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TMI Blog1983 (9) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case, the Appellate Tribunal was right in holding that the loss on the sale of spare parts, spare engines and propellers did not arise out of the sale of " capital assets ? " The assessee, M/s. Kasturi and Sons Limited, is a private limited company which is the proprietor of the Hindu and Allied Publications. In or about 1963, the assessee purchased four Heron aircraft fitted with engines and propellers in flying condition together with spare engines, spare propellers and stores for use in the aircraft later from the Indian Airlines Corporation for a sum of Rs. 9,75,000. The assessee capitalised the value of the four Heron aircraft fitted with engines and propellers amounting to Rs. 6,50,000 and claimed depreciation thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of profit under s. 41(2) of the Act in respect of the aircraft. But we are not concerned with that question in this reference. In the assessee's appeal, the Tribunal held that the loss of Rs. 1,15,676 sustained on the sale of spares should be allowed as an admissible deduction in arriving at the total income of the assessee-company for the assessment year 1967-68 as it constituted a loss. Aggrieved by the decision of the Tribunal, the Revenue has obtained this reference on the questions set out above. The Tribunal took into account the following facts for holding the loss sustained by the assessee on the sale of the spares to be a revenue loss. (1) The spares were purchased separately and not as part and parcel of the aircraft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus the reasons given by the Tribunal for holding that loss in the sale of spares is a revenue loss are the following (1) The assessee has not treated the spares as capital assets. (2) The assessee has not claimed outright deduction on the cost of acquisition treating it as a capital asset. (3) The assessee has not claimed depreciation on the amount or value of the spares each year. (4) As and when the spares are used in the aircraft it has been claimed as a deduction towards repairs of the capital asset and, therefore, when the spares are sold, it should be taken to have been consumed and the deduction should be given on the ground that it is a trading loss. The Tribunal, taking note of the fact that the assessee is not a dealer in airc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al for holding that the assessee is entitled to claim deduction on the basis of consumption cannot be accepted as tenable. The learned counsel for the assessee refers to certain decisions which mainly deal with the question whether the expenditure in respect of which allowance is claimed is a revenue expenditure or a capital expenditure. Since there being no expenditure here, the cases dealing with expenditure will not throw any light on the question as to whether the spares are capital assets or not. On a due consideration of the matter, we are of the view that the spares can only be treated as capital assets. In this case, as already stated, the question as to how the assessee treated a particular asset in his books of account is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een claimed cannot also be taken to be conclusive. As has been pointed out by the Gujarat High Court in H. Mohamed Company v. CIT [1977] 107 ITR 637, the essential characteristics of stock-in-trade are that it must be a commodity in which there is a dealing that is, which is bought and sold as distinguished from a commodity with which the business is carried on, viz., from the exploitation of which the income is derived, that if there is a substantial replacement of the existing capital assets of the assessee, the expenditure for such replacement will not be allowed as a deduction for repairs or replacements, that if the replacement is of parts only, the expenditure for such replacement is deductible and if the replacement is of the who ..... X X X X Extracts X X X X X X X X Extracts X X X X
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