V. RAMASWAMI J.


At the instance of the Commissioner of Incometax, Tamil Nadu-I, the following identical question has been referred in these two cases as there was an appeal and a cross appeal before the Income-tax Appellate Tribunal.



"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the expenditure of Rs. 1, 44, 061 was incurred towards 'current repairs' ?" *


The assessee is a public limited company. The accounting year is the calendar year preceding the relevant assessment year. In respect of the assessment year 1966-67, the assessee claimed deduction of a sum of Rs. 1, 44, 061 as revenue expenditure. It was its case that the expenditure represented import duties, clearing and forwarding charges as also consulting fees and erection and servicing charges in connection with the installation of blow room lines in the assessee's textile mills and that, therefore it is an expenditure incurred towards current repairs. The Income-tax Officer disallowed this claim on the ground that the machinery was sent for replacing the old machinery by new machinery and the incidental expenses were connected with the same. The Income-tax Officer was further of the view that in any case the expenditure cannot be said to have been incurred in connection with current repairs. The assessment order contained a note that the total of Rs. 1, 44, 061 comprising two components, namely, Rs. 73, 510 representing the expenditure incurred in respect of the erection and service charges and Rs. 70, 551 representing payment towards import duties, clearing and forwarding charges, was incurred in the accounting period relevant to the assessment year 1965-66.


On an appeal by the assessee, confirming the view of the Income-tax officer, the Appellate Assistant Commissioner held that by the alterations and additions made to the existing machinery, the capacity of the machinery has been increased resulting in an indirect addition to the business and that being of an enduring nature, cannot be treated as a revenue expenditure. In that view, the Appellate Assistant Commissioner also held that the expenditure incurred cannot be treated as one falling under current repairs under section 31(i) of the Act. While making this order, the Appellate Assistant Commissioner took note of the fact that the Income-tax Officer has stated that a sum of Rs. 70, 551 represented expenditure incurred in an earlier year. Accordingly, he deleted that amount as not referable to 1966-67 and confirmed the order of the Income-tax Officer relating to the balance of Rs. 73, 510 aloneThe assessee preferred an appeal before the Tribunal against the decision of the Appellate Assistant Commissioner upholding the disallowance of Rs. 73, 510 on the ground that it represented capital expenditure, while the Department filed cross-objections on the ground that that amount also had to be considered in the assessment year 1966-67 in view of certain proceedings initiated under section 147 by the Income-tax Officer and an ultimate order made in that regard, which we need not notice here. Thus, the entire amount of Rs. 1, 44, 061 was before the Tribunal for consideration. The Tribunal ultimately accepted the contention of the assessee that the entire expenditure was with reference to the import duty, clearing and forwarding charges and utilisation of spares for modification of the blow room machinery and rectifying it so as to bring it to full capacity and in that view held that the entire amount was allowable as revenue expenditure relating to current repairs.


It is against this order of the Tribunal that the above question has been referred to us.


It is seen from the records that M/s. Platts Bros., Oldham, England, supplied the blow room line for the textile mill of the assessee some time in 1954. As the said blow line was not functioning satisfactorily both with regard to its performance relating to turnover as also relating to the quality of the fibre produced, contrary to the assurance given by the foreign supplier, there was correspondence between the foreign supplier and the assessee. There seemed to have been some attempts to rectify the defects, but not to full satisfaction. Ultimately, the foreign supplier agreed to supply free of charge certain components for the blow room line which would bring the machine to the design and performance agreed to. Accordingly, they did supply the components and spares worth Rs. 1, 51, 000. The assessee agreed to bear the expenditure relating to import duties, forwarding and clearing charges and also erection and incidental charges. The sum of Rs. 1, 44, 061 is relatable to this expenditure of import duties, clearing and forwarding charges, erection and servicing charges. There is no dispute that the original machinery which was supplied in 1954 was being exploited right from its erection in 1954, though the performance of the same was defective and not to the satisfaction of the assessee and it is because of that correspondence was going on between the foreign supplier and the assessee. Ultimately, the repairs were effected by replacing certain parts and the expenditure claimed as deduction on the ground that it related to current repairs. On these facts, there could be no doubt that it cannot be treated as a case of replacement of old machinery by new machinery or of acquisitio

n of an asset of an enduring nature to disallow the claim of the assessee. Though the spares were supplied free of cost, the assessee had to incur the other expenditure relating to clearing the same from the customs as also in repairing and servicing the existing machinery while replacing these parts. That clearly is referable to current repairs. The Tribunal, was, therefore, Tight in its conclusion that the entire sum of Rs. 1, 44, 061 is deductible. The reference is accordingly answered in the affirmative and against the Revenue. The assessee will be entitled to its costs. Counsel's fee Rs. 500 one set.