Commissioner of Income Tax vs Andavar Calendering Mills

Rangarajan, J.—The facts leading to this reference are as follows : The assessee is a firm which was carrying on business in property taken

on lease. For the purpose of installing a machine, the assessee had to construct a bedding on the floor and it is also stated by the Income Tax

Officer that some improvement was made to the building taken on lease. The appellate authorities have mentioned that the improvements include

the construction of a room for storing the calendering cloth manufactured by the assessee. The case of the Revenue is that the expenditure incurred

for this amounted to capital expenditure and cannot be allowed as a revenue deduction. The Appellate Tribunal found that the assessee did not

have any enduring benefit being only a lessee and allowed the deduction. At the instance of the Revenue, the following question has been referred :

Whether, on the facts and in the circumstances of the case and having regard to the provisions of section 32(1A) of the Income Tax Act, 1961,

the Appellate Tribunal was right in holding that the sum of Rs. 10,205 spent by the assessee on the construction of a bedding to install an oil

engine, newly purchased and also a room to store the calendering cloth manufactured should be allowed as a revenue expenditure ?

Learned counsel appearing for the Revenue contended that since there was new construction which was eligible for depreciation u/s 32(1A) of

the Income Tax Act, the Appellate Tribunal was in error in allowing the deduction. But, we find that the depreciation originally granted by the

Income Tax Officer was later withdrawn on the ground that the assessee was not the owner of the structure. Even though it is mentioned in the

orders of the appellate authorities that a new room was put up, we find no evidence to indicate the nature of such structure. From what is stated by

the Income Tax Officer in the order of assessment, it appears that the assessee has only carried out some improvements for better enjoyment of

the leasehold property. Since the benefit derived by the assessee was coterminous with the lease, it is obvious that there could not be any enduring

benefit for the structure, whatever be the nature of the same, whether old or new.

In the circumstances, we have to affirm the finding of the Tribunal that the expenditure incurred was not capital in nature and the assessee was

entitled to deduction of the amount as revenue expenditure. The question referred, therefore, is answered in the affirmative and against the

Revenue. No costs.