TMI Blog1989 (7) TMI 336X X X X Extracts X X X X X X X X Extracts X X X X ..... e-company had not created an approved gratuity fund the Tribunal was justified in allowing the assessee's claim on account of its liability for gratuity? 2. The facts relating to these questions shortly stated are that the assessee did not provide any amount in its account for the assessment year under consideration, on account of its liability under the West Bengal Employees Payment of Compulsory Gratuity Act, 1971. In the original return no claim for liability on account of gratuity was also made by the assessee. In the revised return filed the assessee claimed a sum of ₹ 30 lakhs as deduction on account of its liability for gratuity. The ITO disallowed the claim on the ground that it was an ad hoc provision and not an ascertained liability inasmuch as the claim was not made on a scientific basis nor it was supported by a certificate from an actuary. The ITO also found that the gratuity fund of the assessee was not approved as required under section 36(1)(v) of the Act. 3. Being aggrieved the assessee preferred an appeal before the Commissioner (Appeals) and filed before him a certificate dated 15-1-1979 from an actuary claiming liability on account of gratuity a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in holding that the expenditure incurred by the assessee amounting to ₹ 40,65,910 for the reconstruction of its Sheet Glass , Furnace was a revenue expenditure? 6. The facts relating to the controversy raised in the aforesaid question are stated hereinafter. 7. The assessee-company was doing business of manufacturing of rolled plate glass initially installed plants and furnace at a total cost of ₹ 2.1 crore. During the year under reference it demolished the old furnace and reconstructed the sheet glass furnace at a cost of ₹ 40,65,910. This amount was capitalised in the assessee's accounts and original return of income was filed without claiming the expenditure as revenue expenditure. Later on, the assessee thought it to be a revenue expenditure being in the nature of current repair, and claimed admissible deduction by filing a revised return. The ITO rejected this claim of the assessee as he found that the assessee itself capitalised the particular expenditure in its accounts. 8. Against the order of the ITO, the assessee appealed to the Commissioner (Appeals) and contended that the expenditure in question was allowable as deduction. However, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units is available either with the assessee or from the records. The written down value of the furnace so installed in 1954 at the beginning of the relevant accounting year was ₹ 1,40,496. The directors recommended expansion of the factory to cope with the increased demand of sheet glass during the second five year plan period and proposed in the report for the year ending 31-10-1959 to introduce PPG process in order to increase the production capacity by about 70 per cent. The expansion project was undertaken in 1959 and in the report for the year anding 31-10-1960 it has been mentioned that 'the total cost of the project will be in the region of ₹ 80 lakhs of which foreign exchange for import of plant and machinery is estimated at ₹ 26 lakhs'. The company issued preference shares to the extent of ₹ 32 lakhs out of which the holding company subscribed ₹ 26 lakhs to meet the foreign exchange cost of the project. The total expenses incurred in the company's expansion project amount to ₹ 80,00,301 which was capitalised and allocated in the accounts relevant for assessment year 1963-64 as under: Process Plants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vouchers and the adjustment entries passed in the books in respect of the addition to the plant account of a sum of ₹ 40,65,910. Journal entries passed in the books are on account of the following items of expenditure: Rs. Refractory 18,93,737 Wooden centering 98,418 Salary, wages expenses of Pilkington Bros. Ltd., London 4,04,816 Arial Run expenses 12,20,022 36,16,995 ( sic ) Expenses incurred in rolled plate furnace unit as per assessee's statement 4,48,915 40,65,910 15. The supporting vouchers in regard to the first entry of ₹ 18,93,737 have been looked into by the lower authorities and it has been found that the aforesaid amount includes two items of ₹ 42,572.85 on account of customs duty paid in December 1970 and ₹ 8,09,643 on account of rolled plate utilised in the furnace. The assessee has not been a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other view is that expenditure on current repairs is such expenditure which is not for the purpose of renewal or restoration but for the purpose of preserving or maintaining an already existing asset which does not bring into being a new asset or does not give to the assessee a new or different advantage. 18. This Court in Humayun Properties Ltd. v. CIT [1962] 44 ITR 73, held that the current repairs are necessary repairs which are needed for the maintenance of the building and machinery, etc. They are not luxury repairs, the element of need being implicit in the expression. As they must be such as are needed periodically, the accumulation of repairs will not ordinarily satisfy the test. Further, the need for such repairs must have arisen in order to make the repairs current repairs. 19. Secondly, inasmuch as the idea latent in current repairs is periodicity and recurrence, when the expenditure is incurred to bring into existence a new asset or an advantage of an enduring nature, it cannot be regarded as an expenditure on current repairs. 20. Thirdly, the degree of improvement brought about and change effected in the identity of existing asset as a result of the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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