Allow ability of building renovation expenses

 [2010] 6 taxmann.com 29 (Hyd. - ITAT)

ITAT, HYDERABAD BENCH ‘A’, HYDERABAD

Chaya Lakshmi Creations (P.) Ltd.

The assessee has taken on lease a theatre complex consisting of five cinema theatres from M/s Satyam Sayi Corporation (P) Ltd,. During the assessment year under consideration, the assessee has incurred substantial amounts towards consultation charges, interior design, modernization, changing of floor tiles, false ceiling, landscaping, chairs, earth filling etc. According to the learned departmental representative, these expenditures were incurred by the assessee for obtaining enduring benefit. The learned departmental representative further submitted that the expenditure incurred by the assessee brought into existence a capital asset for conducting the business. The cinema theatre, according to the learned departmental representative is a permanent business asset, therefore any expenditure incurred by the assessee for renovating the cinema theatre has to be treated as capital expenditure. Referring to Sec. 32 Explanation 1 of the I.T Act, the learned departmental representative submitted that after introduction of Sec. 32 Explanation 1, the assessee at the best is entitled for depreciation u/s 32 Explanation 1 of the I.T. Act w.e.f. 1.4.1988. Since the assessing officer himself has granted the depreciation to the assessee, the CIT(A) has committed an error in allowing the claim of the assessee as Revenue expenditure. The learned departmental representative placed reliance on the observations made by the assessing officer in the assessment year. 

On the contrary, Shri C.P Ramaswamy, the learned counsel for the assessee submitted that admittedly, the assessee has taken five Cinema Theatres in a theatre complex from M/s Satyam Sayi Corporation (P) Ltd, on lease. For the purpose of carrying out its business effectively and efficiently, the assessee incurred the expenditure for repairing the cinema theatre. According to the learned counsel for the assessee, the expenditure incurred by the assessee in repairing the theatre complex is only in the process of earning profit in the course of its business activities. The expenditure incurred by the assessee, according to assessee’s counsel, does not brought into existence any new advantage or any new asset. Even after the spending the amount on repair, the assessee continued to be as lessee of the cinema theatre and he continued to carry on the business of exhibiting films in the theatre. Therefore, the business of the assessee remains the same even after the expenditure and the asset continued to be one of the lease holding assets. Therefore, according to the learned counsel, it is not correct to say that the assessee has obtained an enduring benefit after incurring the expenditure. Referring to the nature of the expenditure, the learned counsel for the assessee submitted that the CIT (A) himself disallowed the expenditure incurred by the assessee in respect of marble flooring. The other expenditures are in the nature of earth filling works, under ground sump repairing, drainage and cable works, wall paper fixing, dust opening, carpentry, plumbing works, false ceiling repair, seat repair, pest control, house keeping material, theatre cleaning, charges on bandobust and fixing of chairs etc. According to the learned counsel for the assessee, these expenditures are absolutely necessary for the purpose of carrying out its business. These expenditures are incurred in the process of earning the profit and not in the process of acquiring any capital. For the assessment year 2005-06, the assessee has also incurred expenditure in repairing the canteen compound wall, under ground work, sump repairing, water roofing of ceiling, theater patch up work, exterior painting etc. Similarly, for the assessment year 2006-07, the assessee has incurred expenditure in fixing aluminum panel, scrambling, change of wall papers and also paid consultancy charges while repairing the false ceiling etc. Further, the learned counsel for the assessee submitted that this expenditure was incurred only for the purpose of carrying on the business in an effective and profitable manner and not for the purpose of acquiring any new asset. Placing reliance on the judgement of the Apex Court in the case of CIT Vs. Madras Auto Service (P) Ltd., 233 ITR 468, the learned counsel for the assessee submitted that the Supreme Court held that the expenditure incurred in construction of a building in the leased premises as revenue expenditure. Since CIT(A) himself disallowed the expenditure incurred by the assessee on marble flooring, no interference is called for. 

For the purpose of convenience we are reproducing the Sec.30 of the IT Act which reads as follows:

"Sec.30: In respect of rent, rates, taxes, repairs and insurance for premises, used for the purpose 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 sub clause (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."

In view of this specific provisions in the I T Act whenever the assessee incurred expenditure for repairing the premises taken on lease it has to be allowed u/s 30(a)(i). However, the amount incurred by the assessee otherwise than as a tenant in respect of ‘current repairs’ has to be allowed u/s 30(a)(ii). By Explanation, the Legislature clarified that any expenditure which is in the nature of capital expenditure cannot be included while allowing the same u/s 32(a)(i) and 32(a)(ii). Therefore, it is very clear that whenever the assessee incurred expenditure for repair and maintenance of a building taken on lease for carrying on its business activity, it has to be allowed u/s 30(a)(i) provided the same does not falls in the capital field. In case, the expenditure was in the capital field then such an assessee is entitled for depreciation either u/s 32(1A) or under Explanation 1 to Sec.32 w.e.f. 1.4.1971. Before 1.4.1971, the capital expenditure incurred by the assessee has to be totally disallowed and such assessee was not eligible to claim depreciation.

In view of this decision of the Tribunal by majority opinion, even after introduction of Sec.32(1A) or Explanation 1 to Sec.32, the assessee is entitled to claim the expenditure on repair/maintenance of premises taken on lease u/s 30(a)(i) in respect of expenditure incurred in the process of earning the profit.

After incurring the expenditure the assessee has not obtained any new enduring benefit. No capital asset came into existence. The assessee continued to exhibit feature films in the very same premises probably with a little more profit. Admittedly the seating capacity was not increased after the expenditure. However, it may be little more attractive and comfortable for cine goers. Therefore, the expenditure incurred by the assessee is only for carrying on the business of exhibiting feature films. Therefore, the expenditure incurred by the assessee was an integral part of profit earning process. Therefore, it is not correct to say that the assessee has obtained any enduring benefit because of this expenditure. The assessee can use the premises taken on lease only during the lease period as found by the assessing officer. After expiry of the lease period, the assessee has to leave the entire thing as it is and handover the same to the lessor. The nature of work undertaken by the assessee is to carry on the business and not to obtain any asset. Furthermore, as already observed, no capital asset of enduring nature came into existence. In other words, the assessee has not acquired any asset/ income earning apparatus. It is well settled principles of law that the expenditure incurred for acquisition of an asset is capital expenditure and expenditure incurred in the process of earning profit is revenue expenditure. In the case before us, the assessee incurred the expenditure in order to attract more customers and make the customers comfortable. Therefore, it is obvious that that the assessee has to incur the expenditure, in order to carry on the business and in the process of earning profit and, therefore, the expenditure is of revenue in nature.

These three appeals of the Revenue are directed against the common order passed by the CIT(A)-II, Hyderabad dated 24.12.2009 for the assessment years 2003-04, 2005-06 and 2006-07. Since common issues arise for consideration in all the three appeals, we heard the same together and disposing of the same by this common order.

2. Shri A. Patra, the learned departmental representative submitted that the only issue arises for consideration is the expenditure incurred by the assessee in renovation of the Cinema Theatre building taken on lease. According to the learned departmental representative, the assessee has taken on lease a theatre complex consisting of five cinema theatres from M/s Satyam Sayi Corporation (P) Ltd,. During the assessment year under consideration, the assessee has incurred substantial amounts towards consultation charges, interior design, modernization, changing of floor tiles, false ceiling, landscaping, chairs, earth filling etc. According to the learned departmental representative, these expenditures were incurred by the assessee for obtaining enduring benefit. The learned departmental representative further submitted that the expenditure incurred by the assessee brought into existence a capital asset for conducting the business. The cinema theatre, according to the learned departmental representative is a permanent business asset, therefore any expenditure incurred by the assessee for renovating the cinema theatre has to be treated as capital expenditure. Referring to Sec. 32 Explanation 1 of the I.T Act, the learned departmental representative submitted that after introduction of Sec. 32 Explanation 1, the assessee at the best is entitled for depreciation u/s 32 Explanation 1 of the I.T. Act w.e.f. 1.4.1988. Since the assessing officer himself has granted the depreciation to the assessee, the CIT(A) has committed an error in allowing the claim of the assessee as Revenue expenditure. The learned departmental representative placed reliance on the observations made by the assessing officer in the assessment year. 

3. On the contrary, Shri C.P Ramaswamy, the learned counsel for the assessee submitted that admittedly, the assessee has taken five Cinema Theatres in a theatre complex from M/s Satyam Sayi Corporation (P) Ltd, on lease. For the purpose of carrying out its business effectively and efficiently, the assessee incurred the expenditure for repairing the cinema theatre. According to the learned counsel for the assessee, the expenditure incurred by the assessee in repairing the theatre complex is only in the process of earning profit in the course of its business activities. The expenditure incurred by the assessee, according to assessee’s counsel, does not brought into existence any new advantage or any new asset. Even after the spending the amount on repair, the assessee continued to be as lessee of the cinema theatre and he continued to carry on the business of exhibiting films in the theatre. Therefore, the business of the assessee remains the same even after the expenditure and the asset continued to be one of the lease holding assets. Therefore, according to the learned counsel, it is not correct to say that the assessee has obtained an enduring benefit after incurring the expenditure. Referring to the nature of the expenditure, the learned counsel for the assessee submitted that the CIT (A) himself disallowed the expenditure incurred by the assessee in respect of marble flooring. The other expenditures are in the nature of earth filling works, under ground sump repairing, drainage and cable works, wall paper fixing, dust opening, carpentry, plumbing works, false ceiling repair, seat repair, pest control, house keeping material, theatre cleaning, charges on bandobust and fixing of chairs etc. According to the learned counsel for the assessee, these expenditures are absolutely necessary for the purpose of carrying out its business. These expenditures are incurred in the process of earning the profit and not in the process of acquiring any capital. For the assessment year 2005-06, the assessee has also incurred expenditure in repairing the canteen compound wall, under ground work, sump repairing, water roofing of ceiling, theater patch up work, exterior painting etc. Similarly, for the assessment year 2006-07, the assessee has incurred expenditure in fixing aluminum panel, scrambling, change of wall papers and also paid consultancy charges while repairing the false ceiling etc. Further, the learned counsel for the assessee submitted that this expenditure was incurred only for the purpose of carrying on the business in an effective and profitable manner and not for the purpose of acquiring any new asset. Placing reliance on the judgement of the Apex Court in the case of CIT Vs. Madras Auto Service (P) Ltd., 233 ITR 468, the learned counsel for the assessee submitted that the Supreme Court held that the expenditure incurred in construction of a building in the leased premises as revenue expenditure. Since CIT(A) himself disallowed the expenditure incurred by the assessee on marble flooring, no interference is called for. 

4. We have considered the rival submissions on either side and also perused the material available on record. It is not in dispute that the assessee has taken five cinema theatres in a theatre complex on lease from M/s Satyam Sayi Corporation (P) Ltd,. for exhibition of feature films. From the materials available on record, it appears the assessee took the cinema theatres where the business of exhibition of films is going on. The assessee incurred expenditure on repair of the theatre complex such as change of marble flooring, earth filling work, underground sump repair, drainage and cable works, fixing of wall papers, dust opening, carpentry and building repair, false ceiling, pest control charges, house keeping material, theatre cleaning charges, bandobust charges re-fixing of chairs etc. Similarly, the assessee also incurred expenditure in repairing the canteen compound wall, water roofing of ceiling, theatre patch up work, interior painting, cleaning material, payment to temporary staffs, maintenance of generator and other office equipments etc. The assessing officer during the course of the assessment proceedings found that the assessee undertook the major renovation and modernization of the theatre complex therefore the expenditure incurred by the assessee cannot be treated as Revenue expenditure. The assessing officer further found that even though the theatre was not demolished, there was a replacement in chairs, landscaping, false ceiling etc. which has given a face lift to the theatre on account of which the assessee is getting enduring benefit. The assessing officer also found that the assessee is entitled to use the cinema theatre during the lease period for its business. The assessing officer referring to Explanation 1 to Sec.32 of IT Act found that the assessee has incurred the capital expenditure, therefore it is entitled for depreciation at the rate of 10%. Accordingly, the assessing officer disallowed the claim of the assessee and allowed depreciation @ 10%. The question now arises for consideration is, when the assessee has incurred expenditure on repair of the cinema theatre taken on lease, whether the assessee is entitled for deduction of the expenditure incurred on such repair as Revenue expenditure or it has to be treated as capital expenditure, in view of explanation 1 to Sec.32 of the IT Act. We have carefully gone through the Explanation 1 to Sec.32 of the IT Act which reads as follows:

"Explanation 1: Where the business or profession of the assessee is carried on in a building not owned by him but in respect of which the assessee holds a lease or other right of occupancy and any capital expenditure is incurred by the assessee for the purpose of the business or profession on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee."

5. This Explanation to Sec.32 was introduced in the Statute Book by Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 1.4.1988. By introduction of this Explanation, the Legislature intended to give depreciation on the capital expenditure incurred by the assessee in relation to renovation, extension or improvement to the building in which the assessee carried on the business as lessee.

6. Let us now examine the Legislative history of introduction of Explanation 1 to Sec.32 of the IT Act. The Parliament by Taxation Laws (Amendment) Act, 1970 w.e.f. 1.4.1971 introduced Sub Sec.(1A) to Sec.32. By Sec.32(1A), the Parliament intended to grant some benefit on the capital expenditure incurred by a tenant in the leased premises. Therefore, it is obvious that before introduction of Sec.32(1A) w.e.f. 1.4.1971 by Taxation Laws (Amendment) Act, 1970, the assessee who takes the business premises on lease was not entitled to any depreciation on the capital expenditure. In other words, before 1.4.1971, the assessees who incurred capital expenditure on leased premises were not entitled to any benefit at all. Therefore, by removing legal restrictions in respect of capital expenditure incurred by the assessee who takes the business premises on lease, the Parliament intended to give depreciation on the capital expenditure. On close reading of Sec.32(1A) and the circumstances under which it was introduced in the statute book, it is very clear that in case the revenue expenditure was incurred by the assessee on the premises taken on lease the question of allowing any depreciation u/s. 32(1A) would not arise for consideration. In other words, Sec.32(1A) introduced by Parliament w.e.f. 1.4.1971 by Taxation Laws (Amendment) Act, 1970 would not be applicable in case the assessee incurred revenue expenditure on the leased premises.

7. However, this Sec.32(1A) introduced by Taxation Laws (Amendment) Act, 1970 was omitted and Explanation 1 to Sec. 32 was introduced by Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 1.4.1988. This was done when the concept of depreciation on individual asset was changed to depreciation on the block of assets. When the Parliament introduced depreciation on block of assets, which is a new concept Sec.32(1A) was deleted and identical provision was incorporated in Explanation 1 to Sec.32 of the IT Act. Therefore, the position of law as it remains after introduction of Sec.32(1A) w.e.f. 1.4.1971 continued to be the same in respect of revenue expenditure incurred by assessee on the premises taken on lease. In other words, the concept of allowing depreciation on the capital expenditure in relation to renovation, extension or improvement of the premises taken on lease continued to be the same w.e.f. 1.4.1971. Therefore, whenever the assessee incurred the expenditure, in the process of earning profit while carrying on the business in the leased premises, the expenditure has to be treated as revenue expenditure and either section 32(1A) or Explanation 1 to Sec.32 would not come in the way of allowing the same as Revenue expenditure. However, when the assessee incurred the expenditure which is of capital in nature, then the Parliament gives a benefit to such assessee for claiming the depreciation on such capital expenditure in relation to renovation, extension or improvement w.e.f. 1.4.1971 u/s. 32(1A) and under the Explanation 1 to Sec.32 w.e.f. 1.4.1988. Therefore, this is a benefit conferred on the assessee who took the premises on lease and incurred expenditure in the capital field. However, as explained earlier, in case, the expenditure falls in the revenue field, the assessee is entitled to claim the same as revenue expenditure irrespective of Sec.32(1A) or Explanation 1 to Sec. 32 of the Act. This was so explained by the CBDT in its circular.

8. By keeping this Legislative history and intent in mind, let us now examine the claim of the assessee in the case before us. The assessee incurred expenditure for the assessment 2003-04 for earth filling, under ground slump repair, cable works, wall paper fixing, dust opening repair, carpentry and plumbing repair, false ceiling repair, replacing of damaged chairs besides changing marble flooring. The assessee also incurred expenditure on canteen repairing, pest control, house keeping material, theatre cleaning, bandobust, re-fixing of chairs etc. For the assessment year 2005-06, the assessee incurred expenditure for repairing, renovation of canteen, change of flooring, water proofing for ceiling, theatre patch work, exterior painting, salary to temporary staff, cleaning material, electricity, maintenance of generators and office equipments. Likewise, for the assessment year 2006-07 the assessee has incurred expenditure for fixing aluminum panels, scramble works, wall paper charges and also paid consultancy charges. The question arises for consideration is when the assessee incurred these expenditures on the leased premises can it be allowed as Revenue expenditure while computing the total income. We find that Sec.30(a)(i) deals with such a situation. For the purpose of convenience we are reproducing the Sec.30 of the IT Act which reads as follows:

"Sec.30: In respect of rent, rates, taxes, repairs and insurance for premises, used for the purpose of the business or profession, the following deductions shall be allowed:

a) Where the premises are occupied by the assessee –

iii)              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;

iv)                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 sub clause (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."

9. In view of this specific provisions in the I T Act whenever the assessee incurred expenditure for repairing the premises taken on lease it has to be allowed u/s 30(a)(i). However, the amount incurred by the assessee otherwise than as a tenant in respect of ‘current repairs’ has to be allowed u/s 30(a)(ii). By Explanation, the Legislature clarified that any expenditure which is in the nature of capital expenditure cannot be included while allowing the same u/s 32(a)(i) and 32(a)(ii). Therefore, it is very clear that whenever the assessee incurred expenditure for repair and maintenance of a building taken on lease for carrying on its business activity, it has to be allowed u/s 30(a)(i) provided the same does not falls in the capital field. In case, the expenditure was in the capital field then such an assessee is entitled for depreciation either u/s 32(1A) or under Explanation 1 to Sec.32 w.e.f. 1.4.1971. Before 1.4.1971, the capital expenditure incurred by the assessee has to be totally disallowed and such assessee was not eligible to claim depreciation.

10. We find that an identical fact was examined by this Tribunal in the case of P.S.B. Vs. Inspecting Assistant Commissioner (1941) 35 ITD page 9 (TM) (Delhi). In the case before Delhi Bench of this Tribunal in P.S.B. (supra) the assessee company took on lease premises for carrying on its business activity. The assessee incurred certain expenditure on demolition of walls providing girders, repairs of flooring, repairs of toilets providing and fixing of power point, telephone points intercom points, painting and polishing etc and claimed the expenditure as revenue expenditure. This Tribunal by a majority opinion found that the expenditure incurred by the assessee could not be said to be of enduring nature. This Tribunal found that the assessee is neither the owner of the building nor the fitting and fixtures of the building and after the expiry of lease period, the entire building would be handed over back to the lessor. This Tribunal has also taken into consideration Sec.32(1A) of the Act and Sec.30(a)(i) and Sec.30(a)(ii) and found that a tenant is entitled for deduction of the amount spent on account of repairs to the premises. This Tribunal heavily placed reliance on the judgement of Delhi High Court in the case of Instalment Supply P. Ltd. Vs. CIT (1984) 149 ITR 52 (Delhi) in CIT Vs. Araish Exhibition Service (1980) 3 Taxman 378 and the judgement of Apex Court in CIT Vs. Kalyanji Mavji & Co. (1980) 122 ITR 49.

11. In view of this decision of the Tribunal by majority opinion, even after introduction of Sec.32(1A) or Explanation 1 to Sec.32, the assessee is entitled to claim the expenditure on repair/maintenance of premises taken on lease u/s 30(a)(i) in respect of expenditure incurred in the process of earning the profit.

12. We find the Delhi High Court recently had an occasion to consider an identical issue in the case of CIT Vs. Hi Line Pens (P) Ltd., 306 ITR 182. In the case before the Delhi High Court the assessee has claimed expenditure u/s 30(a)(i) of the Act, in respect of amount incurred on the lease premises. The assessee before the Delhi High Court incurred the expenditure towards false ceiling, fixing tiles, replacing glasses, woodworks partition, replacement of electrical wiring, earthing, replacement of GI pipes etc. The Delhi High Court after considering its earlier judgement in Instalment Supply (P) Ltd. (Supra) and judgement of the Apex Court in CIT Vs. Saravana Spinning Mills P. Ltd 293 ITR 201 and in the case of Ballimal Naval Kishore Vs. CIT 224 ITR 414 found that the assessee’s claim has to be allowed u/s 30(a) (i). The Delhi High Court further observed that the question of disallowing such expenditure and relegating the assessee to claim depreciation u/s 32 does not arise. In fact, His Lordship Hon'ble Mr. Juned Badar Durrez Ahmed speaking for the Division Bench has observed as follows: "After having considered the arguments advanced by learned counsel for the parties and examined the decisions cited by them, we are of the view that the assessee’s claim for deduction u/s 30(a)(i) has been rightly allowed by the Tribunal. The decisions cited by the learned counsel for the Revenue relate to ‘current repairs’. There is a clear distinction between the expression ‘repairs’ and expression ‘current repairs’. It is obvious that the word ‘repairs’ is much wider than the expression ‘current repairs’. This fact has also been taken note of the Supreme Court in the case of ‘Saravana Spinning Mills (P) Ltd. (2007) 293 ITR 201. The expression ‘current repairs’ is much more restricted than the word ‘repairs’ because the latter is qualified by the word ‘current’. What the assessee has done in the present case has been construed to be repairs by the Tribunal as a finding of fact. It has not brought about any new asset and more importantly it was not the intention of the assessee to bring about any new capital asset. The expenses that were incurred by the assessee were towards repairing the premises taken on lease so as to make it more conducive to its business activity. Such expenses would clearly fall within the expression of repairs to the premises as appearing in section 30(a)(i). The Legislature has made a distinction between expenses incurred by a tenant for ‘repairs’ of the premises and expenses incurred by a person who is not a tenant towards ‘current repairs’ to the premises. The distinction has to be given meaning. Perhaps the logic behind the distinction was that a tenant would, by the very nature of his status as a tenant, not undertake expenditure as would endure beyond his likely period of tenancy or create a new asset. Whereas, an owner may undertake expenditures so as to even bring about new assets of capital nature. It was, therefore necessary to qualify the expenditure on repairs. The deduction was, therefore, limited to expenditure on ‘current repairs’ only. It follows, therefore, that the cost of repairs that have been incurred by books of account tenant in respect of such premises would have to be allowed u/s 30(a) (i). The question of disallowing such expenditure and relegating the assessee to claim depreciation u/s 32 does not arise. The assessee has not claimed depreciation. It has claimed deduction under section 30(a) (i). Once the assessee’s claim falls within that provision there is no question of considering the question of applicability of section 32. Consequently, the question that has been framed is answered in favour of the assessee and against the Revenue. The appeal is dismissed."

13. In view of this judgement of Delhi High Court, in our opinion, the claim of the assessee has to be allowed u/s 30(a) (i). Even otherwise, it has to be allowed u/s 37(1) since expenditure was incurred exclusively for purpose of business.

14. After incurring the expenditure the assessee has not obtained any new enduring benefit. No capital asset came into existence. The assessee continued to exhibit feature films in the very same premises probably with a little more profit. Admittedly the seating capacity was not increased after the expenditure. However, it may be little more attractive and comfortable for cine goers. Therefore, the expenditure incurred by the assessee is only for carrying on the business of exhibiting feature films. Therefore, the expenditure incurred by the assessee was an integral part of profit earning process. Therefore, it is not correct to say that the assessee has obtained any enduring benefit because of this expenditure. The assessee can use the premises taken on lease only during the lease period as found by the assessing officer. After expiry of the lease period, the assessee has to leave the entire thing as it is and handover the same to the lessor. The nature of work undertaken by the assessee is to carry on the business and not to obtain any asset. Furthermore, as already observed, no capital asset of enduring nature came into existence. In other words, the assessee has not acquired any asset/ income earning apparatus. It is well settled principles of law that the expenditure incurred for acquisition of an asset is capital expenditure and expenditure incurred in the process of earning profit is revenue expenditure. In the case before us, the assessee incurred the expenditure in order to attract more customers and make the customers comfortable. Therefore, it is obvious that that the assessee has to incur the expenditure, in order to carry on the business and in the process of earning profit and, therefore, the expenditure is of revenue in nature.

15. We find the Karnataka High Court in CIT vs. Rex Talkies (1984) 148 ITR 560 had an occasion to consider an identical issue. In the case before the Karnataka High Court, the assessee firm was a tenant of a cinema theatre. During the assessment year under consideration, the assessee renovated the theatre and incurred the expenditure for addition and alteration to furniture polishing, chair brackets, cement flooring, wages for fixing chairs, plaster of Paris for ceiling and walls, etc. The Karnataka High Court after referring to the judgement of the Apex Court in Empire Jute Co. Ltd. vs. CIT (1980) 124 ITR 1 found that the expenditure incurred by the assessee for renovating the cinema theatre like repairs to ceiling, repair and polishing of furniture, repairs to fittings, etc., was for the purpose of running the cinema shows in the theatre as a tenant and to preserve and maintain the theatre in fit condition and make it more attractive and comfortable. The Karnataka High Court observed that what was spent by the assessee was only for the business of the assessee to run more effectively and profitably leaving the fixed assets untouched. The Karnataka High Court further observed that section 32(1A) of the Act is a special provision enacted for the benefit of lessees providing for depreciation on the structure or work put up by them in the leasehold premises which, in the normal course, they are not entitled to, since they are not the owners. Ultimately, the Karnataka High Court held that the expenditure incurred by the assessee in renovating the cinema theatre has to be allowed as revenue expenditure.

16. We have also carefully gone through the judgement of the Apex Court in the case of Empire Jute Co. Ltd. (Supra). In the case before the Apex Court, the assessee company was carrying on the business of manufacturing of jute and was a member of Indian Jute Mills Association. The assessee entered into a working time agreement with other members restricting the number of working hours per week for which the mills are entitled to work their looms. The question arose for consideration before the Apex Court was whether the expenditure incurred by the assessee for purchase of looms hours was in the nature of capital expenditure or revenue expenditure. The Apex Court after considering the entire relevant provisions of the Income-tax Act found that the expenditure incurred by the assessee for purchase of loom hours represented revenue expenditure and was allowable as deduction u/s. 10(2)(xv) of the Incometax Act, 1922. In fact, the Apex Court observed as follows: " …. There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. But even if this test were applied in the present case, it does not yield a conclusion in favour of the revenue. Here, by purchase of loom hours no new asset has been created. There is no addition to or expansion of the profit-making apparatus of the assessee. The income-earning machine remains what it was prior to the purchase of loom hours. The assessee is merely enabled to operate the profit making structure for a longer number of hours. And this advantage is clearly not of an enduring nature. It is limited in its duration to six months and, moreover, the additional working hours per week transferred to the assessee have to be utilised during the week and cannot be carried forward to the next week. It is, therefore, not possible to say that any advantage of enduring benefit in the capital field was acquired by the assessee in purchasing loom hours and the test of enduring benefit cannot help the revenue."

17. In view of the above observations of the Apex Court, the test of enduring benefit is not certain or conclusive. Even if this test is applied, as observed by the Apex Court, the expenditure incurred by the assessee is only in the process of earning profit and not to acquire any capital asset. As a result of the expenditure incurred by the assessee, the cinema theatre remains a cinema theatre and the seating capacity does not increase. The assessee might have carried on the business in a profitable manner. Therefore, the expenditure incurred facilitated the assessee to carry on its business of exhibition of films effectively and more profitably. Moreover, the assessee has not obtained any advantage in the capital filed. Therefore, in our opinion, in view of this judgement of the Apex Court, the expenditure incurred by the assessee has to be treated as revenue in nature.  18. We find that the Punjab & Haryana High Court in the case of Regal Theatre vs. CIT, (1966) 59 ITR 449, had an occasion to consider an identical issue. In the case before the Punjab & Haryana High Court the assessee taken a cinema theatre on lease and incurred expenditure for paneling of the walls and repair the staircase and restaurant. The also repaired the lawn, booking office, visitors stand, etc., and claimed the expenditure as revenue expenditure. The Punjab & Haryana High Court after considering the case-laws on the subject found that the assessee incurred the expenditure in order to carry on his business. The business of the assessee being a show of cinema, the assessee has to incur the expenditure in order to attract customers. The High Court further observed that it was essential to keep the building in a tip-top condition so as to attract the customers to come to the cinema theatre. Accordingly it was held that the expenditure incurred by the assessee was revenue in nature. This judgement of the Punjab & Haryana High Court was considered by another Bench of the very same High Court in the case of Silver screen Enterprises vs. CIT (1972) 85 ITR 578. In this case the assessee took a cinema house on lease. The assessee incurred the expenditure for repairing chairs, sanitary fittings, electricity fittings, etc. The Punjab & Haryana High Court held that the expenditure incurred by the assessee was in the nature of capital expenditure. Referring to its earlier decision in the case of Regal Theatre (Supra), the High Court found that the facts of that case were distinguishable. However, the fact remains that the judgement of the Apex Court in the case of Empire Jute Co. Ltd. (Supra) was not brought to the notice of the Punjab & Haryana High Court. Since the judgement in the case of Empire Jute Co. Ltd. (Supra) was not considered by the Punjab & Haryana High Court in the case of Silver Screen Enterprises (Supra), this judgement of the Punjab & Haryana High Court, in our opinion, may not be applicable in this case. The Karnataka High Court in the case of Rex Talkies (Supra) considered this issue and the judgement of the Apex Court in the case of Empire Jute Co. Ltd. (Supra) and held that identical expenditure was revenue in nature. Therefore, in our opinion, the Karnataka High Court in the case of Rex Talkies (Supra) has taken notice of the judgement of the Apex Court in the case of Empire Jute Co. Ltd. would be applicable to the facts of this case.

 19. We find the Gujarat High Court had an occasion to consider an identical issue in the case of CIT vs. Laxmi Talkies (2005) 275 ITR 125. In the case before the Gujarat High Court, the assessee incurred expenditure for renovation and repair of the cinema theatre and also on account of stamp duty, interest, etc. The assessee has incurred expenditure in replacing the flooring, staircase and fixed new tiles. Old wooden staircase was removed and replaced by a concrete staircase. The screen has been replaced and cement plastering has been done. The Gujarat High Court after considering the above factual aspects and the judgement of the Apex Court in the case of Empire Jute Co. Ltd. (Supra) found that the expenditure incurred by the assessee is revenue in nature. Therefore, it has to be allowed as revenue expenditure. 20. We find the Delhi Bench of this Tribunal in the case of Escorts Ltd. vs. ACIT (2007) 104 ITD 427 had an occasion to consider an identical situation. In the case before the Delhi Bench of this Tribunal, the assessee incurred expenditure of Rs.93,61,605/- for renovating the office building which was taken on lease. The assessee carried out the work relating to structural steel reinforcement. This structural reinforcement work was in the nature of enduring nature. Therefore, it was held to be a capital expenditure. In respect of other expenditure such as payment for internal furnishing, painting and polishing work, dismantling of old false ceiling, fees for internal design, lift, etc., was found to be spent for making the work place suitable and comfortable so as to carry on the business effectively and profitably. The Tribunal observed that this expenditure was certainly not incurred for acquiring any asset or addition of enduring nature. Therefore, this Tribunal held that the amount spent by the assessee for repair and renovation cannot be considered as capital in nature and, therefore, it is outside the purview of Explanation (1) to section 32(1) of the Act.

 21. In this case also it is not the case of the Revenue that the assessee incurred any expenditure with regard to reinforcement of the structure of the building. Admittedly the expenditure incurred by the assessee with regard to change of marble flooring, earth filling, under ground slump repair, drainage and cable work, wall paper fixing, ceiling repair, replacement of damaged chairs and refixing of chairs and paid consultancy charges also for carrying on the false ceiling repair. As found by the Delhi Bench of this Tribunal, these expenditures are only for the purpose of carrying on the business in an effective and profitable manner. The assessee has not acquired/obtained any asset/income earning apparatus as a result of this expenditure. Therefore, as held by the Delhi Bench of this Tribunal in the case of Escorts Ltd., the expenditure incurred by the assessee has to be treated as revenue expenditure. Admittedly, the assessee has not carried out any work in connection with the structure of the building. 22. We find that the Apex Court had an occasion to consider an identical issue in the case of CIT vs. Kalyanji Mavji & Co. (1980) 122 ITR 49. In the case before the Apex Court the assessee incurred the expenditure on payment of surface rent, minimum royalty and on account of salary for the watch and ward and claimed it as a business expenditure. The assessee has also incurred expenditure for renovating the building, reconditioning of machinery and clearing of debris. The assessee claimed the expenditure as revenue expenditure. The Apex Court after referring to earlier decision in the case of Assam Bengal Cement Co. Ltd. vs. CIT (1955) 27 ITR 34 found that the expenditure incurred by the assessee was in the process of profit earning. Therefore, it has to be allowed as revenue expenditure. 23. In view of the above case laws, it is obvious that whenever an expenditure was incurred in the process of earning of profit it has to be allowed as revenue expenditure. In such a case the expenditure incurred by the assessee would be outside the purview of Explanation (1) to section 32 of the Act. In the case before us, it is not in dispute that the expenditure was incurred for earth filling, repair of chairs, replacement of damaged chairs, repair of underground slump, drainage and cable work, wall paper fixing, dust opening repair, carpentry and plumbing, repair of false ceiling, etc. The assessee has also changed the marble flooring, incurred expenditure on cleaning material, payment to temporary employees, watch and ward, etc. Even though the existing flooring was changed it may fall in the revenue field. However, the CIT(A) himself confirmed the expenditure with regard to change of marble flooring as capital expenditure. However, he allowed the other expenses as revenue expenditure. The assessee has also paid consultancy charges. It is pertinent to note that when the assessee has repaired the false ceiling of the cinema theatre, he has to ensure the sound proof in side the theatre building. Therefore, he has to necessarily consult a consultant and there is nothing wrong in paying the consultancy charges for such repairs. False ceiling was repaired without altering the structure of the building. The assessee has also incurred expenditure in purchasing cleaning material, projector maintenance, payment of charges to temporary staff, etc. These expenses are only for the purpose of carrying on of the business and does not bring any capital asset into existence. Therefore, in our opinion, the CIT(A) has rightly allowed the same as revenue expenditure. We do not find any infirmity in the order of lower authority. Accordingly the same is confirmed. 24. In the result, all the appeals of the Revenue stand dismissed. Order pronounced in the open Court on 30th June, 2010.