TMI Blog2009 (7) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... re. - 4579 OF 2009 - - - Dated:- 21-7-2009 - Tarun Chatterjee and Aftab Alam, JJ. JUDGMENT TARUN CHATTERJEE, J. - Leave granted. 2. This appeal has been filed by the appellant to challenge the judgment and order of the High Court of Madras dated 18th of December, 2006 whereby the High Court had dismissed the appeal filed by the revenue holding that the expenditure on replacement of machinery was revenue in nature and thus, allowable as deduction under the Income Tax Act, 1961 (hereinafter referred to as the `Act'). 3. The relevant facts as arising from the case made out by the parties, leading to the filing of this appeal, and which will help us in understanding the controversy involved, can be summarized as under :- The Respondent in this appeal is engaged in the manufacture and sale of cotton yarn. During the assessment year 1995-1996 the assessee claimed an amount of Rs. 61, 28,150/-, being expenditure incurred on replacement of machinery, as revenue expenditure. The assessee believed that such expenditure was merely expenditure on replacement of spare parts in the spinning mill system and, therefore, amounted to revenue expenditure. 4. The Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Assessment Year 1991-92 wherein a similar allowance was granted in favour of the assessee. 6. Against this order of the CIT (Appeals), the revenue department went in appeal before the Tribunal. The appeal was disposed of by the ITAT, Chennai Bench-C in ITA No. 1139/Mad/1998 by its order dated 16th of June, 2004. The tribunal followed the decision of the Madras High Court wherein it was decided that replacement of ring frame is only replacement of part of the machinery in the textile mills. The tribunal, thus, upheld the order of the CIT (Appeals) and dismissed the appeal of the revenue. 7. Aggrieved by the said order of the Tribunal, the revenue filed an appeal under section 260A of the Act before the High Court of Judicature at Madras. 8. The High Court, relying on its own decision in CIT v. Janakiram Mills Ltd. (275 ITR 403) and CIT v. Loyal Textile Mills Ltd. (284 ITR 658), by its order dated 18th of December, 2006, dismissed the appeal filed by the revenue and held that the expenditure on replacement of machinery was revenue in nature. The High Court further held that the question whether the expenditure on replacement of machinery was capital or re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further, contended that the scheme of production in a textile mill is similar to the integrated scheme of production in a cement factory, where no independent commodity can be said to have been produced before it, which is a ground in a roller mill. As per the learned counsel for the appellant, the courts below erred in distinguishing this decision of the Madras High Court. Thus, given that each item of machinery is independent, the replacement of any such machine will amount to acquisition of a new asset and not `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 (supra) wherein it is clearly held that `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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntended that the provisions relating to `assets' and `block of assets' are immaterial in the instant case, which deals with revenue expenditure on replacement of machinery and would not come under `block of assets'. Further, the learned counsel for the respondent also relied on the Boards' Circular No. 69 dated 27th of November, 1957 which, the respondent claimed, is still valid and as per which, 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 21st of August, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset in place of the old one and not repair of the old and existing machine. Also, a new asset in a textile mill is not only for temporary use. Rather it gives the purchaser an enduring benefit of better and more efficient production over a period of time. Thus, replacement of assets as in the instant case cannot amount to `current repairs'. The decision in Saravana Mills (supra) case clearly mentions that replacement of a derelict ring frame by a new one does not amount to `current repairs'. Further in Ballimal Naval Kishore (supra) this Court has held that a new asset or new/different advantage cannot amount to `current repairs', which has been subsequently approved in the Saravana Mills (supra) case. 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 Mills (supra) case mentions two exceptions in which replacement could amount to current repairs, namely: 7 "Where old parts are not available in the market (as seen in the case of CIT v. Mahalakshmi Textile Mills Ltd. (AIR 1968 SC 101), or 7 Where old parts have worked for 50-60 years." In the instant case, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be claimed as a deduction under section 37 of the Act. 18. As far as reliance on the High Court decision in Janakiram Mills (supra) case is concerned, the Saravana Mills (supra) case has clearly set aside the said judgment of the Madras High Court by its finding on the scope of `current repairs' under section 31 of the Act. In CIT v. Ramaraju Surgical Cotton Mills (MANU/SC/8156/2007), 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 Mills (supra) case 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 (supra) case, where this Court distinguished the Saravana Mills (supra) case on the ground that that appeal was with respect to deduction only under section 37 of the Act unlike the Saravana Mills (supra) case, this court set aside the High Court judgment in Janakiram Mills (supra) case and remitted the matter to the Commissioner (Appeals) to dispose of the matter in accordance with law. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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