I.P.Bansal, Member (J) -
(1.) THIS appeal is filed by the assessee. It is directed against the order passed by the Commissioner of Income -tax (Appeals) - 41, Mumbai, dated 26.09.2011 for assessment year 2008 -09. Grounds of appeal read as under: - -
"1(a) The learned Commissioner of Income -tax (Appeals) erred in upholding the action of the learned Deputy Commissioner of Income -tax - CC - 39, Mumbai (hereinafter referred to as "the Assessing Officer") in treating an expenditure of a sum of Rs. 86,48,765/ - incurred by the appellant for temporary repairs and maintenance on leased premises as capital expenditure.
(b) The appellant submits that the learned Commissioner of Income -tax (Appeals) ought to have held that the aforesaid expenditure of a sum of Rs. 86,48,765/ - is an allowable revenue expenditure following the decision of the Income Tax Appellate Tribunal in the case of Dy. CIT v. Lazard India (P.) Ltd. [ : (2010) 41 SOT 72 (Bom.)] & other cases relied upon by the appellant, wherein on similar facts, the expenses were held to be of revenue nature and hence allowable as a deduction.
2. WITHOUT prejudice to what is stated above, the learned Commissioner of Income -tax (Appeals) erred in not directing the Assessing Officer to allow a sum of Rs. 6,78,015/ - being society maintenance charges (included in the total repairs and maintenance expenses of Rs. 86,48,765/ -), which are clearly of routine repair and maintenance nature. The appellant submits that the Assessing Officer is directed:
(i) to delete the addition of Rs. 86,48,765/ - being expenses incurred by the appellant as temporary repairs and maintenance on leased premises;
(ii) without prejudice to what is stated above, to allow society maintenance charges of Rs. 6,78,015/ -;
and to modify the assessment in accordance with the provisions of the Act.
3. EACH of the above grounds of appeal are independent and without prejudice to each other."
(2.) The assessee is engaged in the business of investment manager/advisor. During the year under consideration the assessee has taken a new premises on rent and has incurred total expenses of Rs. 86,48,765 on repair & renovation etc. as follows: - -
2.1 The A.O. required the assessee to show cause as to why the office renovation expenses should not be capitalized. Vide letter dated 25th November, 2010, it was submitted that these expenses are incurred on tiling, plumbing, false ceiling, etc. which could not be reused on vacation of premises. However, resorting to Explanation 1 to section 32, the A.O. observed that the expenses are in respect of civil work, tiling work, marble work, fittings, fixtures, interior work, etc. cannot be taken as revenue expenditure as claimed by the assessee as these are major renovation expenses in the nature of capital and since the property was taken on lease on 7th December, 2007, the assessee entitled to depreciation at the rate of 1/2 of the normal depreciation. In this manner the learned A.O. allowed the depreciation to the extent of Rs. 4,32,438 and disallowed balance amount of Rs. 82,16,327. The disallowance has been sustained by the learned CIT(A) mainly on the basis of Explanation 1 to section 32 and relying upon the decision of the Mumbai Bench of the Tribunal in the case of Free India Assurance Services Ltd. v. Dy. CIT :  132 ITD 60/12 taxmann.com 424. The assessee is aggrieved, hence has filed the aforementioned grounds of appeal.
(3.) After narrating the facts and referring to the nature of expenditure as described in the aforementioned table, it was submitted by the learned Senior Counsel for the assessee that Rs. 6,78,015 described in serial Nos. 1 to 3 of the table cannot be disallowed at all as these charges pertain to maintenance charges which in any case is allowable even in respect of leased premises. Referring to the above details it was submitted by him that these expenses are in revenue nature. No new asset has been created which can be said to have been given any enduring benefit. It was submitted that the leave and license agreement entered into by the assessee with the owner of the premises was only for a term of 33 months and all the renovation was done by the assessee to effectively carry on its business activity. None of the items on which the expenses incurred could be reused. Thus, it was submitted by the learned Senior Counsel that the A.O. as well as the learned CIT(A) have committed an error in making and upholding the disallowance. The learned AR relied on the following decisions to contend that keeping in view the nature of these expenses, all these expenses were allowable as business expenditure: - -
"(i) CIT v. HEDE Consultancy (P.) Ltd. :  258 ITR 380/ 127 Taxman 597 (Bom.)
In the said case, the assessee had taken a godown on lease and spent an amount of Rs. 9,20,436 for converting the godown premises into office by renovating it, incurring expenses on interior decoration, which resulted in replacement of the existing roof with that of cement sheets, replacement of floor with that of marble, plastering of walls and construction of bathrooms and W.C., etc. The Assessing Officer disallowed the same, but the Tribunal allowed it and it was held that since the assets created by spending the said amounts did not belong to the assessee but the assessee got the business advantage of using modern business premises at a low rent, thus saving considerable revenue expenditure for a considerably long period, the Tribunal was held to be perfectly justified in coming to the conclusion that the expenditure should be looked upon as revenue expenditure.
(ii) CIT v. Talathi & Panthaky Associated (P.) Ltd. :  343 ITR 309/205 Taxman 309/18 taxmann.com 367 (Bom.)
In the said case, the assessee was a tenant in a building 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 for partition between the owners of the property. 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 cost. Under the agreement, the tenancy of the assessee in respect of the sixth floor in its possession was confirmed and the assessee assumed an obligation to contribute a sum of Rs. 1.50 crore for the work of repair and restoration of the structure. It was agreed that there would be no increase in the rent payable by the assessee which continued to be Rs. 11,300 per month. The amount was disallowed by the A.O. on the ground that the said amount was capital expenditure. However, the CIT(A) reversed the view of the A.O. by holding that the assessee did not acquire any capital asset and the expenditure was allowable as revenue in nature. The Tribunal confirmed the order passed by the CIT(A). In Departmental appeal the Hon'ble High Court upheld the order of the Tribunal on the ground that since there was no acquisition of a capital asset, the expenditure could not be regarded as being of capital nature.
(iii) CIT v. Amway India Enterprises :  346 ITR 341/207 Taxman 103 (Mag.)/22 taxmann.com 22 (Delhi)
In this case, the assessee had incurred expenses on flooring, partition, wiring, false ceiling, roofing, air -conditioning unit and duct, electric wiring, laying network for setting up computers and, on purchase of furniture. The A.O. as well as the CIT(A) disallowed these expenses on the ground that they were incurred on capital account. The Tribunal allowed the entire expenditure incurred on improvement of leasehold premises save and except that which was incurred on air -conditioning units and furniture. The Departmental appeal against the order of Tribunal was dismissed.
(iv) CIT v. Ayesha Hospitals (P.) Ltd. :  292 ITR 266 (Mad.)
The assessee was running hospital in leased premises. The expenses were incurred on flooring, partition etc. for the newly extended area of space and claimed as revenue expenditure. The A.O. disallowed the same and reference was made especially to Explanation 1 to section 32. Finding that the nature of expenditure was in the revenue expenditure for the purpose of carrying on business, their Lordship held that the same were allowable as business expenditure. On an alternate plea regarding application of Explanation 1 to section 32(1), their Lordships have observed that the reading of Explanation 1 would make it clear that if the lessee incurs capital expenditure on the building of the nature mentioned in Explanation, then it will be treated as if the building is owned by the assessee. It was observed that the Explanation is an exceptional one which permits depreciation in cases where the assessee does not own a building. However, the Tribunal in the present case had given its finding that it is a revenue expenditure on the ground that the expenditure is incurred only towards painting, re -laying of the damaged floors, partitions, etc., which can never considered to be capital expenditure of the nature mentioned in the above Explanation and thus the appeal filed by the Revenue was dismissed.
(v) CIT v. Mehta Transport Co. :  160 ITR 35 (Guj.)
An expenditure of Rs. 16,748 was laid out on construction of loft admeasuring about 350 sq.ft. on the ground floor office premises taken on lease in Bombay. The said amount was disallowed on the ground that it is in the nature of capital expenditure. As per the finding given by the Tribunal, construction of loft was not in the nature of renovation but was a new construction. However, the Tribunal held that the expenditure incurred by the assessee was with a view to make the leased premises more suitable for business purposes and they could not be treated as capital expenditure. Their Lordship observed that the expenditure incurred for construction of loft was neither for extending nor for addition to the premises. The assessee was putting the available office space to its optimum use for accommodating a large staff of 30 members which would result in greater efficiency by improvement of the working conditions. By constructing the loft, the assessee did not bring into existence an asset of a permanent nature because, on the surrender of the lease, the option of the lessor of the premises in which the improvements were made was either to pay compensation and take over the improvement or to permit the lessee to remove the improvement. Thus, it was held that the amount expended on loft was revenue expenditure.
(vi) CIT v. Oxford University Press :  108 ITR 166 (Bom.)
It was held that expression "repair" must be understood in contradistinction to renewal or restoration and the test to be applied is to see whether as a result of the expenditure what is being done is to preserve and maintain an already existing asset or whether as a result of the expenditure a new asset or a new advantage is being brought into existence. The mere quantum of expenditure is not by itself decisive of the question whether it is of the nature of revenue or capital. In the said case, the assessee during assessment year 1963 -64 had incurred an expenditure of Rs. 59,000 in the form of payment made for guniting work carried on in its building known as "Oxford House" and also a sum of Rs. 3,680 as fees paid to the architects in connection with the guniting work undertaken on the advice of the architects. Both these items were claimed as expenditure incurred for repair to their building. The A.O. observed that the same could not be called as current repairs but the assessee had undertaken major structural repairs which had the effect of prolonging the life of the building for at lease 15 years and as the repairs resulted in extension of the period of the serviceableness of the asset and in the creation of an enduring benefit, the expenditure was a capital expenditure. Their Lordship observed that no new asset or new advantage as such could be said to have been brought into existence by reason of expenditure incurred for doing the guniting work. As a result of guniting work done, the assessee had not changed the nature of the asset, viz., the building as a whole and the same in no way increased the accommodation or earning capacity of the building in that sense, no new advantage of enduring benefit had been brought into existence. The repairs also could not be regarded as heavy structural repairs. Simply because of repairs the life of the building was prolonged for at least 15 years, it could not be said that the expenditure was in the nature of a capital expenditure and thus, it was held that the said amount was allowable as business expenditure.;