DCIT Vs. Kalyanapur Cement Ltd. (ITAT Kolkata)
Briefly stated facts are that assessee in the present case is a limited company and engaged in the manufacturing business of cement. The assessee in the year under consideration has claimed an expense of Rs. 32,44,228 under the head “major repairs” by debiting in profit and loss a/c. The assessee has treated such expenses as current repairs and claimed the deduction in the profit and loss a/c. However, the assessing officer was of the view that the major repair expenses require the replacement of the components used in the machinery to keep them under good running condition. Thus, the instant major repair expenses are capital in nature and same cannot be claimed as deduction under section 30 or 37 of the Act. Accordingly the assessing officer treated the major repair expense of Rs. 32,44,228 as capital in nature and added to the total income of assessee.
Aggrieved, assessee preferred an appeal before learned Commissioner (Appeals). The assessee before learned Commissioner (Appeals) submitted that the expense was classified under the head major repair and maintenance on the ground that the large expense was spent on repair and maintenance but the fact is that there was no enhancement in the capacity of the plant and machinery as well as no increase in the efficiency. There was no purchase of any new equipment under the category of plant and machinery. Thus no enduring benefit was created by the assessee out of the aforesaid expense. Learned Commissioner (Appeals) after considering the submission of assessee deleted the addition made by assessing officer.
Hon’ble Bombay High court in the case of 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 repairs.
(ii) ‘Current repairs’ means repairs undertaken in toe normal course of user for the purpose of preservation maintenance or proper utilization 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 of or 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 repairs 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 [CIT v. Chowgule & Co. Pvt. Ld (1995) 125 CTR (Bom) 442, 448 = (1995) 214 ITR 523 (Bom). In the facts of that case, the Tribunal, on investigation of the nature of the repairs undertaken by the assessee, recorded a categorical finding of fact that it did not result in emergence of a new ship but amounted, in substance, to current repairs to the existing ship. The act that old parts of the ship were replaced by new pats was not relevant for determining whether the expenditure was on ‘current repairs’ or not. Therefore, the expenditure claimed by the assessee amounted to ‘current repairs’, allowable as a deduction under section 31.”
Hon’ble Supreme Court in the case of CIT v. Saravana Spinning Mills (P) Lt. (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.”
Respectfully following the precedent as above ITAT hold that there is no infirmity in the order of the Ld. CIT(A) and accordingly deleted the addition made by the Assessing Officer.
10. The issue in the instant relates to the gain which assessee has received on account of settlement of the loan. It is undisputed fact that the amount of loan waived off by ARCL represents the principal amount. The assessee treated waiver off of the principal amount of loan non-taxable item on the ground that it was utilized for the capital transaction and it does represent the trading liability. However the AO treated the same as income of the assessee in terms of the provisions of section 28(iv) of the Act. Now the question arises for our adjudication so as to whether the loan amount written off is income as per the provisions to section 28(iv) of the Act which reads as under :
28(iv) of the Act which reads as under:‑
“Profits and gains of business or profession.
28. The following income shall be chargeable to income-tax under the head “Profits and gains of business or profession”,-
(i) … ..
[(iv) the value of any benefit or perquisite, whether convertible to money or not, arising from business or the exercise of a profession,”
From the plain reading of the above provision it can be inferred that when loans availed for capital transactions have been waived off, the waiver cannot be treated as value of any benefit or perquisite arising from business or exercise of profession so as to be treated as assessable income by invoking the provisions of section 28(iv) of the Act. Such waiver cannot also be brought to tax u/s 41(1) of the Act, as no part of the waiver would have been allowed as a deduction in earlier year(s). However, waiver off of interest portion out of loan taken for trading activities and other expenditure allowed as deduction in the earlier year(s) would be brought to tax under section 41(1) of the Act in the year(s) of write-back.
The provisions of section 28 of the Act deals with profits and gains of business or profession and clause (iv) thereof says that the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession shall be chargeable as income under the head “Profits and gains of business or profession“. In the instant case the fact that the loan was utilized for the capital transactions has not been disputed by the AO. Thus it is clear that the instant loan was not utilized for the trading liability of the assessee and therefore the waiver off the same cannot amount to income which is chargeable to tax.