Commissioner Of Income-Tax, Patna v. N.P. Singh Swastik Bhawan, Kadam Kuan, Patna

K.S Paripoornan, C.J, Naresh Kumar Sinha, J.:—The Revenue has filed this application under section 256(2) of the Income-tax Act. The respondent is an assessee to the income-tax. The Revenue prays that the following question formulated in paragraph 1 of the petition may be directed to be referred to this Court by the Income-tax Appellate Tribunal, Patna Bench, Patna.

“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in affirming the order of CIT (A), whereby it allowed the claim of assessees of the amount of Rs. 2,96,682/- being the cost of two gear boxes fitted to the steamer M.V (bridge) as revenue expenditure?”

2. We heard learned counsel for the Revenue. The matter relates to the assessment year 1981-1982. During the year the assessee firm incurred an expenditure of Rs. 2,96,682/- which it incurred as total costs for the new gear boxes fitted to its steamer M.V (bridge). The Income-tax Officer held that the fitting of the gear boxes resulted in enduring benefit to the assessee and so the said amount of Rs. 2,96,682/- should be treated as capital expenditure. In appeal the Commissioner of Income-tax (Appeals)-1, Patna, by his order dated 15.4.88 found that the fitting of the two gear boxes did not result in additional benefit from M.V (bridge) and it was at best a revenue expenditure and so the said amount of Rs. 2,96,682/- should be allowed as revenue expenditure. In appeal, at the instance of the Revenue, the Income-tax Appellate Tribunal by order dated 15.11.91 took the view that the two gear boxes fitted on L.C.T.M.V (bridge) was to make it more efficient and for earning more income and it did not amount to benefit of an enduring nature which can be treated as capital in nature. The Tribunal relied on the decision of the Supreme Court in the case of Empire Jute Co. v. C.I.T (1980) 124 I.T.R and held that the expenditure so incurred is only a revenue expenditure and affirmed the decision of the Commissioner, Income-tax (Appeals)-1, Patna. The Revenue filed an application u/s 256(2) of the Income tax Act before the Tribunal to refer the questions of law which according to it, arose out of the order of the Tribunal. The Appellate Tribunal declined to refer the question of law formulated by the Revenue. It is thereafter that the Revenue has moved this Court in Taxation case No. 20/93 for a direction to the Income-tax Appellate Tribunal to refer the question of law as formulated in paragraph-1 of this application.

3. We heard learned counsel for the applicant. The Commissioner of Income-tax as also the Appellate Tribunal held that fitting of L.C.T.M.V (bridge) with two gear boxes had rendered the machine more efficient, for earning more income and is not a case where it resulted in an enduring benefit to the assessee. On a fair reading of the order of the Appellate Tribunal as a whole it is evident that the Appellate Tribunal was of the view that by incurring the expenditure in the instant case there is only an improvement in the operation of the existing business and its efficiency and profitability. In other words the expenditure incurred was for the better conduct and improvement of the existing business. We are of the view that in this perspective, in the light of the recent decision of the Supreme Court in Alembic Chemical works Co. Ltd. v. C.I.T Gujarat (1989) 177 I.T.R p. 377 at 391 the conclusion of the Appellate Tribunal that the expenditure incurred is revenue in character is unassailable. The Revenue has not assailed the finding of the Tribunal that the two gear boxes fitted in L.C.T.M.V (bridge) rendered it more efficient and resulted in earning more income. In the light of the aforesaid finding the expenditure can only be a revenue expenditure. We are of the view that no referable question of law arises out of the Appellate order of the Income-tax Appellate Tribunal, Patna Bench, Patna.

4. Accordingly we dismiss the petition filed by the revenue u/s 256(2) of the Income-tax Act. There shall be no order as to costs.