Of Income Tax v. Saravana Spinning Mills Pvt. Ltd. (Sc) 293 Itr2011?

IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO. 70 OF 2015 THE COMMISSIONER OF INCOME TAX, PANAJI., VersusSALGAOCAR MINING INDUSTRIES PVT. LTD., ... Appellant ... Respondent Ms. Asha A. Desai, Advocate for the appellant.Shri P.J. Pardhiwalla, Senior Advocate with Advocate Ashwin D.Bhobe for the respondent. P.C. Heard Ms. Asha A.Desai, learned Advocate appearing for theappellant and Shri P.J. Pardhiwalla, learned Senior Advocateappearing for the respondent. 2] The learned counsel appearing for the appellant has raised thefollowing contention for consideration in the above appeal underSection 260 A of the Income Tax Act, 1961: (A) Whether in law and in circumstances of the case, the Hon'bleITAT is right in deleting the addition made by AO of Rs. 37,56,939/-on account of Dredging and cleaning charges by considering theseexpenses as revenue as against capital expenses, by ignoring thedecisions of the Hon'ble Supreme Court in the case of Commissioner of Income Tax v/s Saravana Spinning Mills Pvt. Ltd. (SC) 293 ITR2011? (B) Whether in law and circumstances of the case, the Hon'bleITAT is right in deleting the addition of Rs. 35,89,64,088/- relating tocapital expenditure incurred in ship renovation viz MV Sunrise, byignoring the decisions of the Hon'ble Supreme Court in the case ofCommissioner of Income Tax V/s Saravana Spinning Mills Pvt. Ltd.,(SC_293 ITR 2011? 3] The learned counsel appearing for the appellant submits thatthe findings of the learned Tribunal that the expenditure to the tune ofRs.37,56,939/- spent by the respondent towards Dredging andclearing charges are revenue expenditure are erroneous, as accordingto the learned counsel, such expenditure are capital expenditure. Thelearned counsel has thereafter taken us through the findings of theAssessing Officer to point out that on the basis of the material onrecord such expenditure must be treated as capital expenditure. Thelearned counsel has thereafter taken us through the findings of CIT aswell as Income Tax Appellate Tribunal to point out that the relevantaspects had not been considered by the Tribunal while erroneouslycoming to the conclusion that such expenditure was revenueexpenditure. The learned counsel as such points out that thesubstantial question of law on that count deserves to be considerationfor this Court. 4] With regard to the second proposed substantial question of law,the learned counsel points out that the Assessing Officer has on thebasis of the material on record come to the conclusion that new assethas been created issuing expenditure to the old ship i.e. M.V.Sunrise. The learned counsel further points out that the Assessing Officer has found that by replacing the parts of the ship, altogether new asset hasbeen created and as such treated such expenditure to be capitalexpenditure. The learned counsel, however, submits that theCommissioner of Income Tax as well as the Income Tax AppellateTribunal have failed to examine the nature of the expenditure whilecoming to its conclusion that the expenditure was not capitalexpenditure. The learned counsel further points out that theexpenditure which has been incurred exceeds the value of the shipand as such this itself is an indication that a new asset has beencreated. The learned counsel has taken us through the finding of thelearned Tribunal to point out that the findings are erroneous and perverse as according to the learned counsel, the learned Tribunal hasfailed to consider that on the basis of such expenditure, a new assethas been created. 5] Shri Pardhiwalla, the learned Senior Counsel appearing forthe respondent has pointed out that subject assessment in the presentappeal is for the year 2008-2009 and that, in the previous assessmentyear 2006-2007 similar expenditure has been treated as revenueexpenditure. The learned Senior Counsel further points out that an 5] Shri Pardhiwalla, the learned Senior Counsel appearing forthe respondent has pointed out that subject assessment in the presentappeal is for the year 2008-2009 and that, in the previous assessmentyear 2006-2007 similar expenditure has been treated as revenueexpenditure. The learned Senior Counsel further points out that an appeal preferred against the decisions of Tribunal for the assessmentyear 2006-2007 has been dismissed by this Court by the order dated16th November, 2014. The learned counsel as such points out that thelearned Tribunal was justified to rely upon such finding whileexamining similar expenditure for the assessment year 2006-2007 tocome to the conclusion that such expenditure was towards revenueexpenditure. 6] With regard to the proposed second substantial question oflaw, the learned Senior Counsel appearing for the respondent haspointed out that both the authorities have concurrently found thatsuch expenditure is the revenue expenditure. The learned counselfurther points out that even examining the nature of the expenditurereferred to in the impugned orders passed by the Tribunal, it clearlyshows that such expenditure are not towards capital expenditure andas such the authorities are justified to come to the conclusion that theexpenditure was towards revenue expenditure. The learned SeniorCounsel further points out that there is a categorical finding of theTribunal to the effect that no new asset has emerged from the replacement of the parts and as such the contention of the learnedcounsel appearing for the appellant that such findings are perverse,are not at all justified. The learned Senior Counsel in support of hissubmission relied upon, the judgment of the Division Bench of thisCourt in the case of Commissioner of Income Tax Vs. Chowgule andCo.Pvt. Ltd [(1994) 62 CCH 0807 MumbHC]. 7] We have considered the submissions of the learned counselappearing for the respective parties. As far as the first proposedquestion for consideration it is undisputed that in similarcircumstances, and the identical expenditure for the assessment year2006-2007, the appeal preferred by the revenue came to bedismissed. The learned Tribunal while coming to the conclusion thatthe expenditure towards dredging is Revenue expenditure has alsorelied upon the earlier findings rendered at in earlier assessmentyear 2006-2007. Considering that the appeal preferred by theRevenue has been rejected, we find that there is no reason to take acontrary view in the present appeal. Both the authorities haveconcurrently found that such expenditure is revenue expenditure andsuch concurrent finding of fact cannot be re-appreciated by thisCourt in an appeal under Section 260 A of the Income Tax Act unless perversity is shown in such findings by the appellant.There is noperversity discussed by the appellant and as such we find that thequestion of considering the appeal on the proposed question of lawwould not arise. 8] With regard to the second proposed substantial question oflaw, we find that both the authorities below upon appreciating the evidence on record have concurrently found that such expenditure isrevenue expenditure. There is a categorical finding arrived at by theTribunal that there is no new asset created upon the replacement of the parts of the concerned ship. The learned Tribunal has alsoreferred to the test required to consider whether an expenditure isrevenue expenditure. In such circumstances, we find that thisconcurrent finding of fact cannot be interfered with by this Court inthe present appeal under Section 260 A of the Income Tax Act. TheDivision Bench of this Court in a judgment in the case ofCommissioner of Income Tax reported in Commissioner of IncomeTax Vs. Chowgule and Co.Pvt. Ltd.[((1994) 62 CCH 0807MumbHC] in similar circumstances, has observed at paragraphs 7,9and 10 read thus:- "7. Section 31 of the Act provides for deduction in respect of amounts paid on repairs of machinery, plant, etc. It reads: the parts of the concerned ship. The learned Tribunal has alsoreferred to the test required to consider whether an expenditure isrevenue expenditure. In such circumstances, we find that thisconcurrent finding of fact cannot be interfered with by this Court inthe present appeal under Section 260 A of the Income Tax Act. TheDivision Bench of this Court in a judgment in the case ofCommissioner of Income Tax reported in Commissioner of IncomeTax Vs. Chowgule and Co.Pvt. Ltd.[((1994) 62 CCH 0807MumbHC] in similar circumstances, has observed at paragraphs 7,9and 10 read thus:- "7. Section 31 of the Act provides for deduction in respect of amounts paid on repairs of machinery, plant, etc. It reads: "31. Repairs and insurance of machinery, plant and furniture. - Inrespect of repairs and insurance of machinery, plant or furniture usedfor the purposes of the business of profession, the followingdeductions shall be allowed - (i) the amount paid on account of current repairs thereto; (ii) the amount of any premium paid in respect of insurance againstrisk of damage or destruction thereof." "9. It may also be expedient at this stage to consider the relevance ofthe original cost of the asset vis-a-vis the expenditure on repairs todetermine whether it is a revenue expenditure on "current repairs" orexpenditure of capital nature. In the instant case, the Commissioner held the expenditure not to be a revenue expander on current repairsin view of the fact that the amount of expenditure on repairs togetherwith the written down value of the ship exceeded its original cost.This, in our opinion, is not the correct approach to determine thenature of the expenditure. The original cost of the ship or machineryor plant is not indicative of its value at the time when the repairs wereundertaken. If the value of the machinery or plant or the ship is arelevant factors in deciding whether the repairs amounted to currentrepairs or results in an addition to or improvement of the existingasset, it would be the "replacement value" and not the "original cost".It is common experience that the replacement value of an asset isoften much higher than the original cost-some-times so high that thefigure of the original cost loses its relevance. For example, theoriginal cost of an Ambassador car in the mid-seventies was aroundRs. 28,000. If such a car was used for business, it written down valueafter few years of purchase would be insignificant. Repairs undertaken on such car might often involve expenditure of an amountmuch higher than the original cost of the car itself. But that cannot bea factor to hold the expenditure to be an expenditure of capital nature.The "replacement value" of an asset might, however, at times throwsome light on the true nature of the expenditure on repairs. Turning tothe same illustration of an Ambassador car, the replacement cost ofthe motor car at present is over Rs. 2,00,000. An expenditure of Rs.50,000 to Rs. 75,000, on repair of such car cannot be said to bringinto existence a new car or result in an addition to such car, though such expenditure evidently is more than double the original cost ofthe car. Expenditure on repairs and replacement, therefore, cannot beheld to be an expenditure of capital nature considering the magnitudeof the amounts spend vis-a-vis the original cost of the asset." 10. The propositions that emerge from the above discussion may besummed up thus : (i) The amount should be paid on account of current repairs. (ii) "Current repairs" means repairs undertaken in the normal courseof user for the purpose of preservation, maintenance or properutilisation or for restoring it to its original condition. (iii) "Current repairs" do not mean only petty repairs or repairsnecessitated by wear and tear during the particular year. (iv) Such repairs should not bring into existence nor obtain a new ordifferent advantage. (v) Neither the quantum of expenditure nor the fact that in the 10. The propositions that emerge from the above discussion may besummed up thus : (i) The amount should be paid on account of current repairs. (ii) "Current repairs" means repairs undertaken in the normal courseof user for the purpose of preservation, maintenance or properutilisation or for restoring it to its original condition. (iii) "Current repairs" do not mean only petty repairs or repairsnecessitated by wear and tear during the particular year. (iv) Such repairs should not bring into existence nor obtain a new ordifferent advantage. (v) Neither the quantum of expenditure nor the fact that in the process of repairs, there was substantial replacement of the parts ofthe machine or ship, is decisive of the true nature of the expenditure. (vi) The original cost of the asset is not at all relevant forascertainment the true nature of the expenditure on repairs. (vii) The replacement cost of the asset may, however, at times beused as an indicator of the true character of the expenditure. If theexpenditure on repairs added to the written down value or disposalvalue exceeds the replacement cost of the asset, a presumption ispossible that it is not a revenue expenditure but expenditure of capital nature. Such a presumption, of course, would be rebuttable. (viii) The expression "current" preceding "repairs" appears to havebeen used by the Legislature with a view to restricting the allowanceto expenditure incurred for preservation and maintenance thereof inits current state in contradistinction to that incurred on anyimprovement or an addition thereto." 9] Considering the said observations in paragraph 10 andapplying the ratio laid down therein to the facts of the present case,we find that in view of the categorical finding arrived at by theauthorities below that there was no new asset created pursuant to thereplacement of the parts of the ship there are no new circumstancesdisclosed by the appellants to reexamine the findings arrived at bythe learned Tribunal. As such there are no substantial questions oflaw in the present appeal as the issues raised stand concluded by thesaid judgment. 10] In view of the above, we find no merit in the appeal and it isaccordingly dismissed. NUTAN D. SARDESSAI, J. mukund F. M. REIS, J.