IT : Increase in life of existing assets beyond their original estimated economic life by repairs and maintenance could not be taken as ground for treating such expense as capital in nature
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[2013] 36 taxmann.com 19 (Punjab & Haryana)
HIGH COURT OF PUNJAB AND HARYANA
Commissioner of Income-tax
v.
Vishal Paper Industries*
HEMANT GUPTA AND MS. RITU BAHRI, JJ.
IT APPEAL NO. 203 OF 2012†
JANUARY 16, 2013
Section 31 of the Income-tax Act, 1961 - Repairs and insurance of machinery, plant and furniture - Whether increase in life of existing assets beyond their original estimated economic life by repairs and maintenance could not be taken as ground for treating such expense as capital in nature - Held, yes - Whether, where new identifiable items created were capable of being used independently, same when used for repairs and maintenance of assets was allowable as revenue expenditure - Held, yes [Para 3] [In favour of assessee]
FACTS
| ■ | The assessee claimed certain expenses on account of repairs and maintenance as revenue expenditure. However, the same were held to be capital in nature. | |
| ■ | On first appeal, the Commissioner (Appeals) found that the expenses had led to new identifiable assets and had increased life of assets beyond their original estimated life. Also, the profitability of the concern had substantially increased. Therefore, he dismissed assessee's appeal. | |
| ■ | On second appeal, the Tribunal set aside the findings of Commissioner (Appeals). | |
| ■ | On appeal by the revenue: |
HELD
| ■ | It is found that the increase of life by repairs and maintenance of the existing assets beyond their original estimated economic life cannot be a ground to return a finding that it was not a case of repairs. Repairs and maintenance are in fact necessary not only for achieving the optimum utilization of machinery but also if possible to extend its economic life. Therefore, the fact that such installation has increased the life beyond their original economic life cannot be a ground to return a finding that the expenses incurred were not for repairs and maintenance. Similarly, the ground of increase in the profitability of concern is again a totally alien to determine the nature of the repair and maintenance. Increase in profit would lead to increase in income, which would be separately taxable but could not be a ground for declining the expenses incurred by the assessee for repairs and maintenance. Though the finding returned is that new identifiable assets have been created the Tribunal has returned a finding that though each of the items is usable independently such items have been used for repairs and maintenance. With such finding, the expenditure was allowed. [Para 3] | |
| ■ | In view of the said fact, the findings recorded by the Tribunal are the findings of fact and no substantial question of law arises for consideration. [Para 4] | |
| ■ | Dismissed. [Para 5] |
CASES REFERRED TO
Vishal Paper Industries v. Jt. CIT [2013] 32 taxmann.com 247 (Chd.) (Trib) (para 1).
Ms. Savita Saxena for the Appellant.
JUDGMENT
1. The present appeal under section 260A of the Income-tax Act, 1961 (for short "the Act"), is arising out of an order passed by the Income-tax Appellate Tribunal (for short "the Tribunal") on March 26, 2012-since reported in Vishal Paper Industries v. Jt. CIT [2013] 32 taxmann.com 247 (Chd.) (Trib), whereby the expenses claimed by the assessee on account of repairs and maintenance were allowed though, earlier such expenses were disallowed for the reason that such expenses are capital expenditure in nature. The appellant has claimed the following substantial question of law :
"In the facts and circumstances of the case, whether the Income-tax Appellate Tribunal is justified in deleting the addition of Rs. 45,22,172 sustained by the Commissioner of Income-tax (Appeals) out of Rs.95,00,109 on account of disallowance of expenditure incurred on purchase of new items ignoring the fact that most of the items purchased by the appellant were new identifiable assets brought into existence and could not be termed as current repairs ?"
2. The Commissioner of Income-tax (Appeals) has found that the expenses under the repairs and maintenance account has led to (i) new identifiable assets, (ii) their installation had increased life of the existing assets beyond their original estimated economic life, and (iii) profitability of the concern had substantially increased. Such order was set aside by the Tribunal treating such items as capital expenses by the Commissioner of Income-tax (Appeals). The learned Tribunal held that the issue whether the expenditure is capital or revenue in nature, depends on several tests. No single test is universally applicable and infallible in nature. Each item of such expenses is to be seen and considered in the light of the facts of each case and its use. In view of the said fact, the findings recorded by the Commissioner of Income-tax (Appeals) were set aside.
3. The learned Commissioner of Income-tax (Appeals) has found that many items were purchased by the assessee which led to the conclusions as mentioned above. We find that the increase of life by repairs and maintenance of the existing assets beyond their original estimated economic life cannot be a ground to return a finding that it was not a case of repairs. Repairs and maintenance are in fact necessary not only for achieving the optimum utilization of machinery but also if possible to extend its economic life. Therefore, the fact that such installation has increased the life beyond their original economic life cannot be a ground to return a finding that the expenses incurred were not for repairs and maintenance. Similarly, the ground of increase in the profitability of concern is again a totally alien to determine the nature of the repair and maintenance. Increase in profit would lead to increase in income, which would be separately taxable but could not be a ground for declining the expenses incurred by the assessee for repairs and maintenance. Though the finding returned is that new identifiable assets have been created the Tribunal has returned a finding that though each of the items is usable independently such items have been used for repairs and maintenance. With such finding, the expenditure was allowed.
4. In view of the said fact, we find that the findings recorded by the Tribunal are the findings of fact. We do not find any substantial question of law arises for consideration.
5. Dismissed.
ESHARegards
Prarthana Jalan
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