Https://Hcservices.ecourts.gov.in/Hcservices v. Ramaraju Surgical Cottonmills Reported I

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 08.03.2022 THE HONOURABLE MR. JUSTICE R. MAHADEVANAND THE HONOURABLE MR. JUSTICE J.SATHYA NARAYANA PRASAD TAX CASE APPEAL NO.331 OF 2011 Commissioner of Income Tax - I Chennai. ...Appellant/Appellant M/s.TVS Motor Company Ltd.,No.29, Haddows Road,Chennai - 600 006. ...Respondent/Respondent Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order dated 21.12.2010 passed by theIncome Tax Appellate Tribunal, Madras “C” Bench, Chennai inI.T.A.No.976/Mds/2009 for the assessment year 2000-2001. against the order of the Commissioner of Income Tax(Appeals)III, Chennai-34, dated 24.12.2009 and Made inITA.No.313/07-08/A-III for the assessment year 2000-2001 andagainst the order Assistant Commissioner of Income Tax, CompanyCircle-III(2), Chennai, dated 29.11.2007 and made inPA.No/GIR.No.32024-T for the assessment year 2001-2002. For Respondent : Mr.Subburaya Aiyar Padmanabhan This tax case appeal has been filed by the appellant /Revenue, calling in question the correctness of the order dated21.12.2010 passed by the Income Tax Appellate Tribunal, 'C'Bench, Chennai, in I.T.A.No.976/Mds/2009, relating to the https://hcservices.ecourts.gov.in/hcservices/ assessment year 2000-01. 2.On 26.09.2011, this Tax Case Appeal is admitted on thefollowing substantial questions of law:- "1. Whether on the facts and in thecircumstances of the case, the Income Tax AppellateTribunal was right in law in holding that theexpenditure on replacement of dies and moulds wereto be allowed as revenue expenditure, contrary tothe decisions of the Supreme Court in the case ofSaravana Mills Ltd. (293 ITR 201) and similar otherdecisions especially when such expenditure was notdebited in the Profit and Loss Account, but onlyclaimed in the Income Tax Adjustment Statement? 2. Whether on the facts and in thecircumstances of the case, the Income Tax AppellateTribunal was right in holding that 100%depreciation on the cost of civil works inconnection with the Reverse Osmosis Plant as wellas ceilings and partitions?" 3.When the matter was taken up for consideration, thelearned counsel for the appellant / Revenue submitted that thefirst substantial question of law has already been considered anddecided by this court in favour of the assessee by judgment dated09.01.2014, passed in TCA.Nos.173 and 174 of 2009, in respect ofthe assessee's own case. The relevant passage of the saidjudgment is usefully extracted hereunder: “29. As regards the expenditure on dies & moulds,the assessee pointed out that it debited an amount ofRs.11,17,68,169/- towards dies and moulds only toreplace them in the place of worn out dies and moulds.The assessee in the memorandum of income added thisamount to the total income and claimed the cost ofdies and moulds of Rs.22,66,52,504/- under Section 31of the Act. The assessee stated that within a periodof one year of installation, the life of the dies andmoulds would become obsolete and this was due to highproduction involved. Thus, replacement of the new dyein the place of old dye would quality for currentrepairs under Section 31 of the Act. The Assessingofficer, however, rejected the contention of theassessee and the Assessing Officer pointed out thatthe assessee was claiming depreciation upto 1999-2000under Section 32 of the Act and only in the year underconsideration, it started claiming deduction underSection 31 of the Act. The Tribunal pointed out thatthe dies and moulds were not plant and machinery, yet the replacement of dies and moulds were not in thenature of installation of machinery in the factory.Such moulds and dies were normally attached to themachines to suit the individual requirement ofparticular product. So holding, the Tribunal held thatexpenditure incurred on replacement of dies and mouldswas revenue in nature. It relied on the decision ofKarnataka High Court in the case of Mysore SpunConcrete Pipe Pvt. Ltd., reported in 194 ITR 159. 30. As far as this issue is concerned, learnedcounsel appearing for the assessee placed reliance onthe decision of this Court reported in (2013) 357 ITR720 (Mad) in the case of Super Spinning Mills Ltd.,Vs. Assistant Commissioner of Income-tax related tothe expenditure on replacement of the machinery parts.The assessee therein engaged in the business ofmanufacture and trading in cotton yarn and alliedproducts and the assessee incurred expenditure inrespect of replacement of certain textile machinery.On a question as to whether such replacement of partswould be current repairs of capital in nature, thisCourt considered the decisions in the case of CIT Vs.Saravana Spinning Mills P; Ltd., reported in (2007)293 ITR 201 (SC), CIT Vs. Ramaraju Surgical CottonMills reported in (2007) 294 ITR 328 (SC) and CIT Vs.Mangayarkarasi Mills P.Ltd., reported in (2009) 315ITR 114 (SC) and pointed out that the question as towhether the expenditure incurred on replacement ofmachinery is revenue or capital rests on the nature ofcapital incurred vis-a-vis the benefit derived. ThisCourt referred to the decision in the case of CIT Vs.Saravana Spinning Mills P.Ltd., reported in (2007) 293ITR 201 (SC) and in particular to the decision in thecase of CIT Vs. Sri Mangayarkarasi Mills P.Ltd.,reported in (2009) 315 ITR 114 (SC) and pointed out asunder:- " 10. The question as to whether theexpenditure incurred on replacement of machineryis revenue or capital expenditure, particularlyin the nature of replacements of parts, thusrests on the nature of expenditure incurred, vis-a-vis the benefit that the assessee derives. Theratio deductible from the decisions referred toabove are: (i) To decide the applicability of Section31(i), the test is not whether the expenditure isrevenue or capital in nature, but whether theexpenditure is "current repairs". The basic testis to find out whether expenditure is incurred to"preserve and maintain" an already existing asset and the expenditure must not be to bring a newasset into existence or to obtain a new advantagevide [2007] 293 ITR 201 (SC) (Commissioner ofIncome Tax Vs. Saravana Spinning Mills P. Ltd.) (ii) Under Section 31(i), the deductionadmissible is only for current repairs.Therefore, the question as to whether theexpenditure incurred by the assessee conceptuallyis revenue or capital in nature is not relevantfor deciding the question whether suchexpenditure comes within the etymological meaningof the expression "current repairs". In otherwords, even if the expenditure is revenue innature, it may not fall in the connotation of"current repairs" - [2007] 293 ITR 201 (SC)(Commissioner of Income Tax Vs. Saravana SpinningMills P. Ltd.) (iii)A new asset or new/differentadvantage cannot amount to `current repairs'. -2009-TIOL-86-SC-II (CIT Vs. Sri MangayarkarasiMills P. Limited) (ii) Under Section 31(i), the deductionadmissible is only for current repairs.Therefore, the question as to whether theexpenditure incurred by the assessee conceptuallyis revenue or capital in nature is not relevantfor deciding the question whether suchexpenditure comes within the etymological meaningof the expression "current repairs". In otherwords, even if the expenditure is revenue innature, it may not fall in the connotation of"current repairs" - [2007] 293 ITR 201 (SC)(Commissioner of Income Tax Vs. Saravana SpinningMills P. Ltd.) (iii)A new asset or new/differentadvantage cannot amount to `current repairs'. -2009-TIOL-86-SC-II (CIT Vs. Sri MangayarkarasiMills P. Limited) (iv) Repair implies existence of a part ofthe machine which has malfunctioned, therebyrequiring repair to that machinery, plant etc.Replacement cannot be a current repair, for,"replacement" and "current repair" do not go handin hand . If one is to hold otherwise, it wouldonly make Section 31(i) wholly redundant andabsurd. Thus, replacement expenditure cannot besaid to be `current repairs' vide [2007] 293 ITR201 (SC) (Commissioner of Income Tax Vs. SaravanaSpinning Mills P. Ltd.) and 2009-TIOL-86-SC-II(CIT Vs. Sri Mangayarkarasi Mills P. Limited)(v)Expenditure is deductible under section37 only if it (a) is not deductible undersections 30-36, (b) is of a revenue nature, (c)is incurred during the current accounting yearand (d) is incurred wholly and exclusively forthe purpose of the business. - 2009-TIOL-86-SC-II (CIT Vs. Sri Mangayarkarasi Mills P. Limited);(vi) Expenditure is of a capital nature whenit amounts to an enduring advantage for thebusiness and repair is different from bringing anew asset for the business. Further, bringinginto existence a new asset or an enduring benefitfor the assessee amounts to capital expenditurevide Lakshmiji Sugar Mills (P) Co. v. CIT (AIR1972 SC 159) referred in 2009-TIOL-86-SC-II (CITVs. Sri Mangayarkarasi Mills P. Limited). (vii) Therefore, whether an expenditure isrevenue or capital in nature would depend on thefacts of each case. - [2007] 293 ITR 201 (SC)(Commissioner of Income Tax Vs. Saravana SpinningMills P. Ltd.)" This Court also referred to the decision in the caseof CIT Vs. Mahalakshmi Textile Mills Ltd., reported in(1967) 66 ITR 710 (SC) on the issue of current repairsand pointed out that so long as there is no change inthe performance of the machinery and the parts thatwere replaced performing precisely the same function,expenditure could only be concerned as current repairsof the plant and machinery. (vii) Therefore, whether an expenditure isrevenue or capital in nature would depend on thefacts of each case. - [2007] 293 ITR 201 (SC)(Commissioner of Income Tax Vs. Saravana SpinningMills P. Ltd.)" This Court also referred to the decision in the caseof CIT Vs. Mahalakshmi Textile Mills Ltd., reported in(1967) 66 ITR 710 (SC) on the issue of current repairsand pointed out that so long as there is no change inthe performance of the machinery and the parts thatwere replaced performing precisely the same function,expenditure could only be concerned as current repairsof the plant and machinery. 31. Applying the ratio of the decision citedabove, when we look into the facts of the above cases,it is evident that with regard to the moulds and diesattached to the machinery like press designsspecification, moulds and dies are not independent ofthe plant and machinery, but are parts of themachinery. Once the dies are worn out, the machinescannot turn out the product to the businessspecifications and this has to be obtained only on areplacement of the dies and moulds, a fact which isnot refuted by the revenue. It is no doubt true thatthe assessee claimed depreciation on dies and moulds.Yet in the decision in the case of CIT Vs. MahalakshmiTextile Mills Ltd., reported in (1967) 66 ITR 710(SC), the Apex Court pointed out that all questionswhether of law or of fact, which relate to theassessment year of the assessee could be raised in anyyear under consideration before the Officer as well asbefore the Income Tax Appellate Tribunal too and if,for reasons recorded by the departmental authoritiesin rejecting a contention raised by the assessee, thegrant of relief to an assessee is justified on anotherground, the Revenue is bound to consider such claim ofgranting the relief. The Apex Court pointed out thatthe right of the assessee to the relief is notrestricted to the plea raised by him. On the factsbefore us, when the dies and moulds were attached tothe machine to manufacture the designed product, wehave no hesitation to accept the plea of the assesseethat the claim would fall for consideration only underSection 31 of the Act. 32. In the unreported decision of this Courtdated 27.04.2012 in Tax Case (Appeal).No.1011 of 2005(The Commissioner of Income Tax, Madurai Vs.M/s.Machado Sons) on the question of repair made to a ship, this Court pointed out that when the object ofthe expenditure was not for bringing into existence anew asset or to obtain a new advantage, the saidexpenditure qualifies to be considered as currentrepairs under Section 31 of the Act. In so holding,after referring to the decision of the Apex Court inthe case of CIT Vs. M/s.Saravana Spinning MillsP.Ltd., reported in (2007) 293 ITR 201, this Courtfurther pointed out to the decision of the Apex Courtwhere it cautioned that all repairs are not currentrepairs on Section 31(1) of the Act; Section 31(1) ofthe Act limits the scope of allowability ofexpenditure as deduction in respect of repairs made tomachinery, plant or furniture by restricting it to theconcept of "current repairs". Thus, this Courtpointed out that what is allowable as revenueexpenditure under Section 37 of the Act are thoseexpenditure other than one falling for considerationunder Sections 30 to 36 of the Act. The Apex Courtfurther pointed out the example that when the picturetube in a television set is replaced, such repairswould come within the connotation of the phrase"current repairs". Thus, applying these twodecisions, we have no hesitation in rejecting theRevenue's appeal. We hold that the claim beingconsidered as current repairs, the same would fallunder Section 31 of the Act as current repairs. Tothat extent, we modify the order of the Tribunal. ” 4.Adding further, the learned counsel for the appellantsubmitted that the second substantial question of law is coveredby the decision of this Court in the case of Thiru ArooranSugar Ltd v. Deputy Commissioner of Income Tax reported in(2013) 350 ITR 0324 (Mad), wherein, the issue was decided infavour of the assessee. For better appreciation, the relevantportion of the said decision is extracted below: “Learned counsel appearing for the assessee placedreliance on the decision of this court reported in CITv. Ayesha Hospitals P. Ltd. (2007) 292 ITR 266 (Mad),wherein in respect of the claim made for theassessment year 1991-92, the assessee claimed theamounts spent on painting, relaying of the damagedfloors, partitions, etc., as revenue expenditure. Onan appeal before this court by the Revenue, it waspointed out that the assessee incurred expenditure forrelaying of the damaged floors, painting and partitionin respect of the leased property. Referring to thedecision of the apex Court reported in CIT v. MadrasAuto Service P. Ltd. (1998) 233 ITR 468 (SC), this court pointed out that the expenditure incurred inrespect of the maintenance of the leased premises wasdeductible as revenue expenditure. As regards the contention taken by the Revenue placingreliance on Explanation 1 to section 32(1)(ii) of theIncome-tax Act, which was inserted with effect fromApril 1, 1988, this court pointed out that theExplanation is an exceptional one which permitsdepreciation in cases where the assessee does not owna building, in respect of which the assessee incurscapital expenditure on the construction of anystructure or doing of any work, in or in relation to,and by way of renovation or extension of, orimprovement to the building. Applying the above said decision of this court to thefacts of the present case, we hold that the temporarystructure by means of false ceiling and officerenovation had not resulted in any capitalexpenditure. The benefit of the above said decisionof this court hence, applies to the facts of the case.Accordingly, the question is answered in favour of theassessee and the tax case (appeal) stands allowed. Nocosts.” 5.Following the above decisions, we answer the substantialquestions of law raised herein in favour of the assessee andaccordingly, dismiss this tax case appeal filed by the Revenue.No costs. Assistant Registrar //True Copy// gba/msr Sub Assistant Registrar To 1.The Income Tax Appellate Tribunal, Madras “C” Bench, Chennai. 2.The Commissioner of Income Tax -IChennai.Chennai. 3.The Assistant Commissioner of Income Tax,Company Circle III (2) and the Additional CIT, Company Range-IIIChennai – 600 034.4.The Commissioner of Income Tax (Appeals)-IIIChennai. +1cc to Mr.Subburaya Aiyar, Advocate, S.R.No.16112+1cc to Mr.M.Swaminathan, Advocate, S.R.No.15645+1cc to Mr.M.Swaminathan, Advocate, S.R.No.15645 Tax Case Appeal No.331 of 2011 SSD(CO)PM/04/04/2022PM/04/04/2022