Renauvation expenses revenue or capital ?
kaidjohar
(Querist) 29 May 2012
This query is : Resolved
Hello friends..
Q.Renauvation expenses of Community Hall of Co Op Housing society treated as revenue expenditure or capitalizied in the books Approx. Rs.15 lacs?
Guest
(Expert) 29 May 2012
Dear Kaidjohar,
Normally renovation in generic sense is an activity that pertains to repirs and maintenance besides upgradation and improvement of quality & value of an asset. So, if the expenditure is not a type of major or substantial expenditure and pertains only to maintenance and repairs of the asset without enhancement and upgradation of the asset that is normally treated as a part of revenue expenditure.
On the other hand if substantial expenditure is involved in renovation and that helps in enhancement of revenue earning capacity of the asset that is treated as capital expenditure.
In this case, since renovation involves a huge expediture of about 15 Lakhs that has to be treated as a capital expenditure.
kaidjohar
(Querist) 29 May 2012
thank u sir..
In my case there no enhancement of earning capacity and not new asset created but huge expenditure can i trated as revenue ?
Suhail A.Siddiqui
(Expert) 29 May 2012
There is no doubt, it is not enhancement of value or earning capacity, but this investment used for years, so it is capital expenditure. If it is whitewash and minor repair then it will revenue expenditure.
C. P. CHUGH
(Expert) 29 May 2012
Whether an expenditure is revenue or capital is not guided by the sum spent but by the nature of expense incurred. As per your query since no new asset is being created/acquired and it is only towards reparis and maintainance of the existing facilities, it can be termed as Revenue expeniture. Just for knowledge i want to know when it is a community project, it must be funded by the members themselves, if so, where is the question of it either being revenue or capital.
Shonee Kapoor
(Expert) 30 May 2012
Capital, undoubtably.
Regards,
Shonee Kapoor
harassed.by.498a@gmail.com
Guest
(Expert) 30 May 2012
Dear Kaidjohar,
It is a matter of common sense that when no revenue enhancement is expected, nobody would make such a huge expenditure of 15 Lakhs on renovation of any asset. Only the needed minor repairs would be preferred.
2ndly, if it is case of community hall, certainly revenue enhancement can be expected on each event of hiring with reference to the better condition of the community hall.
3rd, IT/ Wealth Tax Departments would definitely disallow the expenditure if treated as revenue expenditure in view of such a huge expenditure and can treat that a case of tax evasion.
Rest depends upon the management how that wants to treat the expenditure, revenue or capital expediture by weighing all the pros & cons, and how they would be able to satisfy the audit, IT/ Wealth Tax departments.
