M/S. VENTURA SECURITIES LTD, MUMBAI V. THE ACIT 4(2), MUMBAI

ITA 4526/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55101 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 04-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 03-07-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHANTAN BOSE MR
• Keywords: Capital asset; Depreciation; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI T.R. SOOD, A.M. AND SHRI V. DURGA RAO, J.M. ITA NO. 4526/MUM/2008 ASSESSMENT YEAR : 2005-06 M/S VENTURA SECURITIES LTD., APPELLANT E DHANNUR, GROUND FLOOR, 15, SIR P.M. ROAD, FORT, MUMBAI 400 001. VS. ASSTT. COMMISSIONER OF INCOME-TAX, RESPONDEN T CIRCLE 4(2), MUMBAI. APPELLANT BY : MR. SAMEER DALAL RESPONDENT BY : MR. SHANTAN BOSE MR. DATE OF HEARING : 28/07/2011 DATE OF PRONOUNCEMENT: ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-IV, MUMBAI, PASSED ON 30/05/2008 FOR THE ASS ESSMENT YEAR 2005-06. 2. GROUND NO. 1 IS DIRECTED AGAINST THE ACTION OF T HE CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 15,50,000/- ON A CCOUNT OF REPAIR EXPENSES AND TREATING THE SAME AS CAPITAL EXPENSES. 3. BRIEFLY STATED THE FACTS RELATING TO RAISE THIS GROUND ARE THAT THE ASSESSEE HAD CLAIMED A SUM OF RS. 15,50,000/- ON AC COUNT OF RENOVATION OF ITS PREMISES AT HARI CHAMBER. THE AO HAS OBSERVED THAT THE ASSESSEE HAD THE ENTIRE STRUCTURE OF THE LEASED OFFICE PREMISES HAD BEEN DEMOLISHED INCLUDING FLOORING, TOILETS AND FAL SE CEILING AND THE ITA NO. 4526/MUM/2008 M/S VENTURA SECURITIES LTD. 2 SAME HAD BEEN RECONSTRUCTED AND REFITTED WITH INTER NAL SANITY AND OTHER FITTINGS. THE AO WAS OF THE VIEW THAT IT WAS NOT JUST A REGULAR REPAIR AND MAINTENANCE JOB BUT AN ENTIRE RECONSTRUC TION WHICH IS OF A CAPITAL NATURE. ON BEING ASKED BY THE AO TO SHOW CA USE AS TO WHY THE SAID EXPENSES NOT BE TREATED AS CAPITAL EXPENDITURE AS THE SAME DOES NOT CONSTITUTE CURRENT REPAIRS AND GIVES AN ENDURIN G BENEFIT BY WAY OF BETTER WORKING CONDITIONS FOR THE STAFF OVER THE FU TURE PERIOD, THE ASSESSEE HAD STATED THAT IT WAS NECESSARY TO CHANGE EVERYTHING DUE TO WATER SPOILAGE AND BAD ODOUR. AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE AND FOLLOWING THE DECISIONS OF HONBLE SUP REME COURT IN THE CASES OF BALLIMAL NAVAL KISHORE, 224 ITR 414 (SC) A ND GOVIND SUGAR MILLS LTD. VS. CIT, 232 ITR 319 (SC), THE AO HELD T HAT THE EXPENDITURES MADE BY THE ASSESSEE ON LEASE HOLDING PREMISES IN MAKING LARGE SCALE ALTERCATIONS AND RENOVATION IS C APITAL IN NATURE, THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE IS TO BE CAPITALIZED AND ENTITLED FOR DEPRECIATION. ACCORDIN GLY, HE DISALLOWED THE SAID EXPENDITURE. ON APPEAL, THE CIT(A) CONFIRM ED THE ACTION OF THE AO. AGGRIEVED BY THE ORDER OF THE CIT(A) THE AS SESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CANVASSED THAT THE ISSUE UNDER CONSIDERATION IS COVERED BY TH E DECISION OF ITAT, MUMBAI BENCHES IN THE CASE OF M/S AIRLINE FINANCIAL SUPPORT SERVICES (INDIA) PVT. LTD. IN ITA NOS. 1712 TO 1716 /MUM/03 VIDE ORDER 16 TH APRIL, 2009. HE FURTHER SUBMITTED THAT THE DECISI ON OF ITAT WAS AFFIRMED BY THE HONBLE JURISDICTIONAL HIGH COU RT VIDE INCOME TAX APPEAL NO. 3162 OF 2009. THE SAID COPIES OF ORD ERS ARE AVAILABLE ON RECORD. 5. THE LEARNED DR, ON THE OTHER HAND, STRONGLY SUPP ORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS IN A CAPITAL NATURE AN D, THEREFORE, THE SAME CANNOT BE ALLOWED AS EXPENDITURE. ITA NO. 4526/MUM/2008 M/S VENTURA SECURITIES LTD. 3 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF THE AU THORITIES BELOW. BEFORE THE AO THE ASSESSEE SUBMITTED THAT IT HAS IN CURRED VARIOUS EXPENSES ON ACCOUNT OF RENOVATION OF ITS PREMISES. THE ASESSSEE FILED DETAILS OF EXPENDITURE INCURRED BEFORE THE AO FOR T HE ABOVE RENOVATION. THE ASSESSEE FURTHER SUBMITTED THAT BE FORE THE AO THAT THE ABOVE REPAIRS WERE CARRIED OUT DURING THE MONTH OF AUGUST04, HOWEVER, REPAIRS AND RENOVATION COULD NOT LAST LONG ER AS OFFICE WAS AT TOP FLOOR. IT WAS SUBMITTED THAT SINCE OFFICE AREA WAS NOT SUFFICIENT TO ACCOMMODATE NEW RECRUITS, SUBSEQUENTLY, THE OFFICE SHIFTED TO A BIGGER PREMISES IN APRIL05. EVEN BEFORE US, THE ASSESSEE HAS FILED THE DETAILS IN RESPECT OF EXPENDITURE INCURRED FOR THE PURPOSE OF RENOVATION VIDE PAGE 5 OF PAPER BOOK, WHICH REVEALS THAT THE ASSESS EE HAS CARRIED OUT THE ABOVE RENOVATION WORK BECAUSE THERE WAS WATER S PILLAGE FROM WALLS AND CEILING BEING THE TOP FLOOR, FROM RUSTED PIPELINES, BROKEN AREA AT TOILETS, SANITARY BREAKAGE AND BAD ODOUR DU E TO THESE PROBLEMS IN THE WHOLE OFFICE. IT WAS SUBMITTED THA T THERE WAS NO NEW ASSET CREATED TO THE ASSESSEE BY DOING THE SAID REP AIR WORK. THE SAID EXPENDITURE INCURRED TO BRING THE ASSET TO USABLE O R WORKING CONDITIONS AS THERE WAS NO ENDURING BENEFIT IN NATU RE. WE FIND THAT THE ASSESSEE HAS CARRIED OUT THE RENOVATION WORK AN D SUBMITTED ALL THE DETAILS BEFORE THE AO. THE AO HAS NOT DOUBTED THE EXPENDITURE AND THE AO HAS NOT RAISED ANY DOUBT WITH REGARD TO VACATING THE PREMISES IN THE YEAR 2005. ACCORDING TO THE AO, THE SE EXPENSES ARE CAPITAL IN NATURE, THEREFORE, NOT ALLOWABLE. SIMILA R ISSUE CAME UP FOR CONSIDERATION BEFORE THE ITAT MUMBAI BENCHES IN THE CASE OF M/S AIRLINE FINANCIAL SUPPORT SERVICES (INDIA) PVT. LTD .(SUPRA). WHILE DECIDING THE ISSUE THE TRIBUNAL CONSIDERED THE JUDG MENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. HI LINE PENS PVT. LTD., 306 ITR 182 (DEL). THE HONBLE DELHI HIGH COURT WHI LE DECIDING THE ISSUE CONSIDERED THE JUDGMENT IN THE CASE OF BALLIM AL NAVAL KISHORE VS. CIT, 224 ITR 414(SC), WHEREIN, THEIR LORDSHIPS HELD AS UNDER:- AFTER HAVING CONSIDERED THE ARGUMENTS ADVANCED BY T HE LEARNED COUNSEL FOR THE PARTIES AND EXAMINED THE DECISIONS CITED BY THEM. ITA NO. 4526/MUM/2008 M/S VENTURA SECURITIES LTD. 4 WE ARE OF THE VIEW THAT THE ASSESSEES CLAIM FOR DE DUCTION UNDER SECTION 30(A)(I) HAS BEEN RIGHTLY ALLOWED BY THE TR IBUNAL. THE DECISIONS CITED BY THE LEARNED COUNSEL FOR THE REVE NUE RELATE TO CURRENT REPAIRS. THERE IS A CLEAR DISTINCTION BET WEEN THE EXPRESSION REPAIRS AND THE EXPRESSION CURRENT RE PAIRS. IT IS OBVIOUS THAT THE WORD REPAIRS IS MUCH WIDER THAN THE EXPRESSION CURRENT REPAIRS. THIS FACT HAS ALSO BEEN TAKEN NO TE OF BY THE SUPREME COURT IN THE CASE OF SARAVANA SPINNING MILL S P. LTD. (SUPRA). THE EXPRESSION CURRENT REPAIRS IS MUCH M ORE RESTRICTED THAN THE WORD REPAIRS BECAUSE THE LATTER IS QUALI FIED BY THE WORD CURRENT. WHAT THE ASSESSEE HAS DONE IN THE P RESENT CASE HAS BEEN CONSTRUED TO BE REPAIRS BY THE TRIBUNAL AS A FINDING OF FACT. IT HAS NOT BROUGHT ABOUT ANY NEW ASSET AND MO RE IMPORTANTLY IT WAS NOT THE INTENTION OF THE ASSESSE E TO BRING ABOUT ANY NEW CAPITAL ASSET. THE EXPENSES THAT WERE INCURRED BY THE ASSESSEE WERE TOWARDS REPAIRING THE PREMISES TA KEN ON LEASE SO AS TO MAKE IT MORE CONDUCIVE TO ITS BUSINESS ACT IVITY. SUCH EXPENSES WOULD CLEARLY FALL WITHIN THE EXPRESSION O F REPAIRS TO THE PREMISES AS APPEARING IN SECTION 30(A)(I). THE LEGISLATIVE HAS MADE A DISTINCTION BETWEEN EXPENSES INCURRED BY A T ENANT FOR REPAIRS OF THE PREMISES AND EXPENSES INCURRED BY A PERSON WHO IS NOT A TENANT TOWARDS CURRENT REPAIRS TO THE PR EMISES. THIS DISTINCTION HAS TO BE GIVEN MEANING. PERHAPS THE LO GIC BEHIND THE DISTINCTION WAS THAT A TENANT WOULD, BY THE EVERY N ATURE OF HIS STATUS AS A TENANT, NOT UNDERTAKE EXPENDITURES SO A S TO EVEN BRING ABOUT NEW ASSETS OF CAPITAL NATURE. IT WAS, T HEREFORE, NECESSARY TO QUALIFY THE EXPENDITURE ON REPAIRS. TH E DEDUCTION WAS, THEREFORE, LIMITED TO EXPENDITURE ON CURRENT REPAIRS ONLY. IT FOLLOWS. THEREFORE, THAT THE COST OF REPAIRS THAT H AVE BEEN INCURRED BY A TENANT IN RESPECT OF SUCH PREMISES WO ULD HAVE TO BE ALLOWED U/S 30(A)(I). THE QUESTION OF DISALLOWIN G SUCH AN EXPENDITURE AND RELEGATING THE ASSESSEE TO CLAIM DE PRECIATION U/S 32 DOES NOT ARISE. THE ASSESSEE HAS NOT CLAIMED DEPRECIATION. IT HAS CLAIMED DEDUCTION UNDER SECTIO N 30(A)(I). ONCE THE ASESSSEES CLAIM FALLS WITHIN THAT PROVISI ON THERE IS NO QUESTION OF CONSIDERING THE QUESTION OF APPLICABILI TY OF SECTION 32. CONSEQUENTLY, THE QUESTION THAT HAS BEEN FRAMED IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE APPEAL IS DISMISSED. 7. THE HONBLE JURISDITIONAL HIGH COURT IN THE CASE OF AIRLINES FINANCIAL SUPPORT SERVICES (INDIA) PVT. LTD. APPROV ED THE FINDINGS OF THE TRIBUNAL WHILE CONFIRMING THE ORDER OF THE TRIB UNAL, WHICH ARE EXTRACTED BELOW:- AGAIN, IN THE CASE OF CIT VS. AYESHA HOSPITALS (P) LTD. (SUPRA) HONBLE MADRAS HIGH COURT HAD HELD THAT EXPENDITURE ON PAINTING, RELAYING OF DAMAGED FLOORS IN THE LAND PR EMISES WERE TO BE ALLOWED AS REVENUE EXPENDITURE AND COULD NOT BE CONSIDERED ITA NO. 4526/MUM/2008 M/S VENTURA SECURITIES LTD. 5 AS CAPITAL EXPENDITURE OF THE NATURE MENTIONED IN E XPLANATION 1 TO SECTION 32(1) OF THE ACT. IN THE LIGHT OF THE AB OVE DECISION OF HONBLE DELHI HIGH COURT AND ALSO FOR THE REASONING S MENTIONED BY US , WE ARE OF THE OPINION THAT THE CLAIM OF EXP ENSES FOR RENOVATION AND IMPROVEMENT WORK IN THE LEASE-HOLD P REMISES OUGHT TO HAVE BEEN ALLOWED TO ASSESSEE. THEREFORE, WE SET ASIDE THE ORDER OF LD. CIT(A) AND HOLD THAT THE REPAIRS O F RS. 35,47,375/- CLAIMED BY THE ASSESSEE WAS ALLOWABLE. 8. IN THE LIGHT OF THE ABOVE DISCUSSION AND AFTER C ONSIDERING THE FACTS OF THE CASE UNDER CONSIDERATION, WE FIND THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR RENOVATION OF THE LEAS ED OFFICE PREMISES IS IN THE NATURE OF REVENUE EXPENDITURE, THEREFORE, IT IS ALLOWABLE. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) A ND ALLOW THE ASSESSEES CLAIM OF RS. 15,50,000/- ON ACCOUNT OF R EPAIRS TREATING THE SAME AS REVENUE IN NATURE. 9. GROUND NO.2 IS DIRECTED AGAINST THE ACTION OF CI T(A) IN CONFIRMING THE DISALLOWANCE OF RS. 1,72,598/- TOWAR DS SECURITY TRANSACTION TAX DEBITED TO PROFIT & LOSS ACCOUNT. 10. THE ASSESSEE HAD DEBITED A SUM OF RS. 1,72,598. 85 ON ACCOUNT OF SECURITIES TRANSACTION TAX IN HIS PROFIT AND LOS S ACCOUNT. THE AO OBSERVED THAT AS PER THE PROVISIONS OF SECTION 40(I B) ANY SUM PAID ON ACCOUNT OF SECURITIES TRANSACTION TAX IS NOT DEDUCT IBLE IN COMPUTING THE INCOME OF AN ASSESSEE. THE ASSESSEE HAD EXPLAIN ED THAT SOME OF THE INSTITUTIONAL CLIENTS WERE NOT WILLING TO BEAR THE STT AND THEY HAD INSISTED THAT THE SAME SHOULD BE BORNE BY THE ASSES SEE AS IN MANY CASES THEY HAD INCREASED BROKERAGE TO THE SAME EXTE NT BUT WHAT THAT THE AMOUNT OF STT SHOULD NOT BE SEPARATELY SHOWN IN THE BILL. THEREFORE, THE ASSESSEE INSISTED THAT AS ITS BROKER AGE HAD INCREASED TO SIMILAR EXTENT WHICH HAD BEEN OFFERED AS TAX, THE D EDUCTION OF STT SHOULD BE ALLOWED TO HIM. THE AO WAS OF THE VIEW TH AT AS PER THE PROVISIONS OF SECURITIES TRANSACTION ACT, A SUM IS CHARGEABLE AS SECURITIES TRANSACTION TAX IN RESPECT OF THE TAXABL E SECURITIES TRANSACTION SPECIFIED IN COLUMN (2) OF THE TABLE GI VEN THEREIN, AT THE ITA NO. 4526/MUM/2008 M/S VENTURA SECURITIES LTD. 6 RATE SPECIFIED IN THE CORRESPONDING ENTRY IN COLUMN (3) OF THE SAID TABLE, ON THE VALUE OF SUCH TRANSACTION AND SUCH TA X SHALL BE PAYABLE BY THE PURCHASER OR THE SELLER, SPECIFIED IN THE CO RRESPONDING ENTRY IN COLUMN (4) OF THE SAID TABLE. THE AO OBSERVED THAT ONCE THE BROKER HAS ACCEPTED THE LIABILITY TO BEAR THE STT ON BEHAL F OF THE CLIENT WHETHER FOR A CONSIDERATION OR WITHOUT IT, IT BECOM ES HIS OWN LIABILITY AND IS THEREFORE TO BE DISALLOWED UNDER THE EXPRESS PROVISIONS OF SECTION 40(IB). HE, THEREFORE, HELD THAT ONCE THE I NTENTION OF THE STATUTE IS CLEAR THAT IT DOES NOT WANT TO PROVIDE A DEDUCTION IN RESPECT OF THE SECURITIES TRANSACTION TAX, BOTH IN THE CASE OF A TRADER OR AN INVESTOR, IT IS NOT OPEN FOR ANYBODY TO CLAIM THE S AME AS A BUSINESS EXPENDITURE, IRRESPECTIVE OF THE FACT THAT IT IS RO UTED THROUGH THE PROFIT AND LOSS ACCOUNT OR NOT. HE FURTHER HELD THA T IF THE BROKER HAS BORNE THE SAME BY WAY OF A SUBTERFUGE, THEN IT HAD TO BE DISALLOWED IN HIS HAND AS THE REVENUE MUST GET WHAT IS DUE TO IT. HE, THEREFORE, DISALLOWED THE SUM OF RS. 1,72,598/- TOWARDS SECURI TIES TRANSACTION TAX. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE TH E CIT(A). 11. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD INCLUDED THE ABOVE AMOUNT IN THE BROKERAGE RECEIVED AS PER INSTRUCTION OF THE CLIENT AND DEBITED THE SAID AMOU NT TO STT IN PROFIT & LOSS ACCOUNT. IN FACT, SAID STT WAS NEVER AN INCO ME TO THE ASSESSEE NOR EXPENSES TO THE ASSESSEE. IT WAS MERELY BOOK EN TRY, IT DOES NOT AFFECT PROFITABILITY OF THE ASSSSEE COMPANY AND HEN CE QUESTION OF DISALLOWING THE SAME DOES NOT ARISE. AFTER CONSIDER ING THE SUBMISSIONS OF THE ASSSSEE, THE CIT(A) HELD THAT IN VIEW OF THE FACTS AND PROVISIONS OF LAW DISCUSSED BY THE AO, THE ACTI ON OF THE AO IS CONSIDERED TO BE CORRECT AND CONFIRMED. STILL AGGRIEVED, THE ASSSSEE IS IN APPEAL BEFORE THE TRIBUNAL. 12. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE STT WAS COLLECTED BY WAY OF GROSSING UP THE BRO KERAGE AND WAS PAID BY THE ASSESSEE COMPANY AND WAS DEBITED TO P&L A/C I.E. IT ITA NO. 4526/MUM/2008 M/S VENTURA SECURITIES LTD. 7 SHOULD HAVE BEEN REDUCED FROM THE BROKERAGE RECEIVE D AS IT IS INCLUSIVE OF STT. HE, THEREFORE, PRAYED THAT THE OR DER OF THE CIT(A) MAY BE SET ASIDE AND THE DISALLOWANCE BE DELETED. 13. ON THE OTHER HAND, THE LEARNED DR STRONGLY RELI ED ON THE ORDERS OF THE AUTHORITIES BELOW AND CONTENDED THAT THE AO HAS DISALLOWED THE STT AS PER THE PROVISIONS OF LAW. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE RECORD AS WELL AS GONE THROUGH THE ORDERS OF THE AU THORITIES BELOW. WE FIND THAT THE AO EXAMINED THE ISSUE AS PER THE PROV ISIONS OF THE ACT AND AS PER LAW AND HELD THAT ONCE THE INTENTION OF THE STATUTE IS CLEAR THAT IT DOES NOT WANT TO PROVIDE A DEDUCTION IN RES PECT OF THE SECURITIES TRANSACTION TAX, BOTH IN THE CASE OF A T RADER OR AN INVESTOR, IT IS NOT OPEN FOR ANYBODY TO CLAIM THE SAME AS A B USINESS EXPENDITURE, IRRESPECTIVE OF THE FACT THAT IT IS RO UTED THROUGH THE PROFIT AND LOSS ACCOUNT OR NOT. IF THE BROKER HAS B ORNE THE SAME BY WAY OF A SUBTERFUGE, THEN IT HAS TO BE DISALLOWED I N HIS HAND AS THE REVENUE MUST GET WHAT IS DUE TO IT. THE CIT(A) APPR OVED THE FINDINGS OF THE AO AND CONFIRMED THE DISALLOWANCE. WE, THERE FORE, FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS COUNT. ACCORDINGLY, WE CONFIRM THE ORDER OF THE CIT(A) IN UPHOLDING THE AC TION OF THE AO IN DISALLOWING THE AMOUNT OF RS.1,72,598/- TOWARDS SEC URITIES TRANSACTION TAX. 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF AUGUST, 2011. SD/- SD/- (T.R. SOOD) (V. DURGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 30 TH AUGUST, 2011 KV ITA NO. 4526/MUM/2008 M/S VENTURA SECURITIES LTD. 8 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, F BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.