The ACIT, Circle-5, Ahmedabad V. Rang Bandhej Pvt.Ltd., Ahmedabad

ITA 288/AHD/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1937 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2009
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 17-12-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 16-01-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure; Set aside
• Section: 133A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, A-BENCH, AHMEDABAD. BEFORE: SHRI T K SHARMA, JUDICIAL MEMBER, AND SHRI D C AGRAWAL, ACCOUNTANT MEMBER. ITA NO.288/AHD/2007 (ASSESSMENT YEAR 2003-2004) ASST. CIT, CIRCLE 5, AHMEDABAD VERSUS RANG BANDHEJ PVT. LTD. C-1, CHINAIBAUG ESTATE, NR. DUDHESHWAR WATER WORKS, DUDHESHWAR, AHMEDABAD. (APPELLANT) (RESPONDENT) PAN: AAACR 5410 N FOR THE APPELLANT: SHRI. ANAND MOHAN, SR. DR FOR THE RESPONDENT SHRI. BHARAT SHAH, C.A. ORDER PER D C AGRAWAL (ACCOUNTANT MEMBER): THIS IS AN APPEAL FILED BY THE REVENUE, AGAINST THE ORDER OF THE LD. CIT(A) DATED 15-11-2006 RAISING FOLLOWING GROUNDS. 1. THE LD. COMMISSIONER OF INCOME TAX(A)-XI, AHMED ABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF RS.10,66,251/- ON ACCOUNT OF DISALLOWANCE OF BUILDI NG REPAIR EXPENSES BY TREATING IT AS CAPITAL EXPENDITURE. 2. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE, T HE LD. COMMISSIONER OF INCOME TAX (A)- XI, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LEA RNED COMMISSIONER OF INCOME TAX(A) XI, AHMEDABAD MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . 2 ITA NO.288/AHD/2007 (ASSESSMENT YEAR 2003-2004) 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY IS ENGAGED IN THE BUSINESS OF DESIGNING GARMENT, MANUFACTURING AND RE TAILING VARIOUS TEXTILES AND OTHER PRODUCTS. DURING THE COURSE OF ASSESSME NT PROCEEDINGS ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS INCUR RED LOSS IN INCURRING AN EXPENDITURE OF RS.10,66,251/- ON REPAIRS OF THE PRE MISES. A SURVEY UNDER SECTION 133A WAS CARRIED OUT ON 31-01-2003. IT WAS FOUND THAT THE ASSESSEE TOOK THE PREMISES ON RENT IN THE MONTH OF DECEMBER 2002 AS A TENANT FROM THE FIRM M/S. PANKAJ TEXTILES. THE MONTHLY RENT WA S FIXED AT RS.17,100/-. THE ASSESSEE COMPANY HAD ALSO MADE AN AGREEMENT TO PURCHASE THE PREMISES BY DECEMBER 2003 AND HAD PAID AN ADVANCE O F RS.1,00,000/-. THE TOTAL CONSIDERATION FOR PURCHASE OF THE PREMISES WA S RS.32,51,000/-. DURING THE COURSE OF SURVEY IT WAS NOTICED THAT ASSESSEE H AS CONVERTED THE INDUSTRIAL SHED INTO ROOMS, AND THE FIRST FLOOR WAS EXTENDED. THE GROUND FLOOR AREA OF 500 SQUARE FEET WAS CONSTRUCTED AS AN OFFICE. THUS, EXTENSIVE WORK WAS DONE AND ALTERATIONS WERE MADE ACCORDING TO THE REQ UIREMENTS. A NEW STRUCTURE WAS CREATED EVEN THOUGH INDIVIDUAL EXPEND ITURE WERE UNDER DIFFERENT HEADS SUCH AS COLORING, IMPROVEMENT OF FL OORING, PLASTERING OF WALLS, SUBSTITUTION OF THE DOORS ETC., BUT WHEN VIE WED IN TOTALITY A CAPITAL ASSET HAS BEEN CREATED. HE ACCORDINGLY TREATED A S UM OF RS.10,66,251/- AS CAPITAL EXPENDITURE BUT ALLOWED DEPRECIATION THEREO N. 3. BEFORE LD. COMMISSIONER OF INCOME TAX(APPEALS) I T WAS ARGUED THAT THERE WAS NO EXTENSION OF FLOOR AREA OF THE RENTED PREMISES. BULK OF THE EXPENDITURE WAS TOWARDS REPAIRING, COLORING OF WALL S, NEW IP FLOOR WAS CREATED AGAINST THE EXISTING BADLY DAMAGED FLOOR. AS PER LEAVE AND LICENSE AGREEMENT, ASSESSEE HAD TO BEAR THE COST OF REPAIRS TO THE PREMISES. BUILDING WAS UNDER DILAPIDATED CONDITION. THERE ARE DOZENS O F DECISIONS WHICH SAY THAT EXPENDITURE INCURRED ON RENTED PREMISES WOULD BE REVENUE EXPENDITURE. THE LEARNED AUTHORISED REPRESENTATIVE REFERRED TO T HE FOLLOWING JUDGMENTS. 3 ITA NO.288/AHD/2007 (ASSESSMENT YEAR 2003-2004) A. CIT VS. OXFORD UNIVERSITY PRESS 108 ITR 166 B. ALEMBIC CHEMICAL WORKS LTD. VS. CIT 177 ITR 377 . C. CIT VS. KALYANI MAVJI 122 ITR 49 D. EMPIRE JUTE MILLS LTD. VS. CIT 124 ITR E. THE GUJARAT HIGH COURT DECISION IN CASE OF AHME DABAD MANUFACTURING AND CALICO LTD. VS. CIT-6 ITR 800 AND BOMBAY HIGH COURT DECISION IN CASE OF STANDARD MILLS CO. L TD. VS. CIT 181 ITR 233. F. THE DELHI BENCH DECISION IN CASE OF NIRULLA & CO. (P) LTD. VS. ITO 43 ITD 21 AND AHMEDABAD BENCH C DECISION DATE D 13-07-1990 IN ITA NO. 2350/AHD/87 IN THE CASE OF HO TEL KINGWAY AHMEDABAD FOR 1986-97. G. THE SUPREME COURT IN ITS DECISION IN EMPIRE JUT E CO. LTD. VS. CIT 124 ITR1 (SC). 4. THE LD. COMMISSIONER OF INCOME TAX(APPEALS) CONS IDERING THE SUBMISSIONS ALLOWED THE CLAIM. 5. BEFORE US LEARNED DR SUBMITTED THAT IT IS NOT A CASE OF SIMPLY REPAIRS. THE ASSESSEE HAD, IN PLACE OF INDUSTRIAL SHED, CONS TRUCTED A BUILDING, CREATED OFFICE PREMISES AND THUS, A NEW ASSET WAS CREATED F OR ENDURING BENEFIT. FURTHER, IT IS NOT A CASE OF INCURRING EXPENDITURE ON RENTED PREMISES BECAUSE PRIOR TO INCURRING EXPENDITURE ASSESSEE HAD ENTERED INTO AGREEMENT TO PURCHASE THE PREMISES AND THEREFORE IT WAS AN EXPEN DITURE INCURRED FOR CREATING AN ASSET FOR HIMSELF. ASSESSEE WOULD BE THE OWNER OF THE ASSET AND IT IS NOT A CASE WHERE LANDLORD WOULD BE OWNER OF T HE ASSET CREATED BY THE ASSESSEE AND ASSESSEE IS ONLY ENJOYING THE USE THER EOF. THE LEARNED DR SUBMITTED THAT ISSUE IS NOW COVERED AGAINST THE ASS ESSEE BY THE DECISION OF THE HON'BLE SUPREME COURT IN CIT VS. SHRI. MANGAYAR KARASI MILLS PRIVATE 4 ITA NO.288/AHD/2007 (ASSESSMENT YEAR 2003-2004) LIMITED (2009) 315 ITR 114. THE CURRENT REPAIRS AR E FOR PRESERVING AND/OR MAINTAINING AN ALREADY EXISTING ASSET AND NOT FOR P URPOSE OF RENEWING OR RESTORATION. THE LEARNED DR ALSO SUBMITTED THAT AF TER ENTERING INTO AGREEMENT WITH THE LANDLORD FOR PURCHASE OF THE PRO PERTY, THE ASSESSEE TOOK OVER THE POSSESSION THEREOF. THEREFORE THE ASSESSE E IS OWNER OF THE PROPERTY AS PER SECTION 53A OF THE TRANSFER OF PROPERTY ACT. HE WILL ALSO BE COVERED WITHIN THE DEFINITION OF SECTION 2(47) OF INCOME-TA X ACT, 1961. 6. AS AGAINST THIS, LEARNED AUTHORISED REPRESENTATI VE FOR THE ASSESSEE REPEATED THE SAME ARGUMENTS AS HE HAS TAKEN BEFORE LD. COMMISSIONER OF INCOME TAX(APPEALS). HE SUBMITTED THAT ASSESSEE IS NOT AN OWNER OF THE PROPERTY. HE WAS PAYING RENT. SECONDLY, HE HAD PA ID ONLY A SMALL SUM OF RS. 1,00,000/- OUT OF TOTAL CONSIDERATION OF RS.32, 51,000/-. THEREFORE, EXPENDITURE SO INCURRED ON REPAIRS IS ALLOWABLE UND ER SECTION 30(A). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. UNDISPUTED FACTS ARE THAT THE ASSESSEE ACQ UIRED INITIALLY ON RENT, AN INDUSTRIAL SHED FROM M/S. PANKAJ TEXTILES. THE AGR EEMENT FOR RENT IS DATED 08-07-2002. THE STAMP DOCUMENTS WERE PURCHASED ON 03-08-2002 AND THE AGREEMENT WAS NOTARIZED ON 07-10-2002. FROM THIS I T IS INFERRED THAT ASSESSEE APPEARS TO HAVE ORALLY AGREED WITH M/S. PA NKAJ TEXTILES TO ACQUIRE THEIR INDUSTRIAL SHED ON RENT ON 08-07-2002, BUT IT WAS PUT IN WRITING SUBSEQUENTLY AND NOTARIZED ON 07-10-2002. THE ASSE SSEE SIMULTANEOUSLY PURCHASED ANOTHER STAMP PAPER ON 03-08-2002 AND ENT ERED INTO AGREEMENT WITH PANKAJ TEXTILES FOR PURCHASE OF THIS PROPERTY FOR A SUM OF RS.32,51,000/- OUT OF WHICH AN ADVANCE OF RS. 1,00, 000/- WAS PAID VIDE CHEQUE NO. 495325 DATED 25-06-2002 DRAWN ON TEXTILE TRADERS COOPERATIVE BANK LIMITED. THIS DEED WAS EXECUTED ON 15-06-2002 . IT WAS PROVIDED IN CLAUSE 8 THEREOF THAT GOVERNMENT DUES PRIOR TO 15-0 6-2002 SHALL BE BORNE BY 5 ITA NO.288/AHD/2007 (ASSESSMENT YEAR 2003-2004) M/S. PANKAJ TEXTILES WHEREAS THEREAFTER THEY WILL B E BORNE BY THE ASSESSEE. IT IS ALSO PROVIDED THEREIN THAT IN CASE ASSESSEE D OES NOT PAY THE BALANCE OF THE SUM, THEN PANKAJ TEXTILES RESERVES A RIGHT TO C ANCEL THE AGREEMENT AND START PROCEEDINGS FOR RECOVERY, FOR WHICH ASSESSEE WILL BE FULLY RESPONSIBLE. IN THE MEANTIME ASSESSEE WOULD PAY RENT TO M/S. PAN KAJ TEXTILES. FINALLY THE PURCHASE DEED WAS EXECUTED ON 31-03-2006, AND T HIS WAS NOTARIZED ON 21-06-2006. 8. THE ASSESSEE HAS SHOWN THE COPY OF RENT ACCOUNT PAID TO M/S. PANKAJ TEXTILES DURING THE PERIOD FOR 31-03-2003 TO 31-03- 2006. DURING THIS PERIOD ASSESSEE HAS STATED THAT HE IS NOT THE OWNER OF THE PREMISES AND THEREFORE EXPENDITURE INCURRED DURING THIS PERIOD W OULD BE REVENUE IN NATURE AS ASSET AND RENTAL INCOME BELONGS TO M/S. PANKAJ T EXTILES. IN SUPPORT OF THESE CONTENTIONS, VARIOUS AUTHORITIES HAVE BEEN CI TED AS REFERRED TO BY LD. COMMISSIONER OF INCOME TAX(APPEALS) IN HIS ORDER. THE GIST OF THESE AUTHORITIES IS THAT EXPENDITURE INCURRED BY THE ASS ESSEE ON A PREMISES OWNED BY THE LANDLORD DO NOT CREATE AN ASSET IN FAVOUR OF THE ASSESSEE AND THEREFORE EXPENDITURE SO INCURRED WOULD NOT BE CAPITAL EXPEND ITURE, BUT WOULD BE ONLY A REVENUE EXPENDITURE. 9. HOWEVER, IN THE PRESENT CASE, FACTS ARE DIFFEREN T. THE ASSESSEE GOT THE PROPERTY IN POSSESSION. IT WAS ONLY AN INDUSTRIAL SHED. IT WAS RENOVATED AND A NEW ASSET WAS CREATED IN THE FORM OF BUILDING WHI CH HOUSED THE OFFICE PREMISES OF THE ASSESSEE. EVEN THOUGH INDIVIDUAL E XPENDITURE SITED BY THE ASSESSEE SUCH AS ON REPAIRING OF THE WALLS, COLORIN G OF THE WALLS, IMPROVEMENT OF FLOORING, SUBSTITUTION OF DOORS MAY APPEAR REVENUE IF LOOKED INTO ISOLATION AND INDEPENDENT OF EACH OTHER , BUT TO PUT TOGETHER THEY HAVE CREATED A NEW CAPITAL ASSET WHICH WAS NOT EARL IER EXISTING. THUS, NEW PREMISES IS A REPLACEMENT FOR INDUSTRIAL SHED. 6 ITA NO.288/AHD/2007 (ASSESSMENT YEAR 2003-2004) 10. ASSESSEE HAD ALREADY ENTERED INTO AGREEMENT WIT H M/S. PANKAJ TEXTILES TO PURCHASE THE LAND/INDUSTRIAL SHED FOR A SUM OF RS.32,51,000/- AND ADVANCE OF RS.1,00,000/- HAS BEEN PAID ON THE SAME DATE, WHICH MEANS THAT ASSESSEE HAS CLEAR INTENTION TO PURCHASE THE PROPER TY. IN THE MEAN TIME WHEN SALE DEED IS NOT EXECUTED, ASSESSEE WOULD TREA T HIMSELF AS TENANT AND PAY THE RENT. BUT THAT DOES NOT ALTER THE CHARACTER OF THE INITIAL TRANSACTION THAT ASSESSEE INTENDED TO PURCHASE THE PROPERTY AND CARRYOUT THE CONSTRUCTION THEREON. IT HAD ACCORDINGLY CARRIED OUT THE CONSTR UCTION IN THE FORM OF EXTENSIVE REPAIRS/RENOVATIONS AND BROUGHT INTO EXIS TENCE A NEW ASSET IN THE FORM OF OFFICE BUILDING. ASSESSEE WOULD BECOME DEE MED OWNER OF THE PROPERTY WITHIN THE MEANING OF SECTION 53A OF THE T RANSFER OF PROPERTY ACT AS IT HAS TAKEN INTO THE POSSESSION OF THE PROPERTY AND AS PART PERFORMANCE PAID THE MONEY AS ADVANCE TO M/S. PANKAJ TEXTILES. EVEN IF THE SUM PAID AS ADVANCE IS A SMALL SUM AS COMPARED TO THE TOTAL AGR EED SALE CONSIDERATION, BUT THIS WILL NOT HAVE ANY EFFECT ON INVOKING OF PR OVISIONS OF SECTION 53A OF THE TRANSFER OF PROPERTY ACT. IT IS NOT ACCEPTABLE AS A PROPOSITION THAT IF ADVANCE SUM PAID IS SMALL, THEN SECTION 53A WILL NO T BE APPLICABLE AND IF SUM PAID AS ADVANCE IS MORE THEN ASSESSEE CAN BE DE EMED TO HAVE BECOME OWNER, OTHER FACTORS REMAINING THE SAME. ONCE THE ASSESSEE HAS CLEARLY INTENDED TO PURCHASE THE PROPERTY WHICH HAS BEEN FI NALLY PURCHASED, THE ASSET SO CREATED WOULD BELONG TO THE ASSESSEE AND T HEREFORE A NEW ASSET HAD COME INTO EXISTENCE IN FAVOUR OF THE ASSESSEE AND T HEREFORE EXPENDITURE SO INCURRED WOULD BE CAPITAL EXPENDITURE. HON'BLE SUP REME COURT IN CASE OF SHRI. MANGAYAR KARASI MILLS PRIVATE LIMITED(SUPRA) HAS HELD THAT CURRENT REPAIRS MEANS PRESERVING OR MAINTAINING AN ALREADY EXISTING ASSET AND ITS MEANING CANNOT BE EXTENDED TO RENEWAL OR RESTORATIO N OF A NEW ASSET. AS A RESULT, WE HOLD AGAINST THE ASSESSEE THAT EXPENDITU RE SO INCURRED, IS CAPITAL IN NATURE. 7 ITA NO.288/AHD/2007 (ASSESSMENT YEAR 2003-2004) 11. APPEAL OF THE REVENUE IS THEREFORE ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DATED 31 ST DECEMBER, 2009. SD/- SD/- (T K SHARMA) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTA NT MEMBER AHMEDABAD; DATED:31/12/2009 ANKIT* COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT, 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT, AHMEDABAD BENCHES, AHMEDABAD.