Repairs to Plant & Machinery and Share-Transfer Professional Fees Held as Revenue Expenditure (Disallowances Deleted)

Whether (i) repairs and maintenance expenditure on plant & machinery/effluent pipeline parts is capital or revenue, and (ii) professional fees connected with share transfers/listing (not fresh issue) are allowable deductions.

Applicable Law / Notification / Circular

• Income-tax Act, 1961
  • Section 31 – Repairs and insurance of machinery, plant and furniture
  • Section 37(1) – General business expenditure (not capital/personal)
• Judicial principles on “enduring benefit” and replacement of independent asset (tests applied consistently by courts).
• Distinction between fresh issue of share capital (capital) vs post-issue/transfer/listing compliance (revenue).

Short Answer

Minor replacement of parts/components in plant & machinery and effluent pipelines—without creating a new asset or replacing the whole plant—constitutes revenue expenditure; disallowance is not sustainable. Professional fees incurred for share transfer work, share capital audit reconciliation, and listing of existing equity shares (not for fresh issue) are allowable under section 37(1); disallowance must be deleted.

Detailed Steps / Reasoning Applied by the Authority

A) Repairs & Maintenance (Plant, Machinery, Effluent Pipeline)

1. Identify the nature of outlay: Was there acquisition of a new independent asset or replacement of the whole?
2. Apply enduring benefit test: Does the expense merely preserve/maintain existing capacity or add a new capital advantage?
3. Factual finding: Only minor parts/pipeline/components of the effluent treatment process were replaced; no new plant was created; no whole replacement occurred.
4. Conclusion: Expense is revenue (u/s 31 / alternatively allowable u/s 37(1)); enhancement/disallowance by CIT(A) deleted.

B) Professional Fees (Share-related)

1. Segregate services:

• Fresh issue of share capital - generally capital.
• Share transfers, reconciliation/audit of share capital, listing of existing shares -revenue (business/compliance).

2. Factual finding: Fees were not for fresh issue; related to transfer/compliance/listing of existing equity.

3. Conclusion: Allowable u/s 37(1); AO directed to delete disallowance.