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In Assistant Commissioner of Income-tax vs. Nirmal Warehousing Agency (77ITD1) the assessee-firm converted the leased premises held as a warehouse to a bank. New walls were erected after the demolition of the existing walls. New roof was put up and toilets etc. were furnished and even the existing columns were reinforced for support. Pursuant to such renovation the assessee received substantial gain in his rental income. From Rs. 18,000 annual rental income, the rent jacked up to Rs. 5,76,000 PA. This the assessing officer held that the renovation is in the nature of enduring benefit and thus declined deduction of expenditure of Rs. 7,85,866 as repairs.

The CIT (Appeals), however, allowed the contention of the assessee that the expenditure in question is of a revenue nature on the ground that the assessee-firm had only undertaken repair work and as it did not own the premises but only held them as lease, the expenditure was allowable as revenue expenditure.

The Mumbai Bench of the Tribunal in reversing the order of the Commissioner (A) found that the expenditure of Rs. 7,85,866 has been incurred to convert the premises to fit banking operations and that amounted to improvement in the nature of the premises. And because of this improvement in the nature of the premises, the assessee could get a substantial rental income of Rs. 5,76,000 per annum from Dena Bank while it could get only Rs. 18,000 per annum in the earlier years. The Bench held that such expenditure amounted to extensive repairs and hence capital in nature. The Bench however allowed depreciation benefit to the assessee on such expenditure as a consequential relief.

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