DCIT, Calicut V. M/s.Indus Motor Company P.Ltd, Calicut

ITA 213/COCH/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77482 (ITAT-COCHIN)
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Department
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 13-05-2014
• Court: TRIBUNAL
• Department Lawyers: M ANIL KUMAR
• Assessee Lawyers: SHYRI V SATHYANARAYANAN
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND CHANDRA POOJ ARI, AM I.T.A. NOS. 212, 213 & 214/COCH/2014 ASSESSMENT YEARS : 2007-08, 2008-09 & 2009-10 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), KOZHIKODE VS. M/S. INDUS MOTOR COMPANY PVT. LTD., INDUS HOUSE, WEST HILL, CALICUT. [PAN: AAACI 4904J] (REVENUE -APPELLANT) (ASSESSEE-RESPONDEN T) REVENUE BY SHRI M. ANIL KUMAR, CIT(DR) ASSESSEE BY SHYRI V.SATHYANARAYANAN, CA DATE OF HEARING 03/07/2014 DATE OF PRONOUNCEMENT 25/07/2014 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: ALL THESE APPEALS FILED BY THE REVENUE ARE DIRECTE D AGAINST THE DIFFERENT ORDERS PASSED BY THE CIT(A), KOZHIKODE FO R THE ASSESSMENT YEARS 2007-08, 2008-09 & 2009-10. 2. SINCE THE ISSUES IN ALL THESE APPEALS ARE IDENTI CAL IN NATURE AND FACTS ARE SIMILAR, THEY WERE CLUBBED TOGETHER, HEAR D TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. I.T.A. NO. 212,213& 214/COCH/2014 2 3. THE FIRST COMMON GROUND IN THREE YEARS IS WITH R EGARD TO THE TREATMENT OF EXPENDITURE INCURRED ON CONSTRUCTION O F SUPERSTRUCTURE ON LEASEHOLD LAND AS REVENUE EXPENDITURE. 4. SINCE THE ISSUE IS COMMON IN ALL THE THREE APPEA LS, WE CONSIDER THE FACTS AS NARRATED BY THE CIT(A) FOR THE ASSESSM ENT YEAR 2007-08. THE ASSESSEE IS A LEADING DEALER OF VEHICLES, SPARE S AND ACCESSORIES OF MARUTI SUZUKI AND IS AN AUTHORIZED SERVICE CENTRE O F ITS VEHICLES. THE ASSESSEE IS HAVING DEALERSHIP IN VARIOUS DISTRICTS ACROSS KERALA AND IN CHENNAI, TAMIL NADU. RETURN OF INCOME FOR THE YEAR WAS FILED ON 30- 10-2007, WHICH WAS PROCESSED U/S. 143(1). SUBSEQUE NTLY, THE CASE WAS SELECTED FOR SCRUTINY AND THE SCRUTINY ASSESSME NT WAS COMPLETED ON 31.12.2009, MAKING CERTAIN DISALLOWANCES/ADDITIO NS. AGGRIEVED THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). 5. THE FIRST ISSUE IS AGAINST TREATING RS.3,12,34,7 72/- BEING THE AGGREGATE OF THE EXPENDITURE INCURRED ON CONSTRUCTI NG SUPERSTRUCTURE ON LEASEHOLD LAND AS REVENUE EXPENDITURE INSTEAD OF CAPITAL EXPENDITURE. THE ASSESSEE HAD INCURRED AN EXPENDITU RE OF RS. 2,23,09,152/- FOR CONSTRUCTION OF SUPERSTRUCTURES O N LEASEHOLD LANDS/PREMISES AND ANOTHER SUM OF RS. 89,25,620/- F OR SETTING UP OF WORKSHOP FACILITIES IN LEASEHOLD PREMISES. AS REGA RDS RS.2,23,09,152/-, I.T.A. NO. 212,213& 214/COCH/2014 3 IT WAS THE CONTENTION OF THE ASSESSEE THAT THOUGH T HIS AMOUNT WAS TREATED AS CAPITAL EXPENDITURE IN THE BOOKS OF ACCO UNT OF THE ASSESSEE, THE SAME HAS BEEN CLAIMED AS REVENUE EXPENDITURE IN THE RETURN OF INCOME IN VIEW OF THE DECISION OF THE HONBLE HIGH COURT OF MADRAS IN CIT VS. TVS LEAN LOGISTICS LTD. 293 ITR 432. THOUG H THIS DECISION WAS BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER, THE LD. COUNSEL SUBMITTED THAT THE ASSESSING OFFICER REJECTED THE C ONTENTION STATING THAT IT WAS NOT THE DECISION OF THE JURISDICTIONAL HIGH COURT. FURTHER, IT WAS CONTENDED BEFORE THE CIT(A) THAT THE DECISIONS RELIED BY THE ASSESSING OFFICER IN DISALLOWING THE CLAIM OF THE A SSESSEE ARE DISTINGUISHABLE AS THEY ARE ON DIFFERENT SET OF FAC TS. 6. FURTHER, BY RELYING ON EXPLANATION OF SEC. 32 OF THE ACT, IT WAS CONTENDED BY THE LD. COUNSEL THAT SECTION 32 SPEAKS ONLY ABOUT BUILDING TAKEN ON LEASE AND NOT LAND AND HENCE, THE SAID EXPLANATION HAS NO RELEVANCE TO THE FACTS OF THE CASE. MOREOVER , IT WAS ARGUED BY THE LD. COUNSEL THAT IF AT AL THERE IS ANY CONTRARY DECISION, THE DECISION IN FAVOUR OF THE ASSESSEE HAS TO BE FOLLOWED. IN TH IS REGARD, THE LD. COUNSEL RELIED ON THE FOLLOWING DECISIONS: VIRTUAL SOFT SYSTEMS LTD. VS. CIT (289 ITR 83) ( SC) PETRON ENGINEERING CONSTRUCTION P. LTD. VS. CENTRAL BOARD OF DIRECT TAXES (175 ITR 523) (SC) I.T.A. NO. 212,213& 214/COCH/2014 4 CIT VS. VEGETABLE PRODUCTS LTD. (88 ITR 192) (SC) 7. IN VIEW OF THE ABOVE, IT WAS SUBMITTED BY THE LD . COUNSEL THAT JUDICIAL DISCIPLINE REQUIRES THAT THE APPELLATE AUT HORITIES FOLLOW THE DECISION OF HIGH COURTS EVEN IF IT IS NOT THE JURIS DICTIONAL HIGH COURT. SINCE THE FACTS OF THE CASE DECIDED BY THE MADRAS H IGH COURT IS SAME AS IN THE CASE OF THE ASSESSEE, IT WAS PLEADED BY T HE LD. COUNSEL THAT THE DECISION OF MADRAS HIGH COURT BE FOLLOWED AND T HE ADDITION DELETED. IT WAS ALSO SUBMITTED BY THE LD. COUNSEL T HAT THE JURISDICTIONAL ITAT IN THE CASE OF ACIT VS. MM PUBLICATIONS LTD. ( 2011) 43 SOT 59 (COCHIN) HAS FOLLOWED THE DECISION OF MADRAS HIGH C OURT IN THE CASE OF CIT VS. TVS LEAN LOGISTICS LTD. (2007) 293 ITR 432 . 8. AS REGARDS RS. 89,25,620/- INCURRED BY THE ASSES SEE FOR SETTING UP OF SHOWROOMS/WORKSHOP FACILITIES, IT WAS SUBMITT ED BY THE LD. AR BEFORE THE CIT(A) THAT THESE ARE EXPENSES INCURRED FOR THE PURPOSE OF PROVIDING PARTITION, FLOORING, INTERIOR WORKS, ETC. FOR MAKING THE PREMISES READY FOR FUNCTIONAL USE. FURTHER, NO ASS ET OR BENEFITS OF ENDURING NATURE WAS ACHIEVED FROM SUCH EXPENDITURE. IN THIS CONNECTION, THE LD. COUNSEL ALSO RELIED ON THE FOLL OWING DECISIONS:- 1. ACIT VS. MM PUBLICATIONS 43 SOT 59 (COCH IN) 2. DCIT VS. ELECTRONIC DATA SYSTEMS (INDIA) (P) LT. 3. CIT VS. M/S. ARMOUR CONSULTANTS P. LT. 2 14 TAXMAN 444 (MAD. HC) I.T.A. NO. 212,213& 214/COCH/2014 5 9. ON APPEAL, THE CIT(A) CONSIDERED THE DECISION OF THE COCHIN BENCH OF ITAT IN THE CASE OF MM PUBLICATIONS LTD. A ND JUDGMENT OF MADRAS HIGH COURT IN THE CASE OF CIT VS. TVS LEAN L OGISTICS LTD. (2007) 293 ITR 432 AND OBSERVED THAT EXPLANATION1 TO SECTION 32(1) OF THE ACT DEPENDS UPON THE CONSTRUCTION OF ANY STR UCTURE OR DOING OF ANY WORK IN OR IN RELATION TO, AND BY WAY OF RENOVA TION BUT NOT IN CASE OF CONSTRUCTION OF ANY STRUCTURE OR DOING ANY WORK WHERE SUCH BUILDING IS PUT UP OR CONSTRUCTED FOR THE PURPOSE OF BUSINES S OR PROFESSION OF THE ASSESSEE ANY LAND TAKEN ON LEASE BY THE ASSESSE E. ACCORDING TO THE CIT(A), THE ASSESSEE DID NOT ACQUIRE A CAPITAL ASSET BETWEEN THE TWO PUT UP A CONSTRUCTION OF THE BUILDING ONLY FOR THE PURPOSE OF BUSINESS WITH THE RESULT THAT THE ENTIRE CONSTRUCTI ON COST WAS ADMISSIBLE FOR DEDUCTION AS REVENUE EXPENDITURE. A CCORDINGLY, THE CIT(A) REJECTED THE ARGUMENTS ADVANCED BY THE DEPAR TMENT. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 10. THE LD. DR STRONGLY OPPOSE THE ORDER OF THE CIT (A) ON THIS ISSUE AND SUBMITTED THAT THE PROVISIONS OF SECTION 32(1) ARE APPLICABLE TO THE FACTS OF THE PRESENT CASE AND BY NO STRETCH OF IMAGINATION, THE EXPENDITURE INCURRED ON CONSTRUCTION OF SUPERSTRUCT URE ON LEASEHOLD LAND CAN BE CONSIDERED AS REVENUE EXPENDITURE. HE S UBMITTED THAT I.T.A. NO. 212,213& 214/COCH/2014 6 RELIANCE PLACED BY THE CIT(A) ON THE DECISION OF TH E HIGH COURT OF MADRAS IN THE CASE OF CIT VS. TVS LEAN LOGISTICS (S UPRA) IS TOTALLY MISPLACED. MORE SO, HE SUBMITTED THAT THE JUDGMEN T OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF JOY ALUKKA S PVT. LTD. VS. ACIT IN I.T.A. NO. 230/2013 DATED 20-01-2014 IS ALSO NOT ON THE SAME FACTS. IN THAT CASE, THE JURISDICTIONAL HIGH COURT DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE ON THE REASONING THAT THE EXPENDITU RE INCURRED BY THE ASSESSEE TOWARDS REFURNISHING REPAIRS AND IMPROVEME NTS OF THE LEASED PREMISES USED FOR BUSINESS PURPOSES CAN ALWAYS BE A REVENUE EXPENDITURE AND NOT CAPITAL EXPENDITURE. THE IMPRO VEMENTS MADE BY THE ASSESSEE IN THAT CASE ARE TEMPORARY OR OF TEMPO RARY NATURE WHICH CANNOT BE RETRIEVED BY THE ASSESSEE AT THE END OF T HE TERM OF THE LEASE AND CAN ONLY BE REVENUE EXPENDITURE. IN THE PRESEN T CASE, ACCORDING TO THE LD. DR, THE ASSESSEE CARRIED ON CONSTRUCTIO N OF SUPER STRUCTURE ON LEASEHOLD LAND WHICH CANNOT BE CONSIDERED AS AN IMPROVEMENT OR REPAIR. 11. ON THE CONTRARY, THE LD. AR SUBMITTED THAT FOR THE PURPOSE OF SETTING UP OF SHOW ROOMS AND REPAIR/SERVICE STATION S, THE ASSESSEE HAD TAKEN LAND ON LEASE AT VARIOUS LOCATIONS. ON SUCH LANDS TAKEN ON LEASE, THERE WERE NO BUILDINGS OR SUPER STRUCTURES. THE LD. AR SUBMITTED THAT AFTER TAKING THE LAND ON LEASE, THE ASSESSEE HAD I.T.A. NO. 212,213& 214/COCH/2014 7 CONSTRUCTED BUILDINGS/SUPER STRUCTURES ON IT. SUCH SUPER STRUCTURES ARE OWNED BY THE OWNERS OF THE LAND AND THE ASSESSEE HA D ONLY THE RIGHT OF POSSESSION OVER A LIMITED PERIOD. ACCORDING TO THE LD. AR, AFTER THE EXPIRY OF THE LEASE PERIOD THE ASSESSEE HAD TO VACA TE THE LAND AND THE BUILDING/SUPER STRUCTURES CONSTRUCTED BY THE ASSESS EE SHALL THEN BELONG TO THE LAND OWNER AND THE ASSESSEE HAS NO RI GHT/CLAIM OVER IT. THE LD. AR SUBMITTED THAT FOR SUCH RIGHT OF POSSESS ING FOR THE LIMITED PERIOD, SINCE THE BUILDING/SUPER STRUCTURE WAS CONS TRUCTED BY THE ASSESSEE, THE ASSESSEE NEED NOT PAY RENT PERIODICAL LY. THE LD. AR REITERATED THAT THE ASSESSEE HAD NOT ACQUIRED ANY A SSET OR ADVANTAGE OF AN ENDURING NATURE. THE ASSESSEE IS NOT THE OWNE R OF THESE FACILITIES, BUT HAD ONLY A FIGHT OF POSSESSION FOR A LIMITED PERIOD. THESE STRUCTURES WERE PUT UP FOR THE BUSINESS PURPOSES AN D HAD TO BE DEMOLISHED/REMOVED AFTER THE PERIOD OF LEASE AND HE NCE ARE NOT OF PERMANENT NATURE. THE LD. AR SUBMITTED THAT THE PAY MENT OF MONTHLY RENT IS ONLY REVENUE EXPENDITURE AND HENCE PAYMENT OF SUCH REVENUE EXPENDITURE CUMULATIVELY IN ONE YEAR IS ONLY REVENU E IN NATURE. 12. RELATING TO REVENUE EXPENDITURE ON LEASEHOLD BU ILDING, THE LD. AR SUBMITTED THAT THE ASSESSEE HAD ALSO TAKEN ON LE ASE LAND AND BUILDING FOR ITS BUSINESS PURPOSES. BUT FOR MAKING IT FUNCTIONAL THE ASSESSEE HAD TO INCUR REVENUE EXPENDITURE IN THE NA TURE OF MAKING I.T.A. NO. 212,213& 214/COCH/2014 8 TEMPORARY PARTITIONS, FLOORINGS ETC. SUCH EXPENSES WERE TREATED AS REVENUE EXPENDITURE FOR THE REASON THAT NO ASSET OR ADVANTAGE OF AN ENDURING NATURE WAS ACQUIRED OUT OF SUCH EXPENSES. THE LD. AR SUBMITTED THAT AS CAN BE SEEN FROM THE DETAILS OF E XPENDITURE INCURRED AT EACH LOCATION AND NATURE OF FACILITIES CREATED, THESE FACILITIES ARE NOT OF A PERMANENT NATURE AND NO CIVIL STRUCTURE HAS BE EN CREATED. THE EXPENSES WERE ONLY TO MAKE THE STRUCTURE USEFUL TO THE ASSESSEE DURING THE TENURE OF THE LEASE PERIOD WHICH WAS FOR A SHORT PERIOD. 13. THE LD, AR BY REFERRING TO GROUND NOS. 7 AND 8 OF THE APPEAL BY THE DEPARTMENT FOR THE ASSESSMENT YEAR 2009-10, SUB MITTED THAT THE LOSS INCURRED ON ASSETS DISCARDED WAS ALLOWED AS RE VENUE EXPENDITURE BY THE CIT(A). HE SUBMITTED THAT AS PER THE DETAILS OF EXPENDITURE, FACTUALLY THE AMOUNT OF LOSS ON ASSETS DISCARDED WA S RS. 38,57,756/- AND NOT RS. 53,43,282/-. ACCORDING TO THE LD. AR, THE EXPENSES WERE INCURRED FOR SETTING UP NEW SHOW ROOMS/SERVICE CENT RES FOR THE ASSESSEE. THE LD. AR SUBMITTED THAT DUE TO CERTAIN LEGAL HURDLES THE ASSESSEE COULD NOT SET UP THESE FACILITIES AND HENC E THE INITIAL EXPENSES INCURRED HAD TO BE WRITTEN OFF AND BEING IN THE NATURE OF AN INFRUCTUOUS EXPENDITURE, THE PAYMENT WAS CLAIMED AS REVENUE. 14. THE LD. AR RELIED ON THE FOLLOWING CASE LAW: I.T.A. NO. 212,213& 214/COCH/2014 9 CIT VS. TVS LEAN LOGISTICS LTD. (293 ITR 432) (MAD.) WHEREIN IT WAS HELD AS UNDER: THE EXPENDITURE INCURRED BY THE ASSESSEE FOR CONSTRUCTING BUILDING ON LAND TAKEN ON LEASE IS A REVENUE EXPENDITURE THIS DECISION HAS BEEN FOLLOWED BY THE ITAT, COCHIN BENCH IN THE CASE OF ACIT VS. MM PUBLICATIONS (43 SOT 59) CIT VS. HARIDAS BHAGATH & CO. LTD. (240 ITR 169) (MAD.) WHEREIN IT WAS HELD AS UNDER: EXPENDITURE INCURRED BY THE ASSESSEE IN PROVIDING AMENITIES ON LEASEHOLD BAYS IN A STADIUM COMPLEX IS A REVENUE EXPENDITURE. WHAT WAS TAKEN ON LEASE WAS ONLY THE BAYS. THE ASSESSEE HAD TO INCUR EXPENDITURE FOR CONSTRUCTION WORK, PROVIDING MINIMUM FACILITIES LIKE WALLS, RACKS, ELECTRICAL FITTINGS AND THE LIKE TO MAKE THE PROPERTY SUITABLE FOR BUSINESS PURPOSES. CIT VS. BOMBAY DYEING & MFG. CO. LTD. (219 ITR 521) (SC) WHEREIN IT WAS HELD AS UNDER: I.T.A. NO. 212,213& 214/COCH/2014 10 PAYMENT MADE FOR CONSTRUCTING BUILDING ON THE LAND TAKEN ON LEASE FROM HOUSING BOARD IS REVENUE SINCE THE BUILDINGS ALSO BELONGED TO THE HOUSING BOARD. CIT VS. MADRAS AUTO SERVICE P. LTD. (233 ITR 468) (MAD.) WHEREIN IT WAS HELD AS UNDER: COST OF CONSTRUCTION OF A NEW BUILDING IN PLACE OF OLD LEASEHOLD PREMISES IS REVENUE SINCE THE NEW BUILDING BELONG TO THE LESSOR AND NOT THE ASSESSEE. THERE IS NO DECISION AGAINST THE RESPONDENT ON THE SAME FACTS AND LAW. DECISION OF A HIGH COURT TO BE FOLLOWED BY ALL BENCHES OF THE INCOME TAX APPELLATE TRIBUNAL, EVEN IF IT IS NOT THE JURISDICTIONAL HIGH COURT. IT IS NOW WELL-SETTLED THAT AS LONG AS THERE IS NO DECISION OF THE JURISDICTIONAL HIGH COURT WHICH IS AVAILABLE DIRECTLY ON THE SUBJECT. DECISION OF THE MADRAS HIGH COURT IN THE CASE OF TVS LEAN LOGISTICS LTD. IS DIRECTLY ON THE POINT. SANGHVI & DOSHI ENTERPRISES LTD. VS. ITO (141 TTJ 1(CHENNAI) . ALSO IN N NAMBHI D. DEV VS .ACIT (162 TTJ 673) (SB). I.T.A. NO. 212,213& 214/COCH/2014 11 CIT VS. GODAVARIDEVI SARAF (113 ITR 589) (BOM.) WHEREIN IT WAS HELD AS UNDER: TRIBUNAL ACTING ANYWHERE IN THE COUNTRY HAS TO RESPECT THE LAW LAID DOWN BY THE HIGH COURT, THOUGH OF A DIFFERENT STATE, SO LONG AS THERE IS NO CONTRARY DECISION OF ANY OTHER HIGH COURT ON THAT QUESTION. ITO VS. RANISATI FABRIC MILLS (P) LTD. (116 TTJ 177) (MUM) WHEREIN IT WAS HELD AS UNDER: A SOLITARY JUDGMENT OF ANY HIGH COURT IN THE COUNTRY ON A PARTICULAR POINT OR ISSUE SHOULD BE FOLLOWED IN ITS LETTER AND SPIRIT BY ALL BENCHES OF THE TRIBUNAL. IT HELD.THE BETTER WISDOM OF THE COURT BELOW MUST YIELD TO THE HIGHER WISDOM OF THE COURT ABOVE. 15. THE LD. AR SUBMITTED THAT A SIMILAR VIEW WAS TA KEN IN THE CASE OF AC VS. AURANGABAD HOLIDAY RESORTS P. LTD. (111 T TJ 741) BY THE PUNE BENCH OF THE ITAT AND AC VS. CHANDRA VS. CHAND RAGIRI CONSTRUCTION CO. (136 ITD 133(COCH) .. 16. THE LD. AR RELIED ON THE FOLLOWING CASE LAW: SOCIETY OF PRESENTATION SISTERS VS. ITO (318 ITR (AT) 287 WHEREIN IT WAS HELD AS UNDER: I.T.A. NO. 212,213& 214/COCH/2014 12 JUDICIAL DISCIPLINE MANDATES THAT THE BENCH CANNOT DIFFER FROM THE VIEW OF THE EARLIER CO- ORDINATE BENCH. AFFECTION INVESTMENTS LTD. VS. AC (222 CTR 387) (GUJ.) WHEREIN IT WAS HELD AS UNDER: ONCE THE TRIBUNAL COMES TO THE CONCLUSION THAT THE FACT SITUATES IN THE CASE BEFORE IT IS IDENTICAL TO THE ONE OBTAINING IN AN EARLIER MATTER DECIDED BY ITAT, IT HAS NO RIGHT OR JURISDICTION TO RECORD A DECISION ENTIRELY CONTRARY TO ONE REACHED BY ANOTHER CO- ORDINATE BENCH ON THE SAME SET OF FACTS AND CIRCUMSTANCES. IN VIEW OF THE ABOVE, IT IS PRAYED THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS POINT, ALLOWING THE CLAIM OF THE RESPONDENT, MAY BE CONFIRMED. AC VS. MM PUBLICATIONS LTD. (43 SOT 59) WHEREIN IT WAS HELD AS UNDER: THE ITAT HAD CONSIDERED A SIMILAR CLAIM AND HAD ALLOWED THE CLAIM OF THE ASSESSEE. IN THAT CASE, THE ASSESSEE HAD TAKEN ON LEASE A BUILDING. CERTAIN MODIFICATIONS WERE DONE TO MAKE IT FUNCTIONAL. SUCH EXPENSES WERE TREATED AS REVENUE. FACTS AND LAW BEING IDENTICAL IT IS PRAYED THAT THE SAID DECISION OF THE CO-ORDINATE BENCH MAY BE FOLLOWED DC VS. EDS ELECTRONIC DATA SYSTEMS (INDIA) P. LTD. (26 SOT 483) (DEL.) WHEREIN IT WAS HELD AS UNDER: I.T.A. NO. 212,213& 214/COCH/2014 13 EXPENDITURE INCURRED FOR MAKING THE LET OUT OFFICE PREMISES FUNCTIONAL IS A REVENUE EXPENDITURE. 17. THE LD. AR SUBMITTED THAT THE DECISION RELIED O N BY THE DEPARTMENT IS NOT APPLICABLE BEING NOT COMPARABLE O N FACTS. 18. THE LD. AR DISTINGUISHED THE DECISION OF THE SU PREME COURT IN THE CASE OF TRAVANCORE COCHIN CHEMICALS LTD. VS. CI T (106 ITR 900) AND THE ASSESSEES CASE. IN THE CASE OF TRAVANCOR E COCHIN CHEMICALS LTD. (TCC), THE CONTRIBUTION WAS MADE TO GOVERNMENT OF KERALA WHEREAS IN THE ASSESSEES CASE NO CONTRIBUTION WAS MADE TO GOVERNMENT OF KERALA. IN THE CASE OF TCC, THE CONTR IBUTION WAS FOR CONSTRUCTION OF ROAD WHEREAS IN THE ASSESSEES CASE , THE EXEPENDITURE WAS FOR SETTING UP TEMPORARY PARTITION ETC. AND NOT FOR CONSTRUCTING A ROAD. IN THE CASE OF TCC, IT COULD USE THE ROAD FO R UNLIMITED PERIOD, AS LONG AS THE ROAD IS AVAILABLE WHEREAS IN THE ASSESS EES CASE, IT CAN ONLY FOR THE LIMITED PERIOD OF LEASE, WHICH WAS ALSO SHO RT. IN THE CASE OF TCC, NEW ROAD CONSTRUCTED FOR IMPROVEMENT OF TRANSP ORT FACILITIES CONSTITUTED AN ASSET OR ADVANTAGE WHEREAS IN THE AS SESSEES CASE, NO SUCH FACILITY RESULTED IN IMPROVEMENT AND NO ASSET OR ADVANTAGE OF AN ENDURING NATURE WAS CREATED. I.T.A. NO. 212,213& 214/COCH/2014 14 19. THE LD. AR FURTHER RELIED ON THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF LH SUGAR FACTORY & OIL MILLS P. LTD. VS. CIT (125 ITR 293) WHEREIN IT WAS HELD SIMILAR EXPEN DITURE AS REVENUE. AFTER CONSIDERING THE DECISION OF TRAVANCORE COCHIN CHEMICALS LTD., THE SUPREME COURT HELD THAT THE DECISION IN THE CAS E OF TCC IS APPLICABLE ONLY ON ITS FACTS. 20. THE LD. AR RELIED ON THE FOLLOWING JUDGMENTS TO HOLD THAT SUCH EXPENDITURE IS REVENUE. INDO RAMA SYNTHETICS INDIA LTD. VS. CIT (333 ITR 18) (DEL.) CIT VS. PRIYA VILLAGE ROADSHOWS LTD. (332 ITR 594) (DEL.) 21. IN VIEW OF THE ABOVE SUBMISSIONS, THE LD. AR PR AYED THAT THE ORDER OF THE CIT(A) MAY BE CONFIRMED. 22. WE HAVE HEARD THE PARTIES AND PERUSED THE RECOR D. IN THE PRESENT CASE, THE ASSESSEE HAS TAKEN THE LAND ON LE ASEHOLD ON WHICH THE ASSESSEE CONSTRUCTED SUPER STRUCTURE AND CLAIME D AS REVENUE EXPENDITURE. THE SAME WAS ALLOWED BY THE CIT(A). THE LD. DR CONTENDED THAT THE ASSESSEE CONSTRUCTED THE BUILDIN G IN THE LEASED LAND AND IT IS NOT THE CASE OF RENOVATION OF THE LE ASED BUILDING OR I.T.A. NO. 212,213& 214/COCH/2014 15 IMPROVEMENT OF THE LEASED BUILDING AS IN THE CASE O F JOY ALUKKAS PVT. LTD., CITED SUPRA AS HELD BY THE HONBLE JURISDICTI ONAL HIGH COURT. FOR SETTLING THE CONTROVERSY, WE HAVE O GO THROUGH THE EXPLANATION 1 TO SEC. 32(1) OF THE ACT WHICH WAS INSERTED BY THE TAX ATION LAWS (AMENDMENT AND MISCELLANEOUS PROVISIONS) ACT, 1986 WITH EFFECT FROM 1.4.1988 WHICH DEALS WITH THE SITUATION WHERE THE E XPENDITURE HAS BEEN INCURRED BY THE ASSESSEE ON CONSTRUCTION OF AN Y STRUCTURE ON LEASEHOLD PREMISES. THE EXPLANATION 1 IS REPRODUCED HEREWITH BELOW: EXPLANATION 1. WHERE THE BUSINESS OR PROFESSION IS CARRIED ON IN A BUILDING NOT OWNED BY HIM BUT IN RESPECT OF WHICH T HE ASSESSEE HOLDS A LEASE OR OTHER RIGHT OF OCCUPANCY AND ANY C APITAL EXPENDITURE IS INCURRED BY THE ASSESSEE FOR THE PUR POSES OF BUSINESS OR PROFESSION ON THE CONSTRUCTION OF ANY S TRUCTURE OR DOING OF ANY WORK IN OR IN RELATION TO, AND BY WAY OF REN OVATION OR EXTENSION OF IMPROVEMENT TO, BUILDING THEN, THE PRO VISIONS OF THIS CLAUSE SHALL APPLY AS IF THE SAID STRUCTURE OR WORK IS A BUILDING OWNED BY THE ASSESSEE. 23 TO FALL WITHIN THE AMBIT OF EXPLANATION 1 QUESTIO NS WHICH ARE TO BE ANSWERED ARE: (I) WHETHER THE ASSESSEE IS CARRYING ON BUSINESS O R 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 W AY OF RENOVATION OR EXTENSION OR IMPROVEMENT IN THE BUIL DING. 24. IF THE ANSWER TO THE AFOREMENTIONED QUESTIONS I S IN AFFIRMATIVE, THE ASSESSEE FALLS WITHIN THE PURVIEW OF EXPLANATIO N 1 TO SEC. 32(1). IN I.T.A. NO. 212,213& 214/COCH/2014 16 THE INSTANT CASE, IT IS AN ADMITTED FACT THAT THE A SSESSEE HAS TAKEN LAND ON LEASE FOR SETTING UP OF SERVICE STATIONS. IT IS ALSO UNDISPUTED THAT THE ASSESSEE HAS CONSTRUCTED THE BUILDING AT THE LE ASED 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. THE ASSESSEE IN ORDER TO SUPPORT HIS CASE HAS RELIED ON THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF TVS LEAN L OGISTICS LTD. (SUPRA). IN THE SAID CASE, THE ASSESSEE HAD CONSTR UCTED A BUILDING ON THE LEASED LAND FOR THE BUSINESS ADVANTAGE. THE HON BLE COURT HELD THAT THE ENTIRE COST OF CONSTRUCTION IS ADMISSIBLE AS REVENUE EXPENDITURE. EXPLANATION 1 CATEGORICALLY STATES THA T THE BUSINESS OR PROFESSION IS CARRIED ON IN A LEASED BUILDING AND N OT ON LAND. THE HONBLE HIGH COURT IN PARA 4.4 OF THE JUDGMENT FURT HER HELD AS UNDER:- 4.4 WHAT CONSTITUTES A CAPITAL EXPENDITURE AND WHA T DOES NOT, TO ATTRACT EXPLN. 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 BU ILDING TAKEN ON LEASE BY HIM FOR CARRYING ON HIS BUSINESS AND PROFESSION OF THE ASSESSEE, BUT NOT IN A CASE OF C ONSTRUCTION OF ANY STRUCTURE OR DOING ANY WORK OR RELATION TO W HERE SUCH BUILDING IS PUT UP/CONSTRUCTED FOR THE PURPOSE OF B USINESS OR THE PROFESSION OF THE ASSESSEE IN A LAND TAKEN ON L EASE BY THE ASSESSEE. I.T.A. NO. 212,213& 214/COCH/2014 17 25. THUS IT IS CLEAR THAT THE RATIO LAID DOWN BY TH E HONBLE MADRAS HIGH COURT IN THE SAID JUDGMENT DOES NOT SUPPORT TH E CASE OF THE ASSESSEE. 26. IN THE PRESENT CASE, THE ASSESSEE HAS TAKEN LAN D ON LEASE AND MADE CERTAIN CONSTRUCTION. IT IS THE CASE THAT THE ASSESSE HAS CONSTRUCTED A NEW BUILDING ON THE LEASED LAND. THE HONBLE HIGH COURT HAS FURTHER HELD IN THE AFORESAID CASE THAT T HE LANGUAGE EMPLOYED IN A STATUTE IS THE DETERMINATIVE FACTOR O F THE LEGISLATIVE EVENT AND EVEN ASSUMING THERE IS A DEFECT OR ANY OM ISSION IN THE WORDS USED IN THE LEGISLATURE, THE COURT CANNOT COR RECT OR MAKE UP THE DEFICIENCY, ESPECIALLY WHEN A LITERAL READING THERE OF PRODUCES AN INTELLIGIBLE RESULT AN ANY DEPARTURE FROM THE LITER AL RULE WOULD REALLY BE AMENDING THE LAW IN THE GARB OF INTERPRETATION, WHI CH IS NOT PERMISSIBLE AND WHICH WOULD BE DESTRUCTIVE OF JUDIC IAL DISCIPLINE. 27. THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF MADRAS AUTO SERVICE (P) LTD., 233 ITR 468 WHILE DEALING WITH A SIMILAR CONTROVERSY HAS OBSERVED AS UNDER: 5 IN ORDER TO DECIDE WHETHER THIS EXPENDITURE IS R EVENUE 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 BU ILDING WHICH BELONGED TO SOMEBODY ELSE AND SPENDING MONEY FOR I.T.A. NO. 212,213& 214/COCH/2014 18 SUCH RECONSTRUCTION? THE ASSESSEE GOT A LONG LEASE OF A NEWLY CONSTRUCTED BUILDING SUITABLE TO ITS OWN BUSINESS A T A VERY CONCESSIONAL RENT. THE EXPENDITURE THEREFORE, WAS M ADE IN ORDER TO SECURE A LONG LEASE OF NEW AND MORE SUITAB LE BUSINESS PREMISES AT A LOWER RENT. IN OTHER WORDS, THE ASSESSEE MADE SUBSTANTIAL SAVINGS IN MONTHLY RENT F OR 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 EXP ENDITURE SHOULD NORMALLY BE CONSIDERED AS REVENUE EXPENDITUR E. MOREOVER, ASSESSEE IN THE PRESENT CASE DID NOT GET ANY CAPITAL ASSET BY SPENDING THE SAID AMOUNTS. THE ASSESSEE THEREFORE COULD NOT HAVE CLAIMED ANY DEPRECIATION. LOOKING T O THE NATURE OF THE ADVANTAGE WHICH THE ASSESSEE OBTAINED IN A COMMERCIAL SENSE, THE EXPENDITURE APPEARS TO BE REV ENUE EXPENDITURE. 28. THEREAFTER, THE HONBLE APEX COURT REFERRING TO SEVERAL CASES DECIDED HELD AS UNDER: 11.ALL THESE CASES HAVE LOOKED UPON EXPENDITURE WH ICH DID BRING ABOUT SOME KIND OF AN ENDURING BENEFIT TO THE COMPANY AS A REVENUE EXPENDITURE WHEN THE EXPENDITURE DID N OT 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 EXPE NSES HAVE BEEN LOOKED UPON AS HAVING BEEN MADE FOR THE PURPOS E OF CONDUCTING THE BUSINESS OF THE ASSESSEE MORE PROFIT ABLY 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 ADVANTAG E OF USING MODERN PREMISES AT A LOW RENT, THUS SAVING CO NSIDERABLE 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 REVEN UE EXPENDITURE. 29. FROM THE ABOVE JUDGMENT, WE CAN CONCLUDE THAT IT IS ESSENTIAL THAT THE EXPENDITURE INCURRED ON THE CONSTRUCTION O F ANY STRUCTURE ON I.T.A. NO. 212,213& 214/COCH/2014 19 THE LEASED PREMISES SHOULD RESULT IN ENDURING BENEF IT. IN OUR CONSIDERED OPINION, THE CASE OF THE ASSESSEE VERY M UCH FALLS WITHIN THE AMBIT OF EXPLANATION 1 OF SECTION 32(1) OF THE ACT A ND IN VIEW OF SUPREME COURT JUDGMENT IN THE CASE OF MADRAS AUTO S ERVICE, CITED SUPRA, WE ARE NOT CONSIDERING THE VARIOUS JUDGMENTS CITED BY THE LD. AR. 30. IN VIEW OF THE ABOVE, WE FIND NO MERIT IN THE A RGUMENTS OF THE ASSESSEES COUNSEL ON THIS ISSUE. HENCE, THIS GROU ND OF THE REVENUE IS ALLOWED 31. COMING TO THE GROUND RELATING TO ALLOWABIITY OF LOSS INCURRED ON DISCARDED ASSETS AS REVENUE LOSS FOR THE ASSESSMENT YEAR 2009-10, IN OUR OPINION, AS DISCUSSED IN EARLIER PARAGRAPH, THI S CANNOT BE TREATED AS REVENUE LOSS. ON THE OTHER HAND IT IS A CAPITAL LOSS AS IT IS LOSS OF CAPITAL ASSET. ACCORDINGLY, THIS GROUND OF THE REV ENUE IS ALLOWED. 32 IN THE RESULT, ALL THE APPEALS FILED BY THE REVENUE ARE ALLOWED. PRONOUNCED ACCORDINGLY ON 25- 07-2014 SD/- SD/- (NRS GANESAN) (CHAND RA POOJARI) JUDICIAL MEMBER ACCOUNANT MEMBER PLACE: KOCHI DATED: 25TH JULY, 2014 I.T.A. NO. 212,213& 214/COCH/2014 20 GJ COPY TO: 1. M/S. INDUS MOTOR COMPANY PVT. LTD., CHAKKORATHKU LAM, KANNUR ROAD, KOZHIKODE. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1 (1), KOZHIKODE. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS), KOZHIKO DE. 4. THE COMMISSIONER OF INCOME-TAX, KOZHIKODE. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER ( ASSISTANT REGISTRAR) I.T.A.T, COCHIN