The Commissioner Of Income Tax-I,Chennai v. M/S.tvs Motor Company Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 30.11.2021 CORAM : THE HON'BLE MR.JUSTICE R.MAHADEVANAND THE HON'BLE MR.JUSTICE MOHAMMED SHAFFIQ T.C.A.NO.718 OF 2009 The Commissioner of Income Tax-I,Chennai.... Appellant Versus M/s.TVS Motor Company Ltd., 29, Haddows Road, Chennai - 600 006. PAN: ... Respondent PRAYER:- Appeal preferred under Section 260A of the Income Tax Act,1961, against the order of the Income Tax Appellate Tribunal,Madras “D” Bench, dated 16.01.2009 in I.TA.No.490/Mds/2008. Against the Appellate Order passed by the Commissioner ofIncome Tax (A)-III, Chennai, dated 24/12/2007 made inI.T.A.NO.803/2006-2007/A-III, for the Assessment Year 2001-2002;and Against the Assessment Order passed by the Income TaxOfficer (OSD), Company Circle – III(2), Chennai – 34, dated11/12/2006 made in PAN/G.I.R.No. /GI.No.32024-T, forthe Assessment Year 2001-2002. For Appellant :Mr.M.Swaminathan, Senior Standing Counsel Assisted byMrs.S.Premalatha, Junior Standing CounselFor Respondent :Mr.R.Venkatanarayanan For M/s.Subbaraya Iyer J U D G M E N T (Judgment was delivered by R.MAHADEVAN, J.) This tax case appeal filed at the instance of the Revenue,calling in question the correctness of the order dated16.01.2009 passed by the Income Tax Appellate Tribunal Madras'D' Bench, in I.T.A.No.490 /Mds/2008, relating to the assessmentyear 2001-02, was admitted by this court on 04.08.2009, on thefollowing substantial question of law:- “ Whether on the facts and circumstances of thecase, the Tribunal was right in holding thatexpenditure on replacement of dies and moulds are tobe allowed as cur rent repairs? 2. Today, when the matter was taken up for consideration,the learned counsel for the appellant/Revenue as well as therespondent/assessee jointly submitted that the issue involvedherein has already been considered and decided by this Court infavour of the assessee by judgment dated 09.01.2014, passed inTCA.Nos.173 and 174 of 2009, the relevant passage of which, isusefully extracted hereunder: “29. As regards the expenditure on dies &moulds, the assessee pointed out that it debited anamount of Rs.11,17,68,169/- towards dies and mouldsonly to replace them in the place of worn out diesand moulds. The assessee in the memorandum of incomeadded this amount to the total income and claimedthe cost of dies and moulds of Rs.22,66,52,504/-under Section 31 of the Act. The assessee statedthat within a period of one year of installation,the life of the dies and moulds would becomeobsolete and this was due to high productioninvolved. Thus, replacement of the new dye in theplace of old dye would quality for current repairsunder Section 31 of the Act. The Assessing officer,however, rejected the contention of the assessee andthe Assessing Officer pointed out that the assesseewas claiming depreciation upto 1999-2000 underSection 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 inthe nature of installation of machinery in the factory. Such moulds and dies were normallyattached to the machines to suit the individualrequirement of particular product. So holding, theTribunal held that expenditure incurred onreplacement of dies and moulds was revenue innature. It relied on the decision of Karnataka HighCourt in the case of Mysore Spun Concrete Pipe Pvt.Ltd., reported in 194 ITR 159. factory. Such moulds and dies were normallyattached to the machines to suit the individualrequirement of particular product. So holding, theTribunal held that expenditure incurred onreplacement of dies and moulds was revenue innature. It relied on the decision of Karnataka HighCourt in the case of Mysore Spun Concrete Pipe Pvt.Ltd., reported in 194 ITR 159. 30. As far as this issue is concerned, learnedcounsel appearing for the assessee placed relianceon the decision of this Court reported in (2013) 357ITR 720 (Mad) in the case of Super Spinning MillsLtd., Vs. Assistant Commissioner of Income-taxrelated to the expenditure on replacement of themachinery parts. The assessee therein engaged in thebusiness of manufacture and trading in cotton yarnand allied products and the assessee incurredexpenditure in respect of replacement of certaintextile machinery. On a question as to whether suchreplacement of parts would be current repairs ofcapital in nature, this Court considered thedecisions in the case of CIT Vs. Saravana SpinningMills P; Ltd., reported in (2007) 293 ITR 201 (SC),CIT Vs. Ramaraju Surgical Cotton Mills reported in(2007) 294 ITR 328 (SC) and CIT Vs. MangayarkarasiMills P.Ltd., reported in (2009) 315 ITR 114 (SC)and pointed out that the question as to whether theexpenditure incurred on replacement of machinery isrevenue or capital rests on the nature of capitalincurred vis-a-vis the benefit derived. This Courtreferred to the decision in the case of CIT Vs.Saravana Spinning Mills P.Ltd., reported in (2007)293 ITR 201 (SC) and in particular to the decisionin the case of CIT Vs. Sri Mangayarkarasi MillsP.Ltd., reported in (2009) 315 ITR 114 (SC) andpointed out as under:- " 10. The question as to whether theexpenditure incurred on replacement ofmachinery is revenue or capital expenditure,particularly in the nature of replacementsof parts, thus rests on the nature ofexpenditure incurred, vis-a-vis the benefitthat the assessee derives. The ratiodeductible from the decisions referred toabove are: (i) To decide the applicability ofSection 31(i), the test is not whether the expenditure is revenue or capital in nature,but whether the expenditure is "currentrepairs". The basic test is to find outwhether expenditure is incurred to "preserveand maintain" an already existing asset andthe expenditure must not be to bring a newasset into existence or to obtain a newadvantage vide [2007] 293 ITR 201 (SC)(Commissioner of Income Tax Vs. SaravanaSpinning 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 assesseeconceptually is revenue or capital in natureis not relevant for deciding the questionwhether such expenditure comes within theetymological meaning of the expression"current repairs". In other words, even ifthe expenditure is revenue in nature, it maynot fall in the connotation of "currentrepairs" - [2007] 293 ITR 201 (SC)(Commissioner of Income Tax Vs. SaravanaSpinning Mills P. Ltd.) (iii) A new asset or new/differentadvantage cannot amount to `currentrepairs'. - 2009-TIOL-86-SC-II (CIT Vs. SriMangayarkarasi Mills P. Limited) (iv) Repair implies existence of a partof the machine which has malfunctioned,thereby requiring repair to that machinery,plant etc. Replacement cannot be a currentrepair, for, "replacement" and "currentrepair" do not go hand in hand . If one isto hold otherwise, it would only makeSection 31(i) wholly redundant and absurd.Thus, replacement expenditure cannot be saidto be `current repairs' vide [2007] 293 ITR201 (SC) (Commissioner of Income Tax Vs.Saravana Spinning Mills P. Ltd.) and 2009-TIOL-86-SC-II (CIT Vs. Sri MangayarkarasiMills P. Limited) (iii) A new asset or new/differentadvantage cannot amount to `currentrepairs'. - 2009-TIOL-86-SC-II (CIT Vs. SriMangayarkarasi Mills P. Limited) (iv) Repair implies existence of a partof the machine which has malfunctioned,thereby requiring repair to that machinery,plant etc. Replacement cannot be a currentrepair, for, "replacement" and "currentrepair" do not go hand in hand . If one isto hold otherwise, it would only makeSection 31(i) wholly redundant and absurd.Thus, replacement expenditure cannot be saidto be `current repairs' vide [2007] 293 ITR201 (SC) (Commissioner of Income Tax Vs.Saravana Spinning Mills P. Ltd.) and 2009-TIOL-86-SC-II (CIT Vs. Sri MangayarkarasiMills P. Limited) (v)Expenditure is deductible undersection 37 only if it (a) is not deductibleunder sections 30-36, (b) is of a revenuenature, (c) is incurred during the current accounting year and (d) is incurred whollyand exclusively for the purpose of thebusiness. - 2009-TIOL-86-SC-II (CIT Vs. SriMangayarkarasi Mills P. Limited); (vi) Expenditure is of a capital naturewhen it amounts to an enduring advantage forthe business and repair is different frombringing a new asset for the business.Further, bringing into existence a new assetor an enduring benefit for the assesseeamounts to capital expenditure videLakshmiji Sugar Mills (P) Co. v. CIT (AIR1972 SC 159) referred in 2009-TIOL-86-SC-II(CIT Vs. Sri Mangayarkarasi Mills P.Limited). (vii) Therefore, whether an expenditureis revenue or capital in nature would dependon the facts of each case. - [2007] 293 ITR201 (SC) (Commissioner of Income Tax Vs.Saravana Spinning Mills P. Ltd.)" This Court also referred to the decision in the caseof CIT Vs. Mahalakshmi Textile Mills Ltd., reportedin (1967) 66 ITR 710 (SC) on the issue of currentrepairs and pointed out that so long as there is nochange in the performance of the machinery and theparts that were replaced performing precisely thesame function, expenditure could only be concernedas current repairs of the plant and machinery. 31. Applying the ratio of the decision citedabove, when we look into the facts of the abovecases, it is evident that with regard to the mouldsand dies attached to the machinery like pressdesigns specification, moulds and dies are notindependent of the plant and machinery, but areparts of the machinery. Once the dies are worn out,the machines cannot turn out the product to thebusiness specifications and this has to be obtainedonly on a replacement of the dies and moulds, a factwhich is not refuted by the revenue. It is no doubttrue that the assessee claimed depreciation on diesand moulds. Yet in the decision in the case of CITVs. Mahalakshmi Textile Mills Ltd., reported in(1967) 66 ITR 710 (SC), the Apex Court pointed outthat all questions whether of law or of fact, whichrelate to the assessment year of the assessee couldbe raised in any year under consideration before the Officer as well as before the Income Tax AppellateTribunal too and if, for reasons recorded by thedepartmental authorities in rejecting a contentionraised by the assessee, the grant of relief to anassessee is justified on another ground, the Revenueis bound to consider such claim of granting therelief. The Apex Court pointed out that the rightof the assessee to the relief is not restricted tothe plea raised by him. On the facts before us,when the dies and moulds were attached to themachine to manufacture the designed product, we haveno hesitation to accept the plea of the assesseethat the claim would fall for consideration onlyunder Section 31 of the Act. Officer as well as before the Income Tax AppellateTribunal too and if, for reasons recorded by thedepartmental authorities in rejecting a contentionraised by the assessee, the grant of relief to anassessee is justified on another ground, the Revenueis bound to consider such claim of granting therelief. The Apex Court pointed out that the rightof the assessee to the relief is not restricted tothe plea raised by him. On the facts before us,when the dies and moulds were attached to themachine to manufacture the designed product, we haveno hesitation to accept the plea of the assesseethat the claim would fall for consideration onlyunder Section 31 of the Act. 32. In the unreported decision of this Courtdated 27.04.2012 in Tax Case (Appeal).No.1011 of2005 (The Commissioner of Income Tax, Madurai Vs.M/s.Machado Sons) on the question of repair made toa ship, this Court pointed out that when the objectof the expenditure was not for bringing intoexistence a new asset or to obtain a new advantage,the said expenditure qualifies to be considered ascurrent repairs under Section 31 of the Act. In soholding, after referring to the decision of the ApexCourt in the case of CIT Vs. M/s.Saravana SpinningMills P.Ltd., reported in (2007) 293 ITR 201, thisCourt further pointed out to the decision of theApex Court where it cautioned that all repairs arenot current repairs on Section 31(1) of the Act;Section 31(1) of the Act limits the scope ofallowability of expenditure as deduction in respectof repairs made to machinery, plant or furniture byrestricting it to the concept of "current repairs".Thus, this Court pointed out that what is allowableas revenue expenditure under Section 37 of the Actare those expenditure other than one falling forconsideration under Sections 30 to 36 of the Act.The Apex Court further pointed out the example thatwhen the picture tube in a television set isreplaced, such repairs would come within theconnotation of the phrase "current repairs". Thus,applying these two decisions, we have no hesitationin rejecting the Revenue's appeal. We hold that theclaim being considered as current repairs, the samewould fall under Section 31 of the Act as currentrepairs. To that extent, we modify the order of theTribunal. ” 3. Following the aforesaid judgment, the substantialquestion of law is answered against the Revenue and this TaxCase Appeal stands dismissed. No costs. Sd/- Assistant Registrar(CS IV) //True Copy// Sub Assistant Registrar av To 1. The Commissioner of Income Tax – I, Chennai. 2.The Commissioner of Income Tax (A)-III,Chennai.3.The Income Tax Appellate Tribunal, Madras, “D” Bench,Chennai.4.The Income Tax Officer (OSD), Company Circle - III (2), Chennai. +1cc to Mr.M.Swaminathan, Advocate, S.R.No.62499 +1cc to M/s.Subbaraya Iyer, Padmanabhan, Advocate, S.R.No.62509 T.C.A.NO.718 OF 2009 EV(CO)PBS/28/12/2021