By C. N. Vaze, Shailesh Kamdar, Jagdish T. Punjabi, Bhadresh Doshi Chartered Accountants
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Section 37 – Where the professional and residential set up of an assessee are in the same apartment, that portion of cost of lift installed by the assessee, in the premises of the society, which can be considered to be for professional purposes can be claimed as revenue expenditure.
Facts:
The assessee, a lyricist and well known film personality, operated his profession from the premises on 6th and 7th floor of Juhu Sagar Samrat Co-op. Housing Society Ltd. The building of the society was an old seven storied building having one lift. Since the lift used to get out of order very frequently, it caused substantial hardship to the persons visitng the assessee for professional purposes. Since the society was reluctant to spend money to replace the lift, the assessee spent a sum of Rs. 17,32,436 for installation of a new lift. This sum was debited to P & L Account as Society Development Expenditure and was claimed as a deduction.
The Assessing Officer (AO) disallowed the claim on the ground that lift was an essential part of the building and therefore, the expenditure was capital in nature. However, since the ownership thereof did not belong to the assessee, he denied even depreciation thereon.
Aggrieved, the assessee preferred an appeal to CIT(A) who held that 50% of expenditure claimed by the assessee be capitalised and depreciation thereon be allowed.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
The Tribunal noted that the building in question was consisting of 7 floors and 14 flats out of which the assessee was owner of two flats. From one flat the assessee was doing his professional work and the other flat was used for residential purposes.
The advantage and facility of the new lift is not restricted exclusively for the professional activity of the assessee but it was also enjoyed by assessee as well as family members of the assessee other than the professional purpose. The usage of the lift by the other members of the society was not considered to be relevant for the purpose of allowablity of deduction. The assessee had incurred the expenditure keeping in view its professional and family requirements. For allowing the expenditure u/s. 37 of the Income Tax Act, the mandatory condition is that the expenditure has to be laid out wholly and exclusively for the purpose of business or profession of the assessee. However it should not be on the capital field. Since the assessee did not acquire any advantage in the capital account or any new asset for its professional purpose and the lift in question is not an apparatus of generating the professional income, therefore, the Tribunal held that it cannot be considered as an expenditure of capital nature as it does not create any new asset belonging to the assessee. It agreed with the view of the CIT(A) to the extent that 50% of the expenditure to be considered for professional purpose. Therefore, 50% of the total expenditure which was considered to be for professional purposes and was held to be allowable as revenue expenditure.
The Tribunal partly allowed the appeal filed by the assessee.
