Allowable expenses incurred under the heads rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession of an assessee

Section 30 deals with allowable expenses incurred under the heads rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession of an assessee. Almost similar kind of expenses were allowable under the 1922 Act also. But under both the Acts factum of building being used for the business or expenses incurred under various heads during the year under consideration has to be proved by the assessee.

Text of Section 30

RENT, RATES, TAXES, REPAIRS AND INSURANCE FOR BUILDINGS.

30. In respect of rent, rates, taxes, repairs and insurance for premises, used for the purposes of the business or profession, the following deductions shall be allowed—

 (a) where the premises are occupied by the assessee—

  (i) as a tenant, the rent paid for such premises ; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs ;

 (ii) otherwise than as a tenant, the amount paid by him on account of current repairs to the premises ;

 (b) any sums paid on account of land revenue, local rates or municipal taxes ;

 (c) the amount of any premium paid in respect of insurance against risk of damage or destruction of the premises.

Explanation.—For the removal of doubts, it is hereby declared that the amount paid on account of the cost of repairs referred to in sub-clause (i), and the amount paid on account of current repairs referred to in sub-clause (ii), of clause (a), shall not include any expenditure in the nature of capital expenditure.

 Section 30 covers the following expenses of Building :

(i)	Rent	Allowed to tenant/ Landlord
(ii)	Current repair of Building	If they are in nature of capital expenditure, then not allowed as deduction. Instead Depreciation is allowed under section 32. For example : New floor construction
(iii)	Taxes of Building	Like Municipal Taxes/ House Tax. They should be actually paid before return filing date. If not paid till then, then not allowed as deduction.

These may be paid by landlord or tenant. Deduction allowed to person who pays it.

Nature of expenditure

Rent, rates, taxes, repairs (excluding capital expenditure) and insurance for premises.

Eligible Assessee

All assessee

Quantum of deduction

Actual expenditure incurred excluding capital expenditure

Section  30 : Condition

For getting deduction the assessee has to satisfy the condition that the premises for which the expenditure was incurred in respect of rent, local rates, taxes, repairs and insurance premium, ought to have been used for the purpose of business or profession.

If this condition is satisfied, than deduction in respect of rent paid for such premises including the cost of repairs or any sum paid on account of land revenue, local rates or municipal taxes and the amount paid in respect of insurance against risk of damage or destruction of the premises can be allowed. - [Khimji Visram of Sons (Gujrat) Pvt. Ltd. v. CIT (1994) 209 ITR 993 (Guj)]

Premises used partly for business and partly for other purposes

Where the premises are used partly for business and partly for other purposes, only a proportionate part of the expenses attributable to that part of the premises used for purposes of business will be allowed as a deduction.

Premises sub - let

Where the assessee has sublet a part of the premises, the allowance under the section would be confined to the difference between the rent paid by the assessee and the rent recovered from the

sub-tenant.

Occupation of premises by the assessee being the owner

Where the assessee himself is owner of the premises and occupies them for his business purposes, no notional rent would be allowed under this section. However, where a firm runs its business in the premises owned by one of its partners, the rent payable to the partner will be an allowable deduction to the extent it is reasonable and is not excessive.

Rent

Rent is allowable as deduction under section 30. What is allowable is rent paid or payable for the period during which the premises are used for the purposes of business.

Where the premises are occupied by the assessee in his capacity as tenant, the rent paid for such premises would also be deductible.

Repairs of the premises

Apart from rent, this section allows deductions in respect of expenses incurred on account of repairs to building in case where

(i)     the assessee is the owner of the building or

(ii)    the assessee is a tenant who has undertaken to bear the cost of repairs to the premises.

(iii)  Even if the assessee occupies the premises otherwise than as a tenant or owner, i.e., as a lessee, licensee or mortgagee with possession, he is entitled to a deduction under the section in respect of current repairs to the premises.

The word repairs means to preserve and maintain an asset. But all repairs cannot be treated as current repairs. Secondly, the expression current repairs does not mean and include repairs which result in acquisition of a new asset or obtain a new advantage. Courts have held that current repairs are necessary repairs which are needed for the maintenance of building and machinery, etc., that they are not luxury repairs, the element of need being implicit in the expression, that whether a particular repair carried out was an essential repair or not should be judged from the viewpoint of commercial expediency and not by academic or theoretical standards, that primarily, it is for the businessman to decide when his building or machinery, etc., require repairs, that if, by carrying out the repairs, a new asset or an advantage of enduring nature is created, the expenditure on such repair cannot be regarded as an expenditure on current repairs.

Current repairs if the assessee bears the cost of repairs are allowed as deduction. However, Capital repairs incurred by the assessee are never allowed as deduction whether premises is occupied as a tenant or as a owner. Instead the capital repairs incurred shall be deemed to be a building and depreciation shall be claimed.

Amount paid on account of the cost of repairs shall not include any expenditure in the nature of capital expenditure [Explanation to Section 30 ]

The Explanation to section 30 is applicable from 01.04.2004 and it stipulates that current repairs should not include expenditure of capital nature. So, it can safely be said that for invoking the provisions of section 30 of the Act the twin conditions have to be satisfied –

(a)  firstly, the amount spent should be in the nature of current repairs; and

(b)  secondly, it should not be in the nature of capital expenditure.

Repairs-Current repairs-Expenditure should not result in acquisition of new asset - Expenditure on replacing entire flooring of office and factory premises with marble flooring - Expenditure of capital nature - Not deductible

The assessee claimed deduction of an expenditure incurred in replacing the floor of its entire office and factory premises with marble. The claim was rejected by the Assessing Officer, the Commissioner (Appeals) and the Tribunal. On appeal to the High Court, held, dismissing the appeal, that non-marble flooring was ripped apart and replaced in an area covering 9,000 square feet with new type of flooring, i.e., marble flooring. The new flooring was of different type and a distinct advantage of permanent character occurred. The expenditure was not deductible. (Related Assessment year : 2007-08) - [Surinder Madan v. ACIT (2014) 364 ITR 461 : 268 CTR 59 (Del)]

On the other hand in the case of HI Line Pens (P) Ltd. (2008) 306 ITR 182,  the Hon’ble Delhi Court allowed an expenditure of Rs. 14,03,835/- towards renovation of rented premises under section 30(a)(i) of the Act. Upholding the order of the Tribunal, the Hon’ble Court held as follows:

"There is a clear distinction between the expression ‘repairs’ and the expression ‘current repairs’. The word ‘repairs’ is much wider than the expression ‘current repairs’. The expression ‘current repairs’ is much more restricted than the word ‘repairs’ because the latter is qualified by the word ‘current’…. . that the replacement was not of the premises but of certain ‘parts’ such as the internal wires and GI pipes. The analogy of replacement of the entire machine was not applicable to the case of the assessee. It was not the intention of the assessee to bring about any new capital asset. The expenses incurred by the assessee were towards repairing the premises taken on lease so as to make them more conducive to its business activity. Such expenses could fall within the expression of repairs to the premises as appearing in section 30(a)(i). Once the assessee’s claim falls within that provision there was no question of considering the question of applicability of section 32. Thus, the Tribunal rightly agreed with the view taken by the Commissioner (Appeals) and held in favour of the assessee."

If the assessee occupies premises not in the capacity of a tenant but as its owner, a lessee or licensee, the expenses incurred on current repairs to the premises would be deductible.

In cases where the assessee has also undertaken to bear the cost of repairs as part of the terms of his tenancy agreement, the amount of expenses actually incurred by him on account of repairs would also be deductible.

Expenses towards repairing of rented premises

The expenditure on designing, layout and other temporary constructions, to make office functional, was allowable as repairs and maintenance, and was not capital in nature. (In favour of assessee) - [CIT v. Armour Consultants (P) Ltd. (2013) 32 taxmann.com 172 (Mad)]

There is nothing in section 30 to warrant the conclusion that the expenditure on repairs can be allowed to an assessee only if he is the owner of the building. The only condition to be satisfied for the allowance is that such building is “used for the purpose of the business or profession” of the assessee during the relevant year. - [Kanpur Dyeing of Printing Co. v. CIT (1970) 75 ITR 687(All)]

Sum on account of Land Revenue, Local Taxes or Municipal Taxes

The assessee is also entitled to deduct any amount paid by him on account of land revenue, local rates or municipal taxes in respect of the premises.

 Any sum on account of Land Revenue, Local Taxes or Municipal Taxes subject to section 43B. as per section 43B deduction shall be allowed only if such sum is actually paid on or before the due date of furnishing or return.

Municipal tax

Municipal tax is a recurring liability and has been specifically made an allowable deduction under section 30(b) of the Act.

It was held that if it was necessary to make payment of ‘local rates’ in order to carry on business it had to be allowed. - [K. M. Selected Coal Co. 1 ITC 281, dated 21.12.1923 (Pat)]

Premium paid in respect of insurance

Any premium paid in respect of insurance against risk of damage or destruction of the premises, is allowed as deduction.

Where the assessee uses the premises partly for his business or professional purposes and partly for other purposes

In cases where the assessee uses the premises partly for his business or professional purposes and partly for other purposes the deduction allowable under this section is a sum proportionate to that part of the expenses which are attributable to the premises used for business or professional purposes

Expenditure on hiring space for hoardings is neither deductible as rent nor deductible as business expenditure

Hire charges paid for advertisement on hoardings would not come within the ambit of use of the premises for the purposes of business and hence cannot be allowed as rent paid under section 30 of the Act. Section 30 has nothing to do with advertisement, publicity or sales promotion. The assessee, claimed deduction under section 30 for the rental paid for hiring space on hoardings. The Assessing Officer disallowed the deduction. The Commissioner disallowed the claim holding that it would not come under section 37(3A) read with section 37(3B)(i), which was confirmed by Tribunal. On a reference, held, that the hire charges paid for advertisement on hoardings would not come within the ambit of use of the premises for the purposes of business. It was not deductible under section 30. The mere hiring of a space on hoardings could not be treated as expenditure for advertisement or publicity or sales promotion. It was also not deductible under section 37. (Related Assessment years : 1985-86, 1986-87) - [Bakelite Hylam Ltd. v. CIT (2012) 349 ITR 317 : (2013) 259 CTR 268(AP)]

Tenant is entitled to deduction of rent paid [Section  30(a)(i)]

Under section 30(a)(i), a tenant is entitled to deduction of the amount spent on account of the cost of repairs to the premises when he has undertaken the cost or such repair even though the repair may involve capital expenditure. - [Installment Supply (P) Ltd. v. CIT (1984) 149 ITR 52 (Delhi)]

Building under Construction

Where the building was under construction and no business activity was carried on there during the year of account save and except installation of a telephonic, it was held that there was no user of the premises for business purpose. - [Noshirwan of Co. (P) Ltd. v. CIT (1970) 77 ITR 822 (MP)]

It was held that rent is allowable as deduction under section 30 of the Act, that what is allowable is the rent paid or payable for the period during which the premises are used for the purposes of business. - [Bihar Steel Tubes Ltd. v. CIT (2001) 252 ITR 622 : 170 CTR 442 (Del)]