TMI Blog1998 (2) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... ue in nature and is an allowable deduction ?" The assessee-company, engaged in the business of manufacture and sale of sugar and molasses, claimed the following expenditure as revenue expenditure under the head "Factory maintenance": Items Amount (Rs.) 1. High velocity juice heater 1,20,000 2. Sugar grader 95,000 3. Centrifugal machinery 18,87,853 4. Juice sulphiter 2,23,200 5. Vacuum filter drum 3,35,260 6. Pumps 91,800 7. Meters 45,916 Total 27,49,029 The Assessing Officer rejected the claim of the assessee holding that the entire expenditure was capital in nature. In support of his view, the Assessing Officer held that the sugar plant of the assessee consisted of several independent components, viz., juice heater, j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer in this behalf. The assessee carried the dispute further in appeal to the Income-tax Appellate Tribunal, before whom counsel for the assessee contended that there could not be a sugar plant without juice heater, sugar grader, juice sulphiter, vacuum filter drum, centrifugal machinery, pumps, meters, etc., and, therefore, all such equipments are integral parts of the entire sugar plant. This is how, it was contended before the Appellate Tribunal that the sugar mill is an integrated machinery comprising several components. The submission proceeded on the footing that without the equipment in question, the sugar, which is the end-product of the assessee's sugar mill, could not be produced and, therefore, it cannot be said that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onwealth of Australia [1966] AC 224 (PC), Lord Pearce unable to lay down a clear test to make a distinction between capital and revenue expenditure, said: "The solution to the problem is not to be found by any rigid test or description. It has to be derived from many aspects of the whole set of circumstances some of which may point in one direction, some in the other. One consideration may point so clearly that it dominates other and vaguer indications in the contrary direction. It is a common sense appreciation of all the guiding features which must provide the ultimate answer...." In Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377 (SC), the fact matrix, in brief, was that the appellant, a company engaged in the manufacture o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... high priority research is constantly updated so that the know-how cannot be said to be the element of the requisite degree of durability and non-ephemerality to share the requirements and qualifications of an enduring capital asset. The rapid strides in science and technology in the field should make us a little slow and circumspect in too readily pigeon-holing an outlay such as this as capital...." Reversing the decision of the High Court, the Supreme Court, on the fact situation, observed as under: "The business of the assessee from the commencement of its plant in 1961, it is undisputed, was the manufacture of penicillin. Even after the agreement, the product manufactured continued to be penicillin...there was no material for the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as something akin to statutory conditions ; nor are the notions of 'capital' or 'revenue' a judicial fetish. What is capital expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business...." The Supreme Court again observed as follows: "In the infinite variety of situational diversities in which the concept of what is capital expenditure and what is revenue arises, it is well nigh impossible to formulate any general rule, even in the generality of cases, sufficiently accurate and reasonably comprehensive, to draw any clear line of demarcation..." From the above reproduced observations, it is nothing but clear that the answer to the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of expenditure, incurred on major components purchased for replacing the old ones. The vital question is whether the sugar mill can work in the absence of machinery, expenditure incurred on which is claimed by the assessee. This question has to be answered in the negative. For the manufacture of sugar, all the machinery claimed are necessary. No doubt, the expenditure was incurred on the principal components of the sugar mill, still, however, it would be wrong to hold each machinery as an independent unit. All machinery put together complete the sugar plant. We, therefore, entirely agree with the view taken by the Appellate Tribunal. Learned senior standing counsel submits that expenditure incurred on substantial replacement is capital ..... X X X X Extracts X X X X X X X X Extracts X X X X
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