Commissioner of Incometax v. Talathi and Panthaky Associated (P.) Ltd.

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The Tax Publishers2012 TaxPub(DT) 1655 (Bom-HC) : (2012) 047 (I) ITCL 0059 : (2012) 343 ITR 0309 : (2012) 205 TAXMAN 0309 IN THE BOMBAY HIGH COURT DR. D.Y. CHANDRACHUD & M.S. SANKLECHA, JJ. CIT v. Talathi and Panthaky Associated (P.) Ltd. ITA No. 4208 of 2009 30 January, 2012 Appellant by : Vimal Gupta Respondent by : F.V. Irani and A.K. Jasani JUDGMENT This appeal by the Revenue raises the following substantial question of law : '(a) Whether on the facts and circumstances of the case and in law the Tribunal was right in holding that cost of repair/reconstruction of the tenanted premises is revenue in nature and allowable as deduction u/s. 30(a)(1) and thereby erred in deleting the disallowance made by the A.O. treating the same as capital in nature?' 2. The appeal is accordingly admitted on the aforesaid question and is taken up for hearing and final disposal by consent. 3. The assessee in the present case was a tenant in a building by the name of Shriniketan at Worli and was in the occupation of an area admeasuring 5,000 sq. ft. The building was declared by the Municipal Corporation to be unsafe for occupation and an eviction notice was served on the occupants. A suit was instituted on the Original Side of this Court in a partition dispute between the owners of the property. On 13-2-1978 the Court Receiver was appointed as Receiver and the assessee being a tenant in the building continued to pay rent to the Receiver. On 12-3-1999 Consent Terms were arrived at in the suit. A developer came to be impleaded as a party Respondent and was a party to the Consent Terms. Under the Consent Terms the developer agreed to repair and reconstruct the building at his costs. The developer agreed to handover a certain area in the newly constructed and renovated building to the co-owners. Under Clause 8 of the Consent Terms the developer assumed the obligation of negotiating and settling with the tenants and occupants of the building and to either offer them alternate accommodation or to relocate them in the repaired building. The Court Receiver was to execute a conveyance or a long term lease of the property in favour of the co-operative society of the owners and/or tenants of the building. The Consent Terms contemplate that either a co-operative society, a limited company or a condominium comprising of the tenants, occupants and co-owners shall be formed. On 6-4-1999 terms were arrived at between the developer and the assessee, recorded in a communication which was signed by both the parties. Under the agreement the tenancy of the assessee in respect of the sixth floor presently in its possession was confirmed; and the assessee assumed an obligation to contribute a sum of Rs. 1.50 Crores for the work of repair and restoration of the structure. The agreement envisages that there would be no increase in the rent payable by the assessee which continued to be Rs. 11,300 per month. 4. In respect of the assessment proceedings for assessment year 2003-04 an order of assessment was passed by the assessing officer on 29-12-2005. The assessing officer held that the assessee secured rights for an area of 5,000 sq. ft. on payment of a sum of Rs. 1.50 Crores and the assessee was to become a member of a society or company. This according to the assessing officer would constitute deemed ownership of the premises. The assessing officer came to the conclusion that the expenditure of Rs. 1.50 Crores was of a capital nature and had to be disallowed. In appeal, the Commissioner (Appeals) reversed the view of the assessing officer and following inter alia, the judgment of the Supreme Court in CIT v. Madras Auto Service (P) Ltd. (1998) 233 ITR 468 :1998 TaxPub(DT) 1407 (SC), held that the assessee had not acquired any capital asset and the expenditure was allowable as revenue in nature. This view has been affirmed by the Tribunal by its impugned decision rendered on 9-4-2009. The Tribunal has followed a decision of its Delhi Bench in another case, besides adverting to the judgment of the Supreme Court in Madras Auto (supra). SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 1655 (Bom-HC) : (2012) 047 (I) ITCL 0059 : (2012) 343 ITR 0309 : (2012) 205 TAXMAN 0309

IN THE BOMBAY HIGH COURT

DR. D.Y. CHANDRACHUD & M.S. SANKLECHA, JJ.

CIT v. Talathi and Panthaky Associated (P.) Ltd.

ITA No. 4208 of 2009

30 January, 2012

Appellant by : Vimal Gupta

Respondent by : F.V. Irani and A.K. Jasani

JUDGMENT

This appeal by the Revenue raises the following substantial question of law :

'(a) Whether on the facts and circumstances of the case and in law the Tribunal was right in holding that cost of repair/reconstruction of the tenanted premises is revenue in nature and allowable as deduction u/s. 30(a)(1) and thereby erred in deleting the disallowance made by the A.O. treating the same as capital in nature?'

2. The appeal is accordingly admitted on the aforesaid question and is taken up for hearing and final disposal by consent.

3. The assessee in the present case was a tenant in a building by the name of Shriniketan at Worli and was in the occupation of an area admeasuring 5,000 sq. ft. The building was declared by the Municipal Corporation to be unsafe for occupation and an eviction notice was served on the occupants. A suit was instituted on the Original Side of this Court in a partition dispute between the owners of the property. On 13-2-1978 the Court Receiver was appointed as Receiver and the assessee being a tenant in the building continued to pay rent to the Receiver. On 12-3-1999 Consent Terms were arrived at in the suit. A developer came to be impleaded as a party Respondent and was a party to the Consent Terms. Under the Consent Terms the developer agreed to repair and reconstruct the building at his costs. The developer agreed to handover a certain area in the newly constructed and renovated building to the co-owners. Under Clause 8 of the Consent Terms the developer assumed the obligation of negotiating and settling with the tenants and occupants of the building and to either offer them alternate accommodation or to relocate them in the repaired building. The Court Receiver was to execute a conveyance or a long term lease of the property in favour of the co-operative society of the owners and/or tenants of the building. The Consent Terms contemplate that either a co-operative society, a limited company or a condominium comprising of the tenants, occupants and co-owners shall be formed. On 6-4-1999 terms were arrived at between the developer and the assessee, recorded in a communication which was signed by both the parties. Under the agreement the tenancy of the assessee in respect of the sixth floor presently in its possession was confirmed; and the assessee assumed an obligation to contribute a sum of Rs. 1.50 Crores for the work of repair and restoration of the structure. The agreement envisages that there would be no increase in the rent payable by the assessee which continued to be Rs. 11,300 per month.

4. In respect of the assessment proceedings for assessment year 2003-04 an order of assessment was passed by the assessing officer on 29-12-2005. The assessing officer held that the assessee secured rights for an area of 5,000 sq. ft. on payment of a sum of Rs. 1.50 Crores and the assessee was to become a member of a society or company. This according to the assessing officer would constitute deemed ownership of the premises. The assessing officer came to the conclusion that the expenditure of Rs. 1.50 Crores was of a capital nature and had to be disallowed. In appeal, the Commissioner (Appeals) reversed the view of the assessing officer and following inter alia, the judgment of the Supreme Court in CIT v. Madras Auto Service (P) Ltd. (1998) 233 ITR 468 :1998 TaxPub(DT) 1407 (SC), held that the assessee had not acquired any capital asset and the expenditure was allowable as revenue in nature. This view has been affirmed by the Tribunal by its impugned decision rendered on 9-4-2009. The Tribunal has followed a decision of its Delhi Bench in another case, besides adverting to the judgment of the Supreme Court in Madras Auto (supra).