1967 (12) TMI 15 - HC - Income Tax

Assessee, a society for ex-servicemen engaged in transport of goods and passengers - till 1959-60 the income of such societies was exempt from tax - assessee claimed deduction of depreciation on the original cost of the assets and also an expenditure as for current repairs - assessee s claim is acceptable

Summary

Issues:
1. Deduction of depreciation on the original cost of assets.
2. Treatment of expenditure of Rs. 12,091 as revenue in nature.

Analysis:
The judgment by the High Court of Madras, delivered by Veeraswami J., pertains to the assessment year 1960-61 involving a co-operative society for ex-servicemen engaged in transport of goods and passengers. The society was assessed to tax for the first time in that year, and the issues revolved around the deduction of depreciation on the original cost of assets and the treatment of an expenditure of Rs. 12,091 as revenue in nature. The Tribunal allowed the deductions, leading to a reference under section 66(1) of the Indian Income-tax Act, 1922 by the Commissioner.

Regarding the first issue of depreciation, it was noted that the matter was settled in favor of the assessee based on the decision in Commissioner of Income-tax v. Straw Products Ltd., a Supreme Court ruling. The Court concurred with this position.

On the second issue concerning the nature of the expenditure, the Tribunal applied tests to determine whether the expenditure constituted current repairs or the creation of a new asset. The Court emphasized that the crucial factor in defining repair is whether the action preserves an existing asset or results in the creation of a new asset. Citing Commissioner of Income-tax v. Sheikhupura Transport Co. Ltd., the Court highlighted that renewing bodies of vehicles amounted to current repairs. Additionally, the Court referenced Hanuman Motor Service v. Commissioner of Income-tax, Mysore High Court, which emphasized the importance of distinguishing between repairs and replacements based on the preservation of existing assets versus obtaining new advantages. The Court agreed with this perspective and upheld the Tribunal's decision, ruling in favor of the assessee on both issues.

In conclusion, the High Court of Madras answered both questions in favor of the assessee, affirming the allowance of depreciation on the original cost of assets and treating the expenditure as revenue in nature. The judgment was accompanied by a directive for costs, including counsel's fee.