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Issues: Determination of whether the expenditure incurred on kilns by the assessee would be considered as 'current repairs' under section 31(i) of the Income-tax Act, 1961 for the assessment years 1970-71 and 1971-72.
Analysis: The case involved two questions regarding the expenditure incurred by an assessee on kilns for two assessment years. The Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) considered the expenditure as capital in nature because the kilns were relined with fire bricks, which were deemed superior to ordinary bricks in terms of heat retention and productivity enhancement. The AAC upheld the disallowance of the expenditure, stating that it enhanced the value and efficiency of the kilns as a capital asset. The assessee contended that the expenditure was solely for protecting and preserving the existing equipment, not for creating an enduring asset. The Tribunal examined the facts presented by the assessee, emphasizing the need to maintain the kilns due to constant wear and tear. The Tribunal concluded that the expenditure did not result in any enduring advantage or asset, and the productive capacity of the kilns did not substantially improve. Therefore, the Tribunal deemed the expenditure allowable as 'current repairs' under section 31(i) of the Income-tax Act, 1961. The High Court supported the Tribunal's decision, considering it a conclusion of fact. The Court highlighted that the expenditure was incurred after a significant period and was necessary to keep the plant in working order. It emphasized that the replacement of red bricks with refractory bricks was due to the shortage of red bricks, not for improving efficiency. Referring to legal precedents, the Court affirmed that the expenditure on substitution of old parts with new ones, without changing the identity or efficiency of the plant, qualified as 'current repairs' and was allowable. In conclusion, the High Court answered the questions in favor of the assessee, affirming that the expenditure on relining the kilns constituted 'current repairs' under the Income-tax Act, 1961. The Court awarded costs to the assessee and emphasized that the expenditure was necessary for maintaining the kilns in working condition, not for enhancing their value or efficiency.
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