TMI Blog1994 (12) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... right in law in holding that loans should not be deducted in computing the capital for the purpose of granting relief under section 80J of the Income-tax Act, 1961 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that section 40(c) is applicable and not section 40A(5) to the directors ? " Counsel for the parties are agreed that question No. 2 is covered by the decision of the Supreme Court in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308, and following the same, it should be answered in the negative and in favour of the Revenue. Counsel are further agreed that since question No. 3 is also covered by the decision of this court in CIT v. Hico Products P. Ltd. (No. 1) [1993] 201 ITR 567, it should be answered in the affirmative and in favour of the assessee. Having regard to the above position, we answer these two questions accordingly. The only controversy that survives for our consideration is the one raised in question No. 1. In that view of the matter, we shall briefly refer to those facts which are material for answering the said question. The assessee is a private limited company doing the business of expor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital in nature. It was also contended that there was no authority for the proposition that when the total expenditure added to the written down value exceeds the original cost, such excess has to be disallowed. The assessee also contended that the quantum of expenditure was not material for determining whether it was to be allowed as a deduction or not. Lastly, it was contended that the repairs in question were for the purpose of preserving or maintaining an already existing asset and did not bring into being a new asset or enduring advantage and, therefore, the proposal to disallow any portion of the expenditure in question over and above the disallowance made by the Inspecting Assistant Commissioner in his directions under section 144B(4) should be dropped. The Commissioner, however, did not accept the above contention of the assessee as he was of the opinion that the expenditure in question had been incurred with a view to bringing into existence an asset or advantage of enduring benefit to the business of the assessee. Considering the huge amount spent, the Commissioner did not agree that the expenditure in question was on current repairs as contended by the assessee. In arriv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airs together with the written down value of the ship exceeded its original cost. The Tribunal, therefore, set aside the order of the Commissioner of Income-tax and restored the original deduction allowed by the Income-tax Officer. Hence, this reference at the instance of the Revenue. We have perused the order of the Commissioner of Income-tax passed on revision under section 263 of the Act as also the order of the Tribunal setting aside the same. We find that the Commissioner held the expenditure on repairs and replacements in the instant case to be expenditure of capital nature considering the magnitude of the amount spent vis-a-vis the original cost of the ship. The Tribunal set aside the same as according to it that was not a relevant consideration. The Tribunal examined the nature of the expenditure and held it to be expenditure on current repairs which is an admissible deduction under section 31 of the Act. On a careful consideration of the two orders, for the reasons set out below, we find ourselves in agreement with the conclusion arrived at by the Tribunal. Section 31 of the Act provides for deduction in respect of amounts paid on repairs of machinery, plant, etc. It r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), and the decision of the Madras High Court in CIT v. Coimbatore Motor Transport Co-operative Society for Ex-servicemen [1968] 70 ITR 165, where expenditure incurred by the assessee, who was engaged in transport of goods and passengers, on complete renovation of the body of a motor vehicle by putting a new body on an old chassis, was held to be a case of " current repairs " and hence an allowable deduction. Similarly, in CIT v. Khalsa Nirbhai Transport Co. (P.) Ltd. [1971] 82 ITR 741 (P H), expenditure incurred by a private limited company carrying on the business of transport on replacement of the petrol engines of its buses by diesel engines was held by the Punjab and Haryana High Court to be revenue expenditure and an allowable deduction as " current repairs ". To the same effect is the decision of the Madras High Court in C. R. Corera and Brothers v. CIT [1963] 49 ITR 188. In this case, the assessee had incurred heavy expenditure in repairing its cargo boat. The repairs involved were caulking, replacement of underwater planking and copper sheathing. As a result of the repairs, the boat was structurally not altered nor was there any improvement in its loading capacity, perfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repairs or resulted in an addition to or improvement of the existing asset, it would be the " replacement value " and not the " original cost ". It is common experience that the replacement value of an asset is often much higher than the original cost-sometimes so high that the figure of the original cost loses its relevance. For example, the original cost of an Ambassador car in the mid-seventies was around Rs. 28,000. If such a car was used for business, its written down value after few years of purchase would be insignificant. Repairs undertaken on such car might often involve expenditure of an amount much higher than the original cost of the car itself. But that cannot be a factor to hold the expenditure to be an expenditure of capital nature. The " replacement value " of an asset might, however, at times throw some light on the true nature of the expenditure on repairs. Turning to the same illustration of an Ambassador car, the replacement cost of the motor car at present is over Rs. 2,00,000. An expenditure of Rs. 50,000 to Rs. 75,000, on repairs of such car cannot be said to bring into existence a new car or result in an addition to such car, though such expenditure evidentl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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