Case Law Details
Maharastra Film Cultural Development Corporation Ltd. Vs JCIT (ITAT Mumbai)
Hon’ble Jurisdictional High Court in the case of CIT vs. Oxford University Press (108 ITR 166) has expounded that the test for judging the nature of capital or revenue expenditure is to see whether as a result of expenditure what is being done is to preserve and maintain an already existing asset or whether as a result of expenditure a new asset or a new advantage is being brought into existence. The mere quantum of expenditure is not by itself decisive of the question whether it is in the nature of revenue or capital. Simply because of repair the life of building was prolonged for at least 15 years and it could not be said that the expenditure was in the nature of capital expenditure.
Furthermore, we note that Hon’ble Apex Court in the case of CIT vs. Kalyanji Mavji and Co. (122 ITR 49), has held that cost on repairs which are not current repairs can be allowed under section 37 (1). Section 30 and 31 are not a bar in this regard. From the above case law it is apparent that expenditure on repairs although prolonging the life and increasing durability of the asset is not necessarily of capital nature. Hence, in our considered opinion expenditure incurred by the assessee with regard to repairing/ renovating of existing make-up rooms have to be allowed as deduction as revenue expenditure, as they cannot be treated as capital expenditure meant for bringing into existence a new asset or a new advantage, and they are laid out wholly and exclusively for the purpose of business of the assessee.
FULL TEXT OF THE ITAT JUDGMENT
This appeal by the assessee is directed against order of learned CIT-A dated 24/11/206 and pertains to assessment year 2012-12. The grounds of appeal read as under :-
“The following grounds of appeal are without prejudice to one another:-
1. On the facts and circumstances of the appellant’s case and in law the Ld. Commissioner of Income Tax erred in confirming the action of Ld. AO in disallowing a sum of Rs. 1,48,8 7, 798/- on account of Repair and Maintenance expenses claimed as per the grounds stated in the order or otherwise.
2. The Appellant craves leaves to add, to amend, alter, modify and / or withdraw any or all of the above grounds of appeal, each of which are without prejudice to one another.
The appellant prays this Hon ‘ble Tribunal to delete the additions/disallowance by the Ld. A. O and confirmed by the Ld. CIT(A).”
2. Brief facts of the case are that the Assessing Officer had noticed that the assessee had debited Rs.3 80.25 lakhs under head ‘Repairs and Maintenance’. When assessee was asked to justify it, the assessee vide letter dated 09/2/2015 stated that such expenses are recurring nature expenses, hence revenue expenditure. Such repairs and maintenance does not enhance the life of the assets, hence cannot be capitalized. This explanation of the assessee had not been accepted by Assessing Officer in respect of repairing related to existing 76 make-up rooms amounting to Rs. 1,65,41,993/-. According to Assessing Officer the expenses have been claimed as revenue expenses whereas theses are capital in nature as there are heavy repairs which are of enduring nature and he held that such expenses is not recurring in nature. The Assessing Officer further noted that the Court decisions had accepted the position that there can be no exhaustive or universal application of the concept of enduring benefit. According to Assessing Officer such repairing related 76 make-up rooms are not at all recurring in nature, hence he allowed depreciation @10% and disallowed amount of Rs.1,48,87,798/- as capital expenditure.
3.Upon assessee’s appeal ld. CIT(A) confirmed the action of the Assessing Office . He held that the make-up rooms have been renovated substantially as there is replacement of urinal pans, removal of old cement concrete, removal of plaster, replacement of doors and windows, waterproofing treatment, providing cement plaster etc. Ld. CIT(A) found that these expenses have been incurred for up-gradation, by renovating the existing make-up rooms. Ld. CIT-A held that such up-gradation, replacement and renovation will have enduring benefit. He further held that if there are extensive repairs they cannot be treated as current repairs.
4.Against the above order assessee is in appeal before us.
5.We have heard both the counsel and perused the records. We find that assessee has incurred expenditure on repairs and renovation in its existing premises. 76 existing make-up rooms have been repaired and renovated. From this it is evident that no new asset has come into existence. The existing make-up rooms have been renovated. The authorities below have found that the repairs are substantial, that they result in enduring benefit and that they are not current repairs.
5.1.We find that as noted hereinabove no new asset has come into existence. What the assessee has done is that existing make-up rooms have been renovated . This included replacement of urinal pans , removal of plaster, replacement of doors and windows, waterproofing treatment etc . In our considered opinion these expenditure cannot be said to be capital in nature and hence they are duly qualified for revenue expenditure. We draw support from following case laws in this regard.
5.2.Hon’ble Jurisdictional High Court in the case of CIT vs. Oxford University Press (108 ITR 166) has expounded that the test for judging the nature of capital or revenue expenditure is to see whether as a result of expenditure what is being done is to preserve and maintain an already existing asset or whether as a result of expenditure a new asset or a new advantage is being brought into existence. The mere quantum of expenditure is not by itself decisive of the question whether it is in the nature of revenue or capital. Simply because of repair the life of building was prolonged for at least 15 years and it could not be said that the expenditure was in the nature of capital expenditure.
5.3.Furthermore, we note that Hon’ble Apex Court in the case of CIT vs. Kalyanji Mavji and Co. (122 ITR 49), has held that cost on repairs which are not current repairs can be allowed under section 37 (1). Section 30 and 31 are not a bar in this regard. From the above case law it is apparent that expenditure on repairs although prolonging the life and increasing durability of the asset is not necessarily of capital nature. Hence, in our considered opinion expenditure incurred by the assessee with regard to repairing/ renovating of existing make-up rooms have to be allowed as deduction as revenue expenditure, as they cannot be treated as capital expenditure meant for bringing into existence a new asset or a new advantage, and they are laid out wholly and exclusively for the purpose of business of the assessee.
5.4. In the result the assessee’s appeal stands allowed.
