ITR

Thursday, December 10, 2009

INCOME TAX REPORTS (ITR) HIGHLIGHTS ISSUE DATED 14-12-2009 Volume 319 : Part 3

INCOME TAX REPORTS (ITR) HIGHLIGHTS

ISSUE DATED 14-12-2009

Volume 319 : Part 3

SUPREME COURT JUDGMENTS

F Valuation of goodwill : Value depends on nature of business : CED v. Nalini V. Saraf p. 303

F Claim to refund of income-tax pending adjudication on date of death : No property available at time of death : CED v. Nalini V. Saraf p. 303

F Deduction only on actual payment : Contribution to PF : Amendment to remove difficulty retrospective in nature : CIT v. Alom Extrusions Ltd. p. 306

F Interpretation of statutes : Strict construction not preferred where leads to unintended consequences : CIT v. Alom Extrusions Ltd. p. 306

F Government company : Object to do research, printing and publishing of text books for school students conforming to norms prescribed by Education Dept. of State : Is educational institution exempt from tax : Assam State Text book Production and Publication Corporation Ltd. v. CIT p. 317

HIGH COURT JUDGMENTS

F Incentive bonus to Divisional Officer of LIC is part of salary not entitled to deduction of expenses incurred to earn bonus : CIT v. Surendra Kumar Gupta (All) p. 253

F Finding that cash loans of Rs. 20,000 each taken from seven persons : S 269SS not applicable : CIT v. Madhukar B. Pawar (Bom) p. 255

F Delay in filing returns : Penalty waived : Interest should also be waived : Sandeep M. Shah v. V. D. Wakharkar (Bom) p. 259

F Failure to serve notice before passing order of rectification : Requirement of s 154(3) violated : Mintri Tea Co. P. Ltd. v. CIT (Cal) p. 264

F Disallowance of PF contribution cannot be made in proceedings u/s 154 by way of rectification of intimation u/s 143(1)(a) : Mintri Tea Co. P. Ltd. v. CIT (Cal) p. 264

F Cost of construction : Reference to VO : Tribunal justified in deleting addition made by AO on basis of valuation report : CIT v. Aar Pee Apartments P. Ltd. (Delhi) p. 276

F Reassessment : Tribunal finding facts had been disclosed and AO discovering subsequently that income had been assessed under wrong head : Notice not valid : Gujarat Fluorochemicals Ltd. v. Deputy CIT (Guj) p. 282

F Stock options not perquisites granted by assessee : Assessee not liable to tax deduction at source : CIT v. Wipro Ltd. (Karn) p. 289

F Dept. initiating proceedings u/s 132A : Criminal court has no power to release cash to complainant : Deputy Director I.T. (Investigation) v. State of Gujarat (Guj) p. 292

F Trade advances not given out of loan taken by assessee : Finding of fact : CIT v. Ms. Sushma Kapoor (Delhi) p. 299

F Borrowed funds utilised only for investments and such investments correlated with borrowed funds : Finding of fact : CIT v. Ms. Sushma Kapoor (Delhi) p. 299

F Assessee entitled to depreciation in respect of two flats having half share in both flats : CIT v. Ms. Sushma Kapoor (Delhi) p. 299

F Right to receive additional compensation : Tribunal setting aside Commissioner (Appeals) order : Tribunal's order attaining finality : AO making fresh assessment : Tribunal justified in dismissing Revenue's appeal as infructuous : CWT v. Smt. Chandan (All) p. 327

F Search and seizure : Income declared in revised return : Assessee entitled to retract from revised returns : CIT v. K. Venkatesh Dutt (Karn) p. 331

F Machinery on which additional depreciation claimed need not be related to article or thing produced : CIT v. VTM Ltd. (Mad) p. 336

AUTHORITY FOR ADVANCE RULINGS

F Non-resident entering into an agreement with Indian company non-exclusive irrevocable right to use know-how and transfer ownership in tread and sidewall design/patterns : Tax to be deducted at source at ten per cent. for amount excluding consideration for transfer of tread and sidewall design/patterns : International Tire Engineering Resources LLC, In re p. 228

F Royalty : Licence of know-how and technical information covering provision of contract services and assistance for marketing to Indian subsidiary : Rate of tax in India ten per cent. : Sumitomo Mitsui Construction Co. Ltd., In re p. 322

APPELLATE TRIBUNAL ORDERS

F Company : Book profit : AO directed to verify whether assessee complies with conditions specified in Expln. (iii) to sub-s (2) of s 115JB : Beck India Ltd. v. Deputy CIT (Mumbai) p. 253

F Addition based on values obtained from Sub-Registrar's office in preference to valuer's report : Acceptance of addition not amounting to furnishing of inaccurate particulars for levying penalty : Asst. CIT v. Mrs. N. Meenakshi (Chennai) p. 262

F Capital gains : No reference to valuation cell made : Asst. CIT v. Mrs. N. Meenakshi (Chennai) p. 262

F Non-resident companies providing transponder capacity to telecasting companies in India : Consideration paid amounts to royalty : Assessable u/s 9 and also under DTAA : New Skies Satellites N. V. v. Asst. Director of I. T. (International Taxation) (Delhi) [SB] p. 269

STATUTES

F Notifications :

Institutions approved by the Chief CIT, Jaipur/Udaipur/Jodhpur for the purpose of section 10(23C)(iv)/(vi)/(via) p. 62

Scientific research association notified by the Central Government for purpose of s 35(1)(ii) p. 57

JOURNAL

F Remuneration to working partner : Treatment under I. T. Act (Kanhayalal Sharma, Advocate and Tax consultant) p. 39

F Revaluation of assets of a firm and its taxability (Dileep Shivpuri, Commissioner of Income-tax) p. 29

NEWS-BRIEF

F Self-assessed tax defaulters face action as CBDT keen to meet targets

The Government has decided to crackdown on corporates and individuals that have defaulted on payment of their self-assessment in the year in a bid to boost direct tax collections that are well below the target for the year.

Direct tax collections need to grow at 18 per cent. over the remaining five months of the fiscal 2009-10 ending March 2010 for the Government to achieve its direct tax target for the year.

The Central Board of Direct Taxes-the apex direct tax body that administers corporate tax, personal income-tax and wealth tax-has asked its field officials to crack down on companies that have not paid self-assessed tax for the year.

Corporate taxpayers could not only receive demand notices but also a visit from the taxman itself as the I-T Department gears up for increased surveys and searches to nab evaders and boost tax collections. Self assessment tax is the amount payable by the taxpayer if his tax liability as assessed by him is more than the advance tax paid by him.

The board has circulated a detailed list of taxpayers, the amount of tax due from them, tax exemption claimed for the field officers to carry out detailed investigations and collect due tax. E-filing of tax returns is mandatory for all corporates and assessees who have to be submitting audited results. Any delay in self assessment tax attracts a 1 per cent. a month interest levy for the delay and some penalty. The board's letter to the field comes in the backdrop of a dismal 3.92 per cent. growth in direct tax collections in first seven months (April-October 2009) of the financial year. [Source : www.economictimes.com dated November 30, 2009]

F Officers hearing transfer pricing cases kept out of dispute panel

To ensure impartiality in adjudication of transfer pricing disputes, the Central Board of Direct Taxes (CBDT) has decided that Commissioners associated with transfer pricing orders will not be part of the alternate dispute resolution panel. This panel is being set up by CBDT to resolve disputes arising from transfer pricing assessments.

Dispelling the apprehensions among senior tax professionals that the committee will be comprised predominantly senior officers who have powers to approve the transfer pricing assessments, CBDT chairman told that those Commissioners associated with transfer pricing assessments will be kept out of the panel.

The Union Budget had said that a collegium of Commissioners would be established for resolving tax disputes between India's tax authorities and multinational companies. The panel's decision is binding on the Income-tax Department that is not allowed to appeal against the order before the Income-tax Appellate Tribunal. However, the taxpayer is free to do so. The panel has the power to call for fresh evidence. [Source : www.economictimes.com dated November 30, 2009]

F Raise tax exemption limit on personal income : clamour ASSOCHAM

Industry body ASSOCHAM asked the Government to raise the tax exemption limit on personal income from Rs. 1.6 lakhs per annum to Rs. 4 lakhs per annum and for senior citizens up to Rs. 5 lakhs per annum.

"With favourable consideration of this proposal, taxpayers in low and middle income group, who could end up paying more tax than now, on account of removal of various exemptions and deductions under DTC, can benefit from raise in threshold limit as tax savings on account of increase in it could offset impact of removal of exemptions and deductions," the ASSOCHAM President said.

Meanwhile, the industry body has also urged the Government to bring in standard deduction of 50 per cent. of the salary or Rs. 2,40,000, whichever is less to balance out additional tax burden, which employees would be facing due to removal of various exemption. [Source : www.economictimes.com dated November 30, 2009]

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Wednesday, December 9, 2009

New Income Tax Rate slabs for Individual, HUF, Women, Senior Citizen for A.Y. 2010-11 & F.Y. 2009-2010

Basic exemption for individual tax payers was increased by Rs 10,000 for general tax payers and women and Rs 15,000 for senior citizens (i.e. 65 years and above) by the finance minister on Monday.

The current income tax exemption limit is Rs 1.5 lakh (Rs 150,000) for men, Rs 1.8 lakh (Rs 180,000) for women and Rs 2.25 lakh (Rs 225,000) for senior citizens.

Surcharge and Education Cess—

Levy of surcharge has been withdrawn for personal income tax payers . Earlier surcharge was levied at 10% having total income exceeding Rs. 10,00,000/- on such cases.

"Education Cess on Income-tax" and "Secondary and Higher Education Cess on income-tax" shall continue to be levied at the rate of two per cent and one per cent respectively of income-tax.

Income tax slab tables for your quick reference

India Income tax slabs 2009-2010 for Men

Income tax slab (in Rs.)	Tax
0 to 1,60,000	No tax
1,60,001 to 3,00,000	10%
3,00,001 to 5,00,000	20%
Above 5,00,000	30%

India Income tax slabs 2009-2010 for women

Income tax slab(in Rs.)	Tax
0 to 1,90,000	No tax
1,90,001 to 3,00,000	10%
3,00,001 to 5,00,000	20%
Above 5,00,000	30%

India Income tax slabs 2009-2010 for Senior citizen

Income tax slab(in Rs.)	Tax
0 to 2,40,000	No tax
2,40,001 to 3,00,000	10%
3,00,001 to 5,00,000	20%
Above 5,00,000	30%

The rates for persons not resident in India, including companies other than domestic companies,are the same. Basically, for corporate there are no tax rate changes and hence is at statuesque.

Tuesday, December 8, 2009

Interest on central excise duty refund is taxable under the Income Tax Provisions

Income-tax Appellate Tribunal (ITAT), Amritsar, stated that companies with operations in the north-east, Jammu & Kashmir and Himachal Pradesh, will be legally responsible to pay tax on Central excise duty refunds. Companies, such as Balaji Alloys, Raven Bhel and Pee Ell Alloys, moved the income tax appellate tribunal (ITAT) against an income-tax department notice that required them to give the tax.
However, the ITAT dismissed their appeal late last month. Other companies in anticipation of an ITAT decision on the issue include Sun Pharma, Kashmir Udyog and Avita Mobile Industries.

Central excise duty refunds are part of a government package with an aim to promote industrial development in J & K, northeast states and Himachal Pradesh. Under this scheme, central excise duty which is paid by the companies is refunded to them.

These companies in the region are exempted from income-tax too. Section 80 IB of the Income-tax Act provides for exemptions from taxation on profits derived from industrial activity in rearward areas. In Jammu & Kashmir, Section 80 IB will be functional till 2012.

In other areas, 100 % exemption is granted for five years after the establishment of an industry and only 25% of the profit derived from industrial profit is taxed for the next five years.

The tribunal, according to an order on November 26, accepted the statement of the I-T department that central excise duty refund is liable to be taxed, even though the company’s profit is exempt from taxation under 80 IB.

The department distinguished between excise refund and profit generated through industrial activities in these areas. It was pointed out thatCentral excise refund cannot be interpreted as profit derived from industrial activity.

The refunds are rather a benefit derived from a government scheme and distinct from profit derived from industrial activity. Therefore, refunds are not entitled for deductions under Section 80 IB of the Income-tax Act.

WEALTH TAX AT A GLANCE

WEALTH TAX AT A GLANCE

Wealth Tax Act came into force on 1^st April 1957. It is applicable to the whole of India. Under this Act tax is charged at the rate of 1% on the amount by which the net wealth of the assessee exceeds rupees fifteen lakhs on the valuation date. Only an Individual, Hndu Undivided Family and a Company are chargeable to wealth tax.As per section 45 of the Act, the following assessees are specifically excluded from the levy of wealth tax -

a) any company registered under section 25 of the Indian Companies Act,1956;

b) any cooperative society;

c) any social club;

d) any political party;

e) a mutual fund specified under section 10(23D) of the Income Tax Act.

Net wealth of the assessee as on valuation date is chargeable to wealth tax. Valuation date is 31^st March of the relevant previous year. The expressions 'assessment year' and 'previous year' would have the same meaning as specified in Income Tax Act. Where there is a change of ownership on the valuation date i.e. 31^st March, it is the net wealth at the last moment of that day and not the first moment or during the day which shall be the subject of assessment under Wealth Tax Act. This is because the valuation date is a continuous period starting at the first moment and ending at the last moment of a certain day and therefore net wealth shall be taken at the last moment of the valuation date.

Chargeability of Wealth Tax

Incidence of tax in the case of an individual depends upon his residential status and nationality. Whereas in the case of a Hindu Undivided Family and company it depends upon the residential status. Residential status of an assessee is to be judged by the same principles as laid down in section 6 of the Income Tax Act.

In case of an individual who is a citizen of India and his residential status is resident and ordinary resident, the net wealth taxable under the Wealth Tax Act would include the aggregate values of all assets located inside and outside India including deemed assets but excluding exempted assets and deducted by the aggregate value of all debts owed by him on the valuation date which have been incurred in relation to the assets. Similarly in the case of a Hindu Undivided Family which is a resident and ordinary resident or a company which is a resident in India, the net wealth chargeable to wealth tax would include the aggregate value of all assets located inside and outside India including deemed assets but excluding the exempted assets and deducted by the aggregate value of all debts owed by him on the valuation date which have been incurred in relation to the assets.

But in case of an individual Indian citizen whose residential status is either resident but not ordinary resident or non resident, the net wealth taxable under the Wealth Tax Act would only the value of all assets located in India including deemed assets but excluding exempted assets deducted by the aggregate values of all the debts owed by it on the valuation date which have been incurred in relation to the assets. Net of assets/ liabilities located outside India are tax free.

Finally, in the case of a Hindu Undivided Family or a company which are non residents, net wealth chargeable to tax under Wealth Tax Act would include the value of all assets located in India including deemed assets but excluding exempted assets and deducted by the aggregate value of all debts owed by it on the valuation date which have been incurred in relation to the assets. They are not assessed in respect of assets locate outside India.

Here it has to be specifically noted that the debts owed by the assessee on the valuation date is deductible only if such debts had been incurred in relation to those assets which are included in the net wealth of the assessee.

Assets

The expression assets have been defined in section 2(ea) of the Wealth Tax Act. Only those assets within the scope of section 2(ea) are chargeable to wealth tax. They are mentioned below:

1. any guest house and any residential house or commercial house including a farm house situated within 25 kilometres from the local limits of a municipality

(Whether known as a municipality, a municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board, but does not include –

a) a house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole time employment, having a gross annual salary of less than five lakh rupees.

b) any house for residential purposes or commercial house which forms part of stock in trade.

c) any house occupied by the assessee for the purpose of his business or profession

d) any residential property let out for a period of 300 days in a previous year

e) any property in the nature of commercial establishments.

2. motor cars ,other than those used by the assessee in the business of running them on hire or as stock in trade.

3. jewellery, bullion and furniture, utensils or any other article made wholly or partly of gold, silver or any other precious metals or an alloy containing one or more of such precious metals.

4. yatchs, boats and aircrafts, other than those used by the assessee for commercial purpose

5. cash in hand in excess of rupees fifty thousand.

Deemed assets include those assets that are not owned by the asssessee on the valuation date but he was a prior owner to the asset and continues to derive benefits from it. By virtue of section 4 of the Wealth Tax Act, the following are deemed to be assets of the assessee

a) assets transferred by the assessee to his/her spouse otherwise than for adequate consideration.

b) assets transferred under revocable transfers.

c) assets transferred to son's wife otherwise than for adequate consideration

d) interest of partner in a partnership firm.

e) Where a gift of money from one person to another person is made by means of entries in the books of accounts maintained by the persons making the gift, the value of such gift shall be liable to be included in computing the net wealth of persons making the gift unless he proves to the assessing officer that money of such gift has actually been delivered.

f) The holder of an impartiable estate shall be deemed to be the individual owner of all the properties comprised in the estate.

g) Property held by a person in part performance of a contract.

Exempted Assets

Exempted assets are those assets that are not to be included in the net wealth of the assessee and on which he is not required to pay any wealth tax. Exempted assets are enumerated in section 5 of the Wealth Tax Act and they are mentioned below:

Any property used by an assessee under a trust or other legal obligation or for any public purpose of charitable or religious nature in India is totally exempt from tax. However this rule is subject to certain special provisions. The following business assets held by an assessee under a trust for any public or charitable religious trust are exempt from tax –

a) where the business is carried on by a trust wholly for public religious purposes and the business consists of printing and publications of books or the business is of a kind notified by the central government on this behalf in the official gazette.

b) the business is carried on by an institution wholly for charitable purpose and the work in connection with the business is mainly carried on by the beneficiaries of the institution.

c) the business is carried on by an institution, fund or a trust referred to in clause 23B or 23C of section 10 of the Income Tax Act.

Any other business assets of a public charitable or religious trust are not exempt. Similarly where any property is held under a trust for any public purpose of a charitable or religious nature in India, tax shall be leviable upon and recoverable from the trustee or manager of the trust in respect of the property held by him if the trust forfeits exemption by reason of any of the following factors mainly –

(i) any part of the trust's property or any income of the trust, including income by way of voluntary contributions, is used or applied directly or indirectly for the purpose of any person referred to in section 13(3) of the Income Tax Act e.g. the settler, the trustee, their relatives etc. ; or

(ii) any funds of the trusts are invested or deposited or any shares in a company are held by the trusr in contravention of the investment pattern for trust funds laid down in the section 11(5) of the Income Tax Act.

The interest oh the assessee in the coparcenary property of the Hindu Undivided Family of which he is a member.
Any one building in the occupation of a ruler, being a building which immediately before the commencement of Constitution(26^th Amendment) Act 1971 was his official residence by virtue of a declaration by the central government.
Jewellery in possession of a former ruler of a princely state, not being his personal property which has been recognised as his heirloom by the central government before 1^st April 1957 or by the board after that date, is totally exempt from tax subject to the fulfilment of the following conditions-

a) the jewellery shall be permanently kept in India and shall not be removed outside India except for a purpose and period approved by the board.

b) that reasonable step are taken for keeping the jewellery substantially in its original shape.

c) that reasonable facilities shall be allowed to any office of the government, authorised by the board in this behalf to examine the jewellery a and when necessary.

Exemption is available in the case of an assessee who is a person of Indian origin or a citizen of India who was ordinarily residing in a foreign country and on leaving such country, such person has returned to India with the intention of permanently residing in India. Exemption is available to him for seven successive assessment years for

a) Money brought by him to India

b) Value of assets brought by him to India

c) Money standing to the credit of such person in a Non Resident External account in any bank in India on the date of his return to India.

d) The value of assets acquired by him out of money brought by him to India or out of money in NRE A/c within 1 year prior to the date of his return and at any time thereafter.

Due date of filing Return of Wealth is 30^th September. Under Section 17B assessees are liable to pay interest along with the tax amount. Interest is charged at the rate of 1 % per month from the due date till the date of filing.

As mentioned earlier wealth tax is charged at the flat rate of 1% on the net wealth exceeding rupees fifteen lakhs. As per section 44C net wealth is rounded off to the nearest multiple of one hundred and as per section 44D wealth tax is rounded off to the nearest rupee.

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here is a list of some important provisions and their effective dates.

INCOME TAX
Sl. No.	With effect from	Subject
1.	01.04.2011	Amendment to Section 44AA – Maintenance of Accounts
2.	01.04.2011	Amendment to Section 44AB – Audit of Accounts
3.	01.04.2011	Section 44AD Substituted – Presumptive Income
4.	01.04.2011	Amendment to Section 44AE – Income from goods Transport.
5.	01.10.2009	Amendment to Section 50C – Value of Capital asset transferred
6.	01.10.2009	Amendment to Section 56 – Transactions without consideration of more than Rs. 50,000/-
7.	01.04.2003	Amendment to Section 80A – Deductions
8.	01.10.2009	Amendment to Section 80G – Charitable Institutions
9.	01.04.2008	Amendment to Section 80IA – Power Generation
10.	01.04.2000	Section 80IB – Tax Holiday
11.	01.10.2009	Section 90 Substituted – DTAA –
12.	01.10.2009	Amendment to Section 92C – Transfer Pricing – Arm's Length Price
13.	01.04.1998	Amendment to Section 115JA – Deemed Income
14.	01.04.2001	Amendment to Section 115JB
15.	01.10.2009	Amendment to Section 131 – Discovery, Inspection etc – "Dispute Resolution Panel" included
16.	01.06.1994	Amendment to Section 132 – Search and Seizure – Additional Commissioner Empowered
17.	01.10.2009	Amendment to Section 139A – PAN – "Quarterly" removed
18.	01.04.1989	Amendment to Section 147 – Reassessment – Scope enhanced
19.	01.10.2009	Section 194C Substituted – TDS – Payment to Contractors
20.	01.10.2009	Amendment to Section 194I – TDS – Rent
21.	01.10.2009	Amendment to Section 200 – Quarterly Returns gone – Periodicity to be prescribed
22.	01.10.2009	Amendment to Section 201 – TDS failure
23.	01.10.2009	Amendment to Section 203A – Quarterly Statement is no more quarterly
24.	01.10.2009	Amendment to Section 206A & 206C – Quarterly to unspecified period
25.	01.10.2009	Amendment to Section 246A – Dispute Resolution Panel
26.	01.10.2009	Amendment to Section 253 – Appeal to ITAT – Dispute Resolution Panel
27.	01.06.2007	Amendment to Section 271 – Concealment of Income
28.	01.04.1988	Amendment to Section 271B – Provisional Attachment
29.	01.10.2009	Substitution of Section 282 – Service of Notice – Courier and Email recognized
30.	01.10.2010	New Section 282B – Allotment of Document Identification Number
31.	01.10.2009	New Section 293C – Power to Withdraw approval

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Monday, December 7, 2009

ITAT (DEL) : Allowability of expenditure on modification and renovation of a building before commencement of business

Allowability of expenditure on modification and renovation of a building before commencement of business

Expenditure incurred on modification and renovation of a building before commencement of business is neither allowable under section 30(a)(ii) nor section 37.

ITAT, DELHI BENCH 'G', DELHI

Punj Hospitality Pvt. Ltd.
v.
ITO

ITA NO. 3425(Del) of 2009

OCTOBER 23, 2009

RELEVANT EXTRACTS :

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6. We have heard both the parties and gone through the material available on record. The assessee company was incorporated on 5th October. 2005 with the object to carry on business of restaurant and hotels etc. The company entered into agreement on 10th October. 2005 with M/s. Aggarwal Motels P. Ltd. [AHPLJ for a period of 18 months to manage and operate their AHPL business of hotel and bar which they were carrying on for the several years under the name and style as "Tavern on the Greens". The assessee also entered into supplementary agreement for the purpose of management and operation of the existing restaurant and bar with certain modifications and renovations for a period of 18 months by investing a sum of Rs.50.00,000/- to be subscribed by the assessee company from its own resources to provide a new look to the existing set up of therestaurant and bar of AHPL and to run the said business in conducive manner, but under the new name and style as "Climax Tavern on the Greens". In terms of these two agreements the revenue from the said business is to be shared between the parties. Therefore, according to assessee the expenditure had been incurred as business expenditure. There no dispute that expenditure has been incurred on repairs and renovation of the hotel building by the assessee under the terms of the "supplementary agreement". Under section 30(a)(ii) of IT Act. 1961 in respect repairs of a premises, used for the purposes of the business or profession, the amount paid by him on account of current repairs to the premises shall be allowed as deduction. The Explanation to section 30 clarifies that the amount paid on account of current repairs referred to in subclause (ii) of clause (a) of section 30 shall not include any expenditure in the nature of capital expenditure. The provisions of section 30 will be pressed into operations only when the premises are used for the purposes of business or profession. In the instant case the assessee company was incorporated on 5lh Oct. 2005 entered into agreements on 10.10.2005 forthe purpose of management and operation of the existing restaurant and bar of AHPL. Certain modifications and renovations to the restaurant and bar building were to be carried out by investing a sum of Rs.50.00.000/- to be subscribed by the assessee from its own funds. Hence the assessee as a matter of fact contributed capital of Rs 50,00,000/- in order to participate in the profit of joint venture. Thus the assessee had incurred the expenditure on modifications and renovations before start of the business of management of hotel and restaurant. It is a different matter that the said contribution was utilised tor the purposes of modifications and renovation of the building so as to make it conducive to the business requirements of running restaurant and bar from clause 5 of the agreement dated IOth October, 2000. We find that the assessee was to complete the renovation and decoration within 30 days from the date of receipt of the possession of the building. Further grace period of 15 days was allowed in case due to any reason therenovation could not be completed within the stipulated period of 30 days. From these facts it is clear that the business of management and operation ot the restaurant and bar commenced after the renovation of the building was over. Hence the contribution made by the assessee is a capital investment brought into the business of joint venture, which was spent by the assessee on modifications and renovations of the building, as per the agreements entered into between the parties before actual commencement of business activities of management and operation of the restaurant.

7. Now we will examine whether expenditure incurred will be allowable as current repairs u/s 30(a)(ii) of the Act. The expression used in section 30(a)(ii) and in section 31(i) of the Income-tax Act, 1961 is 'current repairs' and not mere 'repairs'. It has been held by Hon'ble Bombay High Court in New Shorrock Spg. & Mfg. Co. Ltd. v. CIT [1956] 30 ITR 338 that the expression 'current repairs' means expenditure on buildings, machinery, plant or furniture which is not forthe purpose of renewal or restoration but which is not lor the purpose of preserving or maintaining an already existing asset and which does not bring a new asset into existence or does not give to the assessee a new or different advantage They are such repairs as are attended to as and when need arises and that the question when a building, machinery, etc. requires repairs and when the need arises must be decided not by any academic or theoretical test but by the test of commercial expediency. The test evolved in New Shorrock Spg. & Mfg. Co. Ltd/s case (supra) is the most appropriate one having regard to the context in which the said expression occurs. Hon'ble Supreme Court in Ballinml Naval Kishore v. CIT [1997] 224 ITR 414 (SC) applied the test evolved in New Shorrock Spg & Mfg. Co, Ltd.*s case (supra) by holding as under:

"In our opinion the test involved by Chagh C.J., in New Shorrock Spinning *" Manufacturing Co. Ltd 's case [1956}30 ITR 338 (Bom) is the most appropriate Q*e having regard to the context in whidtijkhe said expression occurs. It has also been followed by a majority of the High Courts in India. We respect fully accept and adopt the test.

Applying the aforesaid test, if we look at die facts of this case, it will he evident thai what the assessee did was not mere repairs hut a totalrenovation of the theatre. New machinery, new furniture, new sanitary fittings and new electrical wiring were installed besides extensively repairing the structure oj the budding. By no stretch of imagination, can it be said that the said repairs qualify as "current repairs" within the meaning of section l()(2)(v). It was a case of totalrenovation and has rightly been held by the High Court to he capital in nature. Indeed, the finding of the High Court is that as against the sum of Rs. I ~MOO for which the assessee had purchased the factory in 193?. the expenditure incurred in the relevant accounting year was in the region of Rs. I,20.000."

From the judicial pronouncements referred to above it is clear that expenditure which is not for the purpose of renewal or restoration and which does not bring a new asset into existence or does not give to the assessee a new or different advantage will be allowable as deduction. . Therefore the expenditure onmodifications and renovations of the building cannot be allowed as current repairs u/s 30(a)(ii) of IT Act, 1961.

8. In the case before us the facts of the case are some what different. In this case as discussed above the assessee renovated and modified the building, the bar room, VIP area etc. to suitthe business requirement of joint venture for which the assessee was to incur expenditure from its sources and not from the funds of the joint venture . Therefore the expenditure incurred by the assessee was capital expenditure in its own hands. The expenditure was incurred before actualcommencement of business activities. The things would have been different had the expenditure been incurred by AHPL during the course normal business activities and assessee had shared the profits from operation of business ofrestaurant and bar . At the best in view of provisions of Explanation to section 32(1) of the Act any capital expenditure incurred on construction or onrenovation or extension of. or improvement to the building in respect of which the assessee holds a lease or other right of occupancy for the purposes ofthe business or profession the assessee will be entitled to deduction u/s 32 of the Act, as if the said structure or work is a building owned by the assessee. Therefore the entire expenditure will constitute capital expenditure in the hands of assessee.

9. It has also been contended that the assessee had not taken the premises on lease and the expenditure was incurred on joint venture formed by the assessee with the owner with an intention to run the business of restaurant and bar and share the profit of joint venture and hence the expenditure was incurred wholly and exclusively for the purposes of business. This contention of the assessee in our view is also not correct. There is no dispute that actual operation of restaurant and bar took place after modification and renovation of the building to suit the business requirements was over. Hence the expenditure was not incurred during the course of actual operations of business activities. Hon'ble Madras High court in the case of A.Y.S. Paisutha Nadar v. CIT [1962] 46 ITR 1041 (Mad.) had held that section 10(2)(xv) of the Indian income-tax Act, 1922 [section 30(a)(ii) of 1961 Act.] relating to expenditure laid out or expended wholly and exclusively for the purpose of the assessee's business, clearly indicated that the expenditure should relate to a business which is already in existence and not one that is to come into existence in the future. Hence the expenditure incurred on modifications and renovations of the building cannot be treated to have been incurred during the course of business wholly and exclusively for the purposes of business and cannot be allowed as deduction u/s 37 of the Act.

10. From above discussion it is clear that expenditure incurred on modification and renovation is neither allowable under section 30(a)(ii) or section 37 of the Act. The assessing officer had rightly treated the expenditure capital in nature and had allowed the deduction under section 32( 1) of the Act. We accordingly uphold the order of CIT(A).

ITR

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