Advocate Akhilesh Kumar Sah

Accumulated Repairs Expenditure On Rented Premises: Whether Allowable As Deduction Under Section 30(A)(I) Of The Income Tax Act, 1961?

Section 30 of the Income Tax Act, 1961(for short “the Act”), deals with the deduction of rent, rates, taxes, repairs and insurance of buildings used for the purpose of business or profession of an assessee while section 31 of the Act deals with the deduction in respect of repairs and insurance of machinery, plant and furniture.

The term repairs generally means restoring a thing into a good condition.Etymologically, the word “repair” is derived from O. F. reparer which in its turn is derived from L re (repairer i. e. again to make ready). Repair is a comprehensive word which means “to make good defects” and which therefore must include renewal where that is necessary (Inguis vs. Buttery 3 App. Cas. 552).

According to section 30(a)(i) of the Act, where the premises are occupied by the assessee as the 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, shall be deducted while computing total income of the assessee.

Sometimes an assessee incurs expenditure for the purpose of business or profession but the item on which is expenditure is laid down, is not expressly covered by section 30 to 36 of the Act, can be claimed as deduction while computing of his income, subject to provisions of section 37(1) of the Act.

Recently, in DCIT vs. Ikea Trading (India) P Ltd. [ITA No: 5393/Del/2010, decided on 02.06.2016], one of the question was whether the Ld. CIT (A) erred in treating the expenditure on repair and maintenance of Rs. 1,44,25,239/- as revenue expenditure and deleting the addition made by the Ld. AO.

The brief facts of the case were that assessee was a company engaged in the business of trading of different products such as carpets, textile, metal, plastic items etc. The company purchased these products locally and exported them.
The assessee had incurred following expenditure and same were held to the capital expenditure :-

Particulars Amount(in Rs.)
EDP Maintenance Cost 22,32,507
Upkeep maintenance at office building 1,97,358
Repair and maintenance-office premises 15,76,638
Legal rentals 44,11,920
Security costs 53,87,700
Cleaning costs 6,19,116
Total 1,44,25,239
Learned AR submitted before ITAT that above were the expenses incurred by the assessee on premises that are not owned by the assessee but on rented premises. He submitted the complete details in the form of vouchers, bills etc, of expenditure submitted before AO and before ld CIT (A). He submitted that genuineness of the expenditure had not been doubted by the Ld. AO but only issue was whether this expenditure were capital or revenue in nature. He further submitted that the undisputedly these were repair and maintenance expenditure and assessee had not derived any benefit of enduring nature, no capital assets was acquired and they were in the nature of routine ordinary day to day expenses on maintenance of equipments, cleaning charges, etc. and in case of rented premises even accumulated repairs expenditure are allowable as restrictions applies when the assessee owns the building and claims depreciation then only current repair expenditure and not accumulated repairs are allowable. He placed reliance on decision of Bharat Gears Limited vs. CIT [337 ITR 368 (Del.)], where repairs expenditure was allowed considering the decision of honourable supreme court.

The learned DR relied on the decision of honourable Supreme Court in CIT vs. Savarana Spinning mills Limited [293 ITR 201(SC)] pleading that the most of the expenditure were not in the nature of current repair expenditure but accumulated repairs so even though the expenditure was revenue in nature, same was not allowable.

He further referred to the decision of honourable Supreme court in case of Deepak Agro Foods vs. State Of Rajasthan (2008-TIOL-134-SC-CT] and Hon’ble Delhi high court in case of CIT vs. Jan samparak Advertising Limited [56 286 (Del)], CIT vs. Manish Build Well Pvt. Ltd. [ITA no 9258/2011 dated 15.11.2011].

The learned members of the Delhi ITAT found that the reliance on the decision CIT vs. Saravana Spinning Mills Pvt. Ltd. (supra) by the Revenue is misplaced as in that case, Hon’ble Supreme Court was concerned about the modernisation and replacement expenses on the textile mill and it was held that it was not allowable. In the present case, the issue is not of repairs on plant and machinery but related to expenditure on building, further the building was also not owned by the assessee but was a rented premises. Further, the members found that the Revenue had not taken a ground in its appeal against the admission of addition evidence therefore the various decisions cited of Hon’ble Delhi High Court in the case of CIT vs. Manish Build Well Pvt. Ltd.(supra) and of Supreme Court in the case of Deepak Agro Foods vs. State of Rajasthan & Ors (supra) do not apply to the facts of this case. The expenditure would be dealt with by the provision of section 30 of the Act, which are as under:-
“In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes 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;
(ii) otherwise than as a tenant, the amount paid by him on account of current repairs to the premises;

(b) any sums paid on account of land revenue, local rates or municipal taxes;

(c) the amount of any premium paid in respect of insurance against risk of damage or destruction of the premises.

Explanation: For the removal of doubts, it is hereby declared that the amount paid on account of the cost of repairs referred to in sub-clause (i), and the amount paid on account of current repairs referred to in sub-clause (ii), of clause (a), shall not include any expenditure in the nature of capital expenditure.”

The learned members of the ITAT Delhi observed that on reading of the above section, the accumulated repairs are not allowed when the assessee owns building and therefore as a tenant cost of repairs to the premises is allowable whether they are accumulated or current. According to us these expenditure are purely of revenue in nature and the assessee obtains no advantage of enduring nature. These are purely routine, miscellaneous expenditure, rent charges, cleaning charges and repairs on computer & other equipments and cannot be held to capital expenditure by any stretch of imagination.

The learned ITAT members held that the Ld. CIT(A) was correct in holding that the expenditure incurred by the assessee were repair and other expenditure and were allowable under section 30a(i) and 37(1) of the Act and these were not capital expenditure in nature.

The decision of the ITAT Delhi in Ikea Trading (India) P Ltd. case(supra) allowing on rented premises, under section 30a(i), even accumulated repairs expenditure as deduction is welcome one.

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