Judgment:
This appeal by the assessee for asst. yr. 1986-87 has been directed against the order under S. 263 of the CIT.2. The appellant has been running a restaurant business since 1976 and beer bar business since 1977. During the account year relevant to asst.
yr. 1986-87, the assessee got a licence for permit room. Prior to the receipt of permit room licence, the assessee was doing restaurant and bar business in one premises only. It appears from the facts of the case that the assessee did not have sufficient space for a permit room.
In order to create the space for the permit room, the assessee shifted the store accommodation in the said room and in that space started the beer bar and permit room. For the purpose of business, the assessee, however, was required to spend a sum of Rs. 1,33,120 for renovation and decoration. Out of the total expenditure or Rs. 1,33,120 a sum of Rs. 24,000 was capitalised by the assessee. A sum of Rs. 1,08,320 was, however, claimed as the revenue expenditure which was allowed by the Assessing Officer.
3. The CIT, however, was of the view that the order of the ITO was erroneous in so far as it was prejudicial to the interest of Revenue.
In the opinion of the learned CIT, the expenses on renovation were capital in nature and hence not deductible while computing the income of the assessee. He, therefore, assumed jurisdiction under S. 263 of the Act and set aside the order of the Assessing Officer with a direction to disallow the amount of Rs. 1,08,320 as capital expenditure. Being aggrieved, the assessee has come in appeal before us.
4. The learned counsel Shri S.C. Bathia strongly argued that the CIT had no justification in assuming jurisdiction under S. 263 of the Act.
The expenditure on renovation of the permit room was in the nature of current repairs and did not bring into being any new asset so as to characterise it as capital expenditure. The learned counsel also took us through the ratio of various judicial decisions, which are placed on paper book to show that the nature of expenditure was such that the assessee neither derived any benefit of enduring nature nor an asset was created. The learned counsel also took us through the nature of expenditure and pointed out that the expenditure were essential to carry out the business of the assessee effectively and, therefore, the expenses were revenue in nature. He, therefore, argued that the expenses incurred on various items are in the nature of current repairs ant, therefore, are allowable as deduction. The learned counsel thus pleaded that the assumption of jurisdiction under S. 263 by the CIT was erroneous and should, therefore, be set aside.
5. The learned Departmental Representative, on the other hand, defended the order of CIT. It is argued that the expenditure on renovation was capital in nature and hence was not an allowable deduction under any of the provisions of the IT Act.
6. We have heard the rival submissions in the light of the judicial precedence relied upon. Following are the details of disputed addition, viz., (b) Fixing of the angles and beams to strengthen the structure of the existing store room; (d) Old electric fitting was removed and new electric fitting installed; (e) Expenses on shifting of the existing store-room elsewhere in the same premises; 7. The power of suo motu revision under S. 263 of the Act is in the nature of supervisory jurisdiction and can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the CIT to exercise the power of revision under this sub-section, viz., (i) the order should be erroneous; and (ii) by virtue of the order being erroneous prejudice must have been caused to the interest of Revenue. Under S. 263 of the Act, the CIT cannot set aside an order wherein the aforesaid two conditions are not satisfied.
The CIT also cannot term the order as erroneous unless it is not in accordance with law. For assuming jurisdiction under S. 263, it is therefore, essential for the CIT to give a clear cut finding that the order passed by the ITO was erroneous and had caused prejudice to the Revenue. We have reproduced the items of expenditure above. During the course of discussions in the Court, the learned Departmental Representative himself conceded that the expenditure at Sr. Nos. (a) to (d) are revenue in nature. For these four items of expenditure, therefore, assumption of jurisdiction by CIT was obviously wrong.
8. Regarding remaining items though the learned Departmental Representative contested that the expenses were capital in nature, but we find that the said expenses were also revenue in nature. It is important to note that the assessee has carried out the repairs in the rented premises. In other words, the restaurant building or any part of it was not the property of the appellant. The repairs carried out to a rented premises clearly would be a revenue expenditure as it will not bring any capital asset into being. We have also very carefully gone through the details of the expenses and find that, in fact, the expenditure in question is revenue in nature. Taking for instance, the case of carpet on staircase. The carpet on a staircase is revenue expenditure in view of the fact that the carpet does not bring any capital asset into being. In this regard, our views are supported by the decision of the Madras High Court in the case of CIT vs. Indian Metal & Metallurgical Corpn. (1990) 182 ITR 460 (Mad) and Punjab & Haryana High Court in the case of S.P. Mohan Singh vs. ITO & Anr.
(1983) 141 ITR 440 (P&H). Similarly, the amount spent on fancy tiles for the purpose of business can also not be termed as capital expenditure in view of the decision of the Delhi High Court in the case of Instalment Supply Pvt. Ltd. vs. CIT (1984) 149 ITR 52 (Del) wherein it was held that the amount spent on redesigning, marble, flooring, better fitting and wood work in a tenanted premises even though capital in nature is revenue expenses.
9. The concept of revenue expenditure or capital expenditure has undergone a change. There may be cases where expenditure, even if incurred for obtaining an 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 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 assessees trading operations or enabling the management and conduct of the assessees 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. Thus, in the case of the assessee, the expenditure were incurred on rented premises and that too for the smooth running of the business. The concept of capital or revenue expenditure is also a fast changing concept. The issue of capital/revenue expenditure was examined by the Supreme Court in the case of Alembic Chemicals C. Ltd. vs. CIT (1989) 177 ITR 377 (SC). In the said decision, the Supreme Court, inter alia, had laid down as under : "(ii) In the infinite variety of situational diversities in which the concept of what is capital expenditure and what is revenue arises, it is well nigh impossible to formulate any general rule, even in the generality of cases, sufficiently accurate and reasonably comprehensive, to draw any clear line of demarcation. However, some broad and general tests have been suggested from time to time to ascertain on which side of the line the outlay in any particular case might reasonably be held to fall. These tests are generally efficacious and serve as useful servants; but as masters they tend to be over exacting.
(iii) The question in each case would necessarily be whether the tests relevant and significant in one set of circumstances are relevant and significant in the case on hand also. Judicial metaphors are narrowly to be watched, for, starting as devices to liberate thought, they end often by enslaving it." 10. Judged from the principles laid down by the Supreme Court in the aforesaid decision, we are of the view that the expenses in the case before us, are revenue in nature and hence the assumption of jurisdiction by the CIT was not justified. We, accordingly, set aside his order.