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TMI Blog2021 (1) TMI 733X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the circumstances, the reasoning of the ld. CIT(A) cannot be sustained in the eyes of law. In the present case admittedly the claim for deduction was not u/s. 31 but u/s. 37 of the Act. Therefore, the test to be applied what is replaced is only part and the necessity of replacement had arisen on account of the part become old and there is no increase in productivity or capacity after the replacement. Admittedly, it is not the case of the Revenue that on account of replacement of this part of machinery in productivity or capacity of production had gone up and this machine can independently work and deliver the different output. In the circumstances, we hold that the expenditure can be allowed as revenue deduction. The expenditure incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture claimed under the repairs and maintenance represents the cost of replacement of machinery vis. Gripper which is part of high pressure die casting machines. The Assessing Officer had disallowed the claim treated the same as capital expenditure. 3. Being aggrieved by the above addition, an appeal was preferred before the ld. CIT(A), who vide his impugned order confirmed the action of the Assessing Officer by holding that it is a case of substitution of old asset by new asset and the expenditure did not fall within the meaning of current repairs and maintenance as defined u/s. 31 of the Act. The ld. CIT(A) also placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT vs. Sarvana Spinning Mills Ltd., 293 ITR 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., it cannot perform any function independently. These facts remain uncontroverted by the Department. No doubt the Hon'ble Supreme Court in the case of Sarvana Spinning Mills Ltd. (supra) categorically held that the expenditure incurred by the assessee towards replacement of machinery with new machinery constitutes a capital expenditure. Even the Hon'ble Supreme Court in the case of CIT vs. Sri Mangayarkarasi Mills P. Ltd. 315 ITR 114 held that each machinery which functions independently should be treated as such not as a mere part of any composite machinery of the plant. The said decisions had been considered by the Hon'ble Madras High Court in the case of Elgi Equipments Ltd. vs. JCIT, 120 taxmann.com 142 and laid down th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But, the Explanation to Section 31 qualifies the general rule by stating that the amount paid on account of current repairs shall not include any expenditure in the nature of capital expenditure. 23. Though the Act defines the expression "income", it does not define either the expression "expenditure" or the expression "repairs or current repairs". However, several heads of expenditure are separately dealt with under Sections 35 and 35A to 35E. 24. Section 37(1) states that any expenditure laid out or expended wholly and exclusively for the purpose of business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". But, Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit of depreciation. If the expenditure is treated as revenue expenditure, it is either taken as an expenditure under Section 37(1) for computing income chargeable under the head "Profits and gains of business or profession" or treated as "current repairs" entitled to deduction under Section 31(i). Therefore, the contention of the learned Standing Counsel cannot be accepted." 8. Even in recent judgment of the Hon'ble Madras High Court in the case of Elgi Equipments Ltd. vs. JCIT, 120 taxmann.com 142 held that the expenditure incurred towards replacement of a part of the machinery can be allowed as a deduction. Even the Hon'ble Supreme Court in the subsequent decision in the case of CIT Vs. Ramaraju Surgi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with law without accepting the ratio of laid down in the case of Sarvana Spinning Mills Ltd. (supra). Reliance can be placed on the following decisions:- (i) CIT vs. McDowell and Co. Ltd., 314 ITR 177; (ii) CIT vs. McDowell and Co. Ltd., 314 ITR 180; (iii) CIT vs. Udaipur Distillery Co. Ltd., 314 ITR 188; and, (iv) Shreyans Industries Ltd. vs. CIT, 314 ITR 302. 9. Therefore, it is clear that the ratio of the decision of the Hon'ble Supreme Court in the case of Sarvana Spinning Mills Ltd. (supra) cannot be applicable to the facts of the present case and undisputedly the claim for deduction is not u/s. 31 but u/s. 37 of the Act. Therefore, the finding of the ld. CIT(A) replacement of part of machinery does not fall under current ..... X X X X Extracts X X X X X X X X Extracts X X X X
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