INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Leased assets - Expenditure incurred on leased premises -

Assessee was engaged in the business of manufacture of automated teller machines (ATMs) and distribution of NCR book products and commissions. It had taken premises on lease for a period of three years and claimed expenditure on account of leasehold improvements as revenue expenditure in the computation of income. AO held that leasehold improvements expenditure was incurred towards purchase of workstations, improvement of interiors and electrical works, fee paid to the architect, cabling work for networking of computers in connection with setting up of office. Thus, the expenditure was incurred to bring into existence an asset or an advantage for enduring benefit of business, his property was computable as capital expenditure. Held: Assessee had taken the premises on lease for a period of three years and had incurred expenditure for improvements in the lease premises. The premises did not belong to the assessee and the expenditure did not bring into existence any capital asset for the assessee. Expenses were incurred for conducting the business of assessee more profitably and more successfully. Assessee therefore, got the business advantage and was rightly treated improvement in leasehold property as revenue expenditure.

Relied:D.P. Chirania & Company v. CIT (1978) 112 ITR 12 (Karn-HC) : 1978 TaxPub(DT) 0555 (Karn-HC), CIT v. Madras Auto Service Pvt. Ltd. (1998) 233 ITR 468 (SC) : 1998 TaxPub(DT) 1407 (SC) and Diebold Systems Pvt. Ltd. v. Commissioner of Commercial Taxes (Karnataka) ILR (Kar)-2005-0-2210.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2003-04

INCOME TAX ACT, 1961

Section 32

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