Whether On The Facts And Circumstances Ofthe Case, The Tribunal Was Right In Holding Thatexpenditure On Replacement Of Dies And Mouldsare To Be Allowed As Curre v. Https://Hcservices.ecourts.gov.in/Hcservices

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 03.07.2019 CORAM : THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAMandTHE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN TCA.No.917 of 2009 Commissioner of Income Tax,Chennai ..Appellant / Appellant M/s.TVS Motors Limited,Jayalakshmi Estates,No.29, Haddows Road,Chennai – 600 096.PAN: ..Respondent / RespondentPrayer :Tax Case Appeal filed under Section 260A of the IncomeTax Act, 1961, against the order of the Income Tax AppellateTribunalMadras'D'Bench,dated09.04.2009inI.T.A.No.491/Mds/2008 for the assessment year 2004-05, preferredagainst the Order of the Commissioner of Income Tax (Appeals)-III, Chennai dated 27/12/2007 made in ITA.No.802/2006-07/A-III,against the Order dated 29/12/2006 passed by the JointCommissioner of Income Tax, Company Range III, Chennai - 34 forthe Assessment Year 2004-2005 in PA.No./GIR No.32024-T/AAACS7032B. For Respondent : Mr.Vijayaraghavan for M/s. Subbaraya Aiyar Padmanabhan * * *J U D G M E N T [Judgment of the Court was delivered by T.S.Sivagnanam, J.] This appeal by the Revenue under Section 260 A of the IncomeTax Act, 1961 (hereinafter referred to as "the Act") is directedagainst the order dated 09.04.2009 in ITA.No.491/Mds/2008 passedby the Income Tax Appellate Tribunal Madras, 'D' Bench in theassessment year 2004 – 05. https://hcservices.ecourts.gov.in/hcservices/ 2.The appeal has been admitted on the following substantialquestions of law : “1.Whether on the facts and circumstancesof the case, the Tribunal was right in allowingexpenditure related to advance given for R&Dequipment under Section 35(1)(iv) of the IncomeTax Act? 2.Whether on the facts and circumstances ofthe case, the Tribunal was right in holding thatexpenditure on replacement of dies and mouldsare to be allowed as current repairs? 3.Whether on the facts and circumstances ofthe case, the Tribunal was right in holding thatthe assessee is entitled to deduction of entrytax paid under Section 43B without verifyingwhether such entry tax had been set off againstsales tax paid and the treatment given to thesame in its accounts? 3.We have heard Mr.M.Swaminathan, learned Senior StandingCounsel for the appellant/revenue and Mr.Vijayaraghavan, learnedcounsel for the respondent/assessee. 4.The revenue does not dispute the fact that in theassessee's own case for the assessment year 2003-04, threesubstantial questions of law raised in this appeal wereconsidered and they were decided against the revenue and infavour of the assessee in the decision reported in [2014] 364ITR 0001 (Mad) [Commissioner of Income vs. TVS Motors Limited].The Substantial Questions of law 1 to 3 herein were identical tothat of the Substantial Questions of law 3 to 5 in the saidappeal for the assessment year 2003-04. The SubstantialQuestions of law were answered against the revenue on thefollowing terms: "28. As regards the expenditure on Research &Development, after analysing the facts, theTribunal rightly applied the decision reported in255 ITR 395 in the case of CIT Vs. Rane BrakeLinings Ltd. Consequently, we have no hesitationin rejecting the Revenue's plea.29. As regards the expenditure on dies &moulds, the assessee pointed out that it debitedan amount of Rs.11,17,68,169/- towards dies andmoulds only to replace them in the place of wornout dies and moulds. The assessee in thememorandum of income added this amount to thetotal income and claimed the cost of dies andmoulds of Rs.22,66,52,504/- under Section 31 of "28. As regards the expenditure on Research &Development, after analysing the facts, theTribunal rightly applied the decision reported in255 ITR 395 in the case of CIT Vs. Rane BrakeLinings Ltd. Consequently, we have no hesitationin rejecting the Revenue's plea.29. As regards the expenditure on dies &moulds, the assessee pointed out that it debitedan amount of Rs.11,17,68,169/- towards dies andmoulds only to replace them in the place of wornout dies and moulds. The assessee in thememorandum of income added this amount to thetotal income and claimed the cost of dies andmoulds of Rs.22,66,52,504/- under Section 31 of the Act. The assessee stated that within a periodof one year of installation, the life of the diesand moulds would become obsolete and this was dueto high production involved. Thus, replacement ofthe new dye in the place of old dyewould qualify for current repairs under Section 31of the Act. The Assessing Officer, however,rejected the contention of the assessee and theAssessing 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 outthat the dies and moulds were not plant andmachinery, yet the replacement of dies and mouldswere not in the nature of installation ofmachinery in the factory. Such moulds and dieswere normally attached to the machines to suit theindividual requirement of particular product. Soholding, the Tribunal held that expenditureincurred on replacement of dies and moulds wasrevenue 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,learned counsel appearing for the assessee placedreliance on the decision of this Court reported in(2013) 357 ITR 720 (Mad) in the case of SuperSpinning Mills Ltd., Vs. Assistant Commissioner ofIncome-tax related to the expenditure onreplacement of the machinery parts. The assesseetherein engaged in the business of manufacture andtrading in cotton yarn and allied products and theassessee incurred expenditure in respect ofreplacement of certain textile machinery. On aquestion as to whether such replacement of partswould be current repairs of capital in nature,this Court considered the decisions in the case ofCIT Vs. Saravana Spinning Mills P; Ltd., reportedin (2007) 293 ITR 201 (SC), CIT Vs. RamarajuSurgical Cotton Mills reported in (2007) 294 ITR328 (SC) and CIT Vs. Mangayarkarasi Mills P.Ltd.,reported in (2009) 315 ITR 114 (SC) and pointedout that the question as to whether theexpenditure incurred on replacement of machineryis revenue or capital rests on the nature ofcapital incurred vis-a-vis the benefit derived.This Court referred to the decision in the case ofCIT Vs. Saravana Spinning Mills P.Ltd., reportedin (2007) 293 ITR 201 (SC) and in particular to the decision in the case of CIT Vs. SriMangayarkarasi Mills P.Ltd., reported in (2009)315 ITR 114 (SC) ......... the decision in the case of CIT Vs. SriMangayarkarasi Mills P.Ltd., reported in (2009)315 ITR 114 (SC) ......... 31. Applying the ratio of the decision citedabove, when we look into the facts of the abovecases, it is evident that with regard to themoulds and dies attached to the machinery likepress designs specification, moulds and dies arenot independent of the plant and machinery, butare parts of the machinery. Once the dies are wornout, the machines cannot turn out the product tothe business specifications and this has to beobtained only on a replacement of the dies andmoulds, a fact which is not refuted by therevenue. It is no doubt true that the assesseeclaimed depreciation on dies and moulds. Yet inthe decision in the case of CIT Vs. MahalakshmiTextile Mills Ltd., reported in (1967) 66 ITR 710(SC), the Apex Court pointed out that allquestions whether of law or of fact, which relateto the assessment year of the assessee could beraised in any year under consideration before theOfficer 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, theRevenue is bound to consider such claim ofgranting the relief. The Apex Court pointed outthat the right of the assessee to the relief isnot restricted to the plea raised by him. On thefacts before us, when the dies and moulds wereattached to the machine to manufacture thedesigned product, we have no hesitation to acceptthe plea of the assessee that the claim would fallfor consideration only under Section 31 of theAct. 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 madeto a ship, this Court pointed out that when theobject of the expenditure was not for bringinginto existence a new asset or to obtain a newadvantage, the said expenditure qualifies to beconsidered as current repairs under Section 31 of the Act. In so holding, after referring to thedecision of the Apex Court in the case of CIT Vs.M/s.Saravana Spinning Mills P.Ltd., reported in(2007) 293 ITR 201, this Court further pointed outto the decision of the Apex Court where itcautioned that all repairs are not current repairson Section 31(1) of the Act; Section 31(1) of theAct limits the scope of allowability ofexpenditure as deduction in respect of repairsmade to machinery, plant or furniture byrestricting it to the concept of "currentrepairs". Thus, this Court pointed out that whatis allowable as revenue expenditure under Section37 of the Act are those expenditure other than onefalling for consideration under Sections 30 to 36of the Act. The Apex Court further pointed out theexample that when the picture tube in a televisionset is replaced, such repairs would come withinthe connotation of the phrase "current repairs".Thus, applying these two decisions, we have nohesitation in rejecting the Revenue's appeal. Wehold that the claim being considered as currentrepairs, the same would fall under Section 31 ofthe Act as current repairs. To that extent, wemodify the order of the Tribunal. 33. On the question of deduction under EntryTax, the Tribunal rightly considered the claim ofthe assessee for deduction of entry tax paymentmade by the assessee. The Assessing Officeradmitted that the deduction on account of EntryTax is allowable if the payment is actually madeand admittedly, payment of entry tax has been madeby the assesssee; the entry tax paid would get theadjustment as against the Sales Tax liability,consequently, any deduction would amount to totaldeduction." 33. On the question of deduction under EntryTax, the Tribunal rightly considered the claim ofthe assessee for deduction of entry tax paymentmade by the assessee. The Assessing Officeradmitted that the deduction on account of EntryTax is allowable if the payment is actually madeand admittedly, payment of entry tax has been madeby the assesssee; the entry tax paid would get theadjustment as against the Sales Tax liability,consequently, any deduction would amount to totaldeduction." 5.Thus, following the above decision in the assessee's owncase, the appeal filed by the revenue is dismissed and theSubstantial Questions of law were answered in favour of therespondent/assessee. No costs. Sd/- Assistant Registrar (CS-IV) //True Copy// cse Sub Assistant Registrar To1)The Income Tax Appellate Tribunal,Madras -D- Bench.1)The Income Tax Appellate Tribunal,Madras -D- Bench.2)The Commissioner of Income Tax (Appeals)-III, Chennai - 34.Chennai - 34.3)The Commissioner of Income Tax,Chennai.Chennai.4)The Joint Commissioner of Income Tax, Company Range III, Chennai - 34.Company Range III, Chennai - 34.5)The Assistant Commissioner of Income Tax,Company Circle III(2), Chennai.Company Circle III(2), Chennai. +1 cc to Mr.M.Swaminathan, Advocate, S.R.No.55699 +1 cc to Mr.Subbaraya Aiyar Padmanabhan, Advocate, S.R.No.55849 PM(CO)SSM(19/08/2019).SSM(19/08/2019). TCA.No.917 of 2009