Madras High Court
Commissioner Of Income Tax - I vs M/S.Tvs Motor Company Ltd on 8 March, 2022
Author: R. Mahadevan
Bench: R. Mahadevan, J.Sathya Narayana Prasad
Tax Case Appeal No.331 of 2011
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 08.03.2022
CORAM :
THE HONOURABLE MR. JUSTICE R. MAHADEVAN
AND
THE HONOURABLE MR. JUSTICE J.SATHYA NARAYANA PRASAD
Tax Case Appeal No.331 of 2011
Commissioner of Income Tax - I
Chennai. ...Appellant
-vs-
M/s.TVS Motor Company Ltd.,
No.29, Haddows Road,
Chennai - 600 006.
...Respondent
Tax Case Appeal filed under Section 260A of the Income Tax Act, 1961
against the order dated 21.12.2010 passed by the Income Tax Appellate
Tribunal, Madras “C” Bench, Chennai in I.T.A.No.976/Mds/2009.
For Appellant : Mrs.V.Pushpa
Junior Standing Counsel
For Respondent : Mr.Subburaya Aiyar
JUDGMENT
(Judgment was delivered by R. MAHADEVAN, J.) This tax case appeal has been filed by the appellant / Revenue, calling in https://www.mhc.tn.gov.in/judis 1/10 Tax Case Appeal No.331 of 2011 question the correctness of the order dated 21.12.2010 passed by the Income Tax Appellate Tribunal, 'C' Bench, Chennai, in I.T.A.No.976/Mds/2009, relating to the assessment year 2000-01.
2.On 26.09.2011, this Tax Case Appeal is admitted on the following substantial questions of law:-
"1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the expenditure on replacement of dies and moulds were to be allowed as revenue expenditure, contrary to the decisions of the Supreme Court in the case of Saravana Mills Ltd. (293 ITR 201) and similar other decisions especially when such expenditure was not debited in the Profit and Loss Account, but only claimed in the Income Tax Adjustment Statement?
2. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that 100% depreciation on the cost of civil works in connection with the Reverse Osmosis Plant as well as ceilings and partitions?"
3.When the matter was taken up for consideration, the learned counsel for the appellant / Revenue submitted that the first substantial question of law https://www.mhc.tn.gov.in/judis 2/10 Tax Case Appeal No.331 of 2011 has already been considered and decided by this court in favour of the assessee by judgment dated 09.01.2014, passed in TCA.Nos.173 and 174 of 2009, in respect of the assessee's own case. The relevant passage of the said judgment is usefully extracted hereunder:
“29. As regards the expenditure on dies & moulds, the assessee pointed out that it debited an amount of Rs.11,17,68,169/- towards dies and moulds only to replace them in the place of worn out dies and moulds. The assessee in the memorandum of income added this amount to the total income and claimed the cost of dies and moulds of Rs.22,66,52,504/- under Section 31 of the Act. The assessee stated that within a period of one year of installation, the life of the dies and moulds would become obsolete and this was due to high production involved. Thus, replacement of the new dye in the place of old dye would quality for current repairs under Section 31 of the Act. The Assessing officer, however, rejected the contention of the assessee and the Assessing Officer pointed out that the assessee was claiming depreciation upto 1999-2000 under Section 32 of the Act and only in the year under consideration, it started claiming deduction under Section 31 of the Act. The Tribunal pointed out that the dies and moulds were not plant and machinery, yet the replacement of dies and moulds were not in the nature of installation of machinery in the factory. Such moulds and dies were normally attached to the machines to suit the individual requirement of particular product. So holding, the Tribunal held that expenditure incurred on replacement of dies and moulds was revenue in nature. It relied on the decision of Karnataka High Court in the case of Mysore Spun Concrete Pipe Pvt. Ltd., reported in 194 ITR 159.
30. As far as this issue is concerned, learned counsel appearing for the assessee placed reliance on the decision of this Court reported in (2013) 357 ITR 720 (Mad) in the case of Super Spinning Mills Ltd., Vs. Assistant Commissioner of Income-tax related to the expenditure on replacement of the machinery parts.
The assessee therein engaged in the business of manufacture and https://www.mhc.tn.gov.in/judis 3/10 Tax Case Appeal No.331 of 2011 trading in cotton yarn and allied products and the assessee incurred expenditure in respect of replacement of certain textile machinery. On a question as to whether such replacement of parts would be current repairs of capital in nature, this Court considered the decisions in the case of CIT Vs. Saravana Spinning Mills P; Ltd., reported in (2007) 293 ITR 201 (SC), CIT Vs. Ramaraju Surgical Cotton Mills reported in (2007) 294 ITR 328 (SC) and CIT Vs. Mangayarkarasi Mills P.Ltd., reported in (2009) 315 ITR 114 (SC) and pointed out that the question as to whether the expenditure incurred on replacement of machinery is revenue or capital rests on the nature of capital incurred vis-a-vis the benefit derived. This Court referred to the decision in the case of CIT Vs. Saravana Spinning Mills P.Ltd., reported in (2007) 293 ITR 201 (SC) and in particular to the decision in the case of CIT Vs. Sri Mangayarkarasi Mills P.Ltd., reported in (2009) 315 ITR 114 (SC) and pointed out as under:-
" 10. The question as to whether the expenditure incurred on replacement of machinery is revenue or capital expenditure, particularly in the nature of replacements of parts, thus rests on the nature of expenditure incurred, vis- a-vis the benefit that the assessee derives. The ratio deductible from the decisions referred to above are:
(i) To decide the applicability of Section 31(i), the test is not whether the expenditure is revenue or capital in nature, but whether the expenditure is "current repairs".
The basic test is to find out whether expenditure is incurred to "preserve and maintain" an already existing asset and the expenditure must not be to bring a new asset into existence or to obtain a new advantage vide [2007] 293 ITR 201 (SC) (Commissioner of Income Tax Vs. Saravana Spinning Mills P. Ltd.)
(ii) Under Section 31(i), the deduction admissible is only for current repairs. Therefore, the question as to whether the expenditure incurred by the assessee conceptually is revenue or capital in nature is not relevant for deciding the question whether such expenditure comes within the etymological meaning of the expression "current repairs". In other words, even if the expenditure is revenue in nature, it may not fall in the connotation of "current https://www.mhc.tn.gov.in/judis 4/10 Tax Case Appeal No.331 of 2011 repairs" - [2007] 293 ITR 201 (SC) (Commissioner of Income Tax Vs. Saravana Spinning Mills P. Ltd.)
(iii) A new asset or new/different advantage cannot amount to `current repairs'. - 2009-TIOL-86-SC-II (CIT Vs. Sri Mangayarkarasi Mills P. Limited)
(iv) Repair implies existence of a part of the machine which has malfunctioned, thereby requiring repair to that machinery, plant etc. Replacement cannot be a current repair, for, "replacement" and "current repair" do not go hand in hand . If one is to hold otherwise, it would only make Section 31(i) wholly redundant and absurd. Thus, replacement expenditure cannot be said to be `current repairs' vide [2007] 293 ITR 201 (SC) (Commissioner of Income Tax Vs. Saravana Spinning Mills P. Ltd.) and 2009-TIOL-86-SC-II (CIT Vs. Sri Mangayarkarasi Mills P. Limited)
(v) 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. - 2009-TIOL-86-SC-II (CIT Vs. Sri Mangayarkarasi Mills P. Limited);
(vi) Expenditure is of a capital nature when it amounts to an enduring advantage for the business and repair is different from bringing a new asset for the business. Further, bringing into existence a new asset or an enduring benefit for the assessee amounts to capital expenditure vide Lakshmiji Sugar Mills (P) Co. v. CIT (AIR 1972 SC 159) referred in 2009-TIOL-86-SC-II (CIT Vs. Sri Mangayarkarasi Mills P. Limited).
(vii) Therefore, whether an expenditure is revenue or capital in nature would depend on the facts of each case. - [2007] 293 ITR 201 (SC) (Commissioner of Income Tax Vs. Saravana Spinning Mills P. Ltd.)"
This Court also referred to the decision in the case of CIT Vs. Mahalakshmi Textile Mills Ltd., reported in (1967) 66 ITR 710 (SC) on the issue of current repairs and pointed out that so long https://www.mhc.tn.gov.in/judis 5/10 Tax Case Appeal No.331 of 2011 as there is no change in the performance of the machinery and the parts that were replaced performing precisely the same function, expenditure could only be concerned as current repairs of the plant and machinery.
31. Applying the ratio of the decision cited above, when we look into the facts of the above cases, it is evident that with regard to the moulds and dies attached to the machinery like press designs specification, moulds and dies are not independent of the plant and machinery, but are parts of the machinery. Once the dies are worn out, the machines cannot turn out the product to the business specifications and this has to be obtained only on a replacement of the dies and moulds, a fact which is not refuted by the revenue. It is no doubt true that the assessee claimed depreciation on dies and moulds. Yet in the decision in the case of CIT Vs. Mahalakshmi Textile Mills Ltd., reported in (1967) 66 ITR 710 (SC), the Apex Court pointed out that all questions whether of law or of fact, which relate to the assessment year of the assessee could be raised in any year under consideration before the Officer as well as before the Income Tax Appellate Tribunal too and if, for reasons recorded by the departmental authorities in rejecting a contention raised by the assessee, the grant of relief to an assessee is justified on another ground, the Revenue is bound to consider such claim of granting the relief. The Apex Court pointed out that the right of the assessee to the relief is not restricted to the plea raised by him. On the facts before us, when the dies and moulds were attached to the machine to manufacture the designed product, we have no hesitation to accept the plea of the assessee that the claim would fall for consideration only under Section 31 of the Act.
32. In the unreported decision of this Court dated 27.04.2012 in Tax Case (Appeal).No.1011 of 2005 (The Commissioner of Income Tax, Madurai Vs. M/s.Machado Sons) on the question of repair made to a ship, this Court pointed out that when the object of the expenditure was not for bringing into existence a new asset or to obtain a new advantage, the said expenditure qualifies to be considered as current repairs under Section 31 of the Act. In so holding, after referring to the decision of the Apex Court in the case of CIT Vs. M/s.Saravana Spinning https://www.mhc.tn.gov.in/judis 6/10 Tax Case Appeal No.331 of 2011 Mills P.Ltd., reported in (2007) 293 ITR 201, this Court further pointed out to the decision of the Apex Court where it cautioned that all repairs are not current repairs on Section 31(1) of the Act; Section 31(1) of the Act limits the scope of allowability of expenditure as deduction in respect of repairs made to machinery, plant or furniture by restricting it to the concept of "current repairs". Thus, this Court pointed out that what is allowable as revenue expenditure under Section 37 of the Act are those expenditure other than one falling for consideration under Sections 30 to 36 of the Act. The Apex Court further pointed out the example that when the picture tube in a television set is replaced, such repairs would come within the connotation of the phrase "current repairs". Thus, applying these two decisions, we have no hesitation in rejecting the Revenue's appeal. We hold that the claim being considered as current repairs, the same would fall under Section 31 of the Act as current repairs. To that extent, we modify the order of the Tribunal. ”
4.Adding further, the learned counsel for the appellant submitted that the second substantial question of law is covered by the decision of this Court in the case of Thiru Arooran Sugar Ltd v. Deputy Commissioner of Income Tax reported in (2013) 350 ITR 0324 (Mad), wherein, the issue was decided in favour of the assessee. For better appreciation, the relevant portion of the said decision is extracted below:
“Learned counsel appearing for the assessee placed reliance on the decision of this court reported in CIT v. Ayesha Hospitals P. Ltd. (2007) 292 ITR 266 (Mad), wherein in respect of the claim made for the assessment year 1991-92, the assessee claimed the amounts spent on painting, relaying of the damaged floors, partitions, etc., as revenue expenditure. On an appeal before this court by the Revenue, it was pointed out that the assessee incurred expenditure for relaying of the damaged floors, painting https://www.mhc.tn.gov.in/judis 7/10 Tax Case Appeal No.331 of 2011 and partition in respect of the leased property. Referring to the decision of the apex Court reported in CIT v. Madras Auto Service P. Ltd. (1998) 233 ITR 468 (SC), this court pointed out that the expenditure incurred in respect of the maintenance of the leased premises was deductible as revenue expenditure.
As regards the contention taken by the Revenue placing reliance on Explanation 1 to section 32(1)(ii) of the Income-tax Act, which was inserted with effect from April 1, 1988, this court pointed out that the Explanation is an exceptional one which permits depreciation in cases where the assessee does not own a building, in respect of which the assessee incurs capital expenditure on the construction of any structure or doing of any work, in or in relation to, and by way of renovation or extension of, or improvement to the building.
Applying the above said decision of this court to the facts of the present case, we hold that the temporary structure by means of false ceiling and office renovation had not resulted in any capital expenditure. The benefit of the above said decision of this court hence, applies to the facts of the case. Accordingly, the question is answered in favour of the assessee and the tax case (appeal) stands allowed. No costs.”
5.Following the above decisions, we answer the substantial questions of law raised herein in favour of the assessee and accordingly, dismiss this tax case appeal filed by the Revenue. No costs.
[R.M.D, J.] [J.S.N.P.,
J.]
08.03.2022
Internet : Yes
Index : Yes / No
gba/msr
https://www.mhc.tn.gov.in/judis
8/10
Tax Case Appeal No.331 of 2011
To
1.The Income Tax Appellate Tribunal,
Madras “C” Bench, Chennai.
2.The Commissioner of Income Tax -I
Chennai.
3.The Assistant Commissioner of Income Tax, Company Circle III (2) and the Additional CIT, Company Range-III Chennai – 600 034.
4.The Commissioner of Income Tax (Appeals)-III Chennai.
https://www.mhc.tn.gov.in/judis 9/10 Tax Case Appeal No.331 of 2011 R. MAHADEVAN, J.
AND J.SATHYA NARAYANA PRASAD, J.
gba/msr Tax Case Appeal No.331 of 2011 08.03.2022 https://www.mhc.tn.gov.in/judis 10/10