Commissioner Of Income Tax Salem v. The Salem Cooperative Spinning Mills Ltd., Kamaraj Nagar, Salem-14

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 7.2.2006 CORAM THE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.(A).No.90 of 2006 Commissioner of Income TaxSalem..Appellant/Appellant Vs. The Salem CooperativeSpinning Mills Ltd.,Kamaraj Nagar,Salem-14..Respondent/Respondent Appeal under Section 260A of the Income Tax Act, 1961 against thecommon order of the Income Tax Appellate Tribunal, Madras 'D' Bench dated18.8.2005 in ITA No.562/02 for the assessment year 1994-95. (Delivered by P.D.DINAKARAN, J.) The above tax case appeal is directed against the order of theIncome-tax Appellate Tribunal in ITA No.562/02 dated 18.8.2005. 2. The Revenue is the appellant. The assessee is a Cooperativesociety engaged in the business of spinning mill. They have filed theirreturn for the assessment year 1994-95. Their claim with regard to theexpenditure towards remodelling of the generator as Revenue in nature, wasdisallowed by the assessing officer, who was of the opinion thatreplacement of old by new machinery cannot be treated as revenueexpenditure and allowed depreciation. The expenditure was treated ascapital expenditure. Further the assessing officer disallowed thecontribution made by the assessee towards ESI on 21.4.1994 on the groundthat the same was not made within the previous year and the stipulatedtime. Aggrieved by the said order, the assessee filed an appeal beforethe Commissioner of Income-tax (Appeals), who allowed the appeal, holding https://hcservices.ecourts.gov.in/hcservices/ that the remodelling of the generator is to be treated as revenueexpenditure and also allowed the the deduction towards ESI contributionmade on 21.4.1994. The Appellate Tribunal allowed the appeal on the issueof replacement of machinery by applying the decision of this Court in 275ITR 403 and contribution to the ESI on 21.4.1994 by following the decisionof this Court in 243 ITR 879. 3. Aggrieved by the same, the Revenue has preferred the above appealraising the following substantial questions of law: "1. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that theremodelling of the generator as revenue expenditure. 2. Whether in the facts and circumstances of the case,the Tribunal was right in holding that thecontribution to the ESI on 2.4.1994 is allowablededuction under Section 43B? 4. The question whether the expenditure on replacement of machinery iscapital or revenue is not determined by the treatment given in the booksof account or in the balance sheet. The claim has to be determined onlyby the provisions of the Act and not by the accounting practice of theassessee. In the instant case, the Commissioner and the AppellateTribunal, finding that remodelling of the generator is revenueexpenditure, held that the claim of the assessee cannot be disallowed. 5. The Supreme Court in COMMISSIONER OF INCOME-TAX WEST-BENGAL II VS.KALYANJI MAVJI & CO. (122 ITR 49), held that no new asset was brought intoexistence nor was an advantage for the enduring benefit of the businessacquired by the expenditure, and the expenditure was revenue in character.Following the above decision, the Delhi High Court in THE COMMISSIONER OFINCOME-TAX, NEW DELHI VS. DELHI CLOTH & GENERAL MILLS CO.LTD.(131 ITR641), held that the expenditure incurred on remodelling of furniture wasdeductible as revenue expenditure. 6. In view of the ratio laid down by the Supreme Court in the decisioncited supra, we hold that the expenditure on remodelling of the generatoris Revenue expenditure and therefore, the Tribunal was right in allowingthe claim of the assessee. 5. The Supreme Court in COMMISSIONER OF INCOME-TAX WEST-BENGAL II VS.KALYANJI MAVJI & CO. (122 ITR 49), held that no new asset was brought intoexistence nor was an advantage for the enduring benefit of the businessacquired by the expenditure, and the expenditure was revenue in character.Following the above decision, the Delhi High Court in THE COMMISSIONER OFINCOME-TAX, NEW DELHI VS. DELHI CLOTH & GENERAL MILLS CO.LTD.(131 ITR641), held that the expenditure incurred on remodelling of furniture wasdeductible as revenue expenditure. 6. In view of the ratio laid down by the Supreme Court in the decisioncited supra, we hold that the expenditure on remodelling of the generatoris Revenue expenditure and therefore, the Tribunal was right in allowingthe claim of the assessee. 7. With regard to question (2), viz., the Tribunal was right inholding that the contribution to the ESI on 2.4.1994 is allowablededuction under Section 43B, this Court, in the COMMISSIONER OF INCOME-TAXVS. SHRI GANAPATHY MILLS COMPANY LIMITED (243 ITR 879), held that thepayments towards provident fund and employees State insurance having beenmade within the grace time allowed under the relevant statute, thoseamounts were required to be deducted in the computation of the taxableincome of the assessee. 8. In view of the ratio laid down by this Court in the decision citedsupra, we hold that the contribution to ESI is to be deducted in thecomputation of the taxable income and therefore, the Tribunal was rightin allowing the claim of the assessee. 9. In view of the foregoing conclusion, we find no error in the orderof the Tribunal and the same requires no interference. Hence, nosubstantial question of law arises for consideration of this Court.Accordingly, the tax case appeal is dismissed. No costs. msk Sd/Asst.Registrar /true copy/ Sub Asst.Registrar To 1. The Assistant Registrar,Income Tax Appellate TribunalMadras Bench "D", Rajaji Bhavan, Besant Nagar, III Floor,Chennai-90.Madras Bench "D", Rajaji Bhavan, Besant Nagar, III Floor,Chennai-90. 2. The Secretary, Central Board of Direct Taxes, New Delhi. 3. The Commissioner of Income Tax (Appeals), Salem. 4.The Commissioner of Income Tax, Salem. 5.The Deputy Commissioner of Income-tax,Special Range, Salem.Special Range, Salem. 1 cc To Mr.N.Muralikumaran, Advocate, SR.5188. MS(CO)RVL 27.02.2006 T.C.(A)No.90 of 2006