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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI RAMIT KOCHAR
आदेश ORDER अिमत शु�ला : �या. स.: PER AMIT SHUKLA, JM:
डाय�टर इं�डया �ाइवेट �ल�मटेड 2 M/s Dystar India Pvt Ltd, /Mum/2014 ITA No. 3046/Mum/2014 ITA No. 4088/Mum/2014 The aforesaid appeals have been filed by the assessee against separate impugned common orders of even date, 15.03.2012, passed by CIT(A)-16 Mumbai, for the quantum of assessment passed under section 143(3) for the assessment year 2008-09 and assessment year 2009-10, whereas the revenue has filed cross appeal in the assessment years 2009-10. Since the issues involved in both the appeals are common arising out of identical set of facts, therefore, they were heard together and are being disposed off by way of this consolidated order. We will first take-up assessee’s appeal in ITA No. 3045/Mum/2012 vide which following ground has been raised:-
“1. The Commissioner of Income Tax (Appeals) -16, Mumbai [hereinafter referred to CIT(A)] erred in confirming the disallowance of Rs.2,17,167/- under section 14A of the I.T. Act r.w.r. 8D of the I.T. Rule being the expenses attributable to investment giving rise to the exempted income. Your Appellant submits that it has made strategic investment in shares of its subsidiary for acquiring controlling interest; further the Appellant has not incurred any expenditure attributable to investment activity giving rise to the exempted income and hence no disallowance u/s 14A of the Act is called for”.
The assessee company is engaged in the business of manufacturing, selling, trading, import and export of textile dyestuffs. Ld. AO from the perusal of the Balance-sheet noted that, assessee has purchased unquoted shares of M/s Texanlab Laboratories Private Limited amounting to Rs.4,99,99,000/-, the income from these investments will not form part of the total income. In response to the show cause notice as to why disallowance under section 14A r.w. Rule 8D should not be made, the assessee submitted that, assessee has not earned any exempt income from such investments and these investments were made
डाय�टर इं�डया �ाइवेट �ल�मटेड 3 M/s Dystar India Pvt Ltd, /Mum/2014 ITA No. 3046/Mum/2014 ITA No. 4088/Mum/2014 purely for acquiring controlling interest. However, the Ld. AO rejected the assessee’s contention and held that in view of ITAT’s Special Bench decision in the case of Cheminvest Ltd. vs ITO, reported in [2009] 121 ITD 318 (Del) (SB) disallowance under section 14A has to be made even if there is no exempt income during the year. Accordingly, he worked out the disallowance at Rs. 2,17,167/-.
The Ld. CIT(A) too has confirmed the said addition after discussing the decision of Hon’ble High Court decision in the case of Maxopp Investment Ltd vs CIT 347 ITR 272 (Del).
Before us, the Ld. Counsel submitted that now in wake of latest High Court decision in the case of Cheminvest Ltd. vs. CIT, reported in 378 ITR 33, no disallowance under section 14A can be made if there is no exempt income during the year.
On the other hand, Ld. DR relied upon the decision of ITAT Mumbai Bench in the case of Double dot Ltd vs DCIT, reported in [2014] 65 SOT 324 also referred to CBDT Circular No.5 of 2014 dated 11.04.2013 and contended that, even if investment in shares are capable of earning exempt income then also disallowance under section 14A can be made in this year.
We have considered the rival submissions and also perused the relevant finding given in the impugned order. It is an undisputed fact that, the assessee has not earned any exempt income during the year on the investment made in the subsidiary company, stated for the business purpose, that is, for acquiring controlling interest and in the nature of strategic investment. Once there is no exempt income during the year, then in wake of latest Delhi High Court decision in the case of Cheminvest Ltd. vs. CIT, reported in 378 ITR 33, no disallowance under section 14A can be made. Hon’ble High Court after discussing the various decisions
डाय�टर इं�डया �ाइवेट �ल�मटेड 4 M/s Dystar India Pvt Ltd, /Mum/2014 ITA No. 3046/Mum/2014 ITA No. 4088/Mum/2014 including that of Hon’ble Supreme Court in the case of Rajendera Prasad Moody, reported in [1978] 115 ITR 519) came to the following conclusion:-
“23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression ‘does not form part of the total income’ in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, section 14A will not apply if no exempt income is received or receivable during the relevant previous year”.
Thus, respectfully following the aforesaid ratio, we hold that, no disallowance under section 14A is called for accordingly, ground raised by the assessee is allowed.
Now, we will take-up vide which following grounds have been raised:- “1. The Commissioner of Income Tax (Appeals) -16, Mumbai [hereinafter referred to CIT(A)] erred in confirming the disallowance of Rs.14,66,757/- under section 14A of the I.T. Act r.w.r. 8D of the I.T. Rule being the expenses attributable to investment giving rise to the exempted income. Your Appellant submits that it has made strategic investment in shares of its subsidiary for acquiring controlling interest; further the Appellant has not incurred any expenditure attributable to investment activity giving rise to the exempted income and hence no disallowance u/s 14A of the Act is called for”.
9. It has been admitted by both the parties that, in this year also, assessee has not earned any exempt income from the investment made in the subsidiary company. Even finding of the AO as well as CIT(A) are exactly the same. Thus, the finding given in the aforesaid will apply mutatis mutandis for this year also and डाय�टर इं�डया �ाइवेट �ल�मटेड 5 M/s Dystar India Pvt Ltd, /Mum/2014 ITA No. 3046/Mum/2014 ITA No. 4088/Mum/2014 accordingly, we hold that, no disallowance under section 14A can be made. Accordingly, ground raised by the assessee is allowed.
Now, we will take-up cross appeal by the revenue in vide which following grounds have been raised:-
Thus, the only issue involved in revenue’s appeal is disallowance of expenditure incurred on repairs and maintenance on household premises by treating the same to be capital expenditure.
Brief facts are that, the assessee had taken two premises on leave and license basis for the purposes of its business, one at Tirpur for the period of 6 years and other premises at Rabale for the period of 5 years. In order make the said premise suitable for its business requirement, it had incurred total expenditure of Rs.2,07,20,189/- for carrying out repairs and renovation of the said premise. The said expenses were capitalized in the audited accounts. However, at the time of filing of return of income, the expenses to the extent of Rs.1,98,68,798/- was claimed as revenue expenditure. It was contended that nature of expenses was neither for any enduring benefit nor any capital asset has come into existence. The expenditure incurred and its nature thereof has been stated in the following manner:- Nature of Expenses Advantages Wall painting Makeover and fresh look to the existing Office premises providing better working Atmosphere False ceiling Heat reduction, effortlessness of alternation easily-removed ceiling panels offer instant access to the plenum, greatly simplifying repairs or modifications Plumbing For water distribution at laboratory and research & development centre. Electrical work Efficient distribution of the electricity. Aluminium Partition cum For dividing the cabins in existing premises doors Vertical Blinds Window covering that provides both privacy and controlled lighting Sun control film Controlling heat from sun rays Fire alarm system Audible alarm in case of fire accident
डाय�टर इं�डया �ाइवेट �ल�मटेड 6 M/s Dystar India Pvt Ltd, /Mum/2014 ITA No. 3046/Mum/2014 ITA No. 4088/Mum/2014 The AO disallowed the entire expenditure as capital expenditure on the following reasons:- (i) These expenses are capital in nature and appellant itself has capitalized the same in its books of accounts; (ii) These expenses are not in the nature of “current repairs” as such repairs has to be for the purpose of preserving or maintaining an already existing assets; (iii) The provision of explanation 1 to section 32 of the I.T. Act applies to these renovation and repairs expenses incurred on the leased premises”.
However, he allowed depreciation and net addition of Rs.1,88,75,358/- was made.
Before the CIT(A), detailed submissions were made, duly supported by various judicial pronouncements which has been dealt and decided by the CIT(A) from pages 5 to 6 of the appellate order. After analyzing the facts, he decided this issue in favour of the assessee after observing and holding as under:-
“I have carefully considered the contention of the appellant and also carefully gone through the documents available on record. I find that the appellant had incurred expenditure of Rs.1,98,68,798/- towards the leasehold improvements and claimed the same as revenue expenditure. It is also a matter of record that the appellant had taken the premises on leave & license for the period of 5 years only for the purpose of its office, laboratory, research and development work. It is also submitted that the leave & license agreement entered into by the appellant specifically does not conferred any tenancy rights or other benefits or interest to the appellant. The appellant had to vacate the premises on expiring of the agreement in September, 2013. The appellant in order to make the place fit for its use carried out certain works which are in the nature of furniture and fixtures namely electrical fitting, aluminum partition, fall selling, plumbing, fire alert systems, tables and others furniture articles to make the place workable for it. The Ld. AO treated this expenditure
डाय�टर इं�डया �ाइवेट �ल�मटेड 7 M/s Dystar India Pvt Ltd, /Mum/2014 ITA No. 3046/Mum/2014 ITA No. 4088/Mum/2014 as capital expenditure. The Hon'ble Bombay High Court in the case of CIT v/s. TVS Len Logistics Ltd reported in 293 ITR 432 had categorically stated that renovation or the improvement must be to the building In the instant case, repairs & renovation is in respect of the premises occupied by the appellant and not to the entire building and therefore the expenditure clearly falls in the realm of revenue expenditure. Further, similar view was expressed by the Hon'ble Bombay High Court in the case of CIT v/s. Hede Consultancy P. Ltd reported in 258 ITR 380 (HC)(Bom). The nature of expenditure incurred by the appellant are such that no new capital assets came into being and the appellant does not derive any enduring business advantage by expending this amount. Therefore, the action of the Ld. AO in treating this expenditure as capital expenditure is not supported by the evidence on record and is accordingly deleted. This ground of appeal is accordingly allowed”.
After hearing both the parties and on consideration of the relevant finding given in the impugned orders, we find that it is an undisputed fact that, the repair and renovation has been done on lease premises which has been taken on Leave and License basis for the period of 5/6 years. From the perusal of the details furnished before the authorities below as well as before us, we find that it is mainly in the nature of exterior works done like electrical work, P0P and false ceiling work, painting, plumbing, aluminum, partition cum door, vertical blinds, sun control films, fire alarm systems etc. The expenditures which have been incurred on the premises does not belong to the assessee, albeit has been taken for a temporary period for conducting its business, that is, to work efficiently in the premises looking to the needs and requirements of modern business premises. The Department has referred to Explanation 1 to section 32, which only refers to any capital expenditure incurred. It does not speak about the revenue expenditure. Thus, reference of Explanation 1 to section 32 in the डाय�टर इं�डया �ाइवेट �ल�मटेड 8 M/s Dystar India Pvt Ltd, /Mum/2014 ITA No. 3046/Mum/2014 ITA No. 4088/Mum/2014 grounds of appeal may not be relevant. The section 30(a)(i) on the other hand provides that, if repairs have been carried out in the premises occupies as a tenant then it has to be allowed as deduction under section 30 as ‘repairs’ that is, as cost of repairs to the premises. The Hon’ble Delhi High Court in the case of High Line Pins, reported in 306 ITR 182 has dealt this issue in detail wherein it was observed and held as under:- After having considered the arguments advanced by the 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 the 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. (supra). 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 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
डाय�टर इं�डया �ाइवेट �ल�मटेड 9 M/s Dystar India Pvt Ltd, /Mum/2014 ITA No. 3046/Mum/2014 ITA No. 4088/Mum/2014 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 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."
The Ld. CIT(A), in the impugned order has referred to the two decisions of Hon’ble Bombay High Court, wherein it has been laid down that one has to looked-upon the expenditure whether it has brought any enduring benefit to the company and brought into existence any capital asset. If the asset created belongs to somebody else then the assessee company cannot derive any enduring benefit. In such cases, the expenses should be looked upon as having been made for the purpose of conducting the business more profitably. Thus, if the expenditure has been incurred for carrying on business more efficiently on day-to-day basis then it has to be reckoned as revenue expenditure. Accordingly, we do not find in the reason to deviate from the finding and conclusion drawn by the CIT(A) accordingly the ground raised by the revenue stands dismissed.
डाय�टर इं�डया �ाइवेट �ल�मटेड 10 M/s Dystar India Pvt Ltd, /Mum/2014 ITA No. 3046/Mum/2014 ITA No. 4088/Mum/2014 15. In the result appeal of the revenue stands dismissed and both the appeals filed by the assessee are allowed.
Order pronounced in the open court on 27th April, 2016.
Sd/- Sd/- (रिमत कोचर) (अिमत शु�ला) लेखा सद�य �याईक सद�य (RAMIT KOCHAR) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 27th April, 2016. ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent. 3) The CIT(A) -16, Mumbai. 4) The Commissioner of Income Tax -8, Mumbai. 5) िवभागीय �ितिनिध “डी”, आयकर अपीलीय अिधकरण, मुंबई/ The D.R. “D” Bench, Mumbai. 6) गाड� फाईल \ Copy to Guard File. आदेशानुसार/By Order / / True Copy / /