2013 (1) TMI 653 - HC - Income Tax

Repair & maintenance expenses - Current Repairs - capital v/s revenue - Held that - Repair and maintenance is in fact necessary not only for achieving the optimum utilization of machinery but also if possible to extend its economic life. Therefore, the fact that such installation has increased life beyond their original economic life cannot be a ground to conclude that the expenses incurred were not for repair and maintenance. Similarly, the ground of increase in the profitability of concern is again a totally alien to determine the nature of the repair and maintenance. Increase in profit would lead to increase in income, which would be separately taxable but could not be a ground for declining the expenses incurred by the assessee for repair and maintenance. Though the findings returned is that new identifiable assets have been created but the Tribunal has returned a finding that though each of the item is useable independently but that such items have been used for repair and maintenance. With such finding, the expenditure was allowed. The findings recorded by the Tribunal are the findings of fact - no substantial question of law arises for consideration.

Summary

Issues involved:
- Whether the ITAT was justified in deleting the addition of expenditure on account of disallowance of expenditure incurred on purchase of new items?
- Whether the expenses claimed by the assessee on account of repair & maintenance were rightly allowed?
- Whether the expenses under the repair and maintenance account led to the creation of new identifiable assets?
- Whether the increase in life of existing assets and profitability of the concern affected the nature of repair and maintenance expenses?

Analysis:
The appeal under Section 260A of the Income Tax Act, 1961 arose from an order passed by the Income Tax Appellate Tribunal (ITAT) concerning the allowance of expenses claimed by the assessee on repair & maintenance. The Tribunal allowed the expenses, which were earlier disallowed as capital expenditure, leading to the substantial question of law regarding the justification of deleting the addition of such expenses. The Commissioner of Income Tax (Appeals) found that the repair and maintenance expenses resulted in the creation of new identifiable assets, increased life of existing assets, and substantially increased profitability. However, the Tribunal set aside this order, emphasizing that the nature of expenditure being capital or revenue depends on various tests, and no single test is universally applicable. Each item of expense must be evaluated based on the facts of the case and its use.

The Commissioner of Income Tax (Appeals) highlighted that many items purchased by the assessee resulted in the conclusions mentioned earlier. The High Court observed that extending the life of existing assets beyond their original economic life through repair and maintenance is essential for optimal machinery utilization and economic life extension. The increase in profitability of the concern was deemed irrelevant in determining the nature of repair and maintenance expenses, as profit increase is separately taxable and does not impact the expenses incurred for repair and maintenance. Although new identifiable assets were created, the Tribunal concluded that these items were used for repair and maintenance purposes, justifying the expenditure.

Ultimately, the High Court found that the Tribunal's findings were factual and no substantial question of law arose for consideration. Therefore, the appeal was dismissed, upholding the Tribunal's decision to allow the repair and maintenance expenses claimed by the assessee.