TaxTMI 
TaxTMI 
2007 (1) TMI 146
X X X X Extracts X X X X
X X X X Extracts X X X X
.... : "1. Whether, on the facts and circumstances of the case, the Tribunal was right in holding that depreciation should be allowed on stand-by spare parts even though they were not taken for use during the year ? 2. Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the expenses related to obtaining fixed deposits from the public is a revenue expenditure liable for deduction ?" 2. The facts, in brief, are as under : 3. The assessment years with which we are concerned are 1986-87 and 1987-88. The assessee filed its returns, inter alia, claiming depreciation on stand-by items such as spare parts in respect of critical parts of plant and machinery for both the assessment years. In so far as the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... not happily framed and we reframe the question as under : "Whether, on the facts and circumstances of the case, the Tribunal was right in holding that depreciation should be allowed on spare parts which are stand-by items even though they were not taken for use during the year ?" 8. Undisputedly, as found in the order of the Appellate Tribunal, the stand-by items are assets acquired by the assessee and kept in readiness for use whenever the machinery that is regularly used goes out of action or requires repairs. Before going into the question whether depreciation on stand-by items is allowable, it is useful to refer the law on this subject. 9. Section 32 of the Act reads as follows : "32. Depreciation.- (1) In respect of depreciati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es the user of the factory and the machinery." 11. In Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265 (SC), in construing the expression " used for the purposes of the business" found in section 10(2)(iv) of the 1922 Act, the Supreme Court observed as follows (headnote) : "The words ' used for the purposes of the business' in section 10(2)(iv) of the Indian Income-tax Act, 1922, mean used for the purpose of enabling the owner to carry on the business and earn profits in the business. In other words, the machinery or plant must be used for the purpose of that business which is actually carried on and the profits of which are assessable under section 10(1)." "The word ' used' has been read in some of the pool cases in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er, the Commissioner as well as the Tribunal directed the grant of allowance. 13. In such circumstances, this court, after elaborately discussing the point, held as follows (page 681) : " . . . the machinery could be ' used' for the purposes of the business so long as it is kept ready for such user. Any ' forced idleness' of the machinery cannot disentitle the assessees from getting the benefit of the allowance. In the present case, from the directors\q report, which have already been extracted and the contents of which are not at all in dispute, it is clear that the assessee was prevented from using the machinery because of the frequent labour unrest. In these circumstances, we consider that, in the present case, the ass....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tended to be used for the purchase of raw mate rial when it is negotiated, but the company may, after raising the loan, change its mind and spend it on securing capital assets. Is the purpose at the time the loan is negotiated to be taken into con sideration or the purpose for which it is actually used? . . . the purpose for which the new loan was required was irrelevant to the consideration of the question whether the expenditure for obtaining the loan was revenue expenditure or capital expenditure. To summarise this part of the case, we are of the opinion that : (a)the loan obtained is not an asset or advantage of an enduring nature ; (b) that the expenditure was made for securing the use of money for a certain period ; and (c) that it ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a new industrial unit then the assessee shall be allowed a deduction at an amount equal to one-tenth of such expenditure for each of the ten successive previous years beginning with the previous year in which the business commences or the previous year in which expansion of the industrial undertaking is completed, etc. In the present case, on the facts, the Tribunal has found that the object of the debenture issue was to meet the working capital requirement of the assessee and, therefore, the expenditure was considered to be a revenue expenditure." 19. In CIT v. Investment Trust of India Ltd. [2003] 264 ITR 506 this court held that the expenditure on advertisements in newspapers inviting fixed deposits from the public is allowable in the ....