M/S.sri Saravana Spining Mills Pvt Ltd.,Pithalaipatty,Dindigul v. The Asst. Commissioner Of Income Tax, Company Circle Ii, Madurai

BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED : 27.03.2019 CORAM: THE HONOURABLE DR. JUSTICE VINEET KOTHARIand THE HONOURABLE MRS.JUSTICE T.KRISHNAVALLI W.A.(MD) No.901 of 2014 AND M.P.(MD) No.1 of 2014 M/s.Sri Saravana Spining Mills Pvt Ltd.,Pithalaipatty,Dindigul. ... Appellant/Petitioner -vs- 1.The Asst. Commissioner of Income Tax, Company Circle II, Madurai. 2.The Chief Commissioner of Income Tax, No.2, V.P.Rathinasamy Nadar Road, Bibikulam, Madurai-625 002.... Respondents/Respondents PRAYER:Appeal is filed under Section 15 of Letters Patent,against the order of this Court dated 21.02.2014 made in W.P.(MD).No.7570 of 2009. Prayer in WP(MD). 7570/ 2009 : Writ Petition is filed under Article 226 of theConstitution of India, praying this Court to issue a Writ ofCertiorarified Mandamus or any other appropriate writ or order ordirection to call for the records of the petitioner on the file ofthe 2nd Respondent in CNo.2118/4/CC/MDU/Tech/2008-09 and quash theimpugned order dt.26.02.2009 relating to the petitioner for theAssessment year 1992-93 and consequentially direct the 2ndRespondent to waive interest levied u/s.234B. For Appellant : Mr.P.Arun Jeyatran, for M/s.Subbaraya Aiyar Padmanabhan For Respondent:Mrs.S.Srimathy, Standing Counsel https://hcservices.ecourts.gov.in/hcservices/ JUDGMENT [Judgment of the Court was made by DR.VINEET KOTHARI, J.] The writ appeal has been filed by the Assessee, M/s.SriSaravana Spinning Mills Private Limited, aggrieved by thedismissal of the writ petition by the learned Single Judge, dated21.02.2014, whereby, the learned Single Judge upheld the order ofthe Chief Commissioner of Income Tax, rejecting the waiverapplication of the Assessee seeking waiver of interest underSection 234-B of the Income Tax Act, which attracts levy ofinterest on account of failure of the Assessee to pay advance tax. 2. The Chief Commissioner of Income Tax, while rejecting thewaiver application of the Assessee, vide his order dated26.02.2009, held that the guidelines of the Central Board ofDirectors in the Circular No.FNo.400/29/2002-ITB, dated26.06.2006, did not get attract to the facts of the case of theappellant / Assessee and therefore, the waiver of interest underSection 234-B of the Act, could not be granted. The relevantobservation of the Chief Commissioner of Income Tax in theimpugned order, including the relevant guidelines covered in para2(c) of the said Circular (which is wrongly stated as 2(d) in theimpugned order), is quoted below for ready reference. 2. The Chief Commissioner of Income Tax, while rejecting thewaiver application of the Assessee, vide his order dated26.02.2009, held that the guidelines of the Central Board ofDirectors in the Circular No.FNo.400/29/2002-ITB, dated26.06.2006, did not get attract to the facts of the case of theappellant / Assessee and therefore, the waiver of interest underSection 234-B of the Act, could not be granted. The relevantobservation of the Chief Commissioner of Income Tax in theimpugned order, including the relevant guidelines covered in para2(c) of the said Circular (which is wrongly stated as 2(d) in theimpugned order), is quoted below for ready reference. “Where any income which was not chargeable toincome-tax on the basis of any order passed in thecase of an assessee by the High Court within whosejurisdiction he is assessable to income-tax, and asa result he did not pay income-tax in relation tosuch income in any previous year and subsequently,in consequence of any retrospective amendment of lawor, as the case may be, the decision of the SupremeCourt in his own case, which event has taken placeafter the end of any such previous years, in anyassessment or reassessment proceedings the advancetax paid by the assessee during the financial yearimmediately preceding the relevant assessment yearsis found to be less than the amount of advance taxpayable on his current income, the assessee ischargeable to interest under Section 234B or Section234C and the Chief Commissioner or Director Generalis satisfied that this is a fit case for reductionor waiver of such interest.”What is referred to in this para is thejurisdictional High Court decision according towhich the particular item of income was notchargeable to income-tax which was available in therelevant previous year when the advance tax was paidhttps://hcservices.ecourts.gov.in/hcservices/and was overruled by the Supreme Court or a largerbench subsequently. The assessee has failed to pointout any such High Court decision which held that the expenditure on replacement of machinery formodernization was allowable and which was availableduringtherelevantpreviousyear.Thejurisdictional High Court decisions in the case ofCIT v. Sambandham Spinning Mills Ltd., 298 ITR 306(Mad) dated 18.04.2007 and CIT vs Metal PowerCompany Ltd., 300 ITR 48 (Mad) dated 14.03.2007 cameafter the combined decision in several casesincluding the case of the assessee reported as CITvs Janakiraman Mills Ltd., 275 IRT 403 (Mad) bywhich the matter was decided in favour of theassessee on 29.04.2005. In the course of hearing on25.02.2009, the assessee failed to point out anysuch decision of the jurisdictional High Court thatwas available during the previous year or thefinancial year in which the relevant advance tax waspaid or even at the time of filing of return forthat previous year. The only argument of theassessee was that its decision to exclude theaforesaid amount of replacement cost from the totalincome for the purpose of paying advance tax wasbased on the ITAT decision in the case of L.S.MillsP.Ltd. As is clear from the aforesaid excerpt of theBoard's order, the ITAT decision is not material inthis regard. Hence, within the parameters laid downby the Board, the benefit of waiver/reduction ofinterest u/s 234B cannot be granted to the assessee. 5.As regards the contention that there was nointention to defer the payment of advance tax, thatthe assessee has been regular in filing the returnand paying taxes, and that there was no otherdispute in his case, these have no relevance in thisregard. 5.As regards the contention that there was nointention to defer the payment of advance tax, thatthe assessee has been regular in filing the returnand paying taxes, and that there was no otherdispute in his case, these have no relevance in thisregard. 6.It was settled in the following decisions thatthe interest u/s 234B is consequential, automatic,compensatory and mandatory:(i)Union Home Products vs Union of India 215 ITR748(KAr)(ii) CIT vs Anjum M.H.Ghaswala 252 ITR 01 (SC)(iii)CIT vs Ramalingam 241 ITR 753 (Ker)(iv) Kuttakaran Tools vs CIT 264 ITR 305(Ker)(v)Mrs.Prabhulal vs CIT 269 ITR 212 (Pat)(vi) Dr.S.Reddappa vs Union of India 232 ITR 62(kar)(vii)Vinor Khurana vs CIT 253 Itr 578 (P&H)On account of the interest being compensatory,it only represents the cost of funds payable asadvance tax but not paid and enjoyed by the assesseefor his own purposes including earning of income.https://hcservices.ecourts.gov.in/hcservices/Thus, it was not penal in nature and hence, theconsiderations pleaded by the assessee are notgermane to waiver/reduction. In fact, the circumstances in which, the advance tax was not paidexcept the one specified in para 2(d) of the Board'sorder are immaterial for waiver/reduction ofinterest u/s 234B. It was settled by the SupremeCourt in the aforesaid decision in the case of AnjumM.H.Ghaswala that the Chief Commissioner can waivethe interest only in the classes of cases andclasses of incomes as specified by the Board in itsorder u/s 119(2)(a) (page 16 of 252 ITR). Thus, theclasses of cases specified in the said order areexhaustive and not illustrative. It is therefore notpermissible to grant this benefit on the ground ofequity or natural justice. 7.In view of the foregoing the application ofthe assessee for waiver of interest u/s 234B ishereby rejected.” 3. According to the learned counsel for the Assessee, theissue involved is whether the replacement of rings and frames inthe Textile Machineries, installed by the factory, was anallowable revenue expenditure or not, for the assessment year1992-93 and the Assessing Authority rejected the said claim of theAssessee and raised the demand of tax and also imposed, interalia, interest under Section 234-B of the Act, for the failure ofthe Assessee to pay advance tax and the same was confirmed onappeal, by the Commissioner of Income Tax (Appeals) and by theIncome Tax Appellate Tribunal. The said order was assailed by theRevenue before the High Court. A Division Bench of this Court tookup the matter along with batch of cases and decided the same infavour of the Assessees in Commissioner of Income Tax v. JanakiramMills Ltd. [275 ITR 403 (Mad.)]. The relevant portion of theorder passed by the Division Bench reads as under: "EMPIRE JUTE CO. LTD. V. CIT [1980] 124 ITR 1(SC) AND ALEMBIC CHEMICAL WORKS CO. LTD. V. CIT[1989] 177 ITR 377 (SC) RELIED ON.Expenditure on worn out machinery can fall to beconsidered under "current repairs" or as an"expenditure laid out or expended wholly andexclusively for the purpose of the business".In the scheme of the Act, Section 31 deals with"currentrepairs"Section32dealswith"depreciation on assets used for the purposes ofbusiness" and Section 37 deals with allowance of"business expenditure" not in the nature of capitalor personal expenditure. These three sections do notoperate alternatively but independently. Theintroduction of the concept of "block of assets"does not affect the operation of Sections 31 and 37.https://hcservices.ecourts.gov.in/hcservices/The question whether an item of expenditure iscapital or revenue is not determined by thetreatment given in the books of account or in the balance sheet. The claim has to be determined onlyby the provisions of the Act and not by theaccounting practice of the assessee. balance sheet. The claim has to be determined onlyby the provisions of the Act and not by theaccounting practice of the assessee. Held also, that since the very same issue/pointhad been considered by the Court in variousdecisions in favour of the assessees and against therevenue and admittedly, those decisions had not beentaken up by way of appeal to the Supreme Court, theDepartment's challenge in the present cases was notjustified. DEPUTY CIT v. VELLORE CO-OPERATIVE SUGAR MILLSLTD.[2000] 242 ITR 170(Mad); BERGER PAINTS INDIALTD. V. CIT [2004] 266 ITR 99 (SC); UNION OF INDIAV. SATISH PANALAL SHAH [2001] 249 ITR 221 (SC); CIT V. NARENDRA DOSHI [2002] 254 IRT 606 (SC) AND CIT V.SHIVSAGAR ESTATE [2002] 257 ITR 59 (SC) followed." The appeal No.53 of 2001 pertained to the present Assessee, in thesaid batch of appeals decided by the High Court. 5. On further appeal by the Revenue against the aforesaidjudgment of the Madras High Court, the Apex Court in Commissionerof Income Tax v. Saravana Spinning Mills P. Ltd. (the presentAssessee) [(2007) 293 ITR 201 (SC)], reversed the judgment of theMadras High Court in Janakiraman Mills Limited case supra and heldthat the expenditure incurred for replacement of the machineriescould not be claimed as “current repairs” under Section 37(1) ofthe Act and since Section 37(1) of the Act excludes those items ofexpenditure which expressly fall under Sections 32 to 36 of theAct, such expenditure of replacement of machinery was not anallowable expenditure. 6. The relevant portions of the judgment of the Supreme Courtin Commissioner of Income Tax v. Saravana Spinning Mills P. Ltd.[(2007) 293 ITR 201 (SC)] are quoted below for ready reference:"Held, reversing the decision of the High Court,(i)that the manufacturing process in the textilemill was not one continuous integrated process;(ii)that to decide the applicability of section31(i) the test was not whether the expenditure wasrevenue or capital in nature, but whether theexpenditure was "current repairs". The basic testwas to find out whether expenditure was incurred to"preserve and maintain" an already existing asset,and the expenditure must not be to bring a new assetinto existence or to obtain new advantage.(iii)That each machine including the ring framewas an independent and separate machine capable ofindependent and specific function and, therefore,https://hcservices.ecourts.gov.in/hcservices/the expenditure incurred for replacement thereofwould not come within the meaning of "current repairs". The replacement of the ring frameconstituted substitution of an old asset by a newasset, and, therefore, he expenditure incurred bythe assessee did not fall within the meaning of"current repairs" in Section 31(i).Under Section 31(i) the deduction admissible isonly for current repairs. Therefore, the question asto whether the expenditure incurred by the assesseeconceptually is revenue or capital in nature is notrelevant for deciding the question whether suchexpenditure comes within the etymological meaning ofthe expression "current repairs". In other words,even if the expenditure is revenue in nature, it maynot fall in the connotation of "current repairs". NEW SHORROCK SPINNING AND MANUFACTURING CO. LTD.V. CIT [1956] 30 ITR 338 (Bom) relied on. CIT V. MAHALAKSHMI TEXTILE MILLS LTD. [1967] 66ITR 710 (SC); [1967] 3 SCR 957 distinguished. Decision of the Madras High Court in CIT v.JANAKIRAM MILLS LTD., [2005] 275 ITR 403 reversed." NEW SHORROCK SPINNING AND MANUFACTURING CO. LTD.V. CIT [1956] 30 ITR 338 (Bom) relied on. CIT V. MAHALAKSHMI TEXTILE MILLS LTD. [1967] 66ITR 710 (SC); [1967] 3 SCR 957 distinguished. Decision of the Madras High Court in CIT v.JANAKIRAM MILLS LTD., [2005] 275 ITR 403 reversed." 7. The Assessee had filed the waiver application on 10.08.2008before the Chief Commissioner of Income Tax and the same wasrejected by him vide order dated 26.02.2009, quoted above. Thelearned counsel for the Assessee urged that since the Assessee hasconsistently succeeded on the issue of claiming the saidexpenditure for replacement of some plant and machinery viz.,rings and frames, up to the High Court and merely because, thesaid issue came to be decided against the assessee by the ApexCourt, it was still a fit case for waiver of interest underSection 234-B of the Act, as the assessee bonafidely contested thesaid issue and did not pay the advance tax with respect of thesaid business expenditure, which would be of allowable revenueexpenditure and merely because the Apex Court held against theassessee that even though it may be revenue expenditure, but itwill not be allowable as "current repairs", finally, the liabilityto pay advance tax could not be presumed on the part of theassessee during that contemporary period and therefore, it was fitcase for waiver of interest under Section 234-B of the Act., interms of para 2(b) of the Board Circular, dated 26.07.2006 whichlaid down illustrative guidelines for waiver of interest in suchcase. 8.On the other hand, the learned counsel appearing for theRevenue submitted that the Assessee did not satisfy the Guidelinesin para 2(c) of the Circular dated 26.06.2006 and therefore, theChief Commissioner of Income Tax was justified in rejecting thewaiver application filed by the Assessee, and the same was rightlyhttps://hcservices.ecourts.gov.in/hcservices/upheld by the learned Single Judge. 9.Heard the learned counsel appearing for the parties andperused the materials available on record. 10.We are of the considered opinion that the preset WritAppeal of the Assessee deserves to be allowed. Undoubtedly, theGuidelines laid down by the Central Board in the Circular dated26.06.2006 are only illustrative cases where the DesignatedAuthority can grant waiver of interest under Sections 234-B and Cof the Act. The claim of the Assessee was that the income is notchargeable to tax on the basis of an order passed by the HighCourt and the expenditure in question was a revenue expenditureand the same was negatived by the Supreme Court later on only tothe extent of it not being deductible as "current repairs". Thespirit of the said illustrative examples in para 2(c) of theCircular dated 26.6.2006 is that on the debatable issue, theAsseessee had succeeded up to High Court contesting his liabilityto claim particular expenditure as an allowable revenueexpenditure and therefore, it will not be an 'income chargeable toincome tax' in view of Section 234B of the Act, then in ouropinion, it would be a fit case to consider for waiver of theinterest under Section 234-B of the Act and merely because theSupreme Court held that the expenditure in question could not beallowed as 'current repairs', even though it was revenueexpenditure in nature, it would not mean that the levy of interestunder Section 234-B of the Act for the failure to pay advance tax,is automatically attracted and the waiver in such cases, may notbe granted by the Competent Authority. As is clear that the issuewas highly debatable and therefore, liability of paying advancetax to that extent, treating as admitted liability could notarise. 11.It is equally true that the discretionary power to waive orreduce the interest is vested with the Competent Authority,including the Chief Commissioner, and therefore, no straightjacket formula could be fixed in this regard and that it shouldalways depend upon the facts and circumstances of each cases,whether such waiver or reduction of interest may be granted or maynot be granted. It is essentially a discretionary matter and thatdiscretion has to be fairly and objectively exercised. 12.In view of the thin line difference between the 'revenueexpenditure' for replacing some of the parts of plant machineries,like rings and frames in the present case in Textile industrybeing allowable deduction or not and that being a highly debatableissue, in our opinion, particularly when the Assessee hadsucceeded up to High Court consistently, irrespective of the factwhether the appeal was filed by the Assessee or by the Revenuebefore the High Court or lower authorities, it cannot be said thathttps://hcservices.ecourts.gov.in/hcservices/the Assessees in such cases, ought to have admitted the liabilityto pay advance tax, by giving up their claim for claiming suchexpenditure for replacement of part of plant and machinery as an allowable revenue expenditure. That is why, while considering theapplication for waiver of interest under Section 234-B of the Act,the Chief Commissioner of Income Tax was bound to consider thisaspect, which has unfortunately not been done. 13.Therefore, we are inclined to allow the present WritAppeal. We accordingly allow this Writ Appeal and set aside theorder passed by the learned Single Judge dated 21.02.2014 as wellas the order passed by the Chief Commissioner of Income, dated26.02.2009 under Section 119(2)(a)of the Act, for the AssessmentYear 1992-93 and remand the matter to the Chief Commissioner ofIncome Tax, for re-considering the case of the Assessee afreshfor waiver of interest under Section 234-B of the Act, inaccordance with law,. No order as to costs. Consequently, theconnected miscellaneous petition is closed. +1 cc to Mr.Subbaraya Aiyar , Advocate SR.No.57120 +1 cc to Mr.S.Srimathy , Advocate SR.No.57315 ns KM/(25.04.2019) 8P 3C