2019 (7) TMI 704 - HC - Income Tax

Characterization of expenses - Deduction of the amounts spent on replacement of machinery - revenue expenditure OR current repairs - Replacement of independent complete machinery - treated as revenue expenditure - HELD THAT - Substantial questions of law framed in these appeals are squarely covered against the assessee in the decision rendered by us in the case of M/S. KONGARAR SPINNERS LIMITED 2019 (6) TMI 1299 - MADRAS HIGH COURT following the decision in the case of CIT, Gujarat Vs. Sarangpur Cotton Mfg. Co. Ltd. 2017 (4) TMI 301 - SUPREME COURT herein held 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. - Decided against assessee.

Summary

Issues involved:
- Appeal filed by Revenue under Section 260A of the Income Tax Act, 1961 to set aside a common order.
- Substantial questions of law regarding deduction of amounts spent on machinery replacement as revenue expenditure.
- Whether replacement of independent complete machinery can be treated as revenue expenditure.

Analysis:
1. The appeals were filed by the Revenue challenging a common order made by the Income Tax Appellate Tribunal for the assessment years 1996-97 and 1997-98. The substantial questions of law raised were related to allowing a deduction for amounts spent on machinery replacement as revenue expenditure and whether replacement of independent complete machinery could be considered as revenue expenditure.

2. The respondent argued that the questions of law were covered against the assessee in a previous decision by the court. The court referred to a specific case involving CIT-III, Coimbatore Vs. M/s.Kongarar Spinners Limited and highlighted that the decision was against the assessee.

3. The court further discussed a previous case involving Sarangpur Cotton Mfg.Co.Ltd., where the issue of deduction on account of revenue expenditure incurred on machinery replacement was addressed. The court emphasized that if repairs related to independent machines themselves instead of a part of a machine, deduction under the Income Tax Act could not be allowed.

4. By following the decision in the Sarangpur Cotton Mfg.Co.Ltd. case, the court allowed the appeals filed by the Revenue and answered the substantial questions of law in favor of the Revenue and against the assessee. The court held that the respondent was not entitled to any deduction under the head of "current repairs" as claimed and allowed by the lower authorities.

5. Ultimately, the court allowed the tax case appeals, answered the substantial questions of law in favor of the Revenue, and ruled against the assessee. No costs were awarded in this judgment.