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In the case of Jainsons SS vs. Assistant Commissioner of Income-tax (76ITD51) the assessee had taken certain premises on rent and carried out extensive renovation work, which went on for more than 2 years. Now in order to get a deduction of rent paid u/s 30 there must be effective user of the premises in commercial sense and the user must be so linked with the business that it can be said that there is an immediate nexus between the user and the business of the assessee. The Delhi Bench held that the deduction would not be admissible u/s 30.It further explained that section 30 operates in a limited field where the premises are used for the purposes of business or profession and in that case deduction for rent, local rates or municipal taxes etc. can be granted. It would not cover a case where the premises are not used for the purposes of business but are incidental to the carrying on of the business. In that situation, the expenditure on that count would not be of the nature described in Section 30.

In this case the assessee took an alternative plea that the premises were taken for expansion/further development of the existing business and not for setting up of a new business where it owned different outlets in parts of the city and therefore the deduction should be permissible under the residuary section 37(1).

A similar such claim was allowed by the Gujarat High Court in the case of Commissioner of Income-tax Vs. Tolat (R.) and Co. (126ITR551) where the sole purpose of taking a premises on land was ultimately to have larger office premises where the business could be carried on in a better manner and more efficiently. On the other hand in the similar set of facts in the case of Noshirwan and Co. Pvt. Ltd. Vs. Commissioner of Income-tax (77ITR822) the claim of the assessee was declined by the MP High Court.

The Bench acknowledged the controversy on this issue but inclined in favour of the assessee. In so holding the Bench also took support from the Delhi High Court ruling in CIT v. Rama Krishna Steel Rolling Mills [1974] 95 ITR 97 (Delhi). In this case the Division Bench of the Delhi High Court took the view that expenditure incurred for effecting the repairs which are necessary for carrying on the assessee’s business but in respect of which no liability is incurred by the assessee under the lease deed, though does not come within the scope of s. 10(2)(ii) of the Indian I.T. Act, 1922 ( corresponding to section 30 of 1961 Act) , but such a claim can be allowed under the general cl. (xv) of s. 10(2) ( corresponding to section 37 of 1961 Act). That was a case in which repairs were carried out to the roof of the premises, which became necessary for protecting its machinery from rain and wind and the expenses were allowed as properly deductible under s. 10(2)(xv) of the Indian I.T. Act, 1922.

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