A division bench of the Bombay High Court in CIT v. M/s.Urban Infrastructure Venture Capital Ltd has allowed a tenants’ claim for depreciation towards capital expenditure incurred on the leased premises.
The division bench comprising of Justices Gangapurwala and A.M Badar, while dismissing the departmental appeal, clarified that such claims are allowable under Section 32(1) of the Income Tax Act, 1961 since it amount to Revenue Expenditure on the basis of the decision in Talathi and Panthaky Associates Pvt. Ltd.
Assessee, a tenant claimed depreciation in respect of expenditure incurred on leased premises. The expenses were in the nature of building maintenance charges to the society, labour charges, charges for carpenter work, plumbing work, masonry work, pending labour charges and provisional fees.
The tenant is deemed owner as per explanation 1 to Section 32(1) of the Income Tax Act.
The department took a stand that the expenses cannot be treated as Revenue expenditure.
ITAT allowed the claim of assesse by relying on the decision in the case of Talathi and Panthaky Associates Pvt. Ltd.
The department approached the High Court against the ITAT order contending that the Tribunal has wrongly relied on the judgment wherein explanation 1 to Section 32(1) of the Act was never a subject matter of consideration. They claimed that bare perusal of expenses would categorically show that the same are capital in nature.
The bench overruled the above contentions and noted that Explanation 1 to Section 32(1) of the Act was a subject matter of interpretation and consideration of this Court in case of Talathi and Panthaky Associates Pvt. Ltd.
Aligning with the findings of the Tribunal, the bench observed that Explanation I is attracted. “it is necessary that any capital expenditure is incurred by the assessee. It is necessary to emphasise that what Explanation I brings about is a deeming fiction by which expenditure of a capital nature incurred by the assessee for the purposes stipulated therein including inter alia for the construction of any structure or the work of renovation, extension or improvement can form the basis of a claim for depreciation as if the structure or work is a building owned by the assessee. But for the Explanation, an assessee would not be entitled to the benefit of depreciation even if the expenditure which was incurred was of a capital nature and the effect of the Explanation is to entitle the assessee to the benefit of the provisions of Section 32.”
Read the full text of the Order below.
