Gujarat High Court
Commissioner Of Income-Tax vs Baroda Industrial Development ... on 26 March, 1992
Equivalent citations: [1992]198ITR716(GUJ)
Author: G.T. Nanavati
Bench: G.T. Nanavati, J.M. Panchal
JUDGMENT G.T. Nanavati, J.
1. In this reference, the question which are required to consider is whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the amount of Rs. 58,164 is an allowable business deduction. The question has been referred to us under section 256(1) of the Income-tax Act, 1961.
2. The assessee-company is carrying on the business of providing services and facilities, such as electricity, water, railway siding, etc., to industrial units. In the return of its income filed for the assessment year 1968-69, the company claimed expenses of Rs. 3,44,499 as revenue expenses. Under that head, it had included Rs. 58,164, being the initial cost of underground electric cables. The said cables were purchased by it for supplying electricity to various block holders, as the old overhead wiring was causing problems like breakdown, etc. The Income-tax Officer disallowed the claim for said expenditure as revenue expenditure, treated the same as capital expenditure and allowed depreciation permissible under the law. The assessee, therefore, preferred an appeal to the Appellate Assistant Commissioner. In appeal, the contention of the assessee that the said expenditure was in the nature of revenue expenditure was accepted. Therefore, the Revenue preferred an appeal to the Income-tax Appellate Tribunal. The Tribunal agreed with the view taken by the Appellate Assistant Commissioner and dismissed the appeal. The Revenue then moved the Tribunal for referring the following question to this court :
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the amount of Rs. 58,164 is an allowable business deduction ?"
3. What is urged by learned counsel for the Revenue is that the assessee-company is engaged in providing services like electricity and, for that purpose, it had set up a network consisting of overhead electric wires. The said network was a capital asset of the company. What the company did by replacing the overhead electric wires with underground cables was that it had changed the nature of the capital asset by replacing the old system with a new system. The expenditure which the assessee-company incurred for this purpose resulted in an enduring advantage, which was to last for a sufficiently long period. Thus, the expenditure cannot be said to be revenue expenditure, not being in the nature of current repairs. He also drew our attention to various principles which have been laid down by courts and which are referred to in CIT v. Ashok Leyland Ltd. [1969] 72 ITR 137 (Mad) and Hylam Ltd. v. CIT [1973] 87 ITR 310 (AP). As pointed out in the case of Hylam [1973] 87 ITR 310 (AP), it is not the law that, if an enduring advantage is obtained, the expenditure for securing it must always be treated as capital expenditure, though it is true that, if the expenditure is for a substantial replacement of an existing business asset, it would be capital expenditure. Such an expenditure may have to be regarded as current repairs, if the replacement or the expenditure incurred for that purpose is not substantial. Whether the cost of substitution or replacement of old with new can be regards as current repairs or not is always a question of fact and a question of degree. In this case, the assessee had produced a chart and other records to show the extent of replacement. Considering the nature of the business of the assessee, the extent of replacement, the necessity for replacement and other relevant facts, the Appellate Assistant Commissioner and the Tribunal have recorded a finding that the replacement was in the nature of current repairs. It is, therefore, not possible to say that the Tribunal did not correctly appreciate the true nature of the expenditure or the principles applicable for determining whether such expenditure can be regarded as a revenue expenditure or capital expenditure. Though the overhead electric wires which originally formed part of the capital asset of the company were replaced by underground cables, it is not possible to agree with the contention raised on behalf of the Revenue that the expenditure incurred in that behalf was capital in nature. We, therefore, answer the question in the affirmative, i.e., against the Revenue and in favour of the assessee. This reference is disposed of accordingly with no order as to costs.