SPI Cinemas Pvt.Ltd., Nellore., Nellore V. Addl. CIT, Range-13, Hyd, Hyderabad

ITA 488/HYD/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 4424 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 26-10-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 06-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Assessee Lawyers: S R PATNAIK
• Keywords: Capital asset; Depreciation; Additional depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 32

Judgement Text

ITA NO488 OF 2016 SPI CINEMAS LTD HYDERABAD PAGE 1 OF 14 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.488/HYD/2016 (ASSESSMENT YEAR: 2011-12) M/S SPI CINEMAS PVT. LTD NELLORE 524003 PAN: AABCC 7343 L VS ADDL. COMMISSIONER OF INCOME TAX, RANGE-13 HYDERABAD FOR ASSESSEE : SHRI S.R. PATNAIK FOR REVENUE : SHRI K.J. RAO, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2011-12. IN TH IS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF T HE CIT (A)-6, HYDERABAD, DATED 28.10.2016 IN CONFIRMING THE DISAL LOWANCES AND THE CONSEQUENTIAL ADDITIONS MADE BY THE AO. THE ASSESSEE HAS RAISED 3 GROUNDS OF APPEAL AND ALSO SUB-GROUNDS THERE UNDER. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ONLY RELEVANT GROUNDS FOR ADJUDI CATION ARE AS UNDER: GROUND NO.2. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) AND THE LEARNED AO HAS ERRED IN HOLDING THE FOLLOWING EXPENDITURE AS CAPITAL IN NATURE: I) INTERIOR DECORATION & POP WALL DESIGN RS.2,45,90,564 II) INTERIOR DECORATION & POP WALL DESIGN (FALL CEILING) RS. 21,97,004 III) ELECTRICAL MAINTENANCE & INSTALLATION RS. 48,60,079 DATE OF HEARING : 26.10.2016 DATE OF PRONOUNCEMENT : 30.11.2016 ITA NO488 OF 2016 SPI CINEMAS LTD HYDERABAD PAGE 2 OF 14 IV) STAMP DUTY FOR THE REGISTRATION OF LICENCE DEED RS. 57,19,700 GROUND NO.2.5.1:- THAT THE LEARNED CIT (A) AND THE LEARNED AO ERRED IN HOLDING THAT THE REGISTRATION CHARGES INCURRED FOR REGISTERING THE LICENCE AGREEME NT AMOUNTING TO RS.57,19,700 AS CAPITAL EXPENDITURE. GROUND NO.3:-. THAT THE LEARNED CIT (A) AND THE LEARNE D AO ERRED IN DISALLOWING THE ADDITIONAL DEPRECIATION CLAIMED BY THE ASSESSEE AMOUNTING TO RS.90,23,900 TOWARDS THE WINDMILL. 2. IT WAS ALSO SUBMITTED THAT ALL THE OTHER GROUNDS ARE ARGUMENTS IN SUPPORT OF THESE GROUNDS AND HENCE NEE D NO SPECIFIC ADJUDICATION. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY, WHICH IS ENGAGED IN THE BUSINESS OF EXHIBITION OF F EATURE FILMS, RUNNING CANTEENS, VEHICLE PARKING, ADVERTISING SPAC E OR TIME, AND SALE OF POWER, GAMING REVENUES ETC., FILED ITS RETU RN OF INCOME ON 29.09.2011 ADMITTING TOTAL LOSS OF RS.2,11,99,644. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE A O CALLED FOR VARIOUS DETAILS IN SUPPORT OF ITS CLAIMS. THE DETAI LS HAVE BEEN FILED BY THE ASSESSEE. AO OBSERVED THAT DURING THE FINANC IAL YEAR RELEVANT TO THE A.Y 2011-12, THE ASSESSEE HAS STARTE D A NEW MALL BY NAME ESCAPE CINEMAS AND MAJOR PART OF THE EXPEND ITURE UNDER THE HEAD REPAIRS & MAINTENANCE IS RELATED T O THE CONSTRUCTION OF THE NEW MALL. IN RESPONSE TO THE AO S QUERY ABOUT THE ALLOWABILITY OF THE SAID EXPENDITURE AND THE NA TURE OF SUCH EXPENDITURE, ASSESSEE SUBMITTED THAT THE EXPENDITUR E WAS INCURRED TOWARDS INTERIOR DESIGN ETC. AND THEREFORE , IS REVENUE IN NATURE AND THAT THESE EXPENSES DID NOT CREATE ANY A SSET AS THE ITA NO488 OF 2016 SPI CINEMAS LTD HYDERABAD PAGE 3 OF 14 INTERIORS IN THE THEATRE COMPLEXES HAVE A VERY SHOR T LIFE AND THEY ARE CHANGED REGULARLY. THE AO, HOWEVER, OBSERVED TH AT THIS EXPENDITURE CANNOT BE TREATED AS REVENUE EXPENDITUR E AS IT IS INCURRED FOR NEW COMPLEX AND NOT FOR ANY REPAIRS AN D MAINTENANCE. THEREFORE, THE AO TREATED IT AS CAPITA L EXPENDITURE AND ALLOWED DEPRECIATION THEREON. FURTHER, HE ALSO O BSERVED THAT THE ASSESSEE HAS INCURRED AN EXPENDITURE OF RS.57,1 9,700 TOWARDS REGISTRATION OF LEASE DEED FOR THE ABOVE TH EATRE COMPLEX AND HE TREATED THIS EXPENDITURE ALSO AS CAPITAL EXP ENDITURE. 4. FURTHER, THE AO ALSO OBSERVED THAT DURING THE YEA R, THE ASSESSEE HAS INSTALLED A NEW SUZION 1.5 MW WEG WINDMILL AND PUT IT TO USE FOR A PERIOD OF LESS THAN 180 DAY S AND DEPRECIATION THEREON HAVE BEEN CLAIMED AT 40% BEING 50% OF THE ELIGIBLE RATE OF DEPRECIATION. HE OBSERVED THAT TH E ASSESSEE HAS ALSO CLAIMED ADDITIONAL DEPRECIATION U/S 32(1)(IIA) OF THE ACT @ 10% STATING THAT THE ASSESSEE IS ENGAGED IN MANUFACT URE OF FOOD ITEMS IN ITS CANTEEN AT THE THEATRE COMPLEX. OBSERV ING THAT THE WINDMILL IS NOT RELEVANT FOR MANUFACTURE OF FOOD IT EMS AND THAT THE ASSESSEE HAS NOT USED THE MILL FOR MANUFACTURE OF FOOD ITEMS, THE AO DISALLOWED THE CLAIM AND BROUGHT IT TO TAX. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEA L BEFORE US. 5. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE ASSESSEES CONTENTIONS RAISED BEFORE THE AUTHORITIE S BELOW AND SUBMITTED THAT THE FOLLOWING IS THE EXPENDITURE INC URRED FOR FURNISHING OF THE ESCAPE CINEMAS AND IS CLAIMED UND ER THE HEAD REPAIRS AND MAINTENANCE: A INTERIOR DECORATION & POP WALL RS.2,45,90,564 ITA NO488 OF 2016 SPI CINEMAS LTD HYDERABAD PAGE 4 OF 14 DESIGN B FALSE CEILING AND CLEANING CHARGES RS.21,97,004 C ELECTRICAL MAINTENANCE & INSTALLATION RS.48,60,079 D STAMP DUTY FOR THE REGISTRATION OF LICENSE AGREEMENT RS. 57,19,700 TOTAL RS.3,73,67,347 5.1 HE SUBMITTED THAT THE ASSESSEE HAD ENTERED INTO A LEAVE AND LICENCE AGREEMENT WITH THE OWNER OF THE M ALL FOR MAINTAINING THE MULTIPLEX CINEMA IN A SMALL PORTI ON OF THE MALL AND THE ASSESSEE IS NOT IN THE POSSESSION OF THE EN TIRE MALL. HE SUBMITTED THAT THE LICENSOR HAD PROVIDED A FULL FUN CTIONAL PREMISES AND THE ASSESSEE WAS GIVEN LICENCE TO OPER ATE ONLY IN A LIMITED PORTION OF THE MALL AND THEREFORE, ACCORDIN G TO HIM, THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F BALLIMAL NAVAL KISHORE VS. CIT REPORTED IN 224 ITR 414 (S.C) IS APPLICABLE TO THE FACTS OF THE CASE BEFORE US. HE ALSO PLACED RELIANCE UPON THE FOLLOWING OTHER DECISIONS FOR THE PROPOSITION THAT THE EXPENDITURE INCURRED TOWARDS INTERIOR DECORATION SO AS TO MAKE THE PREMISES FUNCTIONAL AND TO MAKE IT SUITABLE FOR THE BUSINESS OF THE ASSESSEE IS REVENUE EXPENDITURE: A) HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. AMRUTANJAN FINANCE LTD REPORTED IN (2014) 363 ITR 135 (MAD.) B) HON'BLE MADRAS HIGH COURT IN THE CASE OF THIRU AROORAN SUGARS LTD VS. DCIT (T.C. NO.197 OF 2005 DATED 26.7.2011). C) HON'BLE SUPREME COURT IN THE CASE OF GOBIND SUGA R MILLS LTD VS. CIT REPORTED IN (1998) 232 ITR 319 (S .C). D) HON'BLE SUPREME COURT IN THE CASE OF MN CLUBWALA V. FIDA HUSSAIN SAHEB & ORS REPORTED IN (1965) S.C 610 ITA NO488 OF 2016 SPI CINEMAS LTD HYDERABAD PAGE 5 OF 14 5.2 FOR THE PROPOSITION THAT MERELY BECAUSE THE EXPENDITURE HAS BEEN INCURRED ON A NEW LEASED PREMI SES, IT DOES NOT MEAN THAT THE SAME AMOUNTS TO CAPITAL EXPENDITU RE AND DIFFERENT TREATMENT SHOULD BE GIVEN, THE ASSESSEE R ELIED UPON THE FOLLOWING DECISIONS: A) HON'BLE SUPREME COURT IN THE CASE OF SOHAN LAL NARA INDAS V. LAXMIDAS RAGHUNATH GADIT REPORTED IN (1971) 3 SC R 319. B) HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RE LIANCE INDUSTRIAL INFRASTRUCTURE LTD REPORTED IN (2015) 23 4 TAXMAN 256 (BOM) C) HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. L AXMI TALKIES REPORTED IN (2006) 151 TAXMAN 99 (GUJ.) D) HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. IN DIAN PETROCHEMICALS CORPORATION LTD REPORTED IN (2015) 2 33 TAXMAN 89 E) ITAT IN THE CASE OF NMDC LTD VS. JCIT REPORTED IN ( 2015) 68 SOT 199. 6. WITHOUT PREJUDICE TO THE ABOVE CONTENTION, THE L EARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE EX PENDITURE INCURRED BY THE ASSESSEE TOWARDS INTERIOR DECORATIO NS AS DETAILED ABOVE, ARE IN THE NATURE OF TEMPORARY STRUCTURES AN D THEREFORE, IS ELIGIBLE FOR HIGHER DEPRECIATION @ 100% AS PER RULE 5 OF THE INCOME TAX RULES, 1962. IN SUPPORT OF HIS CONTENTIO N, HE PLACED RELIANCE UPON THE DECISION OF THE HON'BLE MADRAS HI GH COURT IN THE CASE OF CIT VS. AMRUTANJAN FINANCE LTD REPORTED IN (2014) 363 ITR 135 (MAD.) WHEREIN THE HON'BLE HIGH COURT P LACED RELIANCE UPON ITS EARLIER JUDGMENT IN THE CASE OF T HIRU AROORAN SUGARS LTD VS. DCIT. FURTHER, THE LEARNED COUNSEL FO R THE ITA NO488 OF 2016 SPI CINEMAS LTD HYDERABAD PAGE 6 OF 14 ASSESSEE ALSO BROUGHT TO OUR NOTICE THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE A.YS 2003-04 TO 2006-07. 7. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 8. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL PLACED ON RECORD, WE FIND THAT THE ASSESSEE HAS ENT ERED INTO A LEAVE & LICENSE AGREEMENT DATED 29.7.2009 TO SET UP AND EFFECTIVELY MANAGE THE WORLD CLASS MULTIPLEX THEATR E FACILITY IN THE MALL BELONGING TO THE LICENSOR. THUS, IT CAN BE SEE N THAT A PART OF THE MALL HAS BEEN LICENSED TO THE ASSESSEE TO SET U P AND MAINTAIN A MULTIPLEX THEATRE COMPLEX AND THE PERIOD OF LICEN SE IS 18 YEARS FROM THE DATE OF LIABILITY FOR PAYMENT OF LICENCE F EES. THE ASSESSEE IS ALSO AUTHORIZED TO CREATE THE INFRASTRUCTURE NEC ESSARY FOR SETTING UP AND MAINTAINING THE THEATRE AND TO CARRY ON COMMERCIAL OPERATIONS. IN THIS PROCESS, THE ASSESSE E HAS INCURRED EXPENDITURE TOWARDS INTERIOR DECORATIONS & POP WALL DESIGN, FALSE CEILING & CLEANING CHARGES, ELECTRICAL INSTALLATION & MAINTENANCE. THE STAND OF THE REVENUE IS THAT THE ASSESSEE IS SE TTING UP A NEW THEATRE AND THEREFORE, IS CREATING AN ASSET OF ENDU RING BENEFIT AND THEREFORE, THE ENTIRE EXPENDITURE SHOULD BE TREATED AS CAPITAL EXPENDITURE. HOWEVER, WE FIND THAT THE ASSESSEE HAS TAKEN THE PREMISES ON LEAVE AND LICENSE BASIS, FOR A PERIOD O F 18 YEARS. THE EXPENDITURE INCURRED BY THE ASSESSEE INITIALLY AGAI NST THE ABOVE ITEMS CANNOT BE SAID TO BE EXPENDITURE INCURRED FOR CREATING ANY ASSET AND THAT TOO FOR GETTING AN ENDURING BENEFIT. THE ASSESSEE CANNOT RUN THE THEATRE WITHOUT THE NECESSARY INFRAS TRUCTURE. THE INTERIOR DECORATIONS, FALSE CEILINGS, ELECTRICAL IN STALLATION & ITA NO488 OF 2016 SPI CINEMAS LTD HYDERABAD PAGE 7 OF 14 MAINTENANCE CAN BE OF NO USE TO THE ASSESSEE WHENEV ER THE ASSESSEE VACATES THE PREMISES. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MADRAS AUTO SERVICES P LTD REPORTED IN (1998) 233 ITR 468 (S.C) WAS DEALING WITH THE CASE OF AN ASSES SEE WHO HAD DEMOLISHED THE EXISTING STRUCTURES AND CONSTRUCTED A NEW BUILDING TO SUIT ITS BUSINESS AT ITS OWN EXPENSE IN TERMS OF LEASE AGREEMENT AND THE HON'BLE SUPREME COURT HAS HELD TH AT SINCE THE ASSET CREATED BY THE ASSESSEE BY SPENDING THE AMOUN T DID NOT BELONG TO THE ASSESSEE, BUT THE ASSESSEE GOT A MODE RN PREMISES AT A LOWER RENT THUS SAVING CONSIDERABLE REVENUE FOR T HE NEXT 39 YEARS, THE EXPENDITURE SHOULD BE TREATED AS REVENUE EXPENDITURE. 9. THE HON'BLE TELANGANA & ANDHRA PRADESH HIGH COUR T IN THE CASE OF CIT VS. COROMANDEL FERTILIZERS LTD R EPORTED IN (2014) 367 ITR 132, HAS ALSO CONSIDERED SIMILAR SIT UATION AND HAS CLEARLY BROUGHT OUT THE DISTINCTION BETWEEN THE CAP ITAL AND REVENUE EXPENDITURE IN PARA 8 AND 9 THEREOF AS UNDE R: 8. FOR INSTANCE, IF THE OWNER OF AN IMMOVABLE PROPERT Y INCURS EXPENDITURE EVEN FOR OTHERWISE TEMPORARY STRUCTURES OR FIXTURES LIKE PARTITION, IN HIS BUILDING, IT IS CAPABLE OF BEING TREATED AS CAPITAL EXPENDITURE, SINCE THE STRUCTURE, THOUGH TEMPORARY WOULD BECOME PART OF THE PERMANENT ASSET, AND THEREBY, BECOMING AN ENDURING ADDITION. IN CONTRAST, IF THE PREMISES ARE TAKEN ON LEASE, AND FOR BETTER USE THEREOF, THE LESSEE MAKES CERTAIN ARRANGEMENTS SUCH AS MAKING PARTITIONS OR ARRANGING ELECTRICITY SUPPLY TO SUIT THE BUSINESS NEEDS, IT MAY NOT BE TREATED AS ADDITION OF ASSETS OF ENDURIN G NATURE. THE REASON IS THAT WHEN THE LESSEE VACATES THE PREMISES , HE WOULD BE AT LIBERTY TO TAKE AWAY ALL THE FIXTURES ARRANGED BY H IM, AND IN SUCH EVENT THE FIXTURES CANNOT BE TREATED AS PERMANENT A SSETS, INDEPENDENT OF THE BUILDING. SIMILAR INSTANCES CAN BE CITED. 9. THE RESPONDENT IN THE INSTANT CASE IS A LESSEE OF A BUILDING. THE BUSINESS PREMISES NATURALLY NEEDED CERTAIN ALTERATI ONS AND WORKS OF ARRANGING PARTITIONS EXTENDING ELECTRICITY SUPPLIES CARPETING, WHEREVER NEEDED WAS ARRANGED. CURIOUSLY ENOUGH, EVE N WHILE CLAIMING THAT THE EXPENDITURE IS REVENUE IN NATURE THE RESPONDENT CLAIMED DEPRECIATION ON IT. THE ASSESSING AUTHORITY TREATED IT AS CAPITAL EXPENDITURE AND HAS EVEN ALLOWED DEPRECIATI ON, IN ACCORDANCE WITH LAW. ITA NO488 OF 2016 SPI CINEMAS LTD HYDERABAD PAGE 8 OF 14 10. IN THE CASE OF CIT VS. INFOSYS TECHNOLOGIES LTD REPORTED IN (2012) 349 ITR 588 (KARN.), THE HON'BLE KARNATAK A HIGH COURT HAS CONSIDERED THAT THE PREMISES TAKEN ON LEASE BY THE ASSESSEE AND THE REPAIRS THAT WERE CARRIED OUT WAS FOR THE P URPOSE OF THE BUSINESS TO IMPROVE THE AMBIENCE OF OFFICE WAS REVE NUE IN NATURE AS THERE WAS STRICT COMPETITION IN THE BUSINESS OF THE ASSESSEE AND THE EXPENDITURE COULD NOT AT ALL BE SAID TO BE CAPI TAL EXPENDITURE. IT WAS HELD THAT MERE FACT THAT THE PREMISES HAS BE EN TAKEN ON LEASE FOR SIX YEARS WOULD NOT BY ITSELF RENDER THE EXPENDITURE AS CAPITAL IN NATURE. 11. THE COORDINATE BENCH OF THIS TRIBUNAL AT BANGAL ORE IN THE CASE OF EMDEE APPARELS V. ACIT (ITA NOS.576 & 577/BANG/2011) DATED 21 ST SEPTEMBER, 2012, TO WHICH ONE OF US I.E. J.M. IS THE SIGNATORY, HAS ALSO CONSIDERED THA T IN A SITUATION WHERE AN ASSESSEE WHO IS ALREADY IN THE BUSINESS OF RETAIL TRADING OF REEBOK FOOTWEAR AND SHOES AND IS OPENING A NEW OU TLET IN A DIFFERENT LOCATION FOR THE SAID PURPOSE, MERE OPENI NG OF A NEW SHOWROOM, CANNOT BE SAID TO BE STARTING OF A NEW BU SINESS AND THE EXPENDITURE OF CIVIL AND ELECTRICAL WORK INCURR ED IN LEASEHOLD PREMISE CANNOT BE HELD TO BE OF ENDURING BENEFIT. I T WAS ALSO HELD THAT THE QUANTUM OF EXPENDITURE CANNOT DETERMINE TH E NATURE OF THE EXPENDITURE. 12. IN THE CASE OF JOY ALUKKAS INDIA (P) LTD VS. AC IT, THE HON'BLE KERALA HIGH COURT HAS HELD THAT THE REFURNI SHING, REPAIRS AND IMPROVEMENT EXPENSES INCURRED BY THE ASSESSEE A T PREMISES TAKEN ON LEASE IS REVENUE EXPENDITURE, SINCE THE IM PROVEMENT ITA NO488 OF 2016 SPI CINEMAS LTD HYDERABAD PAGE 9 OF 14 MADE BY THE ASSESSEE WERE TEMPORARY IN NATURE AND C OULD NOT BE RETRIEVED BY THE ASSESSEE AT THE END OF LEASE. 13. THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESS EES OWN CASE FOR THE A.YS 2003-04 TO 2006-07 HAS CONSIDE RED THE CASE OF THE ASSESSEE WHEREIN THE ASSESSEE HAS TAKEN ON LEASE A THEATRE COMPLEX CONSISTING OF FIVE CINEMA THEATRES AND HAS INCURRED SUBSTANTIAL CHARGES TOWARDS INTERIOR DESIG N, MODERNIZATION, CHANGING OF FLOOR TILES, FALL CEILIN G, LANDSCAPING, CHAIRS, EARTH FILLING ETC., AND THE TRIBUNAL HAS HE LD THAT IN VIEW OF THE FACT THAT THE ASSESSEE HAS INCURRED THE EXPENDI TURE FOR REPAIR AND MAINTENANCE OF BUILDING TAKEN ON LEASE FOR CARR YING ON ITS BUSINESS, IT DID NOT CREATE ANY CAPITAL ASSET AND T HE EXPENDITURE SO INCURRED WAS TO BE ALLOWED AS REVENUE EXPENDITUR E U/S 30(A)(I) OF THE ACT. 14. TAKING ALL THE ABOVE DECISIONS AND THE FACTS OF THE CASE INTO CONSIDERATION, IT IS CLEARLY SEEN THAT THE ASS ESSEE IS INTO THE BUSINESS OF SETTING UP AND RUNNING CINEMA THEATRES AND IN THE EARLIER YEARS, THE ASSESSEE HAS CARRIED OUT SIMILAR ACTIVITIES WHICH HAS BEEN CONSIDERED BY THE AO AS CAPITAL EXPENDITUR E. ITAT HAS CONSIDERED THE FACTUAL AND LEGAL MATRIX OF THE CASE AND HAS HELD THE EXPENDITURE TO BE REVENUE EXPENDITURE. THE DECI SIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE ALSO S UPPORTED THE CASE OF THE ASSESSEE. IN VIEW OF THE SAME, GROUND O F APPEAL NO.2 IS ALLOWED. 15. AS REGARDS GROUND NO.2.5.1 RELATING TO THE TREA TING OF REGISTRATION CHARGES FOR LEASE DEED AS CAPITAL IN N ATURE, THE ITA NO488 OF 2016 SPI CINEMAS LTD HYDERABAD PAGE 10 OF 14 LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANC E UPON THE FOLLOWING DECISIONS: A) THE HON'BLE HIMACHAL HIGH COURT IN THE CASE OF C IT V. GOPAL ASSOCIATES REPORTED IN (2009) 222 CTR (HP) 30 7. B) HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE INDUSTRIAL INFRASTRUCTURE LTD REPORTED IN (2015) 61 TAXMAN 407 (BOM.) C) HON'BLE SUPREME COURT IN THE CASE OF M/S. M.N.CLUBWALA & ANR VS. FIDA HUSSAIN SAHEB & OTHERS (CIVIL APPEAL NO.151 OF 1963) DATED 3.2.1964 D) HON'BLE SUPREME COURT IN THE CASE OF SOHAN LAL NARAINDAS V. LAXMIDAS RAGHUNATH GADIT (CIVIL APPEAL NO.2443 OF 1966) DATED 8.1.1971. 16. THE LEARNED DR HAS RELIED UPON THE ORDERS OF TH E AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE, THOUGH INITIALLY ENTERED INTO LEAVE AND LICENSE AGREEMENT FOR A PERIOD OF 18 YEARS ONLY, THE ASSESSEE HAS BEEN CONTINUING IN THE SAID PREMISES EVEN TILL DATE AND THEREFORE, CLEARLY IT I S IN THE NATURE OF CAPITAL EXPENDITURE. 17. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE HON'BLE SUPREME COURT I N THE CASE OF M/S. M.N. CLUBWALA & ANR (CITED SUPRA) HAS CONSIDER ED THE DISTINCTION BETWEEN A LEASE AND A LEAVE AND LICENCE AGREEMENT AND HAS HELD THAT THE LEGAL POSSESSION OF THE PROPE RTY TAKEN ON LEAVE AND LICENCE MUST BE DEEMED TO HAVE BEEN WITH THE LANDLORDS AND NOT WITH THE LICENCE HOLDERS AND THE RIGHT OF THE LICENCE HOLDERS WAS ONLY TO THE EXCLUSIVE USE OF TH E PREMISES DURING THE FIXED HOURS AND NOTHING MORE. IT WAS HEL D THAT THE INTENTION OF THE PARTIES WAS OF PARAMOUNT IMPORTANC E TO DECIDE THE NATURE OF THE EXPENDITURE. ITA NO488 OF 2016 SPI CINEMAS LTD HYDERABAD PAGE 11 OF 14 18. SIMILARLY, IN THE CASE OF SOHAN LAL NARAINDAS ( CITED SUPRA), IT WAS HELD THAT THE INTENTION OF THE PARTI ES TO AN INSTRUMENT, MUST BE UNDERSTOOD FROM THE TERMS OF TH E AGREEMENT AND THE SURROUNDING CIRCUMSTANCES AND THAT THE DESC RIPTION GIVEN BY THE PARTY MAY BE EVIDENCE OF THE INTENTION BUT IS NOT DECISIVE. IT WAS HELD THAT THE CRUCIAL TEST IN EAC H CASE IS WHETHER THE INSTRUMENT IS INTENDED TO CREATE OR NOT TO CREA TE AN INTEREST IN THE PROPERTY WHICH IS THE SUBJECT MATTER OF THE AGREEMENT AND IF IT IS IN FACT INTENDED TO CREATE AN INTEREST IN THE PROPERTY, IT IS A LEASE, IF IT DOES NOT, IT IS A LICENCE. 19. IN THE CASE BEFORE THE HON'BLE BOMBAY HIGH COUR T IN THE CASE OF CIT VS. RELIANCE INDUSTRIAL INFRASTRUCT URE LTD (CITED SUPRA), THE ASSESSEE THEREIN HAS TAKEN LAND ON LEAS E FOR A PERIOD OF 30 YEARS AND THE AMOUNT PAID AS STAMP DUTY IN RE SPECT OF LEASE DEED EXECUTED BY THE ASSESSEE WITH THE LESSOR, WAS CLAIMED AS REVENUE EXPENDITURE AS SUCH EXPENDITURE WAS INCURRE D FOR THE PURPOSE OF CARRYING ON THE BUSINESS. AO HELD THAT T HE STAMP DUTY PAID SHOULD BE SPREAD OVER THE ENTIRE LIFE OF LEASE AS DEFERRED REVENUE EXPENDITURE. THE HON'BLE HIGH COURT HELD TH AT SINCE THE STAMP DUTY AMOUNT HAVE BEEN PAID ON LEASE FOR THE P URPOSE OF CARRYING ON ASSESSEES BUSINESS, THE AMOUNT OF STAM P DUTY HAD TO BE ALLOWED AS REVENUE EXPENDITURE IN NATURE IN THE YEAR OF PAYMENT. 20. IN THE CASE OF GOPAL ASSOCIATES (CITED SUPRA), THE HON'BLE HIMACHAL PRADESH HIGH COURT WAS CONSIDERING THE NATURE OF THE INCURRED EXPENDITURE ON STAMP DUTY AND REGIS TRATION CHARGES AT THE TIME OF EXECUTION OF LEASE AGREEMENT FOR TAKING OF ITA NO488 OF 2016 SPI CINEMAS LTD HYDERABAD PAGE 12 OF 14 LAND ON LEASE FOR FRUIT PROCESSING PLANT FOR 7 YEARS AND THE HON'BLE HIGH COURT HAS HELD IT TO BE IN THE NATURE OF REVENUE EXPENDITURE. THE ABOVE DECISIONS, THEREFORE, CLEARL Y HOLD THAT THE EXPENDITURE INCURRED TOWARDS REGISTRATION CHARGES O F LEAVE AND LICENCE AGREEMENT IS IN THE NATURE OF THE REVENUE E XPENDITURE AND HAS TO BE ALLOWED IN THE YEAR OF EXECUTION OF THE L EAVE AND LICENCE AGREEMENT. RESPECTFULLY FOLLOWING THE SAME, WE ALLO W THE ASSESSEES GROUND OF APPEAL NO.2.5.1. 21. AS REGARDS GROUND NO.3 WITH REGARD TO THE CLAIM OF THE ADDITIONAL DEPRECIATION U/S 32(1)(IIA) OF THE ACT, IT IS THE CASE OF THE ASSESSEE THAT THE ASSESSEE IS MANUFACTURING FOO D ITEMS IN ITS CANTEEN MAINTAINED WITH THE THEATRE AND THEREFORE, THE ASSESSEE IS ENTITLED TO THE ADDITIONAL DEPRECIATION. ACCORDI NG TO THE LEARNED COUNSEL FOR THE ASSESSEE, THERE IS NO CONDITION ATT ACHED FOR MAKING THE CLAIM OF ADDITIONAL DEPRECIATION THAT TH ERE HAS TO BE A CONNECTION BETWEEN THE MANUFACTURING AND THE MACHIN ERY ACQUIRED FOR GENERATION OF POWER AND THEREFORE, EVE N IF THERE IS NO CONNECTIVITY BETWEEN THE WINDMILL AND THE FOOD MANU FACTURING UNIT OF THE ASSESSEE, THE ASSESSEE IS ENTITLED TO T HE ADDITIONAL DEPRECIATION. IN SUPPORT OF THIS CONTENTION, HE PLA CED RELIANCE UPON THE FOLLOWING DECISIONS: A) CIT VS. HI TECH ARAI LTD REPORTED IN (2010) 321 ITR 477 (MAD) B) CIT VS. ATLAS EXPORT ENTERPRISE REPORTED IN (201 5) 373 ITR 414 (MAD.) C) VTM LTD V. CIT REPORTED IN (2009) 319 ITR 336 (M AD.) D) CIT V. TEXMO PRECISION CASTINGS REPORTED IN (201 0) 321 ITR 481 (MAD.) ITA NO488 OF 2016 SPI CINEMAS LTD HYDERABAD PAGE 13 OF 14 22. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS O F THE AUTHORITIES BELOW AND HAS ALSO BROUGHT OUT THE PURP OSE OF THE RELEVANT SECTION I.E. 32(1)(IIA) OF THE ACT AND SUB MITTED THAT THE ASSESSEE SHOULD HAVE UTILIZED THE NEW MACHINERY FOR MANUFACTURING OF GOODS OR THINGS AND FURTHER THAT T HE CANTEEN RUN BY THE ASSESSEE CANNOT BE CONSIDERED AS MANUFAC TURING OF FOOD ITEMS. 23. HAVING REGARD TO THE RIVAL CONTENTIONS, WE DEEM IT FIT AND NECESSARY TO REPRODUCE THE RELEVANT PORTION OF THE SECTION 32 AS IT WAS FOR THE FINANCIAL YEAR 2010-11 HEREUNDER: SECTION 32(1)(IIA): DEPRECIATION. 32. (1) IN RESPECT OF DEPRECIATION OF ( IIA ) IN THE CASE OF ANY NEW MACHINERY OR PLANT (OTHER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED AND INSTALLED AFTER THE 31S T DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING A FURTHER SUM EQUAL TO TWENTY PER CENT OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTI ON UNDER CLAUSE ( II ) : 24. ON A LITERAL READING OF THE ABOVE PROVISION, IT IS CLEAR THAT WHERE AN ASSESSEE IS ENGAGED IN THE BUSINESS O F MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING, HAS ACQUIRED AND INSTALLED ANY NEW PLANT OR MACHINERY AFTER 31.03.2005, IT IS ENTITLED TO THE ADDITIONAL DEPRECIATION EQUAL TO 20% OF THE ACTUAL C OST OF SUCH MACHINERY OR PLANT. THE ASSESSEE HAS RELIED UPON TH E DECISIONS OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS . HI TECH ARAI LTD REPORTED IN (2010) 321 ITR 477 (MAD) & CIT VS. ATLAS EXPORT ENTERPRISE REPORTED IN (2015) 373 ITR 414 (MAD.) IN SUPPORT OF ITS CLAIM. IN BOTH THE CASES, THE ASSESSEES THEREIN WER E INTO ITA NO488 OF 2016 SPI CINEMAS LTD HYDERABAD PAGE 14 OF 14 MANUFACTURE OF OILSEEDS AND TEXTILES RESPECTIVELY A ND BY TAKING THE SAME INTO CONSIDERATION, THE HON'BLE HIGH COURT HAS HELD THAT THE ASSESSEES THEREIN ARE ENTITLED TO THE ADDITIONA L DEPRECIATION U/S 32(1)(IIA) OF THE ACT AND HAS HELD THAT THERE I S NO REQUIREMENT THAT THE NEW MACHINERY ACQUIRED AND INSTALLED SHOUL D HAVE ANY OPERATIONAL CONNECTIVITY TO THE ARTICLE OR THING TH AT WAS BEING MANUFACTURED BY THE ASSESSEE. IN THE CASE BEFORE US , THE CLAIM OF THE ASSESSEE IS THAT IT IS RUNNING A CANTEEN IN THE CINEMA THEATRE AND THEREFORE, IS MANUFACTURING FOOD ITEMS AND HENC E IS ELIGIBLE FOR ADDITIONAL DEPRECIATION U/S 32(1)(IIA) OF THE A CT. RUNNING A CANTEEN CANNOT BE SAID TO BE MANUFACTURING OF AN AR TICLE OR THING. THEREFORE, THE CLAIM OF THE ASSESSEE IS NOT TENABLE . HENCE, GROUND OF APPEAL NO.3 IS REJECTED. 25. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2016. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 30 TH NOVEMBER, 2016. VINODAN/SPS COPY TO: 1 M/S.SPI CINEMAS PVT LTD, 24-2-1870, 2 ND FLOOR, 3 RD CROSS, CENTRAL AVENUE, MAGUNTA LAYOUT, NELLORE 524003 2 ADDL. COMMISSIONER OF INCOME TAX, RANGE 13, HYDER ABAD 3 CIT (A)-6, HYDERABAD 4 PR. CIT 6 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER