Section 32 read with section 30 will apply here which says that if the assessee is enjoying enduring benefits out of expenditure incurred or it is adding value to the asset, it will be treated as capital in nature. The case discussed here is between the Commissioner of Income Tax vs. Viswams.
A building having RC structure up to the third floor was taken on lease by the assessee. He incurred expenditure on further construction of two additional levels. He also made some improvements in the interior of the Building. He added both these expenditures under the head repair and maintenance. The joint commissioner was of the view that since the assessee did not own the asset, expenditure incurred will be treated as revenue. However, the case was presented to commissioner appeals, who applied section 32 in this case. It says that since he has incurred expenditure on the leased Building, he has become the deemed owner of that Building. The critical point now that needs attention is the nature of investment rather than ownership of the Building. The case was further appealed to Tribunal, and he gave a reverse decision. The decision of the commissioner appeals was reversed by Tribunal, and he held his expenditure of revenue nature. The request was further made to the high court. He studied the facts again in details and gave conclusions that it is confirmed that assessee is not the owner of the Building, and he has incurred expenditure on further construction up to 5 floors. Such investment leads to enduring benefit that further makes its nature as capital. The spending on the improvement of interiors is also of capital nature, not merely repairs. There is no question of bifurcating expenditures into capital and revenue. The high court finalized that the cost is of capital nature.