1964 (3) TMI 97 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Tribunal to decide on new grounds raised during the appeal.
2. Nature of expenditure: whether it is capital or revenue.
3. Allowability of expenditure for current repairs under Section 10(2)(v) of the Income-tax Act.
4. Specific disallowance of expenditure on new windows as capital expenditure.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Tribunal to Decide on New Grounds Raised During the Appeal:
The first issue pertains to whether the Tribunal had jurisdiction to decide on a new ground raised by the assessee during the appeal. Initially, the assessee claimed development rebate and extra depreciation for an expenditure of Rs. 93,215, which was disallowed by the Income-tax Officer and the Appellate Assistant Commissioner. However, before the Tribunal, the assessee alternatively claimed the entire expenditure as revenue expenditure. The Tribunal accepted this claim and allowed the expenditure as revenue expenditure. The court held that the Tribunal had jurisdiction to investigate and adjudicate upon questions of fact, and since the refusal of relief by the Appellate Assistant Commissioner involved a finding that the expenditure was not of a revenue nature, the Tribunal could reverse that decision. Therefore, the Tribunal had the jurisdiction to decide on the new ground raised.

2. Nature of Expenditure: Capital or Revenue:
The principal question common to all references was whether the expenditure incurred by the introduction of the Casablanca System was of a capital or revenue nature. The Tribunal found that the replacement of parts by the Casablanca High Drafting System did not bring a new asset into existence but only maintained the original asset. The court referred to several decisions distinguishing capital expenditure from revenue expenditure, emphasizing that repairs are for preserving or maintaining an existing asset, not for bringing a new asset into existence. The Tribunal concluded that the expenditure was of a revenue nature, as the replaced parts served the same function as the old parts, albeit with possible improvements.

3. Allowability of Expenditure for Current Repairs under Section 10(2)(v) of the Income-tax Act:
In T.C. No. 157 of 1961, the Tribunal had to decide whether Rs. 93,215 constituted an allowable item of expenditure under Section 10(2)(v) of the Act. The court held that the expression "current repairs" refers to repairs for preserving or maintaining an existing asset, not for obtaining a new advantage. The Tribunal found that the expenditure on the Casablanca conversion materials was for maintaining the original asset and, therefore, allowable as revenue expenditure. Similar conclusions were reached in T.C. No. 175 of 1961 and T.C. No. 178 of 1961, where the Tribunal allowed Rs. 1,96,553 and Rs. 23,533, respectively, as revenue expenditure for current repairs.

4. Specific Disallowance of Expenditure on New Windows as Capital Expenditure:
In T.C. No. 178 of 1961, the assessee claimed Rs. 45,000 as revenue expenditure for fitting new windows to the factory building under the instructions of the Factories Inspector. The Tribunal and the departmental officials considered this expenditure as capital in nature. The court agreed, stating that the expenditure involved the reconstruction of the building and resulted in a benefit of an enduring kind for the business. Therefore, this expenditure was rightly disallowed as capital expenditure.

Conclusion:
Except for the question relating to the expenditure of Rs. 45,000 relevant to T.C. No. 178 of 1961, the other questions were answered in favor of the assessees. The Tribunal had jurisdiction to decide on new grounds raised during the appeal, and the expenditure on the Casablanca System was considered revenue expenditure allowable under Section 10(2)(v) of the Income-tax Act. The assessees were entitled to their costs, with counsel's fee of Rs. 100 in each case.