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TMI Blog2022 (12) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of repairing work made by the concern M/s. Portek Systems & Equipments Pte. Ltd., Singapore was revenue expenditure. 2. That on the facts & circumstances of the case and in law, the Ld. CIT(A) has erred by not appreciating the facts that the aforesaid repairing work was not routine repairing works of the assessee company & it required technical assistance to bring the ship unloaders in a good condition for future works. 3. That on the facts & circumstances of the case and in law, the Ld. CIT(A) has erred by not appreciating the facts that the aforesaid expenditure had 'endowed an enduring advantage to the assessee, the benefit of which the assessee would reap for years to come. 4. That on the facts & circumstances of the case and in law, the Ld. CIT(A) has not appreciated the fact that the ship-unloader was shut down for around couple of months and re-commissioned after making the aforesaid repairing works. 5. That on the facts & circumstances of the case and in law, the Ld. CIT(A) has not appreciated the fact that the aforesaid repairing expenditure included huge amounts, benefit from the same reaped for years, incurred at the time of some special circumstances, nee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereinafter "Portek"). Ld. Assessing Officer was of the view that the repairs and maintenance undertaken by the assessee through Portek were in the nature of capital expenditure and disallowed the same. Ld. Assessing Officer also disallowed a sum of Rs.15,55,218/- incurred on account of customs duty by assuming it to be intrinsically linked with capital expenditure. 4.1.1. During the year under consideration, assessee had undertaken repairs of two ship unloaders (identified as 'SUL#1' & 'SUL#2'). These repairs involved replacement, restorations and re-alignment of various parts of the machineries which had worn out either due to ageing or due to damage. Out of the two unloaders, SUL#2 was damaged due to a cyclone in 2006, which was repaired for permanent restoration after a series of temporary repairs undertaken till 2011. Portek undertook the repair work for SUL#2 for which it was responsible for engaging machineries and mobilizing manpower. It also had the responsibilities for modifying design of main trolleys so as to prevent accidents, keeping the main design intact. 5. In the course of repair work, assessee also undertook upgradation of existing automation system with Siemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the same was executed on 14/05/2022. He pointed out that for large and frequent use of berth where machineries of heavy loads are stored, the structural alignment of cranes, plates and hydraulic cylinders of the ship unloaders gets damaged and substantial wear and tear is a natural phenomenon. He further stated that a disaster in the form of a cyclone in 2006 struck the eastern part of India which caused severe damage to the ship unloaders. An inspection exercise was carried out by the assessee through Larsen & Tubro (L&T), Engineering Constructions & Contract division according to which, SUL#2 was reported by L&T as unsafe for use and to be taken out of operation. Report dt. 11/04/2008 submitted by L&T is placed in the paper book at page no. 99 which pointed for the repair action to be undertaken by the assessee. Another technical audit for the ship unloader SUL#1 was undertaken by the assessee through KFT GmbH vide report dt. 12/12/2007 wherein also, it was strongly recommended to take SUL#2, out of operation. This report is placed at page 100 of the paper book. 11. Ld. Counsel for the assessee, referred to the license agreement entered by the assessee with the Board of Truste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of loss: damage. or destruction, howsoever caused regardless of whether such loss, damage or destruction is partial or total. Licensor shall not be liable for damages by reason of any inconvenience or interruption to the business of Licensee arising from any taking over under the power of eminent domain or on account of any loss, damage or destruction of the leased premises by fire, casualty or other cause whatsoever, or from the making of additions, alterations or repairs to the leased premises." [emphasis supplied by us by underline] 13. By referring to these clauses in the license agreement, ld. Counsel submitted that assessee carried out repairs in his leasehold property so as to keep the same in proper condition. He submitted that the assessee is not the owner of the property. Assessee is in the capacity of the holder of leasehold rights. He thus submitted that the very basis of conceiving the character of the expenditure as capital by the ld. Assessing Officer is at variance with the facts of the instant case. There was no proximate relationship between the repairs undertaken by the assessee and enduring benefits as speculated by the ld. Assessing Officer. He stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. Thus, there was no payment made by the assessee to SAIL on these two accounts and, therefore, no tax could have been deducted at source from such payments. He, thus, submitted that it is a clear case of reimbursement of actual expenses incurred by SAIL and, therefore, are not of the nature falling within the scope of Section 194C of the Act. According to him, provisions of Section 194C of the Act are not applicable to the reimbursement of actual expenses and thus, the assessee is not liable to deduct tax at source from such reimbursement of actual expenses. Accordingly, no disallowance should have been made by ld. Assessing Officer in the first place. Ld. Counsel also placed reliance on several judicial precedents including that of the Hon'ble Supreme Court and several Hon'ble High Courts. Reference to certain judicial precedents referred by him is tabulated as under, which was also reproduced in the order of the ld. CIT(A) at page 4 & 5:- SI. No. Name Findings/Ratio 1. Ballimal Naval Kishore vs. CIT (224 ITR 414) In New Shorrock Spinning and Manufacturing Company Ltd., Chagla,C.J., it was, observed that the expression "current repairs" means expenditure on building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l not function. That logic cannot be extended to the entire manufacturing facility from the stage of raw material to the delivery of the final finished product. 5. Prestige Foods Ltd. vs. DCIT In reconstruction, the whole structure does not require to be demolished. The expense incurred on the reconstruction will be treated as capital expenditure. 6. ACIT vs. E I Dupont (107 ITR 63) The expenditure is to bring into existence a sophisticated communication system to bring about connectivity of the assessee's office in Delhi and Bombay with other establishments of the assessee in India and abroad. The expenditure is not merely on wires and cables etc. but expenditure is on installation of sophisticated network. Taking into consideration all these aspects we hold that the assessee was not at all justified in treating such expenditure as part of repairs and renovation. 15. While giving findings, ld. CIT(A) noted the contentions of assessee at page 8 of his order, which is reproduced hereunder:- "1. The A.O. had overlooked the fact that repairing jobs in question did not add to working capacities of existing machinery. 2. Cost of upgraded part was capitalized by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake note of the terms and conditions of the license agreement quoted above which also requires an obligation on the assessee to undertake repairs and maintenance, repairs of damage and destruction. Work order dt. 07/10/2011 issued by the assessee on Portek placed in the paper book at page 40, while referring to the scope of work also states that "the work scopes for the above accident repair are as follows:". 17.1 The moot point before us on this issue relates to deciding whether the expenditure claimed by the assessee in respect of repairs amounting to Rs.5,02,24,450/- is of revenue in nature or capital. 17.2 It is well settled that, whether a particular expenditure is revenue expenditure incurred for the purpose of business or not, must be determined on a consideration of all the facts and circumstances and by the application of principles of commercial trading. It is also settled that if the outgoing or expenditure is so related to the carrying on or conduct of the business, that it may be regarded as an integral part of the profit earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r infrastructure required to be installed at berth no. 4A and also the assets of the licensor contained in the said license agreement in appendix-II annexure-I and annexure-III respectively, placed at pages 86 & 87 in the paper book. The same are reproduce as under:- 19. From the above extraction, we noted that the licensor assets are in respect of waterfront area and the backup area which have been handed over to the licensee i.e., the assessee under the license agreement. However, the list of equipment and other infrastructure to be installed are towards the obligation of the assessee. Thus, keeping the provision of Section 31 of the Act and the terms and conditions of the license agreement along with the inspection report of L&T and the nature of repair work undertaken by the assessee, we are of the considered view that in order to entitle an assessee to claim deduction towards repairs as revenue expenditure, it has to be taken in commercial sense which means that the repairs which are undertaken under the normal course of usage for the purpose of preservation, maintenance or proper utilization. We understand that the objective of expenditure should not be to bring a new asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not result in emergence of a new ship but amounted, in substance, to current repairs to the existing ship. These findings have not been challenged before us by the revenue. The fact that old parts of the ship were replaced by new parts, in our opinion, is not relevant for determining whether the expenditure was on 'current repairs' or not. The replacement of the old parts by new parts does not mean that a new asset was brought into existence in relation to the ship in question. The replacement of the parts was only in the process of current repairs of the ship. The expenditure claimed in this case, therefore, amounts to 'current repairs' which is allowable as a deduction under section 31." 20. Similar issue has been addressed by the Hon'ble Allahabad High Court in the case of Commissioner of Income-tax, Kanpur v. Saran Engg. Co. [2011] 10 taxmann.com 14 (All) wherein the decision of the Hon'ble Supreme Court in the case of CIT v. Saravana Spg. Mills (P.) Ltd. JT [2007] 10 SC 111, was referred wherein the Hon'ble Supreme Court had interpreted the words 'current repairs' and laid down that the basic test to find out as to what constitutes 'current repai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two impugned expenses which have been disallowed by the ld. AO for want of deduction of tax at source by the assessee while making payment of the same. 22.2 Reference is made to the legal maxim 'impotentia excusat legam' and 'lex non cogit ad impossibilia' in this respect. When there is an invincible disability to perform mandatory part of the law that impotentia excuses. Law does not compel one to do that which one cannot possibly perform. Where the law creates a duty or charge and the party is disabled to perform it, without any default in him and has no remedy over it, there the law will, in general, excuse him. Therefore, when it appears that the performance of the formalities prescribed by a statute has been rendered impossible by circumstances over which the person interested had no control, the circumstances will be taken as a valid excuse. 22.3 In the present case before us, Haldia Dock Complex, Kolkata Port Trust levied charges on SAIL who in turn deducted the same from the payments made by SAIL to the assessee. Ld. AO has raised his doubts whether SAIL has made payments for these levies to Haldia Dock Complex, Kolkata Port Trust after deduction of applicable tax at sou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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