Rented Building Renovation-Repair Expenses are Current Repairs allowable u/s 30. Accumulated repairs not allowed only when assessee owns building-ITAT

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Rented Building Renovation-Repair Expenses are Current Repairs allowable u/s 30. Accumulated repairs not allowed only when assessee owns building, as a tenant cost of repairs to the premises is allowable whether they are accumulated or current this was held by ITAT Delhi in a recent judgment detailed as under.

Case Law Details:
ITA No: 5393/Del/2010 AY: – 2005-06 ; ITAT Bench-“C” New Delhi
Dy. Commissioner of Income Tax vs.  M/s. Ikea Trading (India) P Ltd.
Date of Judgment/Order: 02/06/2016

Important Judgments Cited:
CIT V Savarana Spinning mills Limited [293 ITR 201(SC)]

Deepak Agro Foods V State Of Rajasthan ( 2008-TIOL-134-SC-CT]
CIT V Jan samparak Advertising Limited [ 56 taxmann.com 286 (Del)]
Bharat Gears Limited V CIT [ 337 ITR 368 (del)]

Brief Facts of the Case:
The assessee company had claimed expenses of Rs. 20,988,343/- on account of repair and maintenance of building expenditure. When asked to explain the nature of such huge expenditure , the company submitted that these expenses were related to EDP maintenance charges, maintenance charges for electrical items accommodation provided to expatriate employees, cleaning charges, pool and garden expenses etc. These were the necessary expenditure on repairs of various fittings installed in its office premises. However the Assessing Officer held that these expenses were in nature of repairs and renovation of building which is not owned by the assessee and hence disallowed as capital expenditure. and allowed depreciation @ 10% on these expenses. Aggrieved by the order of the AO, the company preferred an appeal before CIT (A) who deleted the disallowance holding that these expenses were revenue expenditure. Aggrieved by the order of CIT (A), the revenue preferred the present appeal.

Contentions of the Revenue:
It was primarily contended by the Revenue that the expenditure were not current repairs but accumulated repairs and therefore no deduction of such expenditure should have been allowed.

Contentions of the Assessee Company:
The company argued that the expenses were incurred on premises that was not owned by the assessee but was rented premises. It was submitted that sthe genuineness of the expenditure had not been doubted. In case of rented premises even accumulated repairs expenditure are allowable as the restrictions applies when the assessee owns the building and claims depreciation then only current repair expenditure and not accumulated repairs are allowable.

Important Excerpts from ITAT Judgment:

We have carefully considered the rival contentions. The brief facts of the case is that assessee has incurred following expenditure and same were held to the capital expenditure :-

Particulars Amount (In Rs.)
EDP Maintenance cost 22,32,507
Upkeep maintenance at office building 1,97,538
Repair and maintenance – office premises 15,76,638
Lease rentals 44,11,920
Security costs 53,87,700
Cleaning costs 6,19,116
Total 1,44,25,239

It is evident from the assessment order itself that the expenditure has been incurred by the assessee on renovation and repair of building, which is not owned, by the assessee. This fact has been recorded on the last page of the assessment order wherein this fact has been recorded by the AO that the building is not owned by the assessee. Therefore, the argument of the ld DR that it has come to the notice of revenue now is not correct.

According to us these expenditure are purely of revenue in nature and the assessee obtains no advantage of enduring nature. These are purely routine, miscellaneous expenditure, rent charges, cleaning charges and repairs on computer & other equipments and cannot be held to capital expenditure by any stretch of imagination. On perusal of the order of LD CIT (A) and details of expenditure shown to us, we are not inclined to uphold that these expenditure are of capital in nature. The contention of the revenue that Hon’ble Supreme Court has held in CIT vs. M/s. Saravana Spinning Mills Pvt. Ltd. 293 ITR 201 pleading that the most of the expenditure are not in the nature of current repair expenditure but accumulated repairs so even though the expenditure is revenue in nature, same is not allowable. We find that the reliance on this decision by the revenue is misplaced as in that case, Hon’ble Supreme Court was concerned about the modernisation and replacement expenses on the textile mill and it was held that it was not allowable. In the present case, the issue is not of repairs on plant and machinery but related to expenditure on building, further the building is also not owned by the assessee but is a rented premises. The expenditure would be dealt with by the provision of section 30, which is as under:-

“In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed–

(a) where the premises are occupied by the assessee–

(i) as a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs;

(ii) otherwise than as a tenant, the amount paid by him on account of current repairs to the premises;

(b) any sums paid on account of land revenue, local rates or municipal taxes;

(c) the amount of any premium paid in respect of insurance against risk of damage or destruction of the premises.

Explanation For the removal of doubts, it is hereby declared that the amount paid on account of the cost of repairs referred to in subclause (i), and the amount paid on account of current repairs referred to in sub-clause (ii), of clause (a), shall not include any expenditure in the nature of capital expenditure.”

On reading of the above section, the accumulated repairs are not allowed when the assessee owns building and therefore as a tenant cost of repairs to the premises is allowable whether they are accumulated or current.

Rented Building Renovation-Repair Expenses are Current Repairs

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