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TMI Blog2024 (2) TMI 1432X X X X Extracts X X X X X X X X Extracts X X X X ..... ependently as such and not as mere part of an entire composite machinery of the spinning mill. Thus ring frame , at best, is part of an integrated manufacture process employed in a textile mill. Therefore, replacement of an old ring frame by a new one would constitute the bringing into existence a new asset in place of the existing ring frame. Such a new asset in the assessee s textile mill is not for temporary use but it gives an enduring benefit of better and more efficient production over a period of time. In Lakshmi Sugar Mills P. Co. v. CIT [ 1971 (8) TMI 13 - SUPREME COURT ] Hon'ble Supreme Court has held that bringing into existence a new asset or an enduring benefit for the assessee amounts to capital expenditure. In Travancore Cochin Chemicals Ltd. [ 1977 (1) TMI 2 - SUPREME COURT ] has held that an expenditure is of capital nature when it amounts to enduring advantage for the business. Repair is entirely different as it does not bring into existence a new asset. Thus, amount spent by the assess on replacement of existing old ring frames by a new one is not of revenue nature rather it is capital in nature. Hence the amount so spent is not an allowable expenditure under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... installed by him. The total expenditure incurred on replacement of nine ring frames came to Rs. 2,26,67,804/-, which the assessee reduced by Rs. 56,06,159/- representing the sale proceeds of old frames and thus, claimed balance sum of Rs. 1,70,61,645/- as revenue expenditure as cost of replacement of machinery i.e. ring frames. The assessing officer rejected the claim of the appellant assessee holding that it is not a revenue expenditure under Section 37 of the Income Tax Act, 1961 [hereinafter referred to as Act 1961 ] and accordingly disallowed the expenditure so claimed. 5. In the appeal filed by the appellant assessee, the CIT(A) allowed the appeal of the assessee on the aforesaid issue. Aggrieved with the order of the CIT(A), the revenue filed ITA No. 1474/KOL/2008 [Deputy Commissioner of Income Tax, Circle-6, Kolkata v. Nagreeka Exports Limited, Kolkata]. A cross objection No. 102/KOL/2008 was also filed by the appellant assessee against confirmation of disallowance of Rs. 1 lakh under the head bad debts . In the present appeal, we are not concerned with the issue raised in the cross objection. By the impugned order dated 21.08.2009, the appeal of the revenue on the issue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er- mediate marketable product produced. In our view, this issue has been satisfactorily answered by the recent decision of this court in CIT v. Saravana Spinning Mills P. Ltd. [2007] 7 SCC 2983. In that case, this court has held unambiguously that each machine in a segment of a textile mill has an independent role to play in the mill and the output of each division is different from the other. Dealing with a ring frame in a textile mill, this court has held that it is an independent and separate machine. Further, it is accepted that each machine in a textile mill is part of the integrated pro- cess of manufacture of yarn and is integrally connected to the other machines in the mill for production of the final product. However, this Interconnection does not take away the independent identity and distinct function of each machine. Thus, each machine in a textile mill should be treated independently as such and not as a mere part of an entire composite machinery of the spinning mill. As stated above, it can at best be considered part of an integrated manufacture process employed in a textile mill Moving on to the issue of current repairs under section 31 of the Act, the decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Saravane Mills case that if replacement was held to be current repair in such cases, section 31(1) will be completely redundant and absurdity will creep in because repair implies existence of a part of the machine which has mal functioned, which is impossible in the case of such replacement. Thus, this replacement expenditure cannot be said to be current repairs after the decision in the Saravana Mills' case. Given that section 31 of the Act is not applicable to the said expenditure of the assessee, the next issue is whether it can be considered revenue expenditure of the nature envisaged under section 37 of the Act. The Saravana Mills case' holds that 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 assessee's expenditure satisfies requirements (a), (c) and (d) as stated above. The dispute is with respect to the nature of expenditure, that is, whether it is revenue or capital in nature. We are of the opinion that the expenditure of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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