Hi,
As per my research on the subject, if major renovations are carried on on some hired premises, as per a Supreme Court ruling,:
"If a building is taken on lease and expenditure incurred on renovation of the same, Explanation 1 will apply and such expenditure can be capitalised for claiming depreciation."
The Bigjo’s case
In this case (Bigjo’s India Ltd vs CIT — 293 ITR 170 Delhi), Bigjo’s ran a departmental store in New Delhi on leasehold premises. The company, a mere licensee of the showroom, incurred expenditure towards renovation and shifting of the lift. Such expenditure was claimed by the company as revenue in nature. The idea in incurring such expenditure was to ensure maximum utilisation of existing floor area.
The Revenue argued that the incurring of huge expenditure, running to Rs 7 lakh in this case, resulted in long-term benefit and was neither repair nor maintenance expenditure. The Delhi High Court found that the licensee company was not authorised to make structural changes without the prior consent of the licensor. The expenditure, the court held, was capital in nature.
MY QUESTION however is..... What would be the rate of depreciation allowable:
Many popular approaches implemented in this issue are:
- Bifurcate the items of renovations i.e: "furniture, electrical fixtures & fitting, (civil work to be assumed as furniture)" and the depreciation be calculated OR
- the whole cost of renovation expenses are to written off over the primary period of lease say 5 yrs or 10 yrs.
But of course these are just approaches without any supporting sections..............
of course we need to have a formal approach to this issue
Could anyone please point out the correct section or the correct approach ?
CAclubindia
