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2007] 292 ITR 362 [2008] 167 TAXMAN 124 (MAD.) HIGH COURT OF MADRAS Commissioner of Income-tax v. Southern Petrochemical Industries Corpn. Ltd. P.D. DINAKARAN AND MRS. CHITRA VENKATARAMAN, JJ. T.C. (A) NOS. 74 AND 75 OF 2003 JANUARY 29, 2007 Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/rate of - Assessment years 1986-87 and 1987-88 - Whether depreciation should be allowed on spare parts which are stand-by items even though they are not put to use during accounting year - Held, yes Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1987-88 - Whether where Tribunal had recorded a finding that expenses relating to obtaining fixed deposits from public were closely linked with business requirement of assessee, such expenses should be held to be revenue in nature - Held, yes FACTS For the assessment years 1986-87 and 1987-88, the assessee filed its returns, inter alia, claiming depreciation on stand-by items such as spare parts in respect of critical parts of plant and machinery. For the assessment year 1987-88, the assessee also claimed deduction of expenses relating to obtaining of fixed deposits as revenue expenditure. The Assessing Officer, however, rejected both the claims of the assessee. On appeal, the Commissioner (Appeals), as regards depreciation on stand-by items, held that they must be treated as machinery being put to use in the business of the assessee and depreciation should be allowed on them. In respect of deduction on expenses relating to obtaining fixed deposits, the Commissioner (Appeals) held that the expenses were relatable to obtaining fixed deposits from public in order to augment working capital of the assessee and the expenses incurred for raising working capital was revenue expenditure and, accordingly, deleted the addition made by the Assessing Officer. The appeal filed by the revenue against said order of the Commissioner (Appeals) was dismissed by the Tribunal. On appeal : HELD Undisputedly, as found in the order of the Tribunal, the stand-by items were assets acquired by the assessee and kept in readiness for use whenever the machinery that was regularly used went…

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