Law:

Section:

I. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1994-95 - In year 1981, assessee purchased a machine which broke down completely on 24-10-1991 and remained idle since then - During relevant assessment year, assessee incurred huge expenditure on total reconditioning and overhauling of machinery and claimed said expenditure as revenue expenditure - Whether since reconditioning carried out had resulted in imparting useful life to hitherto old and unfit machinery and, thus, resulting in a benefit of enduring nature, expenditure was capital in nature - Held, yes II. Section 31, read with section 37(1), of the Income-tax Act, 1961 - Repairs and insurance of machinery, plant and furniture - Assessment years 2005-06 and 2006-07 - During relevant assessment years, assessee had incurred expenditure on repair of a number of machines and said amounts were paid to various agencies from time-to-time - Expenditure consisted of dismantling, cleaning and inspection of various parts; repair and replacement of worn out parts; geometrical alignments of machines; painting of machines; overhauling and repair of power transmission unit; and replacement of electronic panel - Whether expenditure was on account of current repairs for which deduction would be admissible under section 31(1) as well as under section 37 - Held, yes FACTS - I The assessee purchased a machine in the year 1981 and it broke down on 24-10-1991. The work for repair was assigned to HMT, a Government concern. An amount of Rs. 83,79,134 was incurred on repair and reconditioning of machine. The assessee claimed said amount as revenue expenditure contending that it was in the nature of 'current repairs'. The Assessing Officer held that the expenditure of the aforesaid magnitude incurred by the assessee for reconditioning the machine had given the assessee a benefit of enduring nature and, therefore, the amount was not allowable as current repairs. He, thus, treated the expenditure as capital in nature and allowed depreciation at the rate of 12.5 per cent. On appeal, the Commissioner (Appeals) reversed the order of the Assessing Officer on the ground that the…

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