TaxTMI 
TaxTMI 
2001 (6) TMI 55
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....rawn up a statement of facts of the case. The statement of facts as referred by the Tribunal are as follows : "The facts of the case; in respect of question No. 1 are that the Assessing Officer had made disallowance of Rs. 50,000 under section 40A(5) of the Income-tax Act, 1961. The assessee was requested to furnish details of salary paid, allowances paid to employees, house rent paid and value of perquisites provided, etc., for the purpose of section 40A(5) of the Act. The assessee did not furnish the details and contended that no amount was required to be disallowed under section 40A(5). In the absence of specific details, the Assessing Officer disallowed Rs. 50,000 on estimate as per details worked out in the immediate preceding assessment year giving increment to the employees drawn from the employer's as well as considering the profit disclosed. Being aggrieved, the assessee came up in appeal before the Commissioner of Income-tax (Appeals). Similar disallowance was made in the immediately preceding year and the Commissioner of Income-tax (Appeals) deleted the disallowance vide its order dated February 25, 1988, in Appeal No. 401, Guwahati, 1986-87 for the assessment year 198....
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.... (iv) Incorporation of capital expenditure incurred by STE 1,30,194 (v) Amount paid to Aspiring Ltd. 6,400 -------- ....
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....k a wrong approach in holding that the assessee failed to file the details as required by the Assessing Officer in order to enable the Tribunal to judge as to whether the disallowance was according to the provisions of section 40A(5) of the Act, Besides the Tribunal also commuted error of law and facts by observing that the Commissioner of Income-tax (Appeals) has not given any reason for deleting the disallowance. Referring pointedly to the order dated October 3, 1988, passed by the Commissioner of Income-tax (Appeals), learned counsel appearing for the assessee has stated that in discussant,,, ground No. 2(g), the learned Commissioner of Income-tax (Appeals) had clearly recorded the reasons as follows : "In ground No. 2(g) it has been stated that the Inspecting Assistant Commissioner (Assessment) was not justified in making disallowance of Rs. 50,000 on estimate under section 40A(5) of the Income-tax Act, 1961. The Inspecting Assistant Commissioner (Assessment) made the aforesaid disallowance on the ground that the appellant did not furnish details of expenses which were required to be furnished under section 40A(5). Reasons given by the Inspecting Assistant Commissioner (Assess....
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....rt to start by looking at the facts found by the Tribunal and answer the questions of law on that footing. The statement of facts under the rules framed under the Income-tax Act is prepared with the knowledge of the parties concerned having full opportunity to apply for any addition or deletion from the statement of facts, the statement of facts must be accepted as correct and the court has to pronounce its judgment on the basis of the said statement of facts. In Karnani Properties' case [1971] 82 ITR 547, it was held by the Supreme Court that when the question referred to the High Court speaks of "on the fact and in the circumstances of the case" it means on the facts and circumstances found by the Tribunal and not about the facts and circumstances that may be found by the High Court. The jurisdiction of the High Court in dealing with the reference under section 66 is a very limited one and it must take the facts as stated in the statement of facts and cannot go beyond them. Taking into account the ratio of the aforesaid cases, we find force in the submissions of learned senior counsel appearing on behalf of the assessee and we are inclined to hold that the statement of facts pr....
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....ted basis. In that view of the matter, the question of law No. 1 under reference is answered in the negative and in favour of the assessee. Now coining to the second question of law under reference, learned senior counsel appearing on behalf of the assessee, has stated that the Tribunal failed to apply its mind to the ratio of the two decisions cited before it, namely, (1) Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 (SC) and (2) Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC). The expenditure incurred on account of repairs of plant arid machinery of Rs. 3,18,214 ought to have been accepted as without having the enduring benefit. It is stated that the assessee had clearly and specifically explained the expenditure of Rs. 3,18,214 for accepting the same as revenue expenditure inasmuch as those expenses were incurred in carrying out the repairs and replacement of the machineries including purchase of parts of such purposes. There is absolutely no scope to bring such expenditure under the head of capital expenditure. Assailing the order dated October 27, 1994, learned senior counsel appearing for the assessee 'has drawn our attention to the order dated October 3, 1988,....
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.... had to be removed from their positions and fixed to a new position to be fitted with dryers. (ii) Cost of one set of casting Paid to Andrew Yule and Co. Ltd. for and accessories Rs. 1,42,199 supply of spare set of castings and accessories for No. 14 S.C.D. AIR heater &n....
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....bsp; | Amounts (Rs.) -------------------------------------------------------------------------------- 22/11-2-1984 |Overhauling of generator and repairing charges | 28,894.00 | of motor. | 23/11-2-1984 |Overhauling of generator and repairing charges | 18,500.00 | of motor | 9-1-1984 |Repairing charges of alternator of generator | 18,600.00 11/17-1-1984 | &nbs....
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....rent repairs and replacement of worn out parts of existing machineries as well as for the purchase of parts. For instance regarding item (i), i.e., installation of motors of Rs. 6,127 on remarks column, it was noted that the dryers of Salkathoni factory had to be shifted from existing position to a new position for making space available for "sorting". The old motors had to be removed from their position and fixed to a new position to be fitted with dryers. It appears that such installation of motors as well as shifting of dryers are necessary for the purpose of making more space available for sorting and as such replacement does not come under the purview of enduring benefit to make it a capital expenditure. Item No. (ii) relates to cost of one set of casting and accessories for Rs. 1,42,199. The said cost has been shown as paid to Andrew Yule and Co. Ltd. for supply of spare set of castings and accessories for No. 14 S. C. D. AIR Heater inasmuch as in coal fired heaters replacement of casting from time to time is essential, while item No. (iii) speaks of cost of spares of new CTC machine for Rs. 33,285. This expense was shown as the segments used in CTC machine had to be replac....
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....purpose of maintenance of generators and motors without having any enduring benefit. In order to substantiate his argument, learned senior counsel appearing on behalf of the assessee has referred to several decisions of the apex court as well as High Courts. Those case laws are discussed as under. In the celebrated case of Atherton (H. M. Inspector of Taxes) v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155, the House of Lords speaking through Viscount Cave L.C., at pages 192, 193 held as follows : "When an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for, treating such an expenditure as properly attributable not to revenue but to capitals For this view-there is already considerable authority. Thus, moneys expended by a brewing firm with a view to the acquisition of new licensed premises (Southwell v. Savill Brothers [1901] 2 KB 349); 'fitting expenses' incurred in transferring a manufacturing business to new premises ((Tranite Supply Association ....
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....on of those roads facilitated the business operations of the assessee and enabled the management to carry on the business more efficiently and profitably as well as have an advantage for a long duration till the roads continued to be in motorable condition, there was not an advantage capital in nature because no tangible or intangible asset was acquired by the assessee nor was there any addition to or expansion of the profit-making apparatus of the assessee. Accordingly, it was held that the amount of Rs. 50,000 contributed by the assessee for the purpose of facilitating the conduct of the business and making it more efficient and profitable was clearly an expenditure on revenue account. In another case, cited by learned senior counsel for the assessee in Ballimal Naval Kishore v. CIT [1997] 224 ITR 414, the apex court at page 417 held as under: "If we look at the facts of this case, it will be, evident that what the assessee did was not mere repairs but a total renovation of the theatre. New machinery, new furniture, new sanitary fittings and new electrical wiring were installed besides extensively repairing the structure of the building, By no stretch of imagination, can it be....
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....therefore, this was an expenditure which the assessee-company could claim as a permissible deduction under section 10(2)(v) of the Act." In another case reported in CIT v. Indian Woollen Textile Mills (P.) Ltd. [1978] 112 ITR 441, the Punjab and Haryana High Court held that the findings of fact recorded by the Tribunal led to the conclusion that the expenditure being for current repairs and replacements was incurred by the assessee in the day-to-day course of the carrying on of the business which was commercially expedient and demanded by the necessities of the business, such expenditure cannot be incurred as capital expenditure in nature. Similarly, the Allahabad High Court in CIT v. Kanodia Cold Storage [1975] 100 ITR 155, it was specifically held that replacement of existing service line for the functioning of the cold storage with a new line did not result in the creation of any new asset of enduring nature and the same was not in the nature of capital expenditure and as such the amount of expenditure was allowable in computing the income of the assessee. . The Madras High Court in CIT v. Sree Narasimha Textiles (P.) Ltd. [1999] 238 ITR 351, held that the need for replace....
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....continue production and hence the expenditure incurred for such overhauling and repairing was undoubtedly a recurring one without having any enduring benefit. A bare reading of the judgment of the Appellate Tribunal, it appears that the Tribunal in arriving at a decision of reversing the order dated October 30, 1988, passed by the Commissioner of Income-tax (Appeals), rejected the applicability of the ratio of Assam Bengal Cement Co. Ltd.'s case [1955] 27 ITR 34 (SC) and Empirejute Co. Ltd.'s case [19801 124 ITR 1 (SC), pressed into service on behalf of the assessee. The Tribunal held that both the aforesaid decisions did not come to the rescue of the assessee as the facts and circumstances of the instant case were altogether different. Now let us closely look at these decisions to find out whether the ratio laid down therein can be made applicable to the case in band. In Assam Bengal Cement Co. Ltd.'s case [1955] 27 ITR 34, the apex court dealing in detail on the question of capital or revenue expenditure held that the line of demarcation of capital expenditure and revenue " expenditure is very thin. It depends on the facts and circumstances of any particular case. In the said....