1. This is an appeal by the assessee against an order of the Commissioner of Income-tax (Appeals ) pertaining to the assessment year 1987 88. The grievance of the assessee in this appeal is that the Commissioner of Income tax (Appeals) erred in sustaining disallowance of repairs and maintenance amounting to Rs. 1,07,227. The assessee is engaged in the business of ice cream. During the assessment year under consideration, the assessee purchased a property from NOIDA authority for a sum of Rs. 2,14,650 and had spent Rs. 1,07,229 on major repairs and renovation which was claimed by the assessee. However, the Income-tax Officer disallowed the deduction on the ground that the expenditure was capital in nature. However, he allowed depreciation on the same.
2. Before the Commissioner of Income-tax (Appeals), the assessee presented details of repairs which were also filed before the Income-tax Officer which show that a sum of Rs. 46,072 was spent on building repair, Rs. 44,655 on electrical fitting and maintenance and Rs. 16,502 on sanitary fitting and maintenance and it was argued that this expenditure is connected with the running of the business and was incurred to keep up the standard and prestige of the restaurant which necessitated repainting, repairs and furnishing. The Commissioner of Income-tax (Appeals) was not satisfied with this explanation and confirmed the order of the Income tax Officer. Learned counsel for the assessee, Shri Vinod Chandiok, C. A., invited our attention to the details of expenditure given at pages 4, 47 and 83 of the paper book and from the details it was pointed out that none of the expenditure is capital in nature. It is also pointed out that whatever expenses were in the nature of capital, those expenses have not been claimed as expenditure of revenue nature.
3. As against this, the learned Departmental Representative supported the action 'of the Commissioner of Income-tax (Appeals) and from the details, it is pointed out that major expenditure has been incurred on painting, plastering, bricks, stones, earth work and lay out PVC pipes, etc. These are expenses of a capital nature and it gives enduring benefit to the assessee. Therefore, the deductions were rightly refused.
4. We have considered the rival submissions. From the details filed at page 4, we find that expenditure incurred on bricks, stones, earth work, asbestos sheets, steel tubes, etc., to the tune of Rs, 14,762 are incurred for renovation of the building. Therefore, this expenditure certainly gives a benefit of enduring nature to the assessee.
Therefore, leaving this expenditure of Rs, 14,752, which is capital in nature, ali other expenses are of minor nature and in the character of revenue expenditure. Regarding expenditure incurred on electrical and mechanical repairs given at page 47, we find that the entire expenditure is in the nature of revenue expenditure. This has necessitated the assessee to change the electrical fitting to suit his business necessity and, therefore, this expenditure was wrongly considered as capital expenditure. So far as the details of expenditure given at page 83 are concerned relating to sanitary fitting, we have gone into the details of these expenditure and we find that all these items of expenditure are in the nature of revenue expenditure, except the expenditure mentioned at SI. No. 4 relating to brass fitting, wash basin, steel tube, nipple, union, G. I. elbow, S. W. pipe, etc., to the tune of Rs. 6,329.44, which is per se capital in nature. We, therefore, hold that barring expenditure to the tune of Rs. 21,092 discussed above, all expenditure is held as expenditure of revenue nature and direct the Assessing Officer to allow deduction accordingly. Regarding expenditure to the tune of Rs. 21,092, this is held to be expenditure of capital nature. The Income-tax Officer has rightly allowed depreciation on it.
6. I have carefully gone through the order proposed by my learned Brother. I have, however, not been able to persuade myself to agree with the conclusion of my learned Brother.
7. Before proceeding further with the matter, it may be necessary to note some of the salient facts of the case. The accounting year of the assessee for the assessment year 1987-88 ended on October 31, 1986. The assessee company was selling ice cream to its dealers after getting the same from Messrs. Nirula Corner (P.) Ltd. The assessee purchased a constructed building on plot No. C-135B, under leasehold rights from the NOIDA authority, District Ghaziabad (U. P.), on March 2, 1986. This building was purchased for the purpose of establishing a restaurant as specified in the deed for a consideration of Rs. 2,14,656. As explained by the assessee in its letter dated February 20, 1989, to the Assessing Officer, total expenditure of Rs. 1,07,229 was incurred to " give the restaurant a fresh attractive outlook .... on decorations including making small partitions and panelling, etc., etc." The entire amount was treated as capital expenditure by the authorities below.
8. The Supreme Court in CIT v. British India Corporation Ltd. [1987] 165 ITR 51, 56, held that no test of universal application can be laid down in deciding whether a particular expenditure is capital in nature or not. Moreover, each item of expenditure cannot be considered in isolation. On the other hand, all items of expenditure have to be considered in their totality and an integrated view formed about the nature of such expenditure. If the facts of the instant case are analysed in the light of the above principles, then the entire expenditure of Rs. 1,07,229, according to me, was capital in nature for the following reasons : (i) The providing of partitions, the change of decor, the repair of the newly purchased building, the replacement of wires, the fittings of sanitary items, the provision of panelling, etc., were in the nature of large scale operations to conform to the requirements of a restaurant ; (ii) The large scale improvements carried out by the assessee did result in an enduring benefit to the assessee ; (iii) During the course of hearing before us, it was admitted by learned counsel for the assessee that the restaurant business was started some time in October, 1986, only after the large scale improvements aforesaid had been carried out. In other words, the entire expenditure of Rs. 1,07,229 was incurred as part of the initial equipment and outlay of the restaurant ; (iv) The aforesaid expenditure was substantial being about 50 per cent, of the cost of the building purchased ; (v) Though the land was on lease, the building belonged to the assessee.
9. For the above reasons, I hold that the entire expenditure of Rs. 1,07,229 as against the expenditure of Rs. 21,092 proposed by my learned Brother, was capital in nature.
10. We, having differed on the point of framing the issue to be referred, refer the following two different questions to the Hon'ble President, the Income-tax Appellate Tribunal : " (1) Whether, on the facts and in the circumstances of the case, the expenditure claimed to have been incurred on repairs and replacement on a building purchased from NOIDA authority during the assessment year under consideration to the extent of Rs. 1,07,229 is capital expenditure or it is partly capital and partly revenue in nature? (2) Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 86,137 (Rs. 1,07,229 minus Rs. 21,092) incurred on a building purchased from NOIDA authority in the year relevant to the assessment year 1987-88 was capital in nature?" 11. The assessee in this case referred to me, as Third Member, under Section 255(4) of the Income-tax Act, 1961, is a private limited company engaged in the business of manufacturing ice cream on a large scale.
12. During the assessment year under consideration, the assessee purchased a land with a building constructed thereon for the purpose of running a restaurant from NOIDA for a sum of Rs. 2,14,650. This was purchased on March 2, 1986, which is a leasehold property running for a period of 99 years. Thereafter, for the purpose of carrying on the business of a restaurant, the assessee had to incur an expenditure of Rs. 1,07,229 on what was described as interior decoration. The details of this expenditure were furnished in the paper book on pages 4, 47 and 83. While there was no dispute about the incurring of this expenditure, the controversy arose about the nature of the expenditure. Barring a sum of Rs. 21,092 which was treated as capital expenditure by both the Members on which there was no difference of opinion, the balance of the expenditure of Rs. 86,137 was treated as revenue expenditure by the learned Judicial Member whereas the learned Accountant Member held it to be capital expenditure. That was how the difference of opinion arose between the learned Brothers and that difference was referred to me as Third Member in the following terms : " 1. Whether, on the facts and in the circumstances of the case, the expenditure claimed to have been incurred on repairs and replacement on a building purchased from NOIDA authority during the assessment year under consideration to the extent of Rs. 1,07,229 is a capital expenditure or it is partly capital and partly revenue in nature 2. Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 86,137 (Rs. 1,07,229 minus Rs. 21,092) incurred on a building purchased from NOIDA authority in the year relevant to the assessment year 1987-88 was capital in nature ?" 13. I have heard Shri Vinod Chandiok for the assessee and Shri Home Rai Khan for the Department and I am of the opinion, rather I did not find any difficulty in agreeing with the view expressed by the learned Judicial Member, that this expenditure was in the nature of revenue expenditure and not capital expenditure at all. Now, the expression "capital expenditure" has been more or less settled by a series of decisions of the Supreme Court, the latest one being in the case of CIT v. British India Corporation Ltd. [1987] 165 ITR 51, on which the learned Accountant Member also placed reliance. It was pointed out in this case by the Supreme Court that it is settled that the question whether expenditure is capital or revenue must be viewed from a practical point of view. (emphasis * supplied by me). The Supreme Court further pointed out that (at page 53) : " There is a deluge of cases and no principle can be laid down with substantial accuracy which will be applicable to all the cases. The answer to the question must depend on the facts and circumstances of each case and on the application of the principles of law as laid down by the courts." 14. The Supreme Court further pointed out in this case, referring to certain cases decided by the Privy Council, that it is very difficult to lay down any general Rule which is both sufficiently accurate and sufficiently exhaustive to cover all or even a great number of possible cases. Only broad tests could be laid down. One of the tests was that the aim and object of the expenditure must be the guiding factor and also the nature and the advantage in obtaining the asset in a commercial sense. The aim and object of incurring such expenditure is indisputably to make the building which was constructed for the purpose of carrying on the business of restaurant usable as restaurant by making interior decoration. Interior decoration would include painting, raising of temporary structures with bamboos, etc., to make the decor appealing and attractive to the customers, providing temporary benefits which again is to attract the customers. The more attractive the interior decoration, the better turnover of the clientele. The interior decoration depending upon the nature and the type of clientele can never be permanent in the sense that it enures for an enduring benefit.
It is bound to get dirty, spoiled, mutilated in course of time and needs constant replacements and also readjustments and perhaps redoing in its entirety. I am told during the course of hearing that, in the immediately next assessment year, another sum of Rs. 1 lakh was incurred on interior decoration and that amount was allowed as a deduction. This supports the view that interior decoration is not of a permanent nature and it cannot be taken to be like renovation or repairs of an enduring nature. That the expenditure incurred was on interior decoration is proved by the details given on pages 4, 47 and 83 of the paper book. They are : Bricks, Stone, Earthwork, Asbestos sheet. Steel tube, White washing, Cement, Chalk, Reta, Rodi, Hooks chick. Contractors Bill, Bamboo Electric material, 200 ft. P. V. C. pipe, Welding rod 3 pkt and one oxygen cylinder filled U. P. State Electricity Board 200 ft. P. V. C. pipe, Fevicol adhesive, steel grip tape, P. V. C.insulation, mercury bulbs, Choke, Top main switch. Wire roll. Oxygen gas allied LT switch, PV bend socket MCB, T. P. box, Socket top P. V. C. conduit pipe, MCB roll, Roll wire, Cover, Tape switch, drill. Thimble, etc.
Electrical item, P. V. C. pipe, Tape roll, Cable, Bulb, Temp, power connection rod, etc.
Kesing boaring, M. S. pipe, Filter holi, Socket G. I. pipe, Sute gala, Chickwali pipe, Nipple safeda Safeda, E. W. C. valve, Rod, Pati, Tap elbow, G. Valves, Sute Gale, Fevicol, etc.
Brass fitting, wash basin, steel tube, nipple, union, G. I. elbow, G.M. gate, M. S. brush, G. I. elbow, nipple, steel tube, G. R. socket, S.W. pipe, C. P. sink, Mixer, M. S. bush, G. M. gate valve. Steel tube, G. I. elbow, C. P. angle, G. I. socket Elbow, Steel tube, Plumbing material. Socket, Meter oil, Cement, Gate valve. Lubricating oil, plumber goods 15. Out of the above total expenditure, a sum of Rs. 21,092 was already treated by both the Members as capital expenditure, and the balance of the expenditure consisting of painting, plastering, white-washing, etc., cannot be treated as capital expenditure in the sense of giving an enduring benefit of a lasting nature. The amount incurred on interior decoration is always to be before the business is started and for that reason, it cannot be said that the expenditure, though on interior decoration of temporary nature, is of capital nature. By incurring this expenditure, the assessee acquired no permanent benefit.
The aim and object of this expenditure is to make the restaurant an attractive place for customers to come in and the interior decoration, by its very nature, being of a temporary advantage, cannot be treated as capital expenditure. In the case of British India Corporation Ltd. [1987] 165 ITR 51, the Supreme Court held that when the benefit endured only for a period of seven years, the expenditure incurred could not be said to be of capital nature. The learned Accountant Member, though he placed reliance upon this decision of the Supreme Court, appeared to have missed the import of the decision in its application to the facts of this case.
16. For these reasons, I am inclined to agree with the view expressed by the learned Judicial Member and hold that the entire expenditure of Rs. 86,000 odd is revenue expenditure.
17. The matter will now go before the regular Bench for disposal of the appeal in accordance with the opinion of the majority.