The order of the Bench was delivered by
Chandra Poojari (Accountant Member)- This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)- I, Coimbatore, dated April 22, 2013.
2. The grievance of the assessee in this appeal is with regard to confirming the disallowance of expenditure amounting to Rs. 20,65,165 incurred on leased premises at Kadavanthara, Rs. 6,46,929 at Alinchuvadu, Rs. 2,36,550 at Palarivattam, Coimbatore, as capital expenditure against the claim of the assessee as revenue expenditure.
3. The facts of the case are that the assessee incurred expenditure for the showroom maintenance and interior furnishing. As seen from the details furnished by the assessee, for the branch at Kadavanthara, the expenditure incurred was Rs. 31,70,785. It includes wood panelling of the interiors including temporary sheds for workers, new showcases, false ceilings were done since a new branch was started at Kadavanthara. The Assessing Officer treated the expenditure as capital in nature. Aggrieved, the assessee went in appeal before the Commissioner (Appeals).
4. On appeal, the Commissioner (Appeals), after examining the details furnished by the assessee and the order of the Assessing Officer, observed that the expenditure towards rods, pipes, angles, etc., at Kadavanthara amounts to Rs. 8,06,328. These rods, pipes were used for the construction of a temporary shed. He has also verified the lease deed of the Kadavanthara branch property. The initial lease deed was entered with the building owner in the year 2003 at the time of commencing of construction. The building approval got delayed and another deed was prepared in the year 2009, i.e., on July 2, 2009. The period of lease is for 10 years. The assessee has constructed a temporary shed in the second floor for the workers. According to the Commissioner (Appeals), this cannot be called as a temporary shed but it is a case of permanent fixture for sheltering the work force and it cannot be claimed as revenue expenditure/business expenditure. On account of interior decorations, the assessee has spent Rs. 12,58,837 at this branch. The interior decoration includes wooden panelling, class box/structures to display the bakery products, etc. This expenditure was incurred by the assessee taking into consideration that the lease period was for a period of 10 years. The amount has been spent by the assessee on the leasehold premises to make it suitable to carry out business in the showrooms. The assessee has failed to show any benefit of enduring nature derived from the renovation/reconstruction of the leased out premises. To fall within the ambit of Explanation 1, questions which are to be answered are :
"(i) Whether the assessee is carrying on business or profession in a leased building or other rights of occupancy ?
(ii) Whether the assessee has incurred any capital expenditure for the purpose of business on the construction of any structure or doing any work or in relation to and by way of renovation or extension or improvement in the building ?"
5. If the answer to the aforementioned questions is in the affirmative, the assessee falls within the purview of Explanation 1 to section 32(1). In the instant case, it is an admitted fact that the assessee has taken several buildings on lease for setting up of bakery business. It is also undisputed that the assessee has carried out renovation, restructuring including flooring, false ceiling, sanitary works, partition, wall panelling, cup boards, etc., at the lease premises. The assessee has made certain changes by means of electrical works, sanitary and vitrified tiles, etc. All these activities carried out by the assessee if put to the test of Explanation 1 would show that renovation/repair/addition made by the assessee on the leased out premises would amount to capital expenditure. He relied on the order of this Tribunal in I. T. A. Nos. 1557 and 1558/Mds/11 in the case of ABT Ltd. v. Asst. CIT [2013] 21 ITR (Trib) 634 (Chennai) (order dated January 3, 2013), wherein it was held that "We can conclude that it is essential that the expenditure incurred on the construction of any structure on the leased premises should result in saving of the revenue expenditure at the subsequent stage". The Bench held that the new electrical fittings, renovation of existing building are capital in nature. While delivering the judgment, the Tribunal has considered the judgment of the Madras High Court in the case of ClT v. TVS Lean Logistics Ltd. reported in [2007] 293 ITR 432 (Mad) and another judgment of the jurisdictional High Court in the case of Thiru Arooran Sugars Ltd. v. Deputy ClT [2013] 350 ITR 324 (Mad) decided on July 26, 2011. Therefore, respectfully following the decision of the Tribunal "B" Bench in I. T. A. Nos. 1557 and 1558/Mds/11, ABT Ltd. v. Asst. CIT [2013] 21 ITR (Trib) 634 (Chennai) the Commissioner (Appeals) confirmed the action of the Assessing Officer in treating the expenditure as capital in nature.
6. As far as Alinchuvadu branch is concerned, the Commissioner (Appeals) observed that the expenditure incurred in this branch was for Rs. 6,46,929. The expenditure was incurred towards the interiors, floor tiling and construction of temporary shed. The lease agreement for this branch was entered on October 23, 2008, and was for a period of 5 years. A temporary shed for workers stay was constructed along with interiors, floor tiling and temporary shed. Following the discussion made in the case of Kadavanthara branch and following the decision of the Tribunal cited supra, he confirmed the action of the Assessing Officer in treating the expenditure as capital nature.
7. Regarding Palarivattam branch, the Commissioner (Appeals) observed that the expenditure incurred in this branch was for Rs. 2,36,550. The branch was started in the year 2001 and the expenditure was debited towards the replacement of table in the kitchen. As per the submissions made by the authorised representative, this table has to be replaced once in two years. However, the assessee has not furnished any details with regards to the nature of table which has been replaced in this branch, the Commissioner (Appeals) confirmed the action of the Assessing Officer in treating the expenditure as capital in nature. Against this, the assessee is in appeal before us.
8. The learned authorised representative placed reliance on the judgment of the Kerala High Court in the case of Joy Alukkas India Pvt. Ltd. v. Asst. CIT 88 CCH 147 and pleaded that the above expenditure is to be considered as revenue expenditure.
9. On the other hand, the learned Departmental representative relied on the decision of the co-ordinate Bench of the Tribunal in the case of ABT Ltd. v. Asst. CIT [2013] 21 ITR (Trib) 634 (Chennai).
10. We have heard the parties and perused the record. In the present case, the assessee has taken the building on leasehold on which the assessee carried on interior work and claimed as revenue expenditure. The same was rejected by the Commissioner (Appeals). The learned Departmental representative contended that the assessee made new addition in the leased building and it is not the case of renovation of the leased building or improvement of the leased building as in the case of Joy Alukkas Pvt. Ltd., cited supra as held by the Kerala High Court. For settling the controversy, we have to go through Explanation 1 to section 32(1) of the Act which was inserted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from April 1, 1988, which deals with the situation where the expenditure has been incurred by the assessee on construction of any structure on leasehold premises. Explanation 1 is reproduced herewith below :
"Explanation 1.-Where the business or profession of the assessee is carried on in a building not owned by him 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 business or profession 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, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee."
11. To fall within the ambit of Explanation 1 the questions which are to be answered are :
"(i) Whether the assessee is carrying on business or profession in a leased building or other rights of occupancy ?
(ii) Whether the assessee has incurred any capital expenditure for the purpose of business on the construction of any structure or doing of any work in or in relation to and by way of renovation or extension or improvement in the building ?
12. If the answer to the aforementioned questions is in affirmative, the assessee falls within the purview of Explanation 1 to section 32(1). In the instant case, it is an admitted fact that the assessee has taken building on lease for setting up of bakery. It is also undisputed that the assessee has carried on interior work in the leased building. These interior decoration works 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. The assessee in order to support his case has relied on the judgment of the Madras High Court in the case of CIT v. TVS Lean Logistics Ltd. [2007] 293 ITR 432 (Mad). In the said case, the assessee had constructed a building on the leased land for the business advantage. The court held that the entire cost of construction is admissible as revenue expenditure. Explanation 1 categorically states that the business or profession is carried on in a leased building and not on land. The High Court in paragraph 8 of the judgment further held as under (page 436) :
"8. What constitutes a capital expenditure and what does not, to attract Explanation 1 to section 32(1) of the Act depends upon the construction of any structure or doing any work or in relation to and by way of renovation, extension or improvement to the building which is put up in a building taken on lease by him for carrying on his business and profession of the assessee, but not in a case of construction of any structure or doing any work or relation to where such building is put up/constructed for the purpose of business or the profession of the assessee in a land taken on lease by the assessee."
13. Thus, it is clear that the ratio laid down by the Madras High Court in the said judgment does not support the caseof the assessee.
14. In the present case, the assessee has taken building on lease and made certain interior decoration. It is thecase that the assessee has beautified the leased building. The High Court has further held in the aforesaid casethat the language employed in a statute is the determinative factor of the legislative intent and even assuming there is a defect or any omission in the words used in the Legislature, the court cannot correct or make up the deficiency, especially when a literal reading thereof produces an intelligible result and any departure from the literal rule would really be amending the law in the garb of interpretation, which is not permissible and which would be destructive of judicial discipline.
15. The Supreme Court of India in the case of CIT v. Madras Auto Service (P) Ltd. [1998] 233 ITR 468 (SC), while dealing with a similar controversy has observed as under (page 472) :
"In order to decide whether this expenditure is revenue expenditure or capital expenditure, one has to look at the expenditure from a commercial point of view. What advantage did the assessee get by constructing a building which belonged to somebody else and spending money for such reconstruction ? The assessee got a long lease of a newly constructed building suitable to its own business at a very concessional rent. The expenditure therefore, was made in order to secure a long lease of new and more suitable business premises at a lower rent. In other words, the assessee made substantial savings in monthly rent for a period of 39 years by expending these amounts. The saving in expenditure was a saving in revenue expenditure in the form of rent. Whatever substitutes for revenue expenditure should normally be considered as revenue expenditure. Moreover, the assessee in the present case did not get any capital asset by spending the said amounts. The assessee therefore could not have claimed any depre ciation. Looking to the nature of the advantage which the assessee obtained in a commercial sense, the expenditure appears to be revenue expenditure."
16. Thereafter, the apex court referring to several cases decided held as under (page 475) :
"All these cases have looked upon expenditure which did bring about some kind of an enduring benefit to the company as a revenue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expenses have been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully. In the present case also since the asset created by spending the said amounts did not belong to the assessee but the assessee got the business advantage of using modern premises at a low rent, thus saving considerable revenue expenditure for the next 39 years, both the Tribunal as well as the High Court have rightly come to the conclusion that the expenditure should be looked upon as revenue expenditure."
17. From the above judgment, we can conclude that it is essential that the expenditure incurred on the construction of any structure on the leased premises should result in enduring benefit. That any expenditure incurred for civil work by a lessee in respect of the leased premises, without any further proof cannot be said to be capital expenditure or revenue expenditure. In order to find out the nature of expenditure, it is necessary to find out the nature of construction put up, the purpose of construction/renovation and the use to which the construction put up and also if it is a case of repair, replacement, addition or improvement has to be gone into. It is only on the aforesaid material, keeping in mind the principles enunciated in the judgments by the Supreme Court and keeping in mind section 37 and section 32 of the Act, that one has to determine whether the expenditure is revenue expenditure or capital expenditure. What would apply to civil work equally applies to electrical work or interior decoration. The assessee had not stated the nature of civil works constructed, the nature of interior decoration made to the leasehold premises and also the nature of electrical work undertaken. In the absence of that material and without proper application of mind, the assessing authority proceeded on the footing that the expenditure constituted capital expenditure.
18. In view of the above, we remit the issue in dispute to the Assessing Officer to consider whether the expenditure is revenue or capital in nature and decide afresh.
19. In the result, the appeal of the assessee is allowed for statistical purposes.
The order pronounced in the open court on Friday, the 29th of May, 2015, at Chennai.