TMI Blog1981 (5) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the proviso to section 32(1)(ii) or under section 37 of the Income-tax Act, 1961 ? " The facts as set out are these: The assessee, a public limited company, carries on business of manufacture and sale of sugar and machinery for sugar mills and other industries. The "previous year " for the assessment for 1967-68 ended on August 31, 1966. During the previous year relevant to the assessment year 1966-67, the assessee had installed one vacuum filter to explore the possibilities of filtering first carbonated juice on a more economical basis. The cost of this filter installed during the said year amounted to Rs. 78,997. Before the installation of the vacuum filter, the assessee was using the batch type system for the purpose of filtration and every time the press got filled up with mud, it had to be stopped, cleaned and redressed. With the vacuum filter, the filtration was to be continuous and such systems were said to be in use in foreign countries in beet sugar factory and cane factories adopting sulphitation process for clarification. On such installation, the assessee was allowed depreciation to the extent of Rs. 5,498 during the assessment year 1966-67, and thus the written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 3,659 by Rs. 464 and Rs. 57 incurred on bolts and taps. But under the head " Tools and implements " the balance amount of Rs. 3,138 was held not to be allowable as the amount was incurred as capital expenditure on assets written off in the previous year itself. The claim of the assessee that the deduction was allowable under s. 32(1)(ii) or s. 37 of the Act was negatived. That is the scope of question No. 2. With regard to both the questions, it is noteworthy that the stand of the Revenue before the Tribunal as also here was that the expenditure incurred was capital in nature and did not attract allowable deductions. That the sums had to be spent in the course of the business of the assessee cannot and has never been disputed. Now, the expenditure would be revenue expenditure if it does not fall within the ambit of capital expenditure as has been explained and understood in judicial precedents, in the light of which these questions can be answered. There is a catena of precedents giving guidelines as to what expenditure would fall within capital or revenue. One of the guidelines is that if the expenditure is incurred for obtaining an advantage of enduring benefit it would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 1922 Act. Since the finding recorded by the Tribunal in that case was that these repairs were not "current repairs ", an argument was built that the Act limited allowable deductions to the "current repairs " and none other, and so resort could not be had to the general provisions of s. 10(2)(xv). Their Lordships negatived the plea. Certain portions of the judgment are extracted below (p. 53) : "Now, this contention rests on the principle that if a special provision covers the case, resort cannot be had to a general provision. It seems to us that if the renovation of the building, the reconditioning of machinery and the removal of debris cannot be described as 'current repairs' and we assume that to be so the case would be entitled to consideration under s. 10(2)(xv). Section 10(2)(v) deals with current repairs only. The subject-matter of s. 10(2)(v) is 'current repairs' and it appears difficult to agree that repairs which are not 'current repairs' should not be considered for deduction on general principles or under s. 10(2)(xv). There must be very strong evidence that in the case of such repairs, the Legislature intended a departure from the principle that an expenditure, lai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reconditioned and the accumulated debris removed from the land. The colliery was, in a word, reinstated to the condition necessary for ensuring production. No new asset was brought into existence; no advantage for the enduring benefit of the business was acquired. An activity which was continuously in operation but had been temporarily suspended was to be resumed. " In L. H. Sugar Factory and Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293, their Lordships of the Supreme Court termed the contribution made towards cost of construction of roads in an area around factory, wholly and exclusively laid out for business, not as a capital expenditure and treated it as an allowable deduction under the residuary provision. Their Lordships observed as follows (headnote): (ii) That the sum of Rs. 50,000 contributed under the sugarcane development scheme was deductible expenditure under s. 10(2)(xv). The roads under the scheme were undoubtedly advantageous to the business of the assessee as they facilitated the transport of sugarcane to the factory and the outflow of manufactured sugar from the factory to the market centres. The construction of these roads facilitated the business operations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive engineer's pointed attention for rectification. Equally, in another decision of this court in CIT v. Bhagat Industries Corporation Ltd. [1980] 126 ITR 645, repairs carried out to building of the branch office of the assessee, made of durable nature, were opined as allowable as business expenditure and not capital expenditure. From the aforesaid precedents, it seems to us that a capital asset of the nature involved in the instant case, if repaired or improved upon, as part of business exigencies, would entitle the assessee to claim the expenditure incurred thereon as business expenditure. And even if he is not capable of squarely putting his case under any specific head to claim deduction, the residuary s. 37 would be available to him subject to other conditions fulfilling. It would be purely academic for our purpose whether the improvements made on the plant squarely fall within " repairs " as known to s. 31 or is a depreciation as known to s. 32(1)(iii) or of expenditure on scientific research as known to s. 35 of the Act. The first question referred on the finding of the Tribunal under specific heads can appropriately be and is hereby answered in the negative, i.e., in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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