9911796707
TMI Blog2016 (4) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case, the Appellate Tribunal is correct in concluding that each machine in Thermal Power Station is not capable of generating power independently and hence to be viewed as a composite asset, in contrary to the decision of Supreme Court in the case of Mangayarkarasi Mills (P) Ltd. [315 ITR 114], wherein, it is held that each machine should be treated independently as such and not as mere part of an entire composite machinery of the spinning Mill?" 2. We have heard Mr.T.Ravikumar, learned Standing Counsel for the Department and Mr.R.Vijayaraghavan, learned counsel for the assessee. 3. The facts leading to the filing of the above appeals are as follows: (a) The assessee is a Public Sector Undertaking engaged in the business of generation of electricity and mining of lignite. (b) During the previous years relevant to the assessment years 1993-94 to 1999-2000, the assessee incurred expenditure to the tune of about Rs. 252 Crores towards what was termed by them as ''Life Extension Program of Thermal Power Station-I''. (c) From assessment years 1995-96 to 1999-2000, the assessee also incurred huge expenditure on rejuvenation of Bucket ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Income Tax Appellate Tribunal, the Revenue has come up with the above appeals, raising the questions of law indicated in paragraph 1 above. 5. Though, the Revenue has raised three substantial questions of law, we think that all of them revolve only around one most fundamental question namely as to whether the expenditure incurred by an assessee after the expiry of the life span of a machinery, for the purpose of expanding its life span, could be treated as a revenue expenditure or capital expenditure ? 6. Though Section 2 of the Income Tax Act defines expressions such as ''Capital Asset'', "Income'', etc., it does not define the expression "expenditure". But, almost all types of expenditure that one could conceive of, are dealt with in the chapter relating to ''Computation of Total Income'' under the heading ''Profits and gains of business or profession''. 7. Section 31(i) entitles an assessee to a deduction on the amount paid on account of current repairs, in respect of plant or furniture used for the purpose of business or profession. The Explanation to Section 31 makes it clear that the amount paid on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed the expenditure to be revenue in nature. After discussing the scope of the expression ''current repairs'' in the popular or commercial sense, the Bombay High Court came to the conclusion that the quantum of expenditure, high or low, cannot determine its nature. Eventually, the Bombay High Court elicited certain principles in para 10 of the report, which read as follows:- (i) The amount should be paid on account of current repairs. (ii) ''Current repairs'' means repairs undertaken in the normal course of user for the purpose of preservation, maintenance or proper utilisation or for restoring it to its original condition. (iii) ''Current repairs'' do not mean only petty repairs or repairs necessitated by wear and tear during the particular year. (iv) Such repairs should not bring into existence nor obtain a new or different advantage. (v) The quantum of expenditure nor the fact that in the process of repairs, there was substantial replacement of the parts of machine or ship, is decisive of the true nature of the expenditure. (vi) The original cost of the asset is not at all relevant for ascertainment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and did not express any opinion on Section 37(1). 14. In Commissioner of Income Tax v. Sri Mangayarkarasi Mills (P) Ltd. [315 ITR 114], the Supreme Court was concerned with the question whether expenditure incurred on replacement of machinery amounted to revenue expenditure deductible under Section 37 or current repairs deductible under Section 31. Placing reliance upon the decision in Saravana Spinning Mills, the Court held even in this case that the entire textile mill machinery cannot be regarded as a single asset, replacement of parts of which can be considered to be for mere purpose of preserving or maintaining this asset. Since each machine is an independent entity, the Supreme Court held that the replacement of an old machine with a new one would constitute the bringing into existence of a new asset in the place of the old one. The Court also pointed out two exceptions formulated in Saravana Spinning Mills, where replacement could amount to current repairs. These exceptions are "(i) where old parts are not available in the market (as seen in the case of Commissioner of Income Tax v. Mahalakshmi Textile Mills Ltd. [AIR 1968 SC 101], or (ii) where old parts have worked for 50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... look at the above decisions would show that though different tests had been formulated by Courts, the application of those tests had posed lot of difficulties, depending upon the facts and circumstances of each case. This is why the Supreme Court pointed out in Saravana Spinning Mills that the answer to the question would depend upon the facts and circumstances of each case. Therefore, we shall now get back to the facts of the case. 18. In a Note submitted by the learned counsel for the respondent/ assessee, the following are indicated as the steps taken in so far as the boiler is concerned:- (a) Electricity is generated in Thermal Power Station-I, Neyveli from the units consisting of boilers, turbines, generator and transformer. Steam generated in the boiler drives steam turbine that is coupled to the generator which generates electric power. (b) The high-pressure parts of boiler namely, super heaters and Main Steam line are subjected to creep damage and have a service life or around 1,80,000 hours. Pressure parts, namely water walls, economizer, air heaters and auxiliary equipment namely fuel pulverizers, mills, draught fans etc. are subjected to corrosion, erosion, wear and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing components have been subjected to only strengthening/repair: (i) Steering tiller (FST and RST) (ii) Under carriage (iii) Turn table (iv) Counter weight boom and Box (v) Intermediate structure. 20. On the basis of the nature of the repairs and replacement carried out by the assessee to the boiler as well as to BWE, it is contended by Mr.Vijayaraghavan, learned counsel for the assessee that the expression "current repairs" denotes the repairs for the purpose of preserving or maintaining an already existing asset. It does not bring about a new asset into existence, nor does it give a new or different advantage. Therefore, he contends that the test of improvement or advantage is not relevant to determine whether the repair was current repair or not. It is his further contention that the magnitude of the expenditure cannot also determine whether something is current repair or not. 21. In order to test the correctness of the above contention, it is necessary to have a look at the provisions of Sections 31 and 37. 22. Under Section 31, the amount paid on account of current repairs to plant or furniture used for the purpose of business or profession shall be allowed as deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was as follows: Asst. years Amount (Rs.) 1993-94 10,22,63,348/- 1994-95 39,35,07,774/- 1995-96 22,65,86,642/- 1996-97 27,78,53,677/- 1997-98 56,84,06,076/- 1998-99 48,23,92,595/- 1999-2000 47,35,92,595/- Total 252,46,02,707/- 29. The Tribunal thought that so long as the assessee had not replaced the entire boiler/BWE and what were replaced were only part of the boiler, the expenditure incurred towards the same was only to preserve and maintain the existing assets without any enduring advantage. In such a view, the Tribunal held in favour of the assessee. The Tribunal also went on the footing that if a new plant has to be commissioned, it would cost Rs. 4.5 Crores per MW and that the total project cost for 600 MW would run to Rs. 2700 Crores. Hence, the Tribunal found th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
