Allowability of capital expenditure by tenant

Allowability of expenditure towards renovation of rented premises under section 30(a)(i) of IT Act, 1961 The cost of repairs incurred by an assessee-tenant in respect of tenanted premises would have to be allowed under section 30(a)(i); the question of disallowing such an expenditure and relegating the assessee to claim depreciation under section 32 does not arise HIGH COURT OF DELHI CIT v. Hi Line Pens Pvt. Ltd. ITA NO. 1202/2006 September 15, 2008 RELEVANT EXTRACTS: ** ** ** ** 16. After having considered the arguments advanced by the learned counsel for the parties and examined the decisions cited by them, we are of the view that the assessee’s claim for deduction under Section 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 the 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 by the Supreme Court in the case of Saravana Spinning Mills P. Ltd. (supra). 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. This 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 expenditures 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 a tenant in respect of such premises would have to be allowed under Section 30(a)(i). The question of disallowing such an expenditure and relegating the assessee to claim depreciation under Section 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. ** ** ** **