INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Allowability - Assessee setup branch office in leased premises - Expenditure on repairs and renovation of such leased premises

Assessee-company was engaged in manufacture of soaps, detergents and sandalwood oil. It set up a branch office, which was housed in leased premises. The leased premises required certain repairs and renovation and expenditure incurred on repairs and renovation was claimed as revenue expenditure by the assessee. AO disallowed the said expenditure alleging that the same was capital expenditure. Further, CIT(A) confirmed the action of the AO holding that the renovation expenses is capital expenditure within the meaning of Explanation 1 to section 32(1).Held: On perusal of leave and licence agreement entered into by assessee, it was found that the assessee was barred from carrying out any alteration with regard to the structure without prior approval from licensor. Thus, it was clear that there was no addition/increase to premises on account of incurring of expenditure towards repairs and renovation. Therefore, the expenditure incurred by the assessee towards repairs and renovation to the leased premises could not be stated to be a capital expenditure. Further, Explanation 1 to section 32(1) only permits assessee to claim depreciation on capital expenditure incurred on leased premises taken by the assessee. On the other hand, if the expenditure incurred by the assessee is on the revenue front, whether the premises is taken on lease or not is immaterial and the same is always an allowable deduction. Therefore, the CIT(A) misinterpreted Expln. 1 to section 32(1). Hence, the assessee was entitled to deduction of expenditure incurred on repairs and renovation as revenue expenditure.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2014-2015

INCOME TAX ACT, 1961

Section 43B

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