1986 (8) TMI 8 - HC - Income Tax

Summary

Issues:
Interpretation of revenue expenditure for current repairs in relation to machinery expenses.

Analysis:
The case involved the interpretation of whether certain expenses incurred by a public limited company for the installation of blow room lines in its textile mills qualified as revenue expenditure towards current repairs. The company claimed a deduction of Rs. 1,44,061, which included import duties, clearing and forwarding charges, consulting fees, and erection and servicing charges. The Income-tax Officer disallowed the claim, stating that the expenses were connected to replacing old machinery with new machinery and were not related to current repairs. The Appellate Assistant Commissioner upheld the disallowance, noting that the alterations to the machinery increased its capacity and were of an enduring nature, thus not qualifying as revenue expenditure under section 31(i) of the Act. However, the Commissioner preferred an appeal before the Tribunal, arguing that the entire expenditure was related to current repairs and should be allowed as a deduction.

The Tribunal ultimately sided with the assessee, determining that the expenses were incurred to rectify defects in the blow room machinery supplied by a foreign supplier in 1954. The foreign supplier provided certain components and spares free of charge to improve the machine's performance, and the company bore the expenses for import duties, clearing and forwarding charges, and erection and servicing charges. The Tribunal found that the expenditure was necessary to bring the machinery to full capacity and quality as agreed upon, thus constituting current repairs. The Court agreed with the Tribunal's decision, emphasizing that the expenditure was directly related to repairing and servicing the existing machinery, rather than acquiring new assets or replacing old machinery. Therefore, the entire sum of Rs. 1,44,061 was deemed deductible as revenue expenditure for current repairs. The judgment was in favor of the assessee, and the reference was answered in the affirmative against the Revenue, with the assessee entitled to costs.