TMI Blog1964 (3) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... old machinery were of a capital nature, but nevertheless could not be considered as new plant and machinery in respect of which alone development rebate and extra depreciation could be allowed. He, therefore, disallowed the claim. In the further appeal to the Appellate Tribunal, it was contended that the Appellate Assistant Commissioner erred in disallowing the amount of ₹ 23,304 on account of development rebate and ₹ 1,554 on account of depreciation under section 10(2)(via) in respect of the sum of ₹ 93,000 incurred by the appellants as capital expenditure for installing new machinery in the appellants' mill. In the grounds of appeal, it was finally urged that the Appellate Assistant Commissioner should have held that alternatively the appellants were entitled to the deduction of the whole amount of ₹ 93,000 as revenue expenditure. It would be noticed that while before the Income-tax Officer and Appellate Assistant Commissioner the claim to development rebate was limited to a sum of ₹ 23,000 and odd as falling within the scope of section 10(2)(via) of the Act, before the Tribunal the alternative claim was that the entire expenditure of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 10(2)(v) of the Act? It will be noticed that the first of these questions raises the competency of the Tribunal to examine an alternative case set up by the assessee for the first time during the appeal before the Tribunal. We have indicated that before the Income-tax Officer it was only a claim to development rebate, and extra depreciation allowance based on a total capital expenditure of ₹ 93,000 and odd that was put forward, and the position was the same when the matter was brought before the Appellate Assistant Commissioner in the appeal before him. It was only when the further appeal was filed before the Tribunal, the assessee set up the alternative case claiming to be entitled to deduct the entire sum of ₹ 93,000 as revenue expenditure, a case that was not put forward before the Appellate Assistant Commissioner and was not, therefore, canvassed by him in his appellate order under section 31 of the Act. That is how the question of jurisdiction of the Tribunal to examine a new matter which was not adjudicated upon either by the Income-tax Officer or the Appellate Assistant Commissioner is raised by the first of the questions above. The second question is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those in the other two cases, in so far as the replacement of parts referred to as the introduction of the Casablanca System is concerned, the allowance as revenue expenditure of the sum of ₹ 23,533 under section 10(2)(v) is questioned by the department, and the relevant question that stands referred to us is: Whether, on the facts and in the circumstances of the case, the sum of ₹ 25,533 is allowable as expenditure for current repairs under section 10(2)(v) of the Income-tax Act? In addition, at the instance of the assessee, who moved this court under section 66(2) of the Act, the following question also stands referred: Whether, on the facts and in the circumstances of the case, the Tribunal was justified in disallowing the expenditure of ₹ 45,000? This question arises from the fact that, according to the directions of the Inspector of Factories, certain new windows were fitted to the factory building. This was considered by the departmental officials and the Tribunal to be expenditure of a capital nature and it is the correctness of that view that is canvassed by the above question. The principal question that is common to all of these r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture on this head had not been incurred as and when the need arose but was incurred after a lapse of 60 years, it could no longer be regarded as current repairs. The learned judges found that the expenditure was in reality incurred only for the purpose of preserving or maintaining the asset and the long duration referred to was of no relevance in considering this aspect of the matter. It was nevertheless current repairs and the reference was answered in favour of the assessee. This decision would appear to be of considerable importance, for great similarity between the facts of this decision and the present cases will be noticed. The Casablanca System, as it is called, consists of the replacement of certain roller stands and fluted rollers fitted with rubber aprons to the spinning machinery. It was found that the wear and tear of certain of the moving parts of the machinery was not uniform and periodically such parts had to be replaced. When it came to the question of replacing the worn out roller stands, the assessee found the old type of replacement parts not available in the market. The identical parts could not, therefore, be secured, and the Tribunal in the statement of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what would a reasonable businessman understand by the expression, and would be regard this expenditure as capital expenditure or not? After observing that the expressions capital expenditure and revenue expenditure were incapable of exact definition, the learned Lord said that the whole circumstances should be looked at in order to find out in which class the expenditure falls. Lord Keith in his judgment dealt with the matter thus: I have come to the view that in this case the expenditure on replacement should properly be treated as revenue expenditure...we are told that the average life of an upper knife is twelve months. The limit of life for sole knives and lasts would appear, with possible exceptions, to average three years. The company itself in its own accounts treated its whole stock of knives and lasts as having a life of only two years and wrote off the total cost in two years. In my opinion, it is quite unreal to regard constantly recurring expenditure on such articles, having so short a life, as capital expenditure. It can hardly be said to be expenditure on assets of an enduring nature. Lord Denning instanced several cases. He observed: Suppose a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition, though by the renewal of a major part thereof. Mr. Ranganathan, learned counsel for the department, has referred to Nagpur Electric Light and Power Co. Ltd. v. Commissioner of Income-tax [1932] 6 I.T.C. 303. In that case the assessee-company had incurred expenditure for replacing the consumers' fans and motors and renewal of the service lines consequent on the change from direct current to alternating current system of supply, and the claim was made that it was revenue expenditure. The decision in that case was that it was capital expenditure, for a change of system was involved. The change of system rendered useless the fans and motors that previously existed. As a condition of the renewal of the licence to the company, the company had to replace the fans and motors of the consumers at the cost of the company. The expenditure was necessary in order that the company should carry out the change from one system to the other. The learned judges took the view that it was accordingly capital expenditure. Mr. Ranganathan's main reliance upon this decision is that in the present cases also a change of system of spinning yarn has been introduced. He really relies upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the roller stands. The claim to increased efficiency was no doubt put forward by the manufacturers. But the Tribunal pointed out that even assuming that there was some improvement in the component parts and the improvement of these parts was boosted by the manufacturers, it did not necessarily follow that any enduring advantage or a new asset had been brought into existence. The need for going in for these Casablanca parts arose, for the old parts were no longer available. That statement was accepted by the Tribunal and was not contradicted by the department. The result was that only the original asset was held to have been preserved and maintained. As we said, on a question of fact, the Tribunal found that the fitting of these minor parts had no effect upon the machinery as a whole. In a reference under section 66 of the Act, we are bound by this decision on a question of fact. It follows therefore that, in so far as the expenditure incurred by the different assessees by the replacement of parts by the Casablanca High Drafting System is concerned, that expenditure is undoubtedly of a revenue nature. The relevant questions will be answered in the affirmative. The second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se whether, since the allowance claimed before the Appellate Assistant Commissioner was only in the sums of ₹ 23,304 and ₹ 1,554, the Tribunal was competent to grant allowance of a much larger sum that what was claimed. It is that question that has to be considered. In the statement of the case, the Tribunal observes that the department had sufficient notice of the ground of appeal by which deduction of the whole amount of ₹ 93,000 was claimed and that the department had taken no objection against the admission of such a ground. That does not however deal with the question whether the Tribunal had jurisdiction to make an allowance of more than what was the subject-matter of the appeal before the lower appellate authority. The appellate powers of the Appellate Tribunal are set down in section 33 of the Indian Income-tax Act. An order made by the Appellate Assistant Commissioner under section 31 of the Act may be appealed from. The powers of the Appellate Tribunal are specified in section 33(4), which reads thus: The Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been drawn to a decision of the Privy Council in Ram Chandra Bunji Dev v. Secretary of State for India [1916] L.R. 43 I.A. 172. In a suit by a zamindar for possession of jagir lands held by a paik whom he had dismissed, the findings of the lower courts were that the paik was a private servant of the zamindar and not one whom by his kabuliath the zamindar had no power to dismiss. When the matter came in second appeal to the High Court, it was contended for the first time that the jagir was for the purpose of maintaining some police officer appointed by the Government. The High Court held that this was the real issue to be tried and remitted the matter for rehearing. The Judicial Committee found that the zamindar relied only upon the kabuliath. In support of his kabuliath, the High Court found no reason to differ from the subordinate tribunals. The High Court could allow the appeal only on grounds of law and as the High Court had agreed with the courts below on the construction of the kabuliath no other question of law could arise. The kabuliath contained no reference to any lands having been charged with police duties. If the issue had been properly raised by pleadings, the onu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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