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TMI Blog2013 (9) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusion herein - Hence, the proper course herein is to set aside the order of the Income Tax Appellate Tribunal and remit the matter back to the Commissioner of Income Tax (Appeals) for de novo consideration - Decided in favour of assessee. - Tax Case (Appeal) Nos.140 to 143 of 2013 489 to 491 of 2012 and 319 of 2013 - - - Dated:- 24-7-2013 - Chitra Venkataraman And K. B. K. Vasuki,JJ. For the Appellant : Mr. C. Natarajan, Senior counsel for Mr. K. Ravi For the Respondent : Mr. N. V. Balaji Standing Counsel for Income Tax Dept. JUDGMENT (The Judgment of the Court was made by Chitra Venkataraman, J.) The assessee is one and the same in all the present Tax Case (Appeals). The assessee raised the following common substantial question of law seeking admission of the present Tax Case Appeals: "Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal is right in law, in disallowing the claim of expenditure on replacement of machinery as revenue expenditure ?" After issuing notice to the respondent in the Tax Case (Appeals), we decided to take the Tax Cases for final hearing. 2. It is seen from the documents placed before this Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the machinery replaced. It is suffice to say that the assessee claimed expenditure therein as revenue expenditure/ current repairs. However, the Assessing Officer held that the replacement could not be considered to be current repairs. 5. It is a matter of record that the question as to whether such replacement could be current repairs/capital in nature came up for consideration in series of decisions before this Court, which, however, went on appeal before the Apex Court. The question as to the nature of the claim on expenditure incurred on the replacement of machinery, came up for consideration before this Court in the decision reported in [2005] 275 ITR 403 (CIT Vs. Janakiram Mills Ltd.). There the assessee claimed the expenditure on the replacement on ring frames as current repair, while the Revenue treated it as a capital expenditure. On appeal, the Commissioner of Income Tax (Appeals) held the expenditure as revenue expenditure, that replacement of ring frames constituted an integral part of the production system in a textile machinery. The view of the Commissioner of Income Tax (Appeals) was affirmed by the Tribunal. On appeal, in the decision cited above, this Court h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not be allowed under Section 31(i) of the Act. The Apex Court accepted the case of the Revenue that the assessee was not entitled to deduction under Section 31(i) of the Act. It however pointed out to the decision reported in (1967) 3 SCR 957 (CIT Vs. Mahalakshmi Textile Mills Ltd.) that when old parts were not available in the market or where the old parts had worked 50 or 60 years, replacement in such cases of exception fall within the expression "current repairs". The Apex Court, however, expressed no opinion on the applicability of Section 37(1) of the Act. This came to be considered separately in other batch of cases reported in (2007) 294 ITR 328 (SC) (CIT Vs. Ramaraju Surgical Cotton Mills). 7. In the case of CIT Vs. Ramaraju Surgical Cotton Mills reported in (2007) 294 ITR 328 (SC), in the appeal taken by the Commissioner of Income-Tax, the Supreme Court considered the case where the assessee claimed the expenditure under Section 37 of the Act. The assessee contended that the expenditure incurred on replacement of assets without increase in the production capacity was revenue in nature. Pointing out that such question was not raised before the Commissioner, the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ex Court. It further referred to the decision reported in (2007) 293 ITR 201 (SC) (CIT Vs. Saravana Spinning Mills P.Limited) and pointed out: "expenditure is deductible under section 37 only if it (a) is not deductible under sections 30-36, (b) is of a revenue nature, (c) is incurred during the current accounting year and (d) is incurred wholly and exclusively for the purpose of the business. We are satisfied that the assessees' expenditure satisfies requirements (a), (c) and (d) as stated above. ... expenditure is of a capital nature when it amounts to an enduring advantage for the business and repair is different from bringing a new asset for the business. Further, in Lakshmiji Sugar Mills (P) Co. v. CIT (AIR 1972 SC 159) it has been held by this Court that bringing into existence a new asset or an enduring benefit for the assessee amounts to capital expenditure." The Supreme Court considered the question as to whether the expenditure amounted to revenue expenditure or current repairs. The Supreme Court pointed out that each machine in a spinning mill should be treated independently as such and not as a mere part of an entire composite machinery of the spinning mill. It can, at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt" and "current repair" do not go hand in hand . If one is to hold otherwise, it would only make Section 31(i) wholly redundant and absurd. Thus, replacement expenditure cannot be said to be `current repairs' vide [2007] 293 ITR 201 (SC) (Commissioner of Income Tax Vs. Saravana Spinning Mills P. Ltd.) and 2009-TIOL-86-SC-II (CIT Vs. Sri Mangayarkarasi Mills P. Limited) (v) Expenditure is deductible under section 37 only if it (a) is not deductible under sections 30-36, (b) is of a revenue nature, (c) is incurred during the current accounting year and (d) is incurred wholly and exclusively for the purpose of the business. - 2009-TIOL-86-SC-II (CIT Vs. Sri Mangayarkarasi Mills P. Limited); (vi) Expenditure is of a capital nature when it amounts to an enduring advantage for the business and repair is different from bringing a new asset for the business. Further, bringing into existence a new asset or an enduring benefit for the assessee amounts to capital expenditure vide Lakshmiji Sugar Mills (P) Co. v. CIT (AIR 1972 SC 159) referred in 2009-TIOL-86-SC-II (CIT Vs. Sri Mangayarkarasi Mills P. Limited). (vii) Therefore, whether an expenditure is revenue or capital in nature woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut that even if the expenditure is producing a larger quantity of goods and earning more income, nevertheless, the nature of expenditure would be revenue in character. This judgment of the Apex Court in the case of Empire Jute Co. Limited Vs. CIT reported in (1980) 124 ITR 1 (SC) has to be seen in the background of the decision of the Apex Court in the case of CIT, Madras Vs. Mahalakshmi Textile Mills Limited reported in (1967) 66 ITR 710 (SC). 12. The decision in the case of CIT, Madras Vs. Mahalakshmi Textile Mills Limited reported in (1967) 66 ITR 710 (SC) is related to the assessee introducing "Casablanca conversion system" in its spinning plant. This involves replacement of certain roller stands and fluted rollers fitted with rubber aprons to the spinning machinery, removal of ring frames from certain existing parts, introduction of ball-bearing jockey-pulleys for converting the original band-drivers to tape- drivers and other additions and alterations in the drafting mechanism. Confirming the judgment of this Court, the Supreme Court pointed out that with the introduction of the Casablanca conversion system, there was no installation of new machinery or plant, but it amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Appellate Authorities for coming to the right conclusion herein. Thus, with no details available as stated in the case of CIT Vs.Ramaraju Surgical Cotton Mills reported in (2007) 294 ITR 328 (SC), the decision of the Tribunal cannot be held as based on any material data necessary for considering the claim one way or the other. Hence, the proper course herein is to set aside the order of the Income Tax Appellate Tribunal and remit the matter back to the Commissioner of Income Tax (Appeals) for de novo consideration. 17. Keeping in view the law declared by the Apex Court in the case of CIT Vs. Ramaraju Surgical Cotton Mills' case reported in (2007) 294 ITR 328 (SC) and in the case of CIT Vs. Sri Mangayarkarasi Mills P. Limited reported in 2009-TIOL-86-SC-II, the Commissioner of Income Tax (Appeals) shall grant an opportunity to the assessee to state its case in a proper perspective and decide on the issue as to whether the expenditure, in effect, could be treated as "revenue expenditure". 18. We direct the Commissioner of Income Tax (Appeals) to pass a detailed order on the impact of the replaced material as well as the functioning of the machinery after hearing the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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