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TMI Blog2015 (8) TMI 1092X X X X Extracts X X X X X X X X Extracts X X X X ..... nst assessee. - I.T.A.No.2205 & 2206/Mds/2014 - - - Dated:- 19-8-2015 - SHRI CHANDRA POOJARI AND SHRI CHALLA NAGENDRA PRASAD, JJ. For The Appellant : Dr. Anita Sumanth, Advocate For The Respondent : Mr. N.Madhavan, JCIT ORDER Per Challa Nagendra Prasad, JM: Both these appeals are filed by the assessee against common order of the Commissioner of Income Tax (Appeals)-III, Chennai dated 19.06.2014 for the assessment years 2007-08 and 2008-09. The only issue in both these appeals of the assessee is that Commissioner of Income Tax (Appeals) ought to have noted that replacement of carding roving machines and ring frames are allowable as revenue expenditure under section 37 of the Act. 2. Brief facts are that assessee incurred expenditure of ₹ 1,39,84,946/- and ₹ 53,61,046/- towards cost of ring frames and carding machines roving machines in the assessment years 2007-08 and 2008-09 respectively and claimed the expenditure as revenue expenditure. However, the Assessing Officer treated this expenditure as capital expenditure and allowed depreciation on such machinery, placing reliance on the decision of CIT Vs. Sri Mangayarkarasi Mills Pvt.Ltd. (315 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We have gone through the decision of Hon ble Supreme Court in the case of CIT Vs. Ramaraju Surgical Cotton Mills (supra). In the latter decision of the Supreme Court i. E. CIT Vs. Sri Mangayarkarasi Mills Pvt.Ltd.(supra) , the Hon ble Supreme Court distinguished the decision of Ramaraju Surgical Cotton Mills (supra) and the circumstances in which the matter was remitted to the file of the Commissioner of Income Tax (Appeals) as there was no clarity in the contentions raised by the assessee in those appeals as to under which proviso the claim was made either under section 31 as current repairs or under 37 as revenue expenditure. Thus, the Hon ble Supreme Court remitted the matter to the file of the Commissioner of Income Tax (Appeals) as there is no clarity in the claim of the assessee. This position was made clear in the case of CIT Vs. Sri Mangayarkarasi Mills Pvt.Ltd.(supra), wherein the Supreme Court held that machinery replaced in spinning mills is not revenue expenditure. While holding so, the Hon ble Supreme Court observed as under:- 9. The main question that needs to be decided in this appeal may be formulated as follows :- Whether expenditure incurred on replacement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pendent, the replacement of any such machine will amount to acquisition of a new asset and not Rs.repair of the entire integrated machinery of the spinning mill. In this connection, reliance was placed on a decision of this Court in Ballimal Naval Kishore s case (supra) wherein it is clearly held that Rs. Current repairs under the Act means expenditure on machinery, plant or furniture which is not for the purpose of renewal or restoration but which is only for the purpose of preserving or maintaining an already existing asset and that does not bring a new asset into existence or does not give to the assessee a new or different advantage. Learned counsel for the appellant further contended that replacement of old machinery with new machinery cannot be considered as current repairs as such or even revenue expenditure, since it gives an enduring benefit to the assessee. Also, if in every case such replacement is allowed as revenue expenditure the principle of allowing depreciation will lose its significance. Learned counsel further submitted that the courts below erred in overlooking the definitions of Rs. Assets and Rs. Block of assets under Explanation 3 of section 32(1)(iz) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , replacement of worn out parts, even if the same is in a textile mill, would constitute revenue expenditure. The learned counsel for the respondent has also argued that the argument of enduring benefit to the respondent, taken by the appellant, is no longer a good law. Lastly, learned counsel for the respondent submitted that the High Court was right in relying on its own judgment in the case of Janakiram Mills Ltd. (supra) because this Court, by its order dated 21-8-2007 in Civil Appeal No. 7594/2005, has already pronounced upon the validity of the judgment of the High Court in that matter and has disposed of the appeal in the same. 13. We have heard and considered all these contentions of the learned counsel for the parties and also perused the materials on record and also examined the impugned order passed by the High Court. 14. The first issue that needs to be resolved is whether each machine in a textile mill is an independent item or merely a part of a complete spinning mill, which only together are capable of manufacture, and there is no intermediate marketable product produced. In our view, this issue has been satisfactorily answered by the recent decision of this Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly mentions that replacement of a derelict ring frame by a new one does not amount to Rs. Current repairs . Further in Ballimal Naval Kishore s case (supra) this Court has held that a new asset or new/different advantage cannot amount to Rs. Current repairs , which has been subsequently approved in the Saravana Spg. Mills (P) Ltd.s case (supra). For these reasons, the expenditure made by the assessee cannot be allowed as a deduction under section 31 of the Act. The judgment of this Court in the Saravana Spg. Mills (P) Ltd s case (supra) mentions two exceptions in which replacement could amount to current repairs, namely: Where old parts are not available in the market (as seen in the case of CITv. Mahalakshmi Textile Mills Lid. (AIR 1968 SC 101), or + Where old parts have worked for 50-60 years. In the instant case, the assessee has not claimed any of the above stated exceptions. The Saravana Spg. Mills (P) Ltd s case (supra) also restricts the scope of Rs. Current repairs to repairs made to machinery, plant and/or furniture. In this case, replacement of machine can at best amount to a repair made to the process of manufacture of yarn. Further this Court has also obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope of Rs. Current repairs under section 31 of the Act. In ClT v. Ramaraju Surgical Cotton Mills [2007] 294. IIR 328,where this Court decided on the validity of the Madras High Court judgment in Janakiram Mills (supra), this Court clarified that this High Court judgment has been set aside in the Saravana Spg. Mills (P) Ltd s case (supra) mainly on the ground that section 31 and section 37 of the Act, operate in different spheres and the tests applicable to section 31 cannot be read into section 37 of the Act. Further, even in the Ramaraju Surgical Cotton Mills case (supra) where this Court distinguished the Saravana Spg. Mills (P) Ltd s case (supra) on the ground that that appeal was with respect to deduction only under section 37 of the Act unlike the Saravana Spg. Mills (P.) Ltd 5 case (supra), this court set aside the High Court judgment in Ianakiram Mills Ltd. 5 case (supra) and remitted the matter to the Commissioner (Appeals) to dispose of the matter in accordance with law. In the light of the observations made herein above, it is thus clear that the High Court decision in Ianakiram Mills Lt s case (supra) is not good law on which reliance may be placed. 19. Considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es submitted that the matter is squarely covered by the judgment of Division Bench of Hon ble Supreme Court in the case of CIT v. Ramaraju Surgical Cotton Mills Others reported in 294 ITR 328. The Hon ble Supreme Court by its Order dated 13.1.2009 in Civil Appeal No.922 of 2006 accepted the contentions of the parties and the submissions made before it , remitted the appeal to the file of the Commissioner of Income Tax (Appeals) with a direction to dispose of the matter in accordance with law and in terms of directions given in the judgment in the case of CIT v. Ramaraju Surgical Cotton Mills Others(supra). The Hon ble Supreme Court in the case of CIT v. Ramaraju Surgical Cotton Mills Others held as under :- 4. There are number of tests which are required to be considered while deciding whether the expenditure was revenue or capital in nature. Number of judgements have been cited before us in that regard. However, in the absence of the requisite details regarding the production capacity remaining constant even after replacement, the matter needs to be remitted to the C!T(A). There is one more reason why we are inclined to remit the matter. As stated above, the impugned jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held as under :- 5. We have heard both the sides, perused the records and gone through the orders of the authorities below. The only issue for adjudication before us is whether the expenditure incurred for the purpose of replacement of Draw Frame is revenue expenditure or capital expenditure. The learned CIT(Appeals) by considering the entire facts of the case and also the decisions of various High Courts and the Hon ble Supreme Court including the decision in the case of CIT v. Ramaraju Surgical Cotton Mills Ltd. (supra) and by following the decision in the case of CIT v. Mangarkarasi Mills Ltd. (supra) has held that replacement of Draw Frame is a capital expenditure. For that proposition the Hon ble Supreme Court has relied on the decisions in the case of Travancore Cochin Chemicals Ltd. v. CIT (106 ITR 900) (SC) and Lakshmiji Sugar Mills P. Co. v. CIT AIR 1972 SC 159 and observed that 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. We have already explained why replacement, in this case, amounts to bringing into existence a new asset and also an enduring benefit for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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