Decided on May 07,2014



Vijay Pal Rao, Member (J) - (1.) THESE cross -appeals are directed against the order dt. 20th Oct., 2010 of CIT(A) for the asst. yr. 2006 -07. The assessee is a lyricist and a well known film personality. The assessee stated that he operates his profession from the premises 6th and 7th floor, Juhu Sagar Samrat Co -op. Housing Society Ltd. The building was an old seven storied building having one lift. Since the lift was old, it used to get out of order very frequently, causing substantial hardship to the persons visiting to the assessee for professional purposes. The society was reluctant to spend money to replace the lift. The assessee spent a sum of Rs. 17,32,436 for installation of a new lift in the building. The said amount was claimed by the assessee as society development charges in the P & L a/c. The AO asked the assessee to show cause as to why the claim of the assessee of Rs. 17,32,436 should not be disallowed. The assessee submitted that the amount represents the replacement of the old lift belonging to the society and civil work relevant thereto. The assessee owns two premises namely flat Nos. 601 and 701 in the said society. Due to the frequent break down of lift in the building the assessee as well as people visiting him were facing substantial hardship. This was causing damage to his profession as well. To overcome this difficulty the assessee offered to replace the lift of the society with a new lift. The society allowed him to replace the lift with the condition that the new lift would belong to the society and will be allowed for use to all the members. Thus, the assessee contended that in the interest of profession, the assessee agreed to this arrangement and got the new lift installed. It was submitted that the expenditure was fully incurred for smooth functioning of assessee's profession, therefore, it is an allowable expenditure. The AO did not accept the explanation and contention of the assessee and held that the elevators installed was at the cooperative housing society and an essential part of the building to be treated a capital asset, and, therefore , it cannot be considered as revenue expenditure. The AO further goes to hold that it cannot be found to be treated as capital expenditure because the assessee was not the final owner of the asset on which the depreciation is claimed. Therefore, the expenditure does not qualify to be debited to the P&L a/c as it cannot be merely treated as a revenue expenditure. The assessee should have simply debited its personal capital account by the said sum. The AO, therefore, disallowed the entire amount.
(2.) ON appeal, CIT(A) was of the view that since the assessee is having office as well as residence in the said building, therefore, it cannot be held that the purpose of purchase of asset (was) for business/professional purpose only. In fact, the installation and use of the lift was for assessee's and his family's personal purpose as well. Accordingly, the CIT(A) was of the view that the lift installed is definitely not a revenue expenditure but is a capital asset. However, there are instances when expenses have been capitalised by various assessees due to different reasons. CIT(A) has held that the installation of new lift was both for the purpose of assessee and his family's personal use and use by his professional visitors. Accordingly, 50 per cent of the society development charges are held not allowable to the assessee either as revenue expense or capitalized cost being on personal and nonprofessional account. Hence, CIT(A) allowed 50 per cent of expenditure claimed by the assessee to be capitalized and depreciation at prescribed rate. Both assessee and revenue have challenged the order of CIT(A). The assessee has raised the following grounds in this appeal: "(i) Learned CIT(A) has erred confirming the disallowance of the expenditure amounting to Rs. 17,32,436 claimed by your appellant as society development charges in his income and expenditure account. (ii) The learned CIT(A) has erred in not allowing the expenditure made by your appellant to replace the, old lift of the building of the society in which the office premises of your appellant were situated, as revenue expenditure of your appellant. (iii) Alternatively and without prejudice to the ground Nos. 1 and 2 above, the learned CIT(A) has erred in granting depreciation only on 50 per cent of the cost of the lift amounting to Rs. 17,32,436."
(3.) REVENUE has raised following grounds as under: "(i) On the facts and in the circumstances of the case and in law, the learned CIT(A) Mumbai erred in treating 50 per cent of society development charges incurred on the purchase of a lift as capital expenditure, when the said assets belongs to the society and not to the assessee. (ii) The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the AO restored.";

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