DCIT CIRCLE 1, TIRUPUR V. M/S EASTERN EXPORTS GLOBAL CLOTHING (P) LIMITED, TIRUPUR

ITA 548/CHNY/2018

AI Insights

The case involves appeals by the Revenue against the decisions of the Commissioner of Income Tax (Appeals) which favored the assessee, M/s. Eastman Exports Global Clothing (P) Ltd. The primary issues were the nature of the incentives received under the MLFPS and the nature of the expenditure incurred on the construction of a building on leasehold land. The Tribunal relied on precedents and the purpose test established by the Supreme Court to determine that the incentives are capital receipts and the construction expenditure is revenue in nature.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133965 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-12-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 14-02-2018
• Other Referred Cases: M/s Hyundai Motor India Ltd. vs. ACIT, CIT vs Eastern Seafoods Exports (P) Ltd, M/s Ponni Sugars & Chemicals Ltd. vs. CIT, Shree Balaji Alloys & Ors. vs CIT, Narayan Industries vs. ACIT, PCIT vs. Nitin Spinners Ltd, Mother Hospital Pvt. Ltd. vs CIT, TVS Lean Logistics Ltd. vs CIT, Madras Auto Service (P) Ltd vs CIT, L. H. Sugar Factory and Oil Mills P. Ltd. vs. CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Capital receipt; Revenue expenditure; Capital expenditure; Set aside
• Section: 32; 28; 143(3); 80HHC; 13

Judgement Text

आयकर अपीलीय अिधकरण ‘बी’ ायपीठ चे ई म । IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI माननीय +ी महावीर िसंह, उपा12 एवं माननीय +ी मनोज कु मार अ7वाल ,लेखा सद: के सम2। BEFORE HON’BLE SHRI MAHAVIR SINGH, VICE PRESIDENT AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./ ITA No.548/Chny/2018 (िनधाCरण वषC / Assessment Year: 2014-15) & आयकर अपील सं./ ITA No.2229/Chny/2018 ( िनधाCरण वषC / Assessment Year: 2015-16) DCIT Circle-1 Tirupur बनाम/ V s. M/s. Eastman Exports Global Clothing (P) Ltd. 10, 12, 2 nd Street, Kumar Nagar south, Tirupur-641 603. थायी लेखा सं./जीआइ आर सं./P AN /GI R No . AAC C C -0 9 5 2 -E (अपीलाथ /Appellant) : ( थ / Respondent) अपीलाथ कीओरसे/ Assessee by : Shri T. Banusekar, (CA)- Ld. AR थ कीओरसे/Revenue by : Shri S. Senthil Kumaran, (CIT)-Ld. DR सुनवाईकीतारीख/ Date of Hearing : 12-12-2022 घोषणाकीतारीख / Date of Pronouncement : 10-02-2023 आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member): 1. Aforesaid appeals by Revenue for Assessment Years (AYs) 2014- 15 & 2015-16 arise out of separate orders of learned first appellate authority. However, it is admitted position that facts as well as issues are 2 substantially the same in both the years and adjudication of one year shall apply to the other year also. 2. The appeal for AY 2014-15 arises out of the order passed by Learned Commissioner of Income Tax (Appeals)-3, Coimbatore [CIT(A)] on 12-12-2017 in the matter of an assessment framed by Learned Assessing Officer (AO) u/s 143(3) on 30-12-2016. The grounds raised by the revenue read as under: - i) Whether on the facts and circumstances of the case and in law the Ld.CIT is justified in holding that incentive given by the Govt to the assessee for exploring new market is a capital receipt, whereas the object of the incentive was to enable the assessee to carry on the business more profitably and hence it is revenue receipt? ii) Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) ii justified in holding that the incentive given by the Govt to the assessee for exploring new market for exports is a capital receipt and hence cannot be treated as income u/s.28 of the Act, whereas sec.28(iiib) states that "cash assistance (by whatever name called) received or receivable by any person against exports under any scheme under the Government of India shall be chargeable to income tax under the head 'Profits and Gains of Business or Profession " ? iii) Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) is justified in holding that the amount of Rs.1,54,10,800/- spent on construction of building is revenue in nature whereas the lease agreement recognizes both land and building and hence it clearly falls within the ambit of sec.32(1) and is capital expenditure? As is evident, two issues fall for our consideration – (i) Nature of Incentive received by the assessee during the year; (ii) Nature of expenditure incurred on construction of building. 3. The Ld. CIT-DR advanced arguments and relied on the decision of this Tribunal in M/s Hyundai Motor India Ltd. vs. ACIT (ITA No.3192/Chny/2017 dated 01.09.2021). The Ld. AR, on the other hands, averred that the issue stood covered in assessee’s favor by the decision of this Tribunal in earlier years. The copies of the orders have been placed on record. The Ld. AR also advanced argument supporting the case of the assessee. The written submissions have been filed by both sides in due course which have duly been considered while passing 3 the order. Having heard rival submissions and after going through case records including judicial pronouncements as cited before us during the course of hearing, our adjudication would be as under. The assessee being resident corporate assessee is stated to be engaged in manufacturing and export of hosiery garments and generation / sale of power through windmill. 4. Income from Sale of Scrips (Market Linked Focus Products Scheme (MLFPS) 4.1 The assessee claimed deduction of Rs.1569.30 Lacs on sale of scrips under Market Linked Focus Product Scheme (MLFPS) of Foreign Trade Policy 2009-14. This scheme is an incentive scheme under the Ministry of Commerce and intended to promote export trade in certain products and markets. The main objective of the scheme is to incentivize export of such goods which have high employment intensity in rural and semi-urban areas so as to offset territorial inefficiencies, infrastructure and other associated costs involved in marketing of these products in the international market. Under the scheme, an exporter get license to the extent of 2% of FOB value of export made by him which ultimately leads to saving in customs duty on imports. This license is freely transferrable at prevailing market prices. 4.2 The assessee sold such scrips during the year and claimed the receipts to be capital receipts not taxable under any provisions of the Act. To support the same, reliance was placed on the decision of Hon’ble Madras High Court in CIT vs Eastern Seafoods Exports (P) Ltd. as well as the decision of this Tribunal in assessee’s own case for AYs 2011-12 & 2012-13 wherein it was held that incentive under MLFPS being the incentive given by the government for exploring the new 4 markets, would be capital in nature. This decision by Tribunal in assessee’s own case, inter-alia, followed the ratio laid down by Hon’ble Supreme Court in M/s Ponni Sugars & Chemicals Ltd. (306 ITR 392). 4.3 However, Ld. AO opined that the receipts were nothing but an incentive to promote export trade and therefore, the same would be similar to DEPB, Duty drawback etc. and therefore, revenue in nature. Finally, these receipts were brought to tax as revenue receipts. 4.4 The Ld. CIT(A) allowed the claim of the assessee by relying upon the order of Tribunal for AYs 2011-12 & 2012-13, ITA Nos.47 & 48/Mds/2016 dated 17.05.2016 wherein it was held that such receipts would be capital receipts and could not be treated as income either u/s 2(24) or Sec.28 of the Act. Aggrieved, the revenue is in further appeal before us. Our findings & Adjudication 5. From the adjudication of Ld. CIT(A), the undisputed position that emerges is that this issue stood covered in assessee’s favor by the decision of this Tribunal in assessee’s own case for AYs 2011-12 & 2012-13, ITA Nos.47 & 48/Mds/2016 order dated 17.05.2016. The relevant findings of the bench were as under: - 9. We have considered the rival submissions on either side and also perused the material available on record. The Market Linked Focus Product Scheme is a scheme promoted by the Director General of Foreign Trade wherein incentive @ 2% on the FOB value of the total export was allowed. As per the Scheme, the incentive was given to export products in a specified market. The export of products which are covered under FPS list would be given incentive of 2% on FOB value of the export. In other words, it is an incentive given by the Government for exploring the new markets across the globe. The question arises for consideration is when the assessee was given incentive for exploring the new markets across the globe, whether such incentive would be a capital receipt or revenue receipt? The Apex Court in the case of Ponni Sugars & Chemicals Ltd (supra) had an occasion to examine an identical situation and observed that if the object of the subsidy was to enable the assessee to carry on the business more profitably, then the receipt is on the revenue account. On the other hand, if the object of assistance was to enable 5 the assessee to set up a new unit or expand the existing unit, then the receipt is on the capital account. In the case before us, the Government of India provided the incentive for exploring the new markets across the globe. Exploring a new market for a specified area would naturally expand the market area of the assessee. The incentive given to the assessee is not for running the business profitably but for expanding the market area. Therefore, this Tribunal is of the considered opinion that the incentive given by the Government to the assessee for exploring the new market is a capital receipt, hence it cannot be treated as income either u/s 2(24) or 28 of the Act. In view of the above, we are unable to uphold the order of the lower authority. Accordingly, the orders of the lower authorities are set aside and the addition made by the Assessing Officer is deleted. It could be observed that the bench, relying upon the decision of Hon’ble Apex Court M/s Ponni Sugars & Chemicals Ltd. (supra) held that if the object of the subsidy was to enable the assessee to carry on the business more profitably then the receipt would be on revenue side. On the other hand, if the object of assistance was to enable the assessee to set up a new unit or expand the existing unit, then the receipt would be on capital account. In the case of the assessee, it was found that the scheme provided for an incentive for exploring the new markets across the globe. Exploring a new market for a specified area would naturally expand the market area of the assessee. The incentive given to the assessee was not for running the business profitably but for expanding the market area. Therefore, the receipts were held to be capital receipt which could not be treated as income either u/s 2(24) or 28 of the Act. Following this decision, similar view has been taken by another bench of this Tribunal in assessee’s own case for AY 2013-14, ITA No.300 & 291/Mds/2017 dated 09.11.2017 as well as in AY 2016-17, ITA Nos.1676 & 1677/Chny/2019 common order dated 12.09.2019. The copies of these orders are on record. Therefore, the undisputed position is that this issue stand covered in assessee’s favor by the earlier decisions of this Tribunal and facts are pari-materia the same in this 6 year. There is nothing on record which would show that the aforesaid decisions have been reversed, in any manner, by higher judicial authorities. Also, there is nothing is record which would suggest any difference in facts in this year. This being so, we find no reason to deviate from the same. 6. The Ld. CIT-DR has impressed upon the fact that aforesaid decision has been distinguished by the bench in the case of M/s Hyundai Motor India Ltd. vs. ACIT (ITA No.3192/Chny/2017 dated 01.09.2021). The Ld. CIT-DR also submitted that the expenditure could not be treated as capital expenditure due to the fact that it is routine marketing expenditure incurred in order to sustain the market share and the assessee has to incur such expenses in regular course of business. The Ld. CIT-DR further argued that the assessee could not prove or match the actual expenses incurred for this scheme vis-à-vis the subsidy received from the Government of India. Further, in the present case, the assessee was not required to give compliance certificate for actual incurring of the expenditure unlike it was mandatory in the case of M/s Ponni Sugar & Chemicals Ltd. (supra) and therefore, this case law would not apply. The Ld. CIT-DR also submitted that if the receipts are treated as capital receipts, the corresponding expenditure incurred by the assessee for the purpose of marketing should also be considered as capital expenditure and the same deserve to be disallowed. The Ld. CIT- DR relied on the decision of Hon’ble Apex Court in the case of M/s Sahney Steel and Press Works Ltd. (228 ITR 253) wherein it was held that subsidy received subsequent to the commencement of production would be revenue in nature. The Ld. CIT-DR drew support from CBDT Circular No.564 dated 05.07.1990 which provide that the export 7 incentives shall have to be considered as profits of the business for computing deduction u/s 80HHC which corroborates that the receipts of export incentives are revenue in nature. It was thus submitted that the receipts would be taxable u/s 28(iiib). 7. We find that the Market Linked Focus Product Scheme (MLFPS) as promoted under Foreign Trade Policy (FTP) has the main objective to incentivize export of such products which have high export intensity / employment potential. The object of the scheme is to offset infrastructure inefficiencies and other associated costs involved in marketing of these products. The scheme would ultimately enable the assessee to expand market area. Under the scheme, the assessee is entitled to duty credit scrips equivalent to 2% of FOB value of exports which could be utilized to save customs duty on imports. The entitlement could also be sold in the market. The assessee has sold these scrips during the year and claimed the receipts to be capital receipts. It could be seen that the scheme does not provide for any matching expenses to be incurred by the assessee. Further, the objective of the scheme was to incentivize exploring new markets across the globe which would ultimately lead to expansion in market area for the assessee. It could thus be concluded that the incentive was given not to run the business profitably but to enable the assessee to expand the market area as held by the Tribunal in earlier orders. 8. The Hon’ble Supreme Court in the case of M/s Ponni Sugars & Chemicals Ltd. (306 ITR 392) held as under: - "The character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy 8 scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form or the mechanism through which the subsidy is given is irrelevant." It was thus held by Hon’ble Court that purpose test would be of paramount importance to determine the nature of subsidy. This decision has subsequently been followed by Hon'ble Jammu & Kashmir High Court in Shree Balaji Alloys & Ors. vs CIT [2011] 333 ITR 335 (J&K) which held that the incentives provided to the industrial unit with the object of creating avenues for perpetual employment, to eradicate the social problem of unemployment in the State by accelerated industrial development would be capital in nature. This decision has been affirmed by Hon'ble Supreme Court which is reported as 138 DTR 36 (SC). 9. Applying the ratio of these decisions to the facts of the case before us, it could be seen that the purpose of the scheme was to offset infrastructure inefficiencies. There was no requirement to map the expenditure associated with the subsidy and in fact, the assessee was not required to furnish any utilization certificate. Therefore, the argument of Ld. CIT-DR that the related expenditure was also to be disallowed could not be accepted since there was no requirement to establish one- to-one correlation of the expenditure vis-à-vis the quantum of subsidy received by the assessee. 10. So far as the decision of this Tribunal in Hyundai Motor India Ltd vs. ACIT (supra) is concerned, the same deal with a case of Focus Market Scheme (FMS). The objective of this scheme is to offset high freight cost and other externalities to select international market with a view to enhance export competitiveness in outside countries. It is a case 9 wherein a finding has been rendered that the assessee received duty credit scrip benefit to offset cost incurred for exploring new market including higher freight cost and other recurring expenses like sales promotion expenses including manpower cost of staff employed in marketing department. These expenses are generally revenue in nature and therefore, the receipt thereof was held to be revenue in nature. However, in assessee’s case, the incentive has been received under Focus Product Scheme (FPS) the objective of which is to weed out infrastructure inefficiencies which is in capital field. Therefore, this case law is distinguishable on facts. 11. Another fact that could be noted is that the decision of Hon'ble Rajasthan High Court in PCIT vs. Nitin Spinners Ltd (116 Taxmann.com 26) deal with a case of Focus Market Scheme and the Hon’ble Court held that the subsidy was given to enhance Indian Export potential in the international market and it was not granted to meet the cost of expenditure to meet the competition of the Indian textile market. Therefore, the decision of Tribunal which held that the receipts were capital receipts was upheld. Therefore, even in the case of Focus Market Scheme, the Hon’ble Court has affirmed the view of the Tribunal that the receipts were capital receipts. This decision has reached finality since the Special leave Petition (SLP) filed by the revenue against the same has already been dismissed by Hon’ble Supreme Court which is reported as 283 Taxman 2. Therefore, the ratio of this decision is also binding on us and the same clearly supports the case of the assessee. 12. We further find that the decision of Delhi Tribunal in Narayan Industries vs. ACIT (ITA No.6153/Del/2017 dated 30.05.2022), as referred to by Ld. AR, has also been rendered in the context of Focus 10 Product Scheme. In this decision, the bench held that the receipts would be capital in nature. While concluding so, the bench applied ‘purpose test’ laid down by Hon’ble Supreme Court in various decisions. It was finally held by the bench that receipts would be capital receipt not liable to tax under the provisions of Income Tax Act, 1961. This decision also supports the case of the assessee. 13. Therefore, considering the facts of the case and respectfully following the earlier decisions of Tribunal in assessee’s own case, we would hold that the receipts so earned by the assessee would be capital in nature and hence, not taxable. We order so. The impugned order stand confirmed on this issue and the corresponding grounds raised by the revenue stand dismissed. This issue arises in AYs 2015-16 also and the same stand disposed-off accordingly in assessee’s favor. 14. Expenditure on construction of building on leasehold land 14.1 The assessee claimed sum of Rs.291.94 Lacs in the computation of income. The same represent amount spent on construction of building on leasehold land. The expenditure was capitalized in the books of accounts but claimed as revenue expenditure in the computation of income on the ground that the assessee did not have the ownership of building and it had to leave it as vacant when the lease of the land would be terminated. The amount so expanded would not be eligible for depreciation u/s 32 since the building is not owned by the assessee. 14.2 However, after perusal of terms of lease deed, Ld. AO held that Explanation-1 to Sec.32 would apply and the expenditure would be capital expenditure which would be eligible for depreciation. Accordingly necessary adjustments were made in the computation of income. 11 14.3 The Ld. CIT(A) allowed the claim of the assessee by relying upon the decision of this Tribunal for AY 2012-13, ITA Nos.101 to 103/Mds/2016 dated 21.09.2016 as well as the decision of Hon’ble High Court of Madras in TVS Lean Logistics Ltd. (293 ITR 432) wherein it was held that such an expenditure would be revenue expenditure. Further, Explanation-1 to Sec.32 applies only when the building is taken on lease and not in situations wherein the building is constructed on leasehold land. The final adjudication of Ld. CIT(A) was as under: - 7.7 Therefore, in the instant case, the appellant has taken only the land on lease and not the building. Though the appellant has spent on construction of the super structure on the vacant land taken on lease, the appellant does not own the super structure since on termination of the lease agreement the appellant has to handover the land to the lessor either with or without the super structure. The appellant has spent the money on the super structure only to obtain a business advantage. The construction of the building on the leased land is not for expansion of capital base or for any enduring addition to the capital assets and does not partake the character of capital expenditure. Alternatively, there has been saving of revenue expenditure on an ongoing basis and the necessity for construction of the new building has arisen out of the retaining the business turnover with foreign buyers. Hence, I hold that the expenditure claimed of Rs.2,91,94,968/- is allowable as revenue expenditure. Aggrieved as aforesaid, the revenue is in further appeal before us. 14.4 The Ld. CIT-DR relied on the decision of Hon’ble Supreme Court in Mother Hospital Pvt. Ltd. vs CIT (79 Taxmann.com 375) wherein it was held that the depreciation claimed on the expenditure incurred on construction of building on leasehold land would not be allowable to the assessee. The Ld. CIT-DR drew attention to the fact that the assessee incurred expenditure of more than Rs.20.23 Crores for the purpose of construction of building over a period of 5 years from AYs 2011-12 to 2015-16 which far exceed the savings in quantum of expenditure as observed by Ld. CIT(A). Since there is no actual revenue benefit, the expenditure would be capital in nature due to the fact that the assessee 12 was contemplating to utilize the said building perpetually by way of frequent extension of the lease agreement from time to time. 14.5 The Ld. AR, on the other hand, submitted that the building was constructed on a land taken on lease and therefore, the expenditure would be revenue expenditure. It has been submitted that this issue stood covered in assessee’s favor by the earlier decision of this Tribunal for AYs 2012-13, 2013-14 and 2016-17 and the facts are pari-materia the same in this year. The Ld. AR submitted that the issue has been decided in assessee’s favor earlier by considering the decision of Hon’ble Apex Court in CIT vs. Madras Auto Service (P) Ltd [1998] 233 ITR 468 (SC) and the decision of the Hon'ble Jurisdictional High Court in CIT vs. TVS Lean Logistics Ltd (293 ITR 432). In the case of Madras Auto Service (P.) Ltd (supra), it was held by Hon’ble Court that since the asset created by the assessee did not belong to the assessee and 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. Similarly, in the decision of TVS Lean Logistics Ltd. (supra), it was held that 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 13 profession of the assessee in a land taken on lease by the assessee since the assessee did not acquire a capital asset, viz., the land in the instant case but merely put up a construction of the building only for the business advantage, with the result the entire construction cost is admissible as the revenue expenditure. The Ld. AR submitted that the assessee put up the construction to gain business advantage i.e., to attract foreign customers and therefore, the same would-be revenue in nature. Our findings and Adjudication 15. At the outset, we find that this issue has been decided by Tribunal in ITA No.1677/Chny/2019 for AY 2016-17 as under: - 5. We have considered the rival submissions on either side and perused the relevant material available on record. In the earlier round of litigation, this Tribunal in I.T.A. No.291/Mds/2017, examined this issue and remitted back the matter to the file of the Assessing Officer with a direction to re-examine the matter in the light of the judgment of Apex Court in Madras Auto Service (P.) Ltd. (supra) and the judgment of Madras High Court in TVS Lean Logistics Ltd. (supra). Now, the Assessing Officer has made a distinction between the cases before the Apex Court and Madras High Court on the one hand and the case of the assessee on the other hand. This distinction made by the Assessing Officer, according to the Ld. representative, is not correct. We have gone through the orders of the Assessing Officer and both the cases before the Apex Court and the High Court. In the case of the assessee before the High Court and Apex Court, the vacant property was taken on lease and the cost of construction was claimed by incurring heavy expenditure. In both the cases, the assessee was paying a nominal rate of rent when compared to the market rate of lease. We may say that the rent paid by the assessee may pertain to the land since the superstructure belongs to the assessee. After expiry of lease, the assessee has to demolish or may leave the construction as such and vacate the premises. In both the cases, the assessee has to lose the investment made for construction. Therefore, as rightly submitted by the Ld. representative for the assessee, the distinction made by the Assessing Officer between the case of the assessee and the cases before the Apex Court and the Madras High Court is not correct. This Tribunal is of the considered opinion that the facts of the case are identical to that of the Madras High Court and Apex Court. 6. We have carefully gone through the judgment of Apex Court in the case of Madras Auto Service (P) Ltd. (supra). The Apex Court at para 6 of its judgment observed as follows:- “6. The test for distinguishing between capital expenditure and revenue expenditure in our country was laid down by this court in Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34. In that case, the appellant-company 14 had acquired from the Government of Assam lease of certain limestone quarries for a period of 20 years for the purpose of manufacture of cement. The lessee had, inter alia, agreed to pay an annual sum during the whole period of the lease as a protection fee and in consideration of that payment, the lessor undertook not to grant to any person any lease, permit or prospecting licence for limestone. This court examined tests laid down in various cases for distinguishing between capital expenditure and revenue expenditure. One of the standard tests now in use was laid down in the case of Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155. It said (page 40 of 27 ITR) : “When an expenditure is made, not only once and for all but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital.” Whether by spending the money any advantage of an enduring nature has been obtained or not will depend upon the facts of each case. Moreover, as the above passage itself provides, this test would not apply if there are special circumstances pointing to the contrary. This court in the above case summarised the tests as follows (page 44) : “1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment. 2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade. . . If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. 3. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital.” (underlining ours) Relying upon the second test enumerated above, learned counsel for the appellant had submitted that the assessee got enduring benefit of a capital nature by spending the amount because the assessee obtained a new building for a period of 39 years. The difficulty, however, in the present case, arises from the fact that this building was never to belong to the assessee. Right from inception, the building was of the ownership of the lessor. Therefore, by spending this money, the assessee did not acquire any capital asset. The only advantage which the assessee derived by spending the money was that it got the lease of a new building at a low rent. From the business point of view, therefore, the assessee got the benefit of reduced rent. The High Court has, therefore, rightly considered this as obtaining a business advantage. The expenditure is, therefore, to be treated as revenue expenditure.” 7. We have gone through the judgment of Madras High Court in TVS Lean Logistics Ltd. (supra). The Madras High Court after considering Explanation 1 to Section 32(1) of the Act and the judgments of Apex Court in Nasiruddin v. Sita Ram Agarwal 15 (2003) 2 SCC 577 and Raghunath Rai Bareja v. Punjab National Bank (2007) 2 SCC 230, found that similar expenditure is revenue in nature. In fact, the Madras High Court has observed as follows:- “7. Similarly, there should be a literal rule of interpretation of a statute, which is the first and foremost principle of interpretation and where the words of a statute are absolutely clear and unambiguous, recourse cannot be had to the principles of interpretation other than the literal rule and even if the literal interpretation results in hardship or inconvenience, it has to be followed. The language employed in a statute is the determinative factor of the legislative event and even assuming there is a defect or any omission in the words used in the legislation, 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, vide Raghunath Rai Bareja v. Punjab National Bank [2007] 135 Comp Cas 163 (SC) ; [2007] 2 SCC 230. 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. Because the assessee did not acquire a capital asset, viz., the land in the instant case, but has put up a construction of the building only for the business advantage, with the result the entire construction cost is admissible as the revenue expenditure. 9. The apex court in L. H. Sugar Factory and Oil Mills P. Ltd. v. CIT [1980] 125 ITR 293 held that the construction of roads in the case of sugar mill is revenue expenditure. Similarly, contribution to the State Housing Board for construction of tenements for the workers was also held to be revenue expenditure by the apex court in the case of CIT v. Bombay Dyeing and Manufacturing Co. Ltd. [1996] 219 ITR 521.” 8. In view of the above judgment of Apex Court and the judgment of Madras High Court, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Thus, this issue has already been settled by Tribunal in assessee’s favor in earlier years and the facts are pari-materia the same. Since similar facts exist during this year and Ld. CIT(A) has merely followed the earlier order of the Tribunal, we see no reason to take a different view in the matter. 16 16. The case law of Hon’ble Apex Court in Mother Hospital Pvt. Ltd. vs. CIT [2017] 392 ITR 628 (SC) (as referred to by Ld. CIT-DR) is a case wherein a firm as owner of the land constructed hospital building. The firm leased the land to a tenant who reimbursed the cost of construction of building and claimed depreciation thereon. In this context, Hon’ble Apex Court held that the tenant would not be eligible for depreciation as per Explanation 1 to section 32(1) on the expenditure incurred towards construction of building since only when the assessee holds a lease right or other right of occupancy and any capital expenditure is incurred by the assessee 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 and the expenditure on construction is incurred by the assessee, the assessee would be eligible to claim depreciation. The Hon'ble Supreme Court has denied the claim of depreciation for the reason that where construction was not carried out by assessee himself, said explanation to section 32 would not come to the aid of assessee for claiming depreciation. However, in the present case, the assessee has already been found eligible to claim depreciation @10% by invoking Explanation-1 to Section 32(1). Therefore, the aforesaid decision of Hon'ble Supreme Court which held that the expenditure so incurred is not in the capital field, would mean that the expenditure is in the revenue field and therefore, the same, in fact, would support the case of the assessee. 17. Proceeding further, upon perusal of Clause-11 of lease deed dated 02.05.2010, it could be seen that the assessee-lessee, upon termination of the lease, was to deliver the possession of the demised land to the lessor with or without removing the super structure, electrical and other 17 installation thereon as may be mutually agreed upon by both the parties. The expenses in respect of the same would be borne by the lessee. Thus, the assessee has taken only the land on lease and upon termination of the lease period, the assessee was required to return the land with or without removing the super structure built by the assessee. Therefore, the lessor does not own the building and the assessee cannot own the same as capital asset since the land does not belong to the assessee and at the time of termination of lease agreement, the assessee has to either handover the building along with the land or remove the superstructure and handover the land to the lessor. Therefore, the said expenditure would be allowable as revenue expenditure in the hands of the assessee. For the aforesaid reasons, we confirm the impugned order, on this issue. The corresponding grounds raised by the revenue stand dismissed. The appeal of the revenue stand dismissed. This issue arises in AY 2015-16 also and the grounds raised therein stand disposed-off accordingly. Conclusion 18. Both the appeals stand dismissed. Order pronounced on 10 th February, 2023. Sd/- (MAHAVIR SINGH) उपा12 /VICE PRESIDENT Sd/- (MANOJ KUMAR AGGARWAL) लेखा सद: /ACCOUNTANT MEMBER चे*ई/ Chennai; िदनांक/ Dated : 10-02-2023 DS आदेशकीXितिलिपअ7ेिषत/Copy of the Order forwarded to : 1. अपीलाथ /Appellant 2. थ /Respondent 3. आयकरआयु3 (अपील)/CIT(A) 4. आयकरआयु3/CIT 5. िवभागीय ितिनिध/DR6. गाड8 फाईल/GF