Expenditure incurred by Addition to Buildings and Electrical Fittings on Leasehold Premises is Capital Expenditure: Kerala HC [Read Order]

In a recent decision a division bench of the Kerala High Court ruled that the expenditure incurred by way of addition to buildings and electrical fittings on leasehold premises is capital expenditure and not revenue expenditure.

The Appellate Tribunal had affirmed the order of the Assessing Authority as also the First Appellate Authority that disallowed a claim for an amount of Rs.101.87 lakhs as revenue expenditure since, according to the Assessing Authority and the First Appellate Authority, the expenditure that was incurred by the appellant/assessee by way of addition to buildings and electrical fittings on leasehold premises was in the nature of capital expenditure and not revenue expenditure.

The Senior Counsel for the appellant pointed out that the Appellate Tribunal merely went by the Explanation-1 to Section 32(1) of the Income Tax Act and presumed that the expenditure incurred by the appellant/assessee was capital expenditure incurred on a lease building which had to be capitalized and only depreciation would be allowed thereon and highlighted the judgment dated 17.06.2016 of a Full Bench of the Kerala Court in Indus Motors Co.P.vt. Ltd. v. Deputy Commission of Income Tax.

The Standing Counsel for the Income Tax Department pointed out that by the impugned order, the Tribunal has merely affirmed the orders of the Assessing Authority and the First Appellate Authority. The orders of the Assessing Authority and the First Appellate Authority clearly discuss the claim made by the assessee and find that, based on the description of the expenses as given by the assessee, the expenses had to be treated as capital expenditure and not revenue expenditure.

The Court of Dr Justice AK Jayasankaran Nambiar and Justice Syam Kumar VM observed that “If the assessee had in fact a case that the expenditure incurred by it was revenue in nature, then it was for the assessee to produce materials that would clearly demonstrate that the expenditure was revenue in nature. This not having been done at any stage before the First Appellate Authority or the Appellate Tribunal, we see no reason to interfere with the impugned order of the Tribunal which merely endorses the views taken by the said authorities.”

To Read the full text of the Order CLICK HERE

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