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The Tax Publishers Dy. CIT v. Kalyanpur Cements Ltd. [ITA No. 1956/Kol/2013, dt. 19-4-2016] : 2016 TaxPub(DT) 2204 (Kol-Trib) Replacement of key machinery parts whether current repairs *Facts: Assessee had to spend substantial repairs by replacing key parts of machinery. Assessing officer disallowed the same as capital expenditure as bringing in enduring benefit. Commissioner (Appeals) allowed the said expense. On further appeal: Held in favour of the assessee based on own case of earlier year. The spend was current repairs as they were replacement of parts. Test of current repairs as cited and read - CIT v. Chowgule & Co. Pvt. Ltd. (1995) 214 ITR 523 (Bom)* has considered the expression 'current' preceding 'repairs' as under: (i) The amount should be paid on account of current repairs. (ii) 'Current repairs' means repairs undertaken in the normal course of user for the purpose of preservation maintenance or proper utilisation or for restoring it to its original condition. (iii) 'Current repairs' do not mean only petty repairs or repairs necessitated by wear and tear during the particular year. (iv) Such repairs should not bring into existence nor obtain a new or different advantage. (v) The quantum of expenditure nor the fact that in the process of repairs, there was substantial replacement of the parts of machine or ship is decisive of the true nature of the expenditure. (vi) The original cost of the asset is not at all relevant for ascertainment of the true nature of the expenditure on repairs. (vii) The replacement cost of the asset may however, at times may be used as indicator of the true character of the expenditure. If the expenditure on repair added to the written down value or disposal value exceeds the replacement cost of the asset, a presumption is possible that it is not a revenue expenditure but expenditure of capital nature. Such presumption, of course, would be rebuttable. (viii) The expression 'current' preceding 'repairs' appears to have been used by the legislature with a view to restricting the allowance to expenditure incurred for preservation and maintenance thereof in its current state in contradiction to that incurred on any improvement or an addition thereto. Hon'ble Supreme Court in the case of CIT v. Saravana Spinning Mills (P) Ltd. (2007) 7 SCC 298 has held unambiguously that "each machine in a segment of a textile mill has an independent role to play in the mill and the output of each division is different from the other" - also applied.

The Tax Publishers

Dy. CIT v. Kalyanpur Cements Ltd. [ITA No. 1956/Kol/2013, dt. 19-4-2016] : 2016 TaxPub(DT) 2204 (Kol-Trib)

Replacement of key machinery parts whether current repairs

Facts:

Assessee had to spend substantial repairs by replacing key parts of machinery. Assessing officer disallowed the same as capital expenditure as bringing in enduring benefit. Commissioner (Appeals) allowed the said expense. On further appeal:

Held in favour of the assessee based on own case of earlier year. The spend was current repairs as they were replacement of parts.

Test of current repairs as cited and read - CIT v. Chowgule & Co. Pvt. Ltd. (1995) 214 ITR 523 (Bom) has considered the expression 'current' preceding 'repairs' as under:

(i) The amount should be paid on account of current repairs.

(ii) 'Current repairs' means repairs undertaken in the normal course of user for the purpose of preservation maintenance or proper utilisation or for restoring it to its original condition.

(iii) 'Current repairs' do not mean only petty repairs or repairs necessitated by wear and tear during the particular year.

(iv) Such repairs should not bring into existence nor obtain a new or different advantage.

(v) The quantum of expenditure nor the fact that in the process of repairs, there was substantial replacement of the parts of machine or ship is decisive of the true nature of the expenditure.

(vi) The original cost of the asset is not at all relevant for ascertainment of the true nature of the expenditure on repairs.

(vii) The replacement cost of the asset may however, at times may be used as indicator of the true character of the expenditure. If the expenditure on repair added to the written down value or disposal value exceeds the replacement cost of the asset, a presumption is possible that it is not a revenue expenditure but expenditure of capital nature. Such presumption, of course, would be rebuttable.

(viii) The expression 'current' preceding 'repairs' appears to have been used by the legislature with a view to restricting the allowance to expenditure incurred for preservation and maintenance thereof in its current state in contradiction to that incurred on any improvement or an addition thereto.

Hon'ble Supreme Court in the case of CIT v. Saravana Spinning Mills (P) Ltd. (2007) 7 SCC 298 has held unambiguously that "each machine in a segment of a textile mill has an independent role to play in the mill and the output of each division is different from the other" - also applied.