2022 (12) TMI 844 - AT - Income Tax

Nature of expenditure - expenditure on account of repairs - revenue or capital expenditure in nature - application of principles of commercial trading - HELD THAT - Assessee has evidently demonstrated from the documents placed on record by referring to the inspection report for the inspection carried out in the year 2007 2008 as well as the terms of license agreement and the work order placed on Portek and a separate work order placed on Nextgen for upgradation of new automation system. Assessee has also categorically demarcated the expenses incurred on account of repairs of revenue in nature and of capital in nature which have been duly accounted and reported in the audited financial statements. It is thus axiomatic that the expenditure incurred by the assessee in the facts of the case are on revenue account which have been rightfully allowed by the ld. CIT(A). We thus, find no reason to interfere with the findings given by the ld. CIT(A) in this respect. Accordingly, Ground Nos. 1 to 5 by the Revenue in this respect are dismissed. TDS u/s 194C - non-deduction of tax at source on railway siding charges and demurrage charges - HELD THAT - It is an admitted fact that assessee is contractually bound by SAIL to act as a handling contractor for imported coking coal and there is an agreement between the two parties to the effect that any incidental charges relating to handling job were to be deducted from the payments made to assessee by SAIL. In pursuance of this activity of handling contractor for SAIL, assessee had received the payments from SAIL after deduction of the two impugned expenses. Assessee has claimed these two expenses as admissible expenses in its Profit Loss account. Reference is made to the legal maxim impotentia excusat legam and lex non cogit ad impossibilia in this respect. When there is an invincible disability to perform mandatory part of the law that impotentia excuses. Law does not compel one to do that which one cannot possibly perform. Where the law creates a duty or charge and the party is disabled to perform it, without any default in him and has no remedy over it, there the law will, in general, excuse him. Therefore, when it appears that the performance of the formalities prescribed by a statute has been rendered impossible by circumstances over which the person interested had no control, the circumstances will be taken as a valid excuse. In the present case before us, Haldia Dock Complex, Kolkata Port Trust levied charges on SAIL who in turn deducted the same from the payments made by SAIL to the assessee. AO has raised his doubts whether SAIL has made payments for these levies to Haldia Dock Complex, Kolkata Port Trust after deduction of applicable tax at source which is separate from of the contractual arrangement between SAIL and assessee for the handling job of imported coking coal. Considering the factual matrix of the case and the two legal maxims dealt above, we do not find any reason to interfere with the finding given by ld. CIT(A) in this respect. Accordingly, Ground Nos. 6 to 8 by the Revenue in this respect are dismissed.

Summary

Issues Involved:
1. Whether the expenditure on repairs should be treated as revenue or capital expenditure.
2. Whether the disallowance under Section 40(a)(ia) of the Income-tax Act for non-deduction of tax at source on railway siding charges and demurrage charges was justified.

Detailed Analysis:

1. Nature of Repair Expenditure: Revenue or Capital
The primary issue was whether the expenditure of Rs.5,02,24,450/- incurred on repairs should be classified as revenue or capital in nature. The assessee, a private limited company, was engaged in building, maintaining, and operating berth no. 4A at Haldia Dock Complex. The repairs were undertaken for two ship unloaders (SUL1 and SUL2), which had suffered wear and tear and damage due to a cyclone in 2006. The Assessing Officer (AO) disallowed the expenditure, treating it as capital in nature, while the assessee claimed it as revenue expenditure.

The Tribunal noted that the repairs were necessary to keep the ship unloaders in working condition and were part of the regular maintenance required by the license agreement. The Tribunal emphasized that the repairs did not bring into existence any new asset or provide any enduring benefit to the assessee. The Tribunal upheld the CIT(A)'s decision, which allowed the expenditure as revenue in nature, considering it essential for the preservation and maintenance of existing assets.

The Tribunal also considered the statutory prescription under Section 31 of the Income-tax Act, which allows for the deduction of repairs and maintenance expenses, provided they do not result in the acquisition of a new asset or enduring benefit. The Tribunal concluded that the expenditure incurred by the assessee was for the purpose of maintaining and preserving the existing assets, and therefore, should be treated as revenue expenditure.

2. Disallowance under Section 40(a)(ia) for Non-Deduction of Tax at Source
The second issue involved the disallowance of Rs.20,61,419/- and Rs.9,36,337/- incurred on railway siding charges and demurrage charges, respectively, on the grounds of non-deduction of tax at source under Section 194C. The assessee argued that these charges were deducted by SAIL from the payments made to the assessee and were not direct payments made by the assessee. The CIT(A) accepted this argument, treating the charges as reimbursements and not subject to TDS.

The Tribunal upheld the CIT(A)'s decision, noting that the assessee was contractually bound to SAIL and the charges were deducted by SAIL from the payments made to the assessee. The Tribunal cited legal maxims 'impotentia excusat legem' and 'lex non cogit ad impossibilia', which imply that the law does not compel one to do the impossible. Since the assessee had no control over the deduction of these charges by SAIL, the Tribunal found no reason to interfere with the CIT(A)'s findings.

Conclusion:
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decision to treat the repair expenditure as revenue in nature and to allow the reimbursement of railway siding and demurrage charges without TDS. The judgment emphasized the principles of commercial expediency and the statutory provisions under the Income-tax Act, aligning with established judicial precedents.