renovation is capital expenditure or revenue expenditure

In the light of the above discussions, the above tax case appeal is allowed, the orders passed by both the CIT(A) as well as the Tribunal are set aside and the order passed by the Assessing Officer is restored. 12. The CIT(A) examined the floor wise break-up expenditure, samples of various types of work carried out, electrical work including the provision of entire wiring, cables, light fixtures, etc., and observed that from the description of the break-up of the expenditure claimed, the same included several items, which had been spent by the assessee on articles or things, which could be dismantled, removed and carried along at the time of vacating the rented premises and it is not so as if the assessee had not created a capital asset nor had obtained an enduring benefit. (iii) in the case of Indus Motor Co. (P) Ltd. 5. Definitions . Ultimately, the Full Bench of the Kerala High Court in the decision reported in (2016) 382 ITR 0503 reiterated that the observations and opinion expressed by Division Bench in the case of Joy Alukkas India (P) Ltd., for holding that the expenditure incurred by the assessee in the above case was not a capital expenditure, but was only revenue expenditure were based on facts of that case, that the relevant test was applied by the Division Bench and that the observation made by the Division Bench in paragraphs 29 and 30 in the decision in the case of Joy Alukkas India (P) Ltd., had to confine to the facts of that case. 25. At the risk of repetition, it is not out of place to mention here that the decision of the Division Bench of the Kerala High Court in the case of Indus Motors Co. Pvt. In order to submit a comment to this post, please write this code along with your comment: 5316e531a724121842a8c4831f123fd9. Generally renovation expenditure undertaken in respect of premises are considered to be revenue in nature as it does not add to the capital value of the asset which is being renovated. 2442 of 2008, Taxguru Consultancy & Online Publication LLP, 509, Swapna Siddhi, Akurli Road, Near Railway Station, Kandivali (East), Expense on renovation of Leased building is capital expenditure, Section 194J & 194C Monetary Limit unchanged for Individual/ HUF, Failure to pass draft assessment order U/s. It was pointed out that so far as the expenditure incurred as contemplated in the explanation is concerned, a legal fiction is created, by which, the assessee, enjoying a leasehold right on a building, is treated as the owner of the building. 13. Therefore, it is submitted that the Revenue should be permitted to pursue their appeal before this Court. The asset's cost (except for the cost of land) will then be allocated to depreciation expense over the useful life of the asset. The following points of difference between capital expenditure and revenue expenditure gives the importance of the distinction: 1. No costs. Ltd., read as follows : “33. In the above decision, it was pointed out that so far as the expenditure incurred as contemplated in the explanation is concerned, a legal fiction is created, by which, the assessee, enjoying a leasehold right on a building, is treated as the owner of the building. Usually the cost is recorded in a balance sheet account that is reported under the heading of Property, Plant and Equipment. Played 27 times. Capital expenditures vs. revenue expenditures. After analyzing all the factual details and taking note of the submissions made by the assessee’s representative that they proposed to restrict their claim, the CIT(A) passed the order dated 09.7.2007. 144C(1) invalidates final assessment order, Valuation of Shares Issued on Premium : AO cannot reject DCF valuation Method adopted by Assessee, No valid belief can be formed on the basis of incorrect/non-existing facts, Self-declaration by Employee Sufficient for Non-Deduction of TDS on Uniform allowance, Facts about 1% payment of tax liability in cash in GST under Rule 86B, Revision of Company Law E-Forms and Documents, Right of being Represented in a Court is a Fundamental Right, ITC in GSTR-3B cannot exceed 105% of GSTR-2A- Analysis, HC explains invocation of Rule 86A for blocking ITC, Service of show cause notice at wrong E-mail address is not valid, How to easily verify the E- invoice QR in your mobile, 9th Instalment of Rs.6,000 crore released to States, Extension of name reserved through SPICE+ upon payment of fees, Private Equity Investment and its Regulation, Join Online Certification Courses on GST covering recent changes, ICAI requests FM to extend Income Tax due dates immediately, Extend Income Tax Audit & ITR Due dates for AY 2020-21, Extend due dates of GSTR-9/GSTR-9C for FY 2018-19 & 2019-20, Extend Income Tax, GST, LLP, Company Law due dates, Summary of Important GST Changes Applicable From 01.01.2021. In the meanwhile, a notice was issued under Section 143(2) of the Act on 08.10.2004 requesting the assessee to furnish various details, pursuant to which, the assessee, through their authorized representative (chartered accountant) appeared in person, furnished the details and produced the books of accounts and bills for repairs and maintenance. To learn more, see the Related Topics listed below: Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. Be that as it may, we are required to decide the substantial questions of law, which were framed at the time of admission of this appeal. Thus, on account of not applying the correct legal principle to the facts, an erroneous order was passed by the CIT(A), which was affirmed by the Tribunal without assigning any reasons. Revenue Expenditure. What is a capital expenditure versus a revenue expenditure? We quote the relevant portions in the decision of the Division Bench in the case of Indus Motor Co. (P) Limited, which read as hereunder : “24. Examples of differences between Capital and Revenue expenditure . 1 to section 32 (1), even if assessee was not owner of such building during the period of occupation. The learned Standing Counsel for the Revenue relies upon the following decisions : (i) in the case of CIT, Madurai Vs. Madura Coats [reported in (2012) 19 Taxmann.com 74 (Madras)]; (ii) in the case of CIT, Madurai Vs. Viswams [reported in (2019) 105 Taxmann.com 289 (Madras)] and. In our considered view, no such remand is warranted in the instant case as we have found that the entire details were made available by the assessee to the Assessing Officer as well as to taxguru.in the CIT(A) and that they examined all the factual Had the CIT(A) taken note of Explanation 1 to Section 32 of the Act in all probabilities, the result of the appeal would have been different. The assessee is in the business of running a travel agency and filed their return of income for the assessment year under consideration (2003-04) on 01.12.2003 returning a total income of Rs.1,79,95,145/-. Capital Expenditure is capitalized as opposed to Revenue Expenditure, which is not capitalized. Edit. Expenditure means spending on something. 94,87,010/- included Rs. Explanation 1 to Section 32(1)(i) does not intend to lay down that whenever expenditure has been incurred by the assessee for the purpose of business or profession on the construction of any structure or doing of any work in or in relation to or by way of renovation or improvement to the building, then such expenditure has to be mandatorily treated as capital expenditure. The CIT(A) considered the stand taken by the assessee and after taking note of the various works done by the assessee in the leased premises, pointed out that huge expenditure had been incurred by the company by way of fixing doors, both wooden as well as aluminium, collapsible shutters, mirrors, partitions, false ceiling etc., and providing various types of furniture for executives and functions. 17. Business expenditures are accounted for in either one of the two ways. The revenue expenditures just maintain the earning capacity of the business. They are either expensed in the income statement (revenue expenditures) or capitalized as fixed assets in the balance sheet (capital expenditures). According to the learned counsel, the tax effect in this appeal would be Rs.48,19,376/-, which is less than the limit of Rs.50 lakhs prescribed in the said Circular and therefore, the Revenue cannot prosecute this appeal any further. In support of their contention, the assessee referred to the decisions in the case of, (i) CIT Vs. Ooty Dasaprakash [reported in (2000) 110 Taxmann 275 (Madras)]; and. Renovations and expenses that extend the useful life of your property or improve it beyond its original condition are usually capital … Consequently, the substantial questions of law are answered in favour of the Revenue. As has been observed above, whether an expenditure incurred by assessee in a particular case is a capital expenditure or revenue expenditure has to be decided on the facts of that case by applying the relevant tests. Mr. Karthik Ranganathan, learned Standing Counsel for the Revenue submits that if the appeal filed by the Revenue is allowed, the order passed under Section 154 of the Act dated 27.3.2012 would become infructuous, that and consequently, the order passed by the Assessing Officer has to be restored and the tax has to be computed and not only that, the rate of depreciation is to be ascertained and a complete reworking has to be done by the Assessing Officer and that this cannot be done in this appeal under Section 260A of the Act by raising substantial questions of law, which has been admitted by a Division Bench of this Court. No.230 of 2013 dated 20.1.2014], the matter was referred to a Full Bench. 1. 2300/Mds/2007 on the file taxguru.in of the Income Tax Appellate Tribuna, Chennai ‘A’ Bench for the assessment year 2003-04. FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT. He is the sole author of all the materials on AccountingCoach.com. Capital expenditures (CAPEX) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, or equipment. The explanation only meant that in the event any capital expenditure is incurred by the assessee, the provisions of Section 32 (1) shall be applicable as if the said structure or work is a building owned by the assessee. The Revenue carried the matter on appeal to the Tribunal by contending that the Assessing Officer had correctly treated the repairs and renovation expenses as capital expenditure as against the claim of the assessee as a revenue expenditure. Exchange for goods or services that will be used to improve a company in progressing the business chargeability interest. No.230 of 2013 dated 20.1.2014 ], the substantial questions of law should be permitted pursue. ) will not apply: Definition: the expenses a firm incurs each day to maintain its business. Year-Its benefit is received for a number of years in future be as follows 5! 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