Depreciation Allowed on Stand-by Spare Parts; Fixed Deposit Expenses Deemed Deductible as Revenue Expenditure.

The HC dismissed the Revenue's appeal, ruling in favor of the assessee on both issues. It affirmed that depreciation is allowable on stand-by spare parts, even if not used during the year, as they are considered 'used' when kept ready for use. Additionally, expenses incurred for obtaining fixed deposits from the public were deemed revenue expenditure and thus deductible, as they are essential for business operations.

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Issues:
1. Whether depreciation should be allowed on spare parts which are stand-by items even though they were not taken for use during the yearRs.
2. Whether the expenses related to obtaining fixed deposits from the public is a revenue expenditure liable for deductionRs.

Analysis:

Issue 1 - Depreciation on Stand-by Spare Parts:
The Revenue appealed against the order of the Income-tax Appellate Tribunal, which allowed depreciation on stand-by spare parts for the assessment years 1986-87 and 1987-88. The Commissioner of Income-tax (Appeals) had already held in favor of the assessee regarding depreciation on stand-by items. The High Court referred to relevant legal precedents, including CIT v. Viswanath Bhaskar Sathe and Liquidators of Pursa Ltd. v. CIT, to establish that machinery can be considered 'used' even when kept ready for use. Applying this reasoning, the High Court concluded that the assessee is entitled to depreciation on stand-by spare parts, even if not used during the accounting year.

Issue 2 - Expenses Related to Obtaining Fixed Deposits:
The second issue involved the deduction of expenses related to obtaining fixed deposits from the public as revenue expenditure. The Tribunal allowed these expenses, considering them closely linked to the business requirement of funds. The High Court analyzed legal precedents such as India Cements Ltd. v. CIT and CIT v. Mahindra Ugine and Steel Co. Ltd. to determine the nature of such expenses. It was established that if expenses are incurred for securing the use of money for a certain period and are wholly and exclusively for the purpose of the business, they qualify as revenue expenditure. Based on this analysis, the High Court upheld the Tribunal's decision, ruling that the expenses for obtaining fixed deposits from the public are revenue in nature and thus deductible.

In conclusion, the High Court answered both issues in the affirmative, dismissing the Revenue's appeal and ruling in favor of the assessee.

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