Case Law Details
Brief of the Case
ITAT Chennai held In the case of The Continental Enterprise vs. ITO that as per explanation 1 to sec.32, where any business or profession is carried on in a leased building and any capital expenditure incurred for business or profession on the construction of any structure or doing any work in or in relation to building, it will be treated that such structure /work is a building own by the assessee. In the instant case, it is an admitted fact that the assessee has taken land on lease for setting up of project for processing of coir. It is also undisputed that the assessee has constructed the new building at the leased premises. Thus the assessee has constructed super structure. These construction activities carried out by the assessee if put on to the test of Explanation 1 would show that the construction made by the assessee on the leased out premises would amount to capital expenditure.
Facts of the Case
The assessee is a manufacturer of coir products, which requires large space for processing. Hence, the assessee took on lease two plots of land one measuring about 14,536 sq.ft and the other measuring about14, 270 sq.ft. Each plot had a small shed of about 2,066 sq.ft as more covered space was required for processing the coir; the assessee constructed temporary sheds with metal sheet roofing and laid concrete flooring so that the material stored was not damaged due to rain water. As there was not fencing around the plot, the assessee also erected barbed fencing all around the plot. Thus, the following expenses incurred on leasehold land were charged as revenue expenditure.
The Assessing Officer disallowed the above expenses as capital in nature and allowed only depreciation. The Assessing Officer further observed that in respect of capital expenditure incurred by the assessee on lease hold premises, only depreciation is admissible. There is no ‘response’ that the fencing, temporary shed, compound etc were constructed on leasehold premises. It is pertinent to note that by incurring the said expenditure, the assessee has acquired an asset which in turn increases the enduring capacity to the assessee in the business. In this context, the assessee contention that the expenditure incurred thereon should be allowed as revenue expenditure is not justified. Hence, the Assessing Officer disallowed the revenue expenditure claimed after allowing due depreciation.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
