COMMISSIONER OF INCOME-TAX VS BHARAT COMMERCIAL CORPORATION
1999 P T D 1012
[226I T R 242]
[Patna High Court (India)]
Before D. P. Wadhwa, C. J. and S. J. Mukhopadhaya, J
COMMISSIONER OF INCOME-TAX
Versus
BHARAT COMMERCIAL CORPORATION
Tax Case No.6 of 1986, decided on 25/04/1996.
Income-tax--
----Capital or revenue expenditure---Expenditure on renovation of rented show-room---No finding that expenditure would fall under S.32(1-A)-- Expenditure was deductible---Indian Income Tax Act, 1961, Ss.32(1-A) & 37.
For the assessment year 1980-81, the assessee, an authorised dealer of Godrej Products, claimed deduction of a sum of Rs.42,000 in respect of expenses on renovation of its rented show-room. The Income-tax Officer held that the expenditure was of capital nature. The Tribunal held that the expenditure incurred on renovation of the rented shop was revenue expenditure. On a reference:
Held, that since there was no finding of fact that the assessee had incurred any capital expenditure by way of renovation, section 32(1-A) of the Income Tax Act, 1961, would not be applicable. The expenditure on renovation was deductible.
L. N. Rastogi and S. K. Sharan for the Commissioner.
K. N. Jain and Miss Dr. R. Jha for the Assessee.
JUDGMENT
At the instance of the Revenue, the Income-tax Appellate Tribunal, Patna Bench, has referred to this Court for its opinion the following question:
"Whether, on the facts and in the circumstances of the case, the expenditure incurred of Rs.42,000 over the renovation charges of the show-room was capital expenditure or revenue expenditure specially in view of the provisions contained in section 32(1-A)?"
This reference has been made under section 256 of the Income Tax 1961 (in short, "the Act"), for the assessment year 1980-81.
The assessee, an authorised dealer of Godrej Products, claimed renovation charges of its rented show-room at Rs.42,000. The Income-tax Officer held that the expenditure was of capital nature as the benefit for renovation would last from year to year. He, therefore, added the expenditure but he allowed the depreciation at the rate of five per cent. The Commissioner of Income-tax (Appeals) did not agree with this view. He held that the renovation in the rented premises did not become the property of the assessee and he, therefore, held that the expenditure of renovation was revenue expenditure. The Revenue filed an appeal before the Tribunal. In the quantum appeal, the Tribunal observed that the assessee, the tenant, had made certain renovation for the show-room and the rented premises did not become the property of the assessee merely by an act of renovation. The Tribunal upholding the finding of the Commissioner of Income-tax (Appeals) also held that the expenditure incurred on renovation of the rented shop was revenue expenditure.
We are not quite happy with the observation made by the Tribunal except to note that there is no finding to the contrary that any capital expenditure of increasing (sic) in nature was incurred by the assessee. Had that been so the provision of section 32(1-A) of the Act would have become directly applicable in the present case.
Section 32(1-A) was omitted with effect from April 1, 1988. Our attention has been drawn to section 32(1-A) of the Act, which we quote as under:
"(1-A) Where the business or profession is carried on in a building not owned by the assessee but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purposes of the business or profession after the 31st day of March, 1970, on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of or improvement to, the building, then, in respect of depreciation of such structure or work, the following deductions shall, subject to the provisions of section 34, be allowed---
(i) such percentage on the written down value of the structure or work as may in any case or class of cases be prescribed:
(ii) in the case of any such structure or work which is sold, discarded, demolished, destroyed or is surrendered as a result of the determination of the lease or other right of occupancy in respect of the building in the previous year (other than the previous year in which it is constructed or done) the amount by which the moneys payable in respect of such structure or work together with the amount of scrap value, if any, fall short of the written down value thereof:
Provided that such deficiency is actually written off in the books of the assessee.
Explanation.---For the purposes of this clause,---
(i) moneys payable', in respect of any structure or work, includes--- .
(a) any insurance or compensation moneys payable in respect thereof;
(b) where the structure or work is sold, the price for which it is sold; and
(ii) sold' shall have the meaning assigned to it in the Explanation to clause (iii) of subsection (1)."
On the basis of the aforesaid provision it was sought to be argued by the Revenue that the amount of Rs.42,000 would be capital expenditure.
Since there is no finding of fact that the assessee had incurred any capital expenditure by way of renovation, we hold that section 32(1-A) would not be applicable in the present case. Our attention has also been drawn to the decision of the Delhi High Court (78 ITR 200) (sic) though the same relates to section 30(a)(ii). Accordingly, we answer the question in the affirmative, in favour of the assessee.
There shall be no order as to costs.
M.B.A./1896/FCOrder accordingly.