant company and dividend distribution tax has been separately paid as would be evident from the tabular chart hereunder:

Assessment year Dividend Paid Dividend distribution tax paid (Rs.) 2004-05 1,22,64,165/- 15,73,346 2005-06 2,04,40,275/- 26,71,286/- 2006-07 2,24,84,303/- 31,53,424/- 2007-08 13,88,93,870/- 1,94,93,890/-

5.6 Further, the sum so paid has been assessed to Tax in the hands of Shri Anshuman Magazine as salary in assessment made of Sh. Anshuman Magazine including assessment u/s 143(3) for assessment year 2004-05 and assessment year 2006-07. In the light of the aforesaid, in my opinion, the sum so paid is allowable as deduction. Infact, Hon’ble Delhi High Court in the case of M/s Creative Travel (P) Ltd. in 'TA No. 1672/D/2010 noted in the case of ./2012 ITA No.775/Del./2013 M/s Creative Travel (P) Ltd. vs. ACTT in 1TA No. 190/D/2010 for Assessment Year 2006-07 dated 13.05.2011 has held as under: "On the facts of this case, the Income Tax Appellate Tribunal has allowed the payment of bonus and commission to the employee-Directors of the assessee company under Section 36(1)(ii) of the Income Tax Act and one of the reasons given by the Tribunal, which has specifically weighed with it, is that in the past similar commission was paid to the working Directors and it was never disallowed. Mr. Aggarwal, learned counsel for the assessee has submitted that such a deduction is allowed under Section 36(1)(ii) of the Act for the past 30 years. In view of this, we are of the opinion that no question of law arises. The appeal is dismissed." 5.7 Thus, following the aforesaid jurisdictional High Court wherein it has / been held that, if the commission paid to employee- directors has been allowed in the past, no disallowance is warranted Ws 36(1)( ) of the Act. The same is squarely applicable to the facts and as such, no disallowance other warranted. Section 36(1)(ii) of the Act, reads as under: "36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28 — (i) --------- (ia) --------- (ib) ------- ii) Any sum paid to an employee as bonus or commission for services rendered. (where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission;)” 5.8 The aforesaid provision provides that deduction shall be allowed in respect of any sum paid to an employee as bonus or commission for services rendered unless such sum would have been payable to him or dividend or profit. In the instant case, there is enough material on record to establish that sum of Rs. 2,85,55,000/- has been paid as commission for services rendered by Sh. Anshuman Magazine and therefore the same is allowable as deduction. There is no material brought on record to suggest the aforesaid sum was payable as profit or dividend. On the contrary, the basis adopted to hold the sum paid of Rs. 2,85,55,000/- is profit or dividend was that, no dividend has declared in the year under consideration which has been found to be factually incorrect and thus not tenable. In view of the aforesaid, disallowance made of Rs. 2,85,55,000/- is deleted and grounds raised by the appellant are allowed.”

10. The learned DR has not been able to point out any inaccuracy either factual or legal in the aforesaid reasons adopted by the CIT(A) to is noted that the AO proceeded to make disallowance on incorrect assumption of fact that no dividend has been distributed amongst the shareholders in the instant year; whereas as a matter of fact that dividend of Rs.13.90 crores was declared in the instant year. Moreover it is also noticed that identical commission paid to MD Anshuman Magazine has been allowed as deduction in the preceding assessments u/s 143(3) of the Act and also correspondingly such incentive stands assessed as salary in the hands of Anshuman Magazine for the instant year. Further, likewise incentive paid to other employees has also been allowed as deduction.

During the course of hearing the learned counsel for assessee supported the order by relying of the judgments of Hon’ble jurisdictional High Court in the case of AMD Metplast (P) Ltd. v DCIT – 341 ITR 563 (Del) and Controls & Switchgear Contractors Ltd. v. DCIT – 269 CTR 44 (Del).

“7. The next aspect that has to be considered is whether payment of such commissions are liable to be disallowed as an expense by virtue of Section 36(1)(ii) of the Act. At this stage it is necessary to refer the Section 36(1)(ii) of the Act, which reads as under:— ./2012 ITA No.775/Del./2013 "any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend if it had not been paid as bonus or commission.."

“We fail to understand how the aforesaid observations assist and help the Revenue in the factual matrix of the present case. Ashok Gupta is the managing director and in terms of the board resolution is entitled to receive commission for services rendered to the company. It is a term of employment on the basis of which he had rendered service.

./2012 ITA No.775/Del./2013 Accordingly, he was entitled to the said amount. Commission was treated as a part and parcel of salary and TDS has been deducted. Ashok Gupta was liable to pay tax on both the salary component and the commission. Payment of dividend is made in terms of the Companies Act, 1956. Dividend has to be paid to all shareholders equally. This position cannot be disputed by the Revenue. Dividend is a return on investment and not salary or part thereof. Herein the consideration in the form of commission which was paid to Ashok Gupta was for services rendered by him as per terms of appointment as a managing director.”

“42. Thus, the fact that we have held that sub-sections (2) & (3) of section 14A and Rule 8D would operate prospectively (and, not retrospectively) does not mean that the assessing officer is not to ./2012 ITA No.775/Del./2013 satisfy himself with the correctness of the claim of the assessee with regard to such expenditure. If he is satisfied that the assessee has correctly reflected the amount of such expenditure, he has to do nothing further. On the other hand, if he is satisfied on an objective analysis and for cogent reasons that the amount of such expenditure as claimed by the assessee is not correct, he is required to determine the amount of such expenditure on the basis of a reasonable and acceptable method of apportionment. It would be appropriate to recall the words of the Supreme Court in Walfort Share & Stock Brokers (P.) Ltd. (supra) to the following effect:- "The theory of apportionment of expenditure between taxable and non- taxable has, in principle, been now widened under section 14 A." So, even for the pre-Rule8D period, whenever the issue of section 14A arises before an Assessing Officer, he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the said Act. Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the assessing officer will have to verify the correctness of such claim. In case, the assessing officer is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the assessing officer is to accept the claim of the assessee insofar as the quantum of disallowance under section 14A is concerned. In such eventuality, the assessing officer cannot embark upon a determination of the amount of expenditure for the purposes of section 14A(1). In case, the assessing officer is not, on the basis of objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the assessing officer will have to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment.”

1,08,735/- on computer accessories. The AO has held that assessee is eligible for depreciation at 15% and not at the rate of 60%. It was stated that this issue is covered by the decision of Calcutta Bench of the tribunal in the case of ITO vs. Samiran Majumdar – 280 ITR 74 (AT) wherein it has been held that, printers and scanners are integral part of the computer and therefore, the same are also entitled for higher rate of deprecation i.e. 60%. Reliance was also placed in the following cases: a) 25 SOT 184 (Mum) Venture Infotek Global (P) Ltd. vs. DCIT b) 118 TTJ 652 (Del) Expeditors Inter. India (P) Ltd. vs. Addl. CIT c) (Del) CIT v. BSES Rajdhani Powers Ltd. d) 11 Taxmann.com 417 (Del) CIT vs. Orient Ceramics & Inds. Ltd. e) 118 TTJ 652 (Del) Expeditors International (India) (P) Ltd. vs. ld. CIT f) 136 TTJ 505 (Del) Birlasoft India Ltd. vs DCIT ITAT

20. The grounds raised

by the revenue are as under :- ./2012 ITA No.775/Del./2013

1. Whether the Ld. CIT (A) has erred on facts and in law in deleting the addition made u/s 36(1)(ii) amounting to Rs.6,47,27,888/- ignoring the fact that – (a) The assessee company has paid bonus/ex-gratia allowance of Shri Anshuman Magazine one of its Directors having 24% shareholding the company. (b) As per the provisions of section 36(1)(ii) bonus and or commission paid to an employee is allowable as deduction if and only if it is not payable as profit or dividend.

3. Whether the Ld. CIT (A) has erred on facts and in law in deleting the addition of Rs.27,22,514/- on account of recruitment & training expenses ignoring the fact that the assessee is set to derive long term benefits from the recruitment and training of the employees. The employees are recruited and a majority of them work for a long time thereby giving enduring benefit to the employer.

4. Whether the Ld. CIT (A) has erred on facts and in law in deleting the addition on account of renovation expenses amounting to Rs.35,60,431/- ignoring the fact that the expenditure was incurred for renovation of capital assets and accordingly the same qualifies as capital expenditure.” Ground No.1 is regarding disallowance of Rs. 6,47,27,888/- 21.

representing commission paid to Shri Anshuman Magazine, Director of the assessee company by invoking section 36(1)(ii) of the Act. carefully gone through the material placed on the record. We notice that identical disallowance was made by the AO in order of assessment and deleted by CIT(A) for Assessment year 2007-08, which finding stands affirmed on appeal. Thus, in light of the discussions made in it is clear that the issue is squarely covered in this appeal. Thus, the ground raised by the revenue in this instant appeal is rejected.

7.7 It was further held as under:

./2012 ITA No.775/Del./2013 However, in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of matching concept is satisfied, which up to now has been restricted to the cases of debentures.

7.8 The above judgment squarely applies to the facts of the case of appellant in as much as the expenditure is on revenue account and has been incurred in the year under consideration and hence is an eligible expenditure. It is not the case of the assessee that such expenditure be spread over and hence the disallowance is contrary to above judgment. I may here also make a gainful reference to another judgment of jurisdictional High Court in the case of CIT vs. Citi Financial Consumer Finance Ltd. reported in 335 ITR 29 wherein it was held as under:

The Commissioner of Income-tax (Appeals) was unimpressed with this argument and found that the assessee was spreading over the income during the number of years that the financing is spread over and, therefore, expenditure on the aforesaid counts was required to be spread over. The Income-tax Appellate Tribunal, however, denounced this reasoning of the Commissioner of Income-tax (Appeals) and accepted the plea that the expenditure incurred had nothing to do with the period of length of time and had no linkage, whatsoever, to any period, the entire expenditure was allowable in the year in which it was incurred. The Tribunal has further held that the expenditure is incurred once and for all in the form of stamping duty as well as commission paid to the direct selling agents for procuring the loan assignments and it is not dependent upon the working out of the agreements ultimately entered into between the assessee and the customers. Since the commission is paid to the direct selling agents, for their services in sourcing hire in the year in which the loan is disbursed, it is to be allowed as business expenditure. The Tribunal, to arrive at this finding took into consideration the clauses of the agreement relating to mode of payment of consideration as well as "termination" clause in the agreement. Thus, as the entire expenditure was incurred which admittedly have a nexus with the business of the assessee, it was treated as business expenditure allowable under section 37 of the Act. The Tribunal also relied upon the judgment of the Supreme Court in the cases of Calcutta Company Ltd. v. CIT[1959] 37 ITR 1 (SC), CITv. Associated Cement Companies Ltd.[1988] 172 ITR 257 (SC), Empire Jute Co. Ltd. v. CIT[1980] 124 ITR 1 (SC) and the judgment of this court in CIT v. Salora International Ltd.[2009] 308 ITR 199 (Delhi).”

7.9 For the reasons stated above, disallowance made of Rs. 27,22,514/- out of total claim of expenditure of Rs. 34,03,142/- is deleted. Grounds raised by the appellant are allowed. deleted following the judgment of Jurisdictional High Court in the case of CIT v Industrial Finance Corporation of India Ltd. (supra) and CIT v Citi Financial Consumer Finance Ltd. (supra). Following the above precedent, we do not find any infirmity in the order of CIT(A). No reasons have been stated by the ld. DR in the course of hearing to arrive at another conclusion. Thus, in light of the above, ground raised by the revenue is rejected.

“8.5 I have carefully considered the facts of the case, material placed on record, order of assessment and submissions made by the learned counsel for the assessee. The expenditure disallowed of Rs. 35,60,431/- comprises of Rs. 30,00,000/- being repair charges of the office at Bangalore and Rs. 5,60,431/- being repair charges of the office at Pune. Both the above expenditure are undisputedly for leased premises and as such allowability of expenditure has to be examined in terms of section 30(a)(i) which provides as under: “30 In respect of rent, rates, taxes, repairs and insurance for premises, used for the purpose of the business or profession, the following deductions shall be allowed- a) where the premises are occupied by the assessee- i) as a tenant the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises the amount paid on account of such repairs.

8.5 The Hon’ble Delhi High Court has interpreted the above provision and held in the case of CIT vs. Hi Line Pens (P) Ltd. 306 ITR 182 as under:

“After having considered the arguments advanced by learned counsel for the parties and examined the decisions cited by them, we are of the view that the assessee’s claim for deduction under section 30(a)(i) has been rightly allowed by the Tribunal. The decisions cited by learned counsel for the Revenue relate to “current repairs”. There is a clear distinction between the expression “repairs” and the expression “current repairs”. It is obvious that the word “repairs” is much wider than the expression “current repairs”. This fact has also been taken note of by the Supreme Court in the case of Saravana Spinning Mills P. Ltd. [2007] 293 ITR 201. The expression “current repairs” is much more restricted than the word “repairs” because the latter is qualified by the word “current”. What the assessee has done in the present case has been construed to be repairs by the Tribunal as a finding of fact. It has not brought about any new asset and more importantly it was not the intention of the assessee to bring about any new capital asset. The expenses that were incurred by the assessee were towards repairing the premises taken on lease so as to make it more conductive 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 was that a tenant would, by the very nature of his status as a tenant, not undertake expenditure as would endure beyond his likely period of tenancy or create a new asset. Whereas, an owner may undertake expenditure 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. It has claimed deduction under section 30(a)(i). 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.”

8.6 Also in the case of CIT vs. Delhi Press Samachar Patra (Private) Limited 322 ITR 590, it was held as under:

“We find that the Tribunal has adequately and in great detail dealt with the entire issue. The assessee has a press building which is used for the purposes of its business which includes the printing and publication of magazines. The said press building was constructed in the year 1975 and has a built up area of 130680 sq. feet. Repairs have been carried out in the said building from time to time. The assessee incurred a sum of Rs. 35,51,245 in the year in question on the following works:

"(i) Water proofing of roofs with stones. (ii) Reinforcement of old beams in which steel bars and plasters were corroded. (iii) Relaying of worn out flooring of print shop/process rooms, etc.

(iv) Repairing and relaying/carpeting of roads running inside the press compound.

(v) Repairing and replacement of workers wash rooms, hand wash areas, damaged glass, wood work.

(vi) Repairing and relaying boundary walls and gates.

(vii) Repairing and reconstructions of cooling towers area.

(viii) Repairing of cement sheets and laying of fiber coated sheets to prevent seepage, water and air. (ix) Repairing of AC chiller rooms and plants."

The said sum was claimed by the assessee as an allowable expense under the head of current repairs as defined in section 31 (i) of the Income-tax Act, 1961 (hereinafter referred to as "the said Act")”

The Tribunal, after examining the facts of the case, came to the conclusion that the expenditure was incurred on repairs, reinforcement, replacement of dilapidated beams, pillars, walls, etc., of the existing press building and that the assessee did not bring into existence any new asset over and above the existing building. The Tribunal also observed that the assessee had been incurring such expenditure in the past as and when the need arose and it was towards preserving and maintaining the existing asset. The Tribunal also noted several decisions of the Supreme Court including that of CIT v. Saravana Spinning Mills P. Ltd. [2007] 293 ITR 201. The Tribunal also noted that the Department doubted the nature of the expenditure considering the magnitude of the expenditure incurred in the current year compared to the expenditure in the earlier years. The Tribunal observed that the authorities below had acted on the presumption that a part of the 24 ITA No.709/Del./2012 ITA No.775/Del./2013 building had been demolished and that the items had actually been used for erection of a new structure. However, the Tribunal also observed that for this conclusion, the Department could not bring on record any evidence to justify the stand that the expenditure was actually for erection of a new building or asset. The Tribunal also noticed that the contention of the assessee that it had undertaken major repairs to put the dilapidated columns, beams, roofs, etc., in its original position, which had become dangerous and unsafe for the workmen and hindered the normal operation of the business, was not controverted by the Departmental representative nor had any evidence to the contrary been produced before the Tribunal or the authorities below. It was ultimately concluded that employing the test indicated in Saravana Spinning Mills P. Ltd. [2007] 293 ITR 201 (SC), the assessee had incurred the said expenditure only to preserve and maintain the existing asset and that the expenditure was not of a nature which brought into being a new asset or created a new advantage of an enduring nature. Consequently, the Tribunal deleted the disallowance.” 8.7 In the case of CIT vs. Imperial Fastners (P) Ltd. in the assessee had debited a sum of Rs. 31,54,844/- towards repair and maintenance. The Assessing Officer opined that the same was giving enduring benefit to the assessee for a period of 10 years i.e. the period of lease. Hence Assessing Officer disallowed the claim by treating the entire expenses as income on capital account. Learned CIT(A) affirmed the aforesaid order of the Assessing Officer. However the Tribunal held that the expenditure was revenue in nature should be allowed. The Hon’ble Delhi High Court in this regard, considered the issue and concluded as under: “Counsel for the revenue has not been able to point out and show that the aforesaid expenses were not incurred on replacement of parts, lubrication etc. No new asset came into existence. The expenditure was incurred to make the plant operational and functional.” 8.8 Respectfully following the above judgment, it is held that, since the expenditure has been incurred for civil work false ceiling, binds, wiring cables, earthing at two leased premises, which are not in the nature of any permanent alterations/changes but were incurred to enable the appellant to carry on its business efficiently is not a capital expenditure but revenue expenditure. Hence, disallowance made is deleted.”