TMI Blog2017 (9) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... where the amount was either a donation (as in Madhav Prasad Jantia’s case - 1979 (4) TMI 2 - SUPREME Court) or even loan was given to an individual or to a director of the company in his personal capacity. Had that been so, the question might legitimately been asked as to prove the purposes of the loan. In other words, the question posed by the Revenue suggests its own answer. It postulates that when two commercial entities have between them a loan transaction, it is conceivable that the purpose is something other than a business purpose. Prima facie, it seems that the only possible other purpose, as oppose to a business purpose or commercial expediency, is a ‘personal’ one (such as a loan to a director for personal use or a commemorative loan), and a commercial entity can have no such personal purpose. The finding of the Tribunal in our view, cannot be faulted. It relied on a decision of a co-ordinate bench of the Tribunal in another matter where a decision of the Gauhati High Court in Highways Construction Co Pvt Ltd v Commissioner Of Income-Tax (1992 (11) TMI 86 - GAUHATI High Court) was considered. The finding there was that only the real income earned by the assessee could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowance of expenditure of interest paid on loans taken at interest advanced the same money to sister concerns without charging any interest, even it the assessee could not produced the evidence to show that the advances were used for business purpose as held in the case of Mir Mohd. Ali v CIT in 38 ITR 413 ? C. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT is right in deleting the addition of ₹ 21,19,97,295 considering that the expenses incurred on repairs and maintenance of the old vessel can only be categorized as current repairs as the same has been incurred to keep the vessels in good condition without increasing the capacity by ignoring the decision of the Hon'ble Supreme Court in the case of Ballimal Naval Kishore v CIT (1997) 224 ITR 414 and CIT v. Saravana Spinning Mills (P) Ltd. (2007) 163 Taxman 196 , wherein it was held that the object of current repairs should not be obtaining a new or fresh advantage every expenditure does not come automatically under current repairs? D. Whether on the facts in the circumstances of the case, the Hon'ble ITAT is right in deleting the addition made by the AO on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stions of law arise in the matter sufficient to justify admission of this appeal. We will deal with each of the four questions proposed immediately, as it seems to us that all these questions are either fully answered by settled decisions or are questions of fact and not questions of law, leave alone substantial questions of law. D. FINDINGS ON THE PROPOSED SUBSTANTIAL QUESTIONS OF LAW I. DEPRECIATION ON UPS 7. The submission of the Revenue here is that a UPS, though used admittedly only in conjunction with a computer network, is not itself a computer . Reliance is sought to be placed on the ITAT decision in Nestle India Limited v Deputy Commissioner of Income Tax. (2007) 111 TTJ Delhi 498 However, the issue is squarely covered by a decision of a coordinate bench of the ITAT in the case of SRL itself in ITA No 190/PNJ/2011. The CIT followed that decision. It was on this limited ground that in paragraphs 9 and 10 the ITAT held against the Revenue on this aspect of the appeal. We see no defect in the reasoning of the Tribunal. Indeed we are unable to appreciate why, when there is a decision of a coordinate Bench on an identical point, the Tribunal should, or even co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f earning income, profits or gains , and this has been the consistent view of this Court. In our opinion, the High Court in the impugned judgment, as well as the Tribunal and the Income Tax authorities have approached the matter from an erroneous angle . In the present case, the assessee borrowed the fund from the bank and lent some of it to its sister concern (a subsidiary) on interest-free loan. The test, in our opinion, in such a case is really whether this was done as a measure of commercial expediency. In our opinion, the decisions relating to Section 37 of the Act will also be applicable to Section 36(1)(iii) because in Section 37 also the expression used is for the purpose of business . It has been consistently held in decisions relating to Section 37 that the expression for the purpose of business includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. Thus in Atherton vs. British Insulated Helsby Cables Ltd (1925) 10 TC 155 (HL), it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended, not of necessity and with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany in his personal capacity. Had that been so, the question might legitimately been asked as to prove the purposes of the loan. In other words, the question posed by the Revenue suggests its own answer. It postulates that when two commercial entities have between them a loan transaction, it is conceivable that the purpose is something other than a business purpose. Prima facie, it seems that the only possible other purpose, as oppose to a business purpose or commercial expediency, is a personal one (such as a loan to a director for personal use or a commemorative loan), and a commercial entity can have no such personal purpose. The finding of the Tribunal in paragraph 11 of its order, in our view, cannot be faulted. It relied on a decision of a co-ordinate bench of the Tribunal in another matter where a decision of the Gauhati High Court in Highways Construction Co Pvt Ltd v Commissioner Of Income-Tax (1993) 199 ITR 702 Gau. was considered. The finding there was that only the real income earned by the assessee could be brought to tax, not some notional income. The question suggested as a substantial of law seems to proceed on a basis that some notional interest might ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an indicator of the true character of the expenditure. There may be a rebuttable presumption - a question of fact - if the current repairs added to the written down or disposal value exceed the present replacement cost of the asset. The word current indicates that the legislative intent was to restrict the allowance to expenditure incurred for preservation and maintenance of the asset in its current state (as opposed to an expenditure incurred on any improvements or additions, or bringing into being a new item or a new advantage). Reference was made in Chougule and Co to the decision of Chagla CJ in New Shorrock Spg and Mfg Co Ltd v CIT. (1956) 30 ITR 338 (Bom). The simple test set out there, one that must be borne in mind is whether as a result of the claimed expenditure on repairs an already existing asset is being preserved and maintained or an attempt is being made to bring a new asset into existence or to obtain to new and different advantage. 15. The decision of Chagla CJ in was also expressly approved by Supreme Court in Ballimal Naval Kishore v Commissioner of Income Tax, (1997) 90 Taxman 402 (SC). on which Ms. Linhares relies. There, the Supreme Court al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrongly applied by the High Court, but whether the expenditure is current repairs . The basic test to find out as to what would constitute current repairs is that the expenditure must have been incurred to preserve and maintain an already existing asset, and the object of the expenditure must not be to bring a new asset into existence or to obtain a new advantage . In fact, in the present case, in the balance sheet the assessee, viz, M/s Saravana Spinning Mills has indicated the above expense as an item incurred for purchase of a New Asset. In our view, the High Court had erred in placing reliance on the report of SITRA in coming to the conclusion that the textile mill is a plant under Section 31(i). As stated above, each machine in a segment has an independent role to play in the mill and the output of each division is different from the other. Repair implies the existence of a part of the machine which has malfunction. If the argument of the assessee herein before us is to be accepted it would result in absurdity and it would make the provisions of Section 31(i) completely redundant. According to Shri R. Venkataraman, learned senior counsel for the assessee, the textile pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tting and polishing of diamonds, and in Lucky Minmat the assessee was involved in the business of mining limestone and marble blocks and then cutting and sizing these before sale. 20. Far more apposite is the decision that Mr. Rivankar cites as fully covering the issue here, that of the Supreme Court in The Commissioner of Income Tax v Sesa Goa Ltd. (2004) 271 ITR 331 The Supreme Court affirmed the Division Bench decision of this court in CIT v Sesa Goa Ltd. (2004) 266 ITR 126 (Bom). There, too, the question arose inter alia in regard to ore extraction and processing. That too was a case of a mining company. The Supreme Court held that mining for the purpose of production of mineral ore falls within the ambit of the word production . 21. The Division Bench of this Court had held that in such a process, ore has to be extracted or raised from earth. This activity is production , entitling the assessee to the benefit of Section 32(A) of the Act. Thus, there would be an allowable depreciation deduction in respect of the machinery used in mining. It cannot be said that mining is neither production nor manufacture. That is no longer res integra. 22. The consequen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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