All repairs do not attract section 31(i),

Court :
SC

Brief :
An allowance is granted by clause (i) of section 31 in respect of amount expended on current repairs to machinery, plant or furniture used for the purposes of business, irrespective of whether the assessee is the owner of the assets or has only used them. The expression ‘current repairs’ denotes repairs which are attended to when the need for them arises from the view point of a businessman. The word ‘repair’ involves renewal. However, the words used in section 31(i) are ‘current repairs’. The object behind section 31(i) is to preserve and maintain the asset and not to bring in a new asset. Section 31(i) limits the scope of allowability of expenditure as deduction in respect of repairs made to machinery, plant or furniture by restricting it to the concept of ‘current repairs’. All repairs are not current repairs. Section 37(1) allows claims for expenditure which are not of capital nature. However, even section 37(1) excludes those items of expenditure which expressly fall in sections 30 to 36. The effect is to delimit the scope of allowability of deductions for repairs to the extent provided for in sections 30 to 36. To decide the applicability of section 31(i), the test is not whether the expenditure is revenue or capital in nature, which test had been wrongly applied by the High Court, but whether the expenditure is ‘current repairs’. The basic test to find out as to what would constitute current repairs is that the expenditure must have been incurred to ‘preserve and maintain’ an already existing asset, and the object of the expenditure must not be to bring a new asset into existence or to obtain a new advantage. In fact, in the instant case, in the balance sheet the assessee had indicated the expense as an item incurred for purchase of a new asset. The High Court had erred in placing reliance upon the report of SITRA in coming to the conclusion that textile mill was a plant under section 31(i). Each machine in a segment has an independent role to play in the mill and the output of each division is different from the other. ‘Repair’ implies the existence of a part of the machine which has malfunction. If the argument of the assessee was to be accepted, it would result in absurdity and it would make the provisions of section 31(i) completely redundant. According to the assessee the textile plant consisted of about 25 machines and, one of such machines was the ring frame. If the argument of the assessee was to be accepted, it would mean that periodically one machine out of 25 would be replaced, and on that basis, from time to time, each of these 25 machines in the textile plant would be entitled to claim allowance under section 31(i). The Assessing Officer was right in holding that each machine including the ring frame was an independent and separate machine capable of independent and specific function and, therefore, the expenditure incurred for replacement of the new machine would not come within the meaning of the words ‘current repairs’. In the instant case, it was not the case of the assessee that a part of the machine needed repairs. The entire machine had been replaced. Therefore, the expenditure incurred by the assessee did not fall within the meaning of ‘current repairs’ in section 31(i).

Citation :
Commissioner of Income-tax, Madurai v. Saravana Spg. Mills (P.) Ltd. CIVIL APPEAL NOS. 7596 TO 7599 AND 7603 TO 7606 OF 2005 DECIDED ON 10-8- 2007.