2013 (11) TMI 1372 - HC - Income Tax

Replacement of integral part of machinery - Chamber assesmbly - Capital or revenue expenditure - Held that - Following Commissioner of Income Tax v. Saravana Spinning Mills (P) Ltd 2007 (8) TMI 16 - SUPREME COURT OF INDIA - No new asset has come into existence - Replacement of integral part is a current repair and not a capital expenditure - Decided against Revenue.

Summary

Issues:
1. Classification of expenditure as repair expense or capital expenditure for assessment year 2007-08.

Analysis:
The High Court of Kerala dealt with an appeal filed by the revenue challenging the orders of the Tribunal regarding the assessment year 2007-08. The respondent assessee, engaged in manufacturing procured tread rubber, faced an inquiry due to a significant increase in expenses under the head "repair and maintenance." The assessee explained that the increase was due to replacing the 'Mixing Chamber Assembly', a crucial part of the intermix machine. The Assessing Officer considered this as a capital expenditure, leading to the assessee's appeal to the CIT (Appeals), which was allowed on the grounds that the expenditure was a repair expense. The revenue then approached the Tribunal for the assessment year 2007-08.

The Tribunal, referring to the decision of the Supreme Court in Commissioner of Income Tax v. Saravana Spinning Mills, emphasized the need to assess whether an expenditure is a current repair or a capital repair based on the establishment's context. The Tribunal analyzed a technical report illustrating the intermix machine's functioning, highlighting the integral role of the mixing chamber assembly in the machine's operations. It was explained that the chamber assembly, along with other components, facilitates the mixing process, essential for producing rubber compound. The Tribunal concluded that the chamber assembly is an integral part of the intermix machine and considered its replacement as a current repair, not a capital expenditure.

The High Court concurred with the opinions of the CIT (Appeals) and the Tribunal, emphasizing the factual analysis undertaken to comprehend the chamber assembly's actual functioning in the intermix machine. The Court dismissed the appeal, upholding the decision that the replacement of the chamber assembly in the intermix machine constituted a current repair, thereby affirming the classification of the expenditure as a repair expense for the assessment year 2007-08.