The Commissioner Of Income Tax Chennai v. M/S Rane Brake Linings Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 21.04.2009 CORAM: THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANANDTHE HONOURABLE MR.JUSTICE M.M.SUNDRESH Tax Case(Appeal) Nos.1157 and 1158 of 2007 The Commissioner of Income TaxChennai .. Appellants in both Tax Cases -vs- M/s Rane Brake Linings Ltd32, Cathedral RoadChennai 86... Respondent in both Tax Cases TAX CASES filed under Section 260 A of the Income Tax Act, 1961against the order of the Income Tax Appellate Tribunal, MADRAS 'B'Bench, Chennai dated 29.08.2006 passed in ITA.No.1666/mds/1999against the order of the Commissioner of Income Tax (A) IX Chennaidated 26.8.1999 in G.I.NO./PA.No.10-H/AACR 1703/against the orderof the Deputy Commissioner of Income Tax, Special Range II,Chennai-34 dated 1.3.1999 in PAN/GIR.NO.AAACR/17031/10-R. For Appellant : M/s.Pushya Sitaraman For Respondent: Mr.Venkat Narayanan J U D G M E N T (Judgment of the Court was delivered by K.RAVIRAJA PANDIAN,J) The revenue on appeal against the order of the Income TaxAppellate Tribunal MADRAS 'B' Bench, Chennai dated 29.08.2006passed in ITA.No.1666/mds/1999 by formulating four questions oflaw. The first question of law is as follows:-" Whether in the facts and circumstances ofthe case, the Tribunal was right in holding thatSales Tax collection does not form part of theturnover, for the purpose of calculation ofdeduction u/s 80HHC?". 2. Since the first question of law has already been covered byhttps://hcservices.ecourts.gov.in/hcservices/the decision of the Supreme Court against the revenue in the caseof Commissioner of Income Tax vs. Lakshmi Machine 2007 (290 ITR667) wherein it has been held as follows : "Section 80HHC of the Income Tax Act, 1961, isa beneficial section : it was intended to provideincentive to promote exports. The intention was toexempt profits relatable to exports. Just ascommission received by the assessee is relatable toexports and yet it cannot form part of 'turnover'for the purposes of section 80HHC, excise duty andsales tax also cannot form part of 'turnover'.Just as interest, commission, etc., do not emanatefrom the 'turnover' so also excise duty and salestax do not emanate from such turnover. Sinceexcise duty and sales tax did not involve any suchturnover such taxes had to be excluded.Commission, interest, rent, etc., do yield profits,but they do not partake of the character ofturnover and therefore they are not includible inthe 'total turnover'. If so, excise duty and salestax also cannot form part of the 'total turnover'under section 80HHC(3)". this Court admitted the appeals on the following substantialquestions of law:- "1. Whether in the facts and circumstancesof the case, the Tribunal was right in allowinga deduction of the amounts spent n replacementof machinery as revenue expenditure? 2. Whether in the facts and circumstances of the case, replacement of independent completemachinery can be treated as revenue expenditure?3. Whether in the facts and circumstancesof the case, the Tribunal was right in decidingthe issue without going into the concept ofBlock of asset?". this Court admitted the appeals on the following substantialquestions of law:- "1. Whether in the facts and circumstancesof the case, the Tribunal was right in allowinga deduction of the amounts spent n replacementof machinery as revenue expenditure? 2. Whether in the facts and circumstances of the case, replacement of independent completemachinery can be treated as revenue expenditure?3. Whether in the facts and circumstancesof the case, the Tribunal was right in decidingthe issue without going into the concept ofBlock of asset?". 3. It is submitted across the bar by the counsel appearing oneither side that the above questions of law, are also covered bythe decision of the Supreme Court in the case of Commissioner ofIncome Tax vs.Ramaraju Surgical Cotton Mills reported in 294 ITR328, wherein the Judgment of this Court in Commissioner of IncomeTax (Appeals) vs. Janakiram Mills Limited reported in 275 ITR 430was considered by the Supreme Court with reference to thecontention of the assessee that replacement of assets withoutincreasing the production capacity would amount to revenueexpenditure. The Supreme Court remanded the matter by observingthat there are a number of tests which are required to beconsidered while deciding whether the expenditure was revenue orcapital in nature. In the absence of the requisite detailsregarding the production capacity remaining constant even afterreplacement, the matter could not be decided on merits and requirehttps://hcservices.ecourts.gov.in/hcservices/to be remitted back to the Commissioner (Appeals) for considerationof that particular issue with reference to the production capacity.In this case also, there is no material available as to the increase or otherwise of the production capacity in replacement ofthe machineries. Without the factual details, the questions of lawcannot be decided. Hence this case also require to be remittedback to the Commissioner of Appeals as done by the Supreme Court inthe aforesaid decision. 4. Hence, in respect of these questions of law, the order ofthe Tribunal is set aside and the matter is remitted back to theCommissioner of Appeals to redo the exercise as directed by theSupreme Court in the case of Commissioner of Income Tax vs.RamarajuSurgical Cotton Mills reported in 294 ITR 328. With the aboveobservations, the appeals are disposed of. No costs. Sd/Asst.Registrar/true copy/Sub Asst.RegistrarrgTo1. The Assistant RegistrarIncome Tax Appellate TribunalB Bench, Madras2. Income Tax Appellate Tribunal, "B" Bench, Chennnai3. Commissioner of Income Tax (A) IX Chennai. 4.Deputy Commissioner of Income Tax Special Range II, Chennai-34 cc to M/s. Pushya Sitaraman, Advocate, SR. 16232Tax Case(Appeal) Nos.1157 and 1158 of 2007 SSN (CO)kk 4/5 https://hcservices.ecourts.gov.in/hcservices/