2017 (4) TMI 301 - SC - Income Tax

Entitlement to deduction on account of revenue expenditure incurred on machineries replaced - Held that - Each items for which deduction under the head current repairs was sought is a machine by itself and therefore deduction under Section 31(i) cannot be allowed. As in the case of Sarvana Spinning Mills (P) Ltd. 2007 (8) TMI 16 - SUPREME COURT OF INDIA held that if the current repairs relate to independent machines itself instead of repair of a part of that machine, deduction cannot be granted under Section 31(i) of the Income Tax Act, 1961. Also in a textile mill there are several departments/divisions. In each department/division there are several machines and perform different functions. Therefore, when each of the Department/Division perform different functions, repair/substitution of an old machine will not come within the definition of the word current repairs and deduction cannot be claimed thereunder. Respondent is not entitled for any deduction under the head current repairs as claimed and allowed by the two authorities. - Decided against assessee

Summary

Issues:
- Entitlement to deduction on account of revenue expenditure incurred on machineries replaced

Analysis:
The appeal in question was filed against the judgment and order passed by the High Court of Gujarat at Ahmedabad regarding the entitlement to deduction on account of revenue expenditure incurred on machineries replaced. The respondent-assessee, a public limited company engaged in manufacturing cotton yarns and textile, claimed a deduction of ?35,49,011/- as repairs and replacement of machinery expenditure during the Assessment year 1974-1975. The assessing authority disallowed a sum of ?27,71,270/- from the claimed revenue expenditure, stating it was in the nature of capital expenditure related to the installation of machinery.

The Commissioner of Income Tax Appeals allowed ?26,84,235/- as admissible revenue expenditure but directed the assessing officer to withdraw the depreciation and development rebate granted on these capitalized items. The Income Tax Appellate Tribunal upheld the Commissioner's order, leading the Revenue department to file an appeal before the Gujarat High Court. The High Court ruled in favor of the respondent-assessee, prompting the present appeal.

The Additional Solicitor General argued that the High Court's decision had been implicitly overruled by a Supreme Court judgment in a different case. She contended that each item for which deduction under 'current repairs' was sought constituted a separate machine, making it ineligible for deduction under Section 31(i) of the Income Tax Act, 1961. Citing the Supreme Court's previous ruling, she emphasized that repair/substitution of an old machine in a textile mill, where different machines perform various functions in distinct departments/divisions, did not qualify as 'current repairs' for deduction purposes.

The Supreme Court, after considering the arguments presented, held that the impugned judgment of the Gujarat High Court, along with the orders of the lower authorities, could not be sustained. Consequently, it was decided that the respondent was not entitled to any deduction under the head 'current repairs' as claimed and allowed by the previous authorities. The appeal was allowed, with no order as to costs, and any pending application was disposed of accordingly.