2018 (8) TMI 861 - HC - Income Tax

Court classifies repair expenses as revenue, not capital, due to sea water damage. Previous SC decision favors assessee.

The High Court upheld the Income Tax Appellate Tribunal's decision to classify repair and maintenance expenditure as revenue expenditure rather than ... Nature of expenditure - capital or revenue - repair and maintenance expenditure - addition of income on account of minimum guaranteed quantities by users of assessee’s storage facility - Held that:- Both the issues answered against the revenue and in in favor of assessee. Issues involved:1. Classification of repair and maintenance expenditure as revenue or capital expenditure.2. Addition of income on account of minimum guaranteed quantities by users of storage facility.Analysis:1. The judgment deals with two appeals concerning the classification of repair and maintenance expenditure as revenue or capital expenditure for different Assessment Years. The Income Tax Appellate Tribunal (ITAT) had quashed the order treating the repair and maintenance expenditure as capital expenditure and held it to be revenue expenditure. The Revenue challenged this decision, arguing that the expenses resulted in enduring benefits to the assessee and should be treated as capital expenditure. However, the assessee contended that the expenditure was necessary due to the continuous contact of sea water damaging the machinery joints, requiring immediate attention and fabrication. The High Court agreed with the ITAT's decision, stating that the expenses were rightly treated as revenue expenditure due to the nature of the work and the immediate necessity of repairs. Therefore, the Tribunal did not commit any error in its classification of the expenditure.2. The second issue in Tax Appeal No.929/2018 pertained to the addition of income of a specific amount made on account of minimum guaranteed quantities by users of the assessee's storage facility. The Revenue's advocate acknowledged that a similar issue had been decided against the Revenue in a previous case concerning the same assessee for earlier assessment years. The decision was upheld by the Supreme Court after the dismissal of a Special Leave Petition. Consequently, the High Court held that no substantial questions of law arose in both appeals and dismissed them accordingly.