Case Law Details
Advocate Akhilesh Kumar Sah
Carrier Air-conditioning & Refrigeration Ltd. Vs ACIT (ITAT Delhi)
In Carrier Air-conditioning & Refrigeration Ltd. vs. ACIT [ITA No.5244/Del/2015 AY: 2005-06, ITA No.1126/Del/2014 AY: 2009-10, ITA No.728/Del/2015 AY: 2010-11, ITA No.2140/Del/2016 AY: 2011-12 and ITA No.7312/Del/2017 AY: 2013-14, decided on 13.07.2018], the factual panorama of one of the issue was that the assessee claimed deduction of Rs.55,10,000/- on account of improvements on leasehold premises. On perusal of the details and supporting bills, it was observed by the Assessing Officer(AO) that such expenditure was incurred for flooring, construction of cubicles, workstations, wiring and other interior works and for purchase of office furniture. The AO treated this amount as capital expenditure in terms of Explanation 1 to section 32(1) of the Income Tax Act, 1961 (for short ‘the Act’). After allowing depreciation @ 10%, he made an addition for the remaining sum. Having not succeeded before the DRP, the assessee has come up before the Tribunal against the confirmation of such an addition.
The learned Members of the ITAT, Delhi heard both the sides and perused the relevant material on record. The A.Y. under consideration involves F.Y. 2008-09, comprising of the period from 1.4.2008 to 31.3.2009. The assessee had placed on record copies of Leave and licence agreements in respect of which the above expenses were incurred, which were also filed before the AO vide its letter dated 29.7.2013. First Agreement was dated 19.08.2008 in respect of Lucknow premises. The second Agreement was dated 1.7.2007 but with the effective date of 1.2.2008. The third Agreement was dated 31.12.2007 in respect of Gurgaon property but with the effective date of 1.2.2008. There was one more agreement dated 13.05.2008 in respect of leasing of Hyderabad property. There was still another lease agreement dated 25.03.2008 in respect of Bangalore property. The assessee stated through the above letter to the AO that the sum of Rs.55.10 lac was incurred in respect of the above leased premises. The learned Members of the ITAT observed that a common filament running through these lease Agreements is that all the properties in question were taken on lease either during the F.Y. under consideration itself or near to the close of the preceding year. When we examine the nature of work carried out in respect of the above premises taken on lease by the assessee, being, flooring, construction of cubicles, workstations, wiring and other interior works and also purchase of furniture, it becomes vivid that such premises were renovated to make them fit for use in its business. In other words, the amount was spent on complete renovation of such premises. The Hon’ble Supreme Court in Ballimal Naval Kishore vs. CIT 1997 224 ITR 414 (SC) has held that the expenditure incurred by the assessee on total renovation of cinema theatre by installing new machinery, new furniture, new sanitary fitting and new electrical installation besides extensive repair of structure of building, to be capital expenditure and not allowable as current repairs. This judgment indicates that any capital expenditure on total renovation is liable to be considered as capital expenditure. The Hon’ble jurisdictional High Court in Bigjo’s India Ltd. vs. CIT (2007) 293 ITR 170 (Del) considered almost a similar situation as is obtaining before us in the present appeal. In that case, the assessee, a licensee of the showroom, erected new counters and built a new lift shaft at a new site. It was held that such amount was not in the nature of current repairs but a capital expenditure, not deductible in full. Ergo, we find that the present facts are on all fours with those considered by the Hon’ble High Court in Bigjo’s (supra). It is evident from the description of the items on which the above referred expenditure has been incurred that it is a case of renovation of premises immediately after taking them on lease. As such, there can be no question of replacement. We, therefore, hold that the authorities below have taken an unimpeachable view in treating the instant amount as a capital expenditure. Reliance of the AR on certain decisions to bring home the deductibility of such expenses is misplaced. In none of these cases, the premises were taken on lease and the expenses were incurred immediately thereafter on renovation for making them fit for use. At this stage, it is relevant to note that the Tax Laws (Amendment and Miscellaneous Provisions) Act, 1986 inserted Explanation 1 to section 32 w.e.f. 1.4.1988, reading as under : –
Please become a Premium member. If you are already a Premium member, login here to access the full content.
