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TMI Blog2014 (6) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... 1997 (1) TMI 3 - SUPREME Court] - the expenditure incurred to preserve and maintain the already existing assets and not to bring new assets into existence or obtain fresh advantage is a revenue expenditure and does not amount to capital expenditure - the replacement of machinery and construction of new building amounts to obtaining the enduring benefit and it is a capital expenditure - the assessee-Corporation owns more than 10,000 buses, it is has to take out the routine repair work of the buses and recondition the buses to make them roadworthy otherwise there will be breakdown of the buses every now and then - The expenditure incurred on reconditioning and overhauling of the buses is a routine work and the expenditure is revenue in nature and cannot be treated as capital expenditure – Decided against Revenue. Liability to pay interest to IDBI – Mercantile system followed by assessee – Held that:- The principal and interest are payable half yearly in equal installments for a period of five years which was further modified to 20 installments – the expenditure should have been accounted for the AY 1996-97 and not for the AY 1997-98 as the assessee is following the mercantile system ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... buses and the interest paid to IDBI Bank in a sum of Rs.27,53,452/- towards the loan availed for purchasing the new bus Chassis. On verifying the necessary documents, the Assessing Officer found that the nature of the benefit as a result of reconditioning of over-aged buses is not transitory and ephemeral. It is enduring benefit to the Corporation inasmuch as productivity used can be extracted out of the over-aged buses for some more years. The reconditioning of the over-aged buses resulted in extending the productive life of the buses by few more years and it is an enduring benefit, hence the expenditure is capital in nature. 3. With regard to the expenditure incurred on payment of interest is concerned, the Assessing Authority held that the interest should have been accounted for the assessment year 1996-97. The IDBI Bank informed the assessee-Corporation that they have to pay the differential interest in the month of February - March 1996 itself. Hence the said amount cannot be deducted for the assessment year 1996-97 accordingly disallowed the same by its assessment order dated 29-02-2000. 4. The assessee being aggrieved by the assessment order passed by the Assessing Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee for reconditioning of over aged buses was revenue in nature without taking into consideration the admitted position that the expenditure incurred was to increase the lifetime of the over-aged buses? (ii) Whether the Tribunal was correct in holding that though the liability to pay interest to IDBI was for the assessment year 1996-97, since the payment is made in the current assessment year 1997-98 the same has to be allowed for Assessment year 1997-98 itself without taking into consideration that the assessee was following mercantile system of accounting? 7. We have carefully considered the arguments addressed by the learned counsel for the parties and perused the orders impugned and relevant records. 8. The records clearly disclose that the assessee- Corporation is a Company wholly owned and controlled by the State Government whose main activity is to provide transport facilities to the travelling public and necessary infrastructure i.e. establishment of busstations, rural way-side shelters and City pick-up busshelters. The assessee-Corporation owns more than 10,000 buses. The expenditure was incurred on reconditioning and overhauling of the buses. The aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existence or does not give to the assessee a new or different advantage. The learned Chief Justice observed that they are such repairs as are attended to as and when need arises and that the question when a building, machinery, etc., requires repairs and when the need arises must be decided not by any academic or theoretical test but by the test of commercial expediency. The learned Chief Justice observed : "The simple test that must be constantly borne in mind is that as a result of the expenditure which is claimed as an expenditure for repairs what is really being done is to preserve and maintain an already existing asset. The object of the expenditure is not to bring a new asset into existence, nor is its object the obtaining of a new or fresh advantage. This can be the only definition of 'repairs' because it is only by reason of this definition of repairs that the expenditure is a revenue expenditure. If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then obviously such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure, and it is clear that the deduction which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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