Depreciation allowance - Ownership need not be legal
September, 10th 2007
CIT vs Bharat Aluminium Co. Ltd. Citation 292 ITR 600
Applied Mysore Minerals Ltd. vs CIT 1989 239 ITR 775 Business expenditure - Relining of smelter pots The assessee was mining and producing aluminium. The expenses on relining of the smelter pots were business expenditure, since it resulted only in restoring these to their original condition. It was done only to take care of normal wear and tear.
Depreciation allowance - Ownership need not be legal Since the assessee was in possession of and used the building for its business, the depreciation thereon was allowable even of legal title had not passed on to it.
Appeal to High court - Question/Issue not decided by Tribunal The issue that was not considered by the Tribunal and on which no request under s.254(2) was filed could not be raised in appeal to High Court.
High Court of Delhi
CIT vs Bharat Aluminium Co. Ltd.
I. T. A. No. 1018 of 2005
Madan B. Lokur and V. B. Gupta, JJ
15 January 2007
P.L. Bansal for the Appellant M.S. Syali with Soubhagya Agarwal and Aseem Mawar for the Respondent
The Revenue is aggrieved by an order dated March 15, 2005, passed by the Income-tax Appellate Tribunal, Delhi Bench "C" in I. T. A. No. 3120/ Del/99 and I. T. A. No. 5039/Del/99 relevant for the assessment year 1994-95 and C.O No. 101/Del/02 (in I. T. A. No. 5039/Del/99).
Learned counsel for the Revenue raised four issues before us. In our opinion, none of these raise a substantial question of law and, therefore, the appeal deserves to be dismissed.
The assessee carries on the business of mining and production of aluminum. The assessee uses aluminium smelters which are in operation for 24 hours. It has, as a part of its assets, 408 cells in circuit out of which almost 400 cells are in operation and the balance 8 cells are usually under repair. It has been mentioned in the order of the Commissioner of Income-tax (Appeals) relevant for the assessment year 2000-01 (I. T. A. No. 1593/2006) that to avoid disruption in production at one time, it is ensured that the cells are taken out for repairs at regular intervals. Each year a number of cells are taken out for repairs at regular intervals depending upon the behaviour of the cells, requirement of metal purity and other related matters. This also enables utilization of manpower in a uniform manner throughout the year and avoids disruption in production. The expenditure incurred for relining of smelter pots to restore them to their original production levels are called pot relining expenses.
According to the assessee, the relining of the pots is done only to restore the pots to their original condition but according to learned counsel for the Revenue, the pots were being replaced and, therefore, the expenditure incurred by the assessee was not in the nature of "current repairs" but was capital expenditure.
Section 31 of the Income-tax Act, 1961 reads as follows :
"In respect of repairs and insurance of machinery, plant or furniture used for the purposes of the business or profession, the following deductions shall be allowed
(i) the amount paid on account of current repairs thereto ;
(ii) the amount of any premium paid in respect of insurance against risk of damage or destruction thereof.
Explanation.For the removal of doubts, it is hereby declared that the amount paid on account of current repairs shall not include any expenditure in the nature of capital expenditure."
It may be noted that the Explanation was inserted with effect from April 1, 2004, and is, therefore, not relevant for the decision of the present appeal.
The expression "current repairs" was considered by the Supreme Court in Ballimal Naval Kishore v. CIT  224 ITR 414. In that case, the Supreme Court was considering the expression "current repairs" as defined in section 10(2)(v) of the Indian Income-tax Act, 1922. There is no corresponding definition of "current repairs" under the Income-tax Act, 1961.
While considering the expression "current repairs", the Supreme Court approved the reasoning given by the Bombay High Court in New Shorrock Spg. and Mfg. Co. Ltd. v. CIT  30 ITR 338. The view of the Supreme Court was that "current repairs" are those which are undertaken for the purpose of preserving or maintaining an already existing asset and that such repair does not bring a new asset into existence or does not give the assessee a new or different advantage. The Bombay High Court had dissented from the view taken by the Allahabad High Court in Ramkishan Sunderlal v. CIT  19 ITR 324, but the Supreme Court preferred to accept the view taken by the Bombay High Court.
The decision of the Supreme Court was followed by this court in CIT v. Volga Restaurant  253 ITR 405 and it was held that if an amount is spent for the purpose of bringing into existence a new asset or obtaining a new advantage, then such an expenditure would not be an expenditure of a revenue nature but it would be a capital expenditure.
Much earlier, a similar issue had arisen in this court in Addl. CIT v. Dyer's Stone Lime Co. P. Ltd.  136 ITR 8 (Delhi) in which case some expenditure incurred by the assessee for repairs in a brick kiln was held to be an expenditure of a revenue nature. It was also held that this is essentially a question of fact. In Dyer's Stone Lime Co.  136 ITR 8 (Delhi) reliance was placed upon CIT v. Mahalakshmi Textile Mills Ltd.  66 ITR 710 (SC) and it was observed as follows (page 12) :
"There are decided cases that the cost of reconstruction of a chimney in a factory, expenses on renovating roofs and flooring expenses, for panelling walls with wood, expenditure for replacing the engine of a bus and the cost incurred by a railway company for reconditioning the engine boilers, etc.,are allowable as expenditure on repairs. In the light of these decisions, it is clear that the expenditure in this case, where there has only been a substitution, in a plant maintained by the assessee, of old and worn out parts by new parts, which has not substantially changed the identity of the plant or effected any improvements in its efficiency, is an expenditure on 'current repairs' and hence allowable."
We need not go as far as the Division Bench has gone in Dyer's Stone Lime Co.  136 ITR 8 (Delhi) because there has been no change of parts in the present case but only relining or reconditioning to take care of wear and tear. Quite dearly, since no new asset or new advantage has come into existence, the expenditure incurred by the assessee is a revenue expenditure only.
In view of the above decisions, we do not find that any substantial question of law arises for our consideration on this issue.
The second contention of learned counsel for the Revenue was that depreciation had been wrongly allowed in respect of buildings/immovable property in which the assessee did not have legal ownership or title. It is common ground that this issue is no longer res integra in view of the decision of the Supreme Court in Mysore Minerals Ltd. v. CIT  239 ITR 775. Consequently, no substantial question of law arises in respect of this issue also.
The third issue raised by learned counsel for the Revenue is that some properties of the assessee were unauthorizedly occupied and were not used for business purposes and, therefore, depreciation could not be claimed on them. In so far as this issue is concerned, it was not addressed before the Tribunal although it is claimed that it was argued and not considered by the Tribunal. We have not been told whether any application for rectification under section 254(2) of the Act was filed by the Revenue. If no such application was filed, we cannot go behind the order of the Tribunal. We, therefore, decline to consider this question.
The fourth issue urged by learned counsel for the appellant is that the Commissioner of Income-tax could not have passed the order that he did under section 154 of the Act.
It transpires that when the Revenue filed an appeal before the Commissioner, a decision was taken in favour of the assessee in respect of some issues and other issues were decided against it by the Commissioner. According to the assessee, it was not served in the matter and, therefore, the Commissioner ought not to have decided those issues against the assessee ex parte. Accordingly, an application was filed by the assessee under section 154 of the Act.
The Commissioner examined the matter and found that the contention of the assessee was well founded and it had not been served in the matter and, therefore, the Commissioner reheard the matter and passed appropriate orders.
On appeal, the Tribunal was of the view that since the service was not effected upon the assessee, it would have been appropriate for the Commissioner to recall the order passed by him and then render a decision on the merits. According to the Tribunal, this is precisely what the Commissioner had done except that he had captioned the order as having been passed under section 154 of the Act. The Tribunal was of the view that this was merely a technical error and since the issues were considered on the merits after hearing both the parties, the order passed by the Commissioner did not require any interference.
We do not find any error in the view taken by the Tribunal. Admittedly, the assessee was not served when the Commissioner took up the matter for consideration and even though the Commissioner has styled the order as having been passed under section 154 of the Act, the fact remains that he did take a fresh decision in the matter after hearing both the parties. No substantial question of law arises for consideration on such a technical plea.