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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 ..... y this Court by order dated 04.02.2010, on the following substantial questions of law:- "I. Whether on the facts and circumstances of the case the order of the Tribunal is erroneous as being perverse in reversing the order of the C.I.T.(A) on the basis of the decision of the Hon'ble Supreme Court where the question for consideration was not allowability under Section 37(1) of the Act as was in the present case? II. Whether on the facts and in the circumstances of the order of the Tribunal was erroneous in not properly appreciating the decision of the Hon'ble Supreme Court in RE: Ramaraji Surgical Cotton Mills, (294 ITR 328) a later decision of the Hon'ble Supreme Court and specifically referred to in the petitioner's submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties and perused the records of the appeal. 9. We find that in Sri Mangayarkarasi Mills (P) Ltd. supra) (supra) two issues were considered by the Hon'ble Supreme Court, namely, firstly, whether each machine in a textile is an independent item and/or part of a spinning mill and thus, the replacement of asset would amount to current repairs under Section 31 of the Act, 1961; and, secondly, whether the expenditure incurred for replacement of ring frame is of revenue in nature or capital nature. The Hon'ble Supreme Court held as under : "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. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant. This court has laid down that in order to determine whether a particular expenditure amounts to "current repairs" the test is "whether the expenditure is incurred to preserve and maintain" an already existing asset and not to bring a new asset into existence or to obtain a new advantage. For "current repairs" determination, whether the expenditure is "revenue or capital is not the proper test." It is our opinion that the entire textile mill machinery cannot be regarded as a single asset, replacement of parts of which can be considered to be for the mere pur- pose of "preserving or maintaining this asset. All machines put together constitute the production process and each separate machine is an independent entity. Replacement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repair made to the process of manufacture of yarn, Further, this court has also observed in 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and separate" machine. Each machine in a textile mill is part of the integrated process of manufacture and is integrally connected to the other machine in the mill for production of the final product. But this interconnection does not take away the independent identity and distinct function of each machine. Therefore, each machine in a textile mill is liable to be treated independently 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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