Case Law Details
Even after introduction of section 32(1A) or Explanation 1 to section 32, the assessee is entitled to claim the expenditure on repair/ maintenance of premises taken on lease u/s 30(a)(i).
FACTS
The assessee has taken on lease a theatre complex consisting of five cinema theatres from M/s Satyam Sayi Corporation (P) Ltd,. During the assessment year under consideration, the assessee has incurred substantial amounts towards consultation charges, interior design, modernisation, changing of floor tiles, false ceiling, landscaping, chairs, earth filling etc. According to the learned departmental representative, these expenditures were incurred by the assessee for obtaining enduring benefit. The learned departmental representative further submitted that the expenditure incurred by the assessee brought into existence a capital asset for conducting the business. The cinema theatre, according to the learned departmental representative is a permanent business asset, therefore any expenditure incurred by the assessee for renovating the cinema theatre has to be treated as capital expenditure. Referring to Sec. 32 Explanation 1 of the I.T Act, the learned departmental representative submitted that after introduction of Sec. 32 Explanation 1, the assessee at the best is entitled for depreciation u/s 32 Explanation 1 of the I.T. Act w.e.f. 1.4.1988. Since the assessing officer himself has granted the depreciation to the assessee, the CIT(A) has committed an error in allowing the claim of the assessee as Revenue expenditure. The learned departmental representative placed reliance on the observations made by the assessing officer in the assessment year.
On the contrary, Shri C.P Ramaswamy, the learned counsel for the assessee submitted that admittedly, the assessee has taken five Cinema Theaters in a theater complex from M/s Satyam Sayi Corporation (P) Ltd, on lease. For the purpose of carrying out its business effectively and efficiently, the assessee incurred the expenditure for repairing the cinema theater. According to the learned counsel for the assessee, the expenditure incurred by the assessee in repairing the theater complex is only in the process of earning profit in the course of its business activities. The expenditure incurred by the assessee, according to assessee’s counsel, does not brought into existence any new advantage or any new asset. Even after the spending the amount on repair, the assessee continued to be as lessee of the cinema theater and he continued to carry on the business of exhibiting films in the theater. Therefore, the business of the assessee remains the same even after the expenditure and the asset continued to be one of the lease holding assets. Therefore, according to the learned counsel, it is not correct to say that the assessee has obtained an enduring benefit after incurring the expenditure. Referring to the nature of the expenditure, the learned counsel for the assessee submitted that the CIT (A) himself disallowed the expenditure incurred by the assessee in respect of marble flooring. The other expenditures are in the nature of earth filling works, under ground sump repairing, drainage and cable works, wall paper fixing, dust opening, carpentry, plumbing works, false ceiling repair, seat repair, pest control, house keeping material, theatre cleaning, charges on bandobust and fixing of chairs etc. According to the learned counsel for the assessee, these expenditures are absolutely necessary for the purpose of carrying out its business. These expenditures are incurred in the process of earning the profit and not in the process of acquiring any capital. For the assessment year 2005-06, the assessee has also incurred expenditure in repairing the canteen compound wall, under ground work, sump repairing, water roofing of ceiling, theatre patch up work, exterior painting etc. Similarly, for the assessment year 2006-07, the assessee has incurred expenditure in fixing aluminium panel, scrambling, change of wall papers and also paid consultancy charges while repairing the false ceiling etc. Further, the learned counsel for the assessee submitted that this expenditure was incurred only for the purpose of carrying on the business in an effective and profitable manner and not for the purpose of acquiring any new asset. Placing reliance on the judgement of the Apex Court in the case of CIT Vs. Madras Auto Service (P) Ltd., 233 ITR 468, the learned counsel for the assessee submitted that the Supreme Court held that the expenditure incurred in construction of a building in the leased premises as revenue expenditure. Since CIT(A) himself disallowed the expenditure incurred by the assessee on marble flooring, no interference is called for.
HELD
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