HIGH COURT OF
Commissioner of Income-tax
v.
Rane (
R.D. DINAKARAN AND P.S. JANARTHANA RAJA, JJ.
T.C. (A) NOS. 857 AND 858 OF 2007
June 22, 2007
I Section
37(1) of Income-tax Act, 1961 - Business expenditure - Allowability of - Assessments
years 1996-97 to 1997-98 - Assessee, engaged in production of recirculating
ball type steering gears in units at ‘V’ and ‘M’, started a new industry at ‘P’
for manufacture of rack and pinion steering gears - Assessee incurred certain
expenditure for its ‘P’ limit and claimed same as revenue expenditure -
Assessing Officer treated those expenses as capital in nature holding that ‘P’
unit was entirely a new unit - Whether since ultimate production at all placed
remained same, viz., steering gears a change in manufacturing process and in
mechanism was nothing but based on new technology brought in and introduction
of such a new technology would not be a ground to construe that steering gears
manufactured at ‘P’ were totally a new production by assessee - Held, yes - Whether therefore, industry set
up at ‘P’ was nothing but an extension of existing industries at ‘V’ and ‘M’
and expenditure incurred in convention with ‘P’ unit were allowable as revenue
expenditure - Held, yes
II Section
37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of -
Assessment year 1997-98 - Assessee incurred certain expenditure on
reconditioning of machinery - Assessing Officer disallowed those expenses on
ground that it would have an enduring benefit to assessee and, accordingly,
treated same as capital expenditure - Whether expenditure incurred by assessee
was allowable as revenue expenditure as same was made with a view to maintain
existing asset - Held, yes
The assessee was engaged in the production of recirculating ball type steering gears in the units situated at ‘V’ and ‘M’. During the relevant assessment year, the assessee started a new industry at ‘P’ for manufacture of rack and pinion steering gears for which it incurred certain expenditure. The assessee claimed the entire expenditure as revenue expenditure. But the Assessing Officer treated those expenses as capital in nature holding that ‘P’ unit was entirely a new unit. On appeal, Commissioner (Appeals) held those expenses as revenue in nature and thus, allowed the assessee’s appeals. On revenue’s appeal, the Tribunal confirmed the order of the Commissioner (Appeals).
On revenue’s appeal under section 260A
It was not in dispute that in both the units,
viz., existing units at ‘V’ and ‘M’ unit at ‘P’ the assessee manufactured the
steering gears, while at ‘V’ and ‘M’, it manufactured ball type steering gears
and at ‘P’ rack and pinion steering gears.
Except the change in the manufacturing process and mechanism of steering
gears, ultimate production at all the places remained the same, viz., steering
gears. If that was so, such a change in the manufacturing process and in the
mechanism was nothing but based on new technology brought in and the
introduction of such a new technology would, not be a ground to construe that
the steering gears manufactured at ‘P’ were totally a new production by the
assessee. Therefore, both the Commissioner (Appeals) and the Tribunal had
rightly come to the conclusion that the industry set up by the assessee at ‘P’
was not a new industry, as the same did not manufacture any new products. [
As the product was one and the same viz, steering gears, the industry set up at ‘P’ was nothing but an extension of the existing industries at ‘V’ and ‘M’ and the deduction claimed by the assessee, with regard to the expenditure incurred in connection with the new unit at ‘P’, even though it was independent because of the interconnection of management, financial, administrative and production aspects, such expenditure had to be construed as revenue in nature and therefore deductible.
The assessee incurred certain expenditure with respect to the reconditioning of internal thread grinding and external thread grinding machines. The Assessing Officer disallowed those expenses on the ground that it would have an enduring benefit to the assessee and accordingly, treated the same as capital expenditure. On appeal, Commissioner (Appeals), allowed the same as revenue expenditure. On revenue’s appeal the Tribunal confirmed the order of Commissioner (Appeals).
On revenue’s appeal under section 260-A
It is well settled that if any replacement or
reconditioning of machinery is made with a view to maintain the existing asset,
the expenditure incurred on such replacement or reconditioning has to be
treated as revenue expenditure. [
Accordingly, no question of law arose for consideration. Therefore, the Tribunal was right in allowing a deduction of the amounts spent on reconditioning of machinery, as revenue expenditure.
CIT v. Indian Telephone
Industries Ltd. [1989] 175 ITR 215 (Kar.); Addl. CIT v. Rewari Electric
Supply & General Industries [1982] 138 ITR 473 [1983] 12 Taxman 61 (