Commissioner Of Income Tax-Iii,Coimbatore v. M/S.kongarar Spinners Limited,Pethappampati Post,Udumalpet – 642 205

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 10.06.2019 CORAM : THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN Tax Case Nos.338 & 339 of 2009 Commissioner of Income Tax-III,Coimbatore. ...Appellant in both the appeals -vs- M/s.Kongarar Spinners Limited,Pethappampati Post,Udumalpet – 642 205...Respondent in both the appeals Tax Case Appeals under Section 260-A of the Income TaxAct, 1961, are directed against the common order passed by theIncome Tax Appellate Tribunal “D” Bench, Chennai in I.T.ANos.202/Mds/2002 & 313/Mds/2002 dated 20.06.2005 for theassessment years 1994-95, 1995-96, Appeal against the order of the Commissioner of Income Tax(Appeals) Coimbatore Dated 19.12.2001 made in Appeal No.122-C/2000-01 for the year 1995-96 and Appeal No.121-C 2000-2001dated 07/01/02 against the Assessment Order of the DeputyCommissioner of Income Tax, III Coimbatore made in PAN Number47-023- CT -9389 for Year 1994-95 CMo.10/P80/99-2000 and PANNo.47-023-CT-9389 for Assessment Year 1995-96. For appellant :Mr.T.R.Senthil Kumar, assisted by [Judgement of the Court was made by T.S.Sivagnanam, J.] These Tax Case Appeals by the Revenue filed under Section260-A of the Income Tax Act, 1961, ('the Act' for brevity) aredirected against the common order passed by the Income TaxAppellate Tribunal “D” Bench, Chennai in I.T.A Nos.202/Mds/2002& 313/Mds/2002 dated 20.06.2005 for the assessment years 1994-95, 1995-96. https://hcservices.ecourts.gov.in/hcservices/ 2.The above Tax Case Appeals have been admitted on thefollowing substantial question of law:- "Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal was right in holding thatexpenditure on replacement of old machinery bypurchase and installation of new machinery wasallowable as revenue expenditure?” 3.We have heard Mr.T.R.Senthil Kumar, learned SeniorStanding Counsel assisted by Mrs.K.G.Usha Rani for theappellant/Revenue. 4. Though the respondent has been served and their name isprinted in the cause list, none appeared on its behalf. Anidentical substantial question of law framed for considerationin these appeals were subject matter of consideration before theHon'ble Supreme Court in the case of Commissioner of Income Tax,Gujarat Vs. Sarangpur Cotton Mfg. Co. Ltd., in C.A.No.2984 of2007 dated 28.03.2017. The Hon'ble Apex Court after taking intoconsideration the decision in the case of Commissioner of IncomeTax Vs. Saravana Spinning Mills (P) Ltd., reported in [2007] 293ITR 201 (SC) allowed the Revenue's appeal. 5. At this juncture, it would be beneficial to refer tothe order passed by the Hon'ble Apex Court in the case ofSarangpur Cotton Mfg.Co.Ltd.,(Supra).“1. The present appeal has been filed against thejudgement and order dated 3[rd] July, 2002 passed bythe High Court of Gujarat at Ahmedabad in Income TaxReference No.141 of 1989. The following question oflaw has been raised in the appeal:-“Whether the Higher Court was right in law inholding that the assessee was entitled to deductionon account of revenue expenditure incurred onmachineriesreplacedforthevalueofRs.26,84,235/-” 2. Briefly stated the facts, which give rise to thisappeal, are as follows: 3. The respondent-assessee is a public limitedcompany and is engaged in the business ofmanufacturing cotton yarns and textile. During theassessment year 1974-75, the respondent-assessee hasclaimed deduction of Rs.35,49,011/- as repairs andreplacement of machinery expenditure on conversionmaterial etc. The assessing authority disallowed asum of Rs.27,71,270/- out of the aforesaid revenueexpenditure claimed by the respondent on the groundthat it related to installation of the above machinery and is in the nature of outlay of capitalexpenditure. 2. Briefly stated the facts, which give rise to thisappeal, are as follows: 3. The respondent-assessee is a public limitedcompany and is engaged in the business ofmanufacturing cotton yarns and textile. During theassessment year 1974-75, the respondent-assessee hasclaimed deduction of Rs.35,49,011/- as repairs andreplacement of machinery expenditure on conversionmaterial etc. The assessing authority disallowed asum of Rs.27,71,270/- out of the aforesaid revenueexpenditure claimed by the respondent on the groundthat it related to installation of the above machinery and is in the nature of outlay of capitalexpenditure. 4. Feeling aggrieved, the respondent-assesseepreferred appeal before the Commissioner of IncomeTax Appeals. The Commissioner of Income Tax Appealsvide order dated 29[th]September, 1983 allowedRs.26,84,235/- as admissible revenue expenditure andat the same time directed the assessing officer towithdraw the depreciation and development rebategranted on these capitalized items, as they havebeen treated as revenue expenditure. 5. The Revenue preferred an appeal before the IncomeTax Appellate Tribunal. The Income Tax AppellateTribunal vide order dated 12[th] September, 1985 agreedwith the order passed by the Commissioner of IncomeTax Appeals and dismissed the appeal. 6. Still feeling aggrieved, the Revenue departmentpreferred a Reference Application before the GujaratHigh Court. The high Court by the impugned order hadanswered the question of law raised by the appellantherein in favour of the respondent-assessee. 7. We have heard the Ms.Pinky Anand, learnedAdditional Solicitor General appearing on behalf ofthe appellant-revenue department. No one has enteredappearance on behalf of the respondent-assessee. 8. Learned Additional Solicitor General submittedthat the view taken by the Gujarat High Court byrelying on two decisions in the case of CIT VsBaroda Industrial Development Corporation Ltd.,[1992] 198 ITR 716/65 Taxman 359(Guj.) and in thecase of CIT Vs. Satyadev Chemical Ltd., [1997] 226ITR 95(Guj) has been impliedly overruled by thisCourt in the case of CIT Vs. Saravana Spg.Mills(P)Ltd., [2007] 293 ITR 201/163 Taxman 201(SC). Shesubmitted that each items for which deduction underthe head “current repairs” was sought is a machineby itself and therefore deduction under Section 31(i) cannot be allowed. She invited our attention toparagraphs 9,10,12,13 and 14 of the judgement in thecase of Saravana Spg.Mills(P)Ltd., (supra) andsubmitted that if the current repairs related toindependent machines itself instead of repairs of apart of that machine, deduction cannot be grantedunder Section 31(i) of the Income Tax Act, 1961. InSaravana Spg.Mills(P.) Ltd., (supra) this Court hasheld that in a textile mill there are severaldepartment/divisions. In each department/divisionthere are several machines and perform differentfunctions.Therefore,wheneachofthedepartment/division perform different functions, repair/ substitution of an old machine will not comewithin the definition of the word “current repairs”and deduction cannot be claimed thereunder. 9. In this view of the matter, we are of theconsidered opinion that the impugned judgement andorder passed by the Gujarat High Court as also theorders passed by the Income Tax Appellate Tribunaland the Commissioner of Income Tax Appeals on thisissue cannot be sustained and are thereby set aside.It is held that the respondent is not entitled forany deduction under the head “current repairs” asclaimed and allowed by the two authorities.10. The appeal succeeds and is allowed. 11. There shall be no order as to costs.12. Pending application, if any, also standsdisposed of.” 6. We have gone through the facts in the instant case andwe find it to be identical to that of the facts dealt with bythe Hon'ble Supreme Court in the case Sarangpur Cotton Mfg.Ltd.(Supra). 9. In this view of the matter, we are of theconsidered opinion that the impugned judgement andorder passed by the Gujarat High Court as also theorders passed by the Income Tax Appellate Tribunaland the Commissioner of Income Tax Appeals on thisissue cannot be sustained and are thereby set aside.It is held that the respondent is not entitled forany deduction under the head “current repairs” asclaimed and allowed by the two authorities.10. The appeal succeeds and is allowed. 11. There shall be no order as to costs.12. Pending application, if any, also standsdisposed of.” 6. We have gone through the facts in the instant case andwe find it to be identical to that of the facts dealt with bythe Hon'ble Supreme Court in the case Sarangpur Cotton Mfg.Ltd.(Supra). 7. Thus, by following the said decision, these appeals areallowed and the substantial question of law is answered infavour of the Revenue. No costs. Sd/- Assistant Registrar(CCC) //True Copy// Sub Assistant Registrar To 1.Income Tax Appellate Tribunal “D” Bench, Chennai. 2.The Commissioner of Income Tax, Coimbatore.3.The Deputy Commissioner of Income Tax III, Coimbatore. +1cc to Mr.T.R.Senthilkumar, Advocate Sr.46840 ks[co]srg 19/07/2019