COMMISSIONER OF INCOME TAX Vs. SERAIKELLA GLASS WORKS PRIVATE LIMITED

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961. The following question has been referred to this court for our opinion:

(2.) IN this reference, we are concerned with the assessment years 1964-65, 1966-67 and 1968-69. IN regard to the assessments for these years, deductions were claimed by the assessee, a private limited company, on account of repairs and renovation to the furnace. For the year 1964-65, the expense incurred over repairs and renovations was to the tune of Rs. 4,26,427, for the year 1966-67 it was Rs. 4,05,971 and for 1968-69, it was Rs. 5,02,654. The INcome-tax Officer rejected the claim of the asses-see holding that the repairs did not fall within the meaning of current repairs and thus those expenses did not fall within the category of amounts paid on account of current repairs to the factory as laid down under Section 31 of the Act. IN coming to this conclusion, the INcome-tax Officer took into account two factors. The first factor which weighed with the INcome-tax Officer was that the sum spent was on the high side. The second ground for rejecting the claim was that in the directors' report of 1962-63, it was mentioned as follows :

(3.) FROM the above, it will be seen that the expenditure was essential to replace and repair the damaged parts. The parts had been damaged. Therefore, they were replaced. This certainly must be held to be current repair. In the very nature of the industry, it had to work at high temperature and, therefore, the furnace has to be refurbished every year. Therefore, it has to be closed down for certain periods and cold repairs have to be undertaken. These repairs have got to be regularly done year after year. The Income-tax Officer did not state in his order what alterations had been made and whether the alterations would be of enduring nature lasting for several years or not. The Income-tax Officer, therefore, had not done his exercise properly. He merely went upon the fact that the expenses appeared to be on the high side and that the directors' report showed that the technical director had made some renovation which would increase production and result in longer life to the furnace. It is well-known that " A stitch in time saves nine ". If the furnace is attended to regularly, it is bound to give longer life. The production may, therefore, be higher. But that does not imply that renovations which have got to be regularly done year after year must be held to be of enduring benefit. If they were of enduring benefit, that would not be needed year after year. Even if we go by the yardstick of quantum of expenses, the Appellate Assistant Commissioner gave the figures of expenses incurred over various years which had been allowed by the Revenue without demur. Even the Appellate Assistant Commissioner also went into the exercise of comparing percentage of expenses on account of repairs and renovations. This analysis shows clearly that the expenses over renovation and replacement were not on the high side.