DCIT, Bangalore V. M/s The Printers (Mysore) Pvt. Limited, Bangalore

ITA 933/BANG/2011

• Counselvise Citation: 93321114 RSA 2011
• Duration Of Justice: 1 year(s) 1 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-10-2012
• Assessment Year: 1999-2000
• Appeal Filed On: 24-10-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA
• Keywords: Depreciation; Opportunity of being heard; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER I.T.A. NO. 933 /BANG/20 11 (ASSESSMENT YEAR : 1999-2000) DY. COMMISSIONER OF INCOME TAX, CIRCLE 12(4), BANGALORE. VS. M/S. THE PRINTERS (MYSORE) PVT. LTD. NO.75, M.G. ROAD, BANGALORE-560 001. PAN AABCT 2065N APPELLANT RESPONDENT. APPELLANT BY : SHRI ETWA MUNDA. RESPONDENT BY : NONE. DATE OF HEARING : 10.10.2012. DATE OF PRONOUNCEMENT : 4 TH DEC., 2012. O R D E R PER SHRI JASON P. BOAZ, A.M . : THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, BANGALORE DT.27.7.2011 FOR ASSESSMEN T YEAR 1999-2000. 2. THE FACTS OF THE CASE, IN BRIEF, ARE AS UNDER : 2.1 THE ASSESSEE-COMPANY (HEREINAFTER REFERRED TO A S THE ASSESSEE), IN THE BUSINESS OF PRINTING AND PUBLISHING OF NEWSPAPERS AND PERIODICA LS, FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 1999-2000 ON 10.12.1999 DECLARING NIL INCOME. THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER RE FERRED TO AS 'THE ACT') ON 15.12.2000 AND THE CASE WAS TAKEN UP FOR SCRUTINY BY ISSUE OF NOTI CE UNDER SECTION 143(2) OF THE ACT. THE ASSESSMENT WAS COMPLETED BY AN ORDER UNDER SECTION 143(3) OF THE ACT ON 28.3.2002 IN WHICH A SUM OF RS. 173.44 LAKHS CLAIMED AS EXPENDITURE ON C URRENT REPAIRS WAS DISALLOWED BY TREATING THE CLAIM FOR REPAIRS CARRIED OUT AS CAPITAL EXPENDITUR E. IN APPEAL, THE LEARNED CIT (APPEALS) 2 ITA NO.933/BANG/11 ALLOWED THE ASSESSEE'S CLAIM IN ORDER DT.28.12.2004 HOLDING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS IN THE NATURE OF CURRENT REPAIRS. REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST THE ORDER OF THE CIT (APPEALS). THE ITAT BY ORDER IN ITA NO.390/BANG/2005 DT.6.7.2006 RECORDED THAT IT FELT HANDICAPPED IN THE ABSENCE OF DETAILS OF THE EXPENDITURE AND RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FO R DECIDING THE MATTER AFRESH AFTER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD. 2.2 PURSUANT TO THE ORDER OF THE TRIBUNAL, THE ASS ESSING OFFICER INITIATED FRESH ASSESSMENT PROCEEDINGS. THIS ASSESSMENT WAS COMPLETED BY AN O RDER UNDER SECTION 143(3) R.W.S. 254 OF THE ACT ON 26.12.2007, WHEREIN THE ASSESSING OFFICER AF TER AFFORDING THE ASSESSEE ADEQUATE OPPORTUNITY AND CONSIDERING THE SUBMISSIONS MADE CA ME TO THE FINDING THAT THE EXPENDITURE OF RS. 173.44 LAKHS, OUT OF TOTAL REPAIR EXPENDITURE O F RS.288.10 LAKHS INCURRED FOR THE RENOVATION, RESTORATION AND REPLACEMENT OF MAJOR PARTS OF THE PRINTING PRESS, LED TO THE ASSESSEE DRIVING AN ENDURING BENEFIT AND THEREFORE WAS HELD TO BE CAPIT AL EXPENDITURE REJECTING THE ASSESSEE'S CLAIM THAT THE SAID EXPENDITURE WAS CURRENT REPAIRS AND REVENUE IN NATURE. 2.3 AGGRIEVED BY THE ORDER OF ASSESSMENT DT.26.12.2 007 FOR ASSESSMENT YEAR 1999-2000, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(APPEALS) WHO BY ORDER DT.27.7.2011 ALLOWED THE ASSESSEE'S APPEAL HOLDING THAT THE ENTIRE EXPENDITU RE OF RS.173.44 LAKHS WAS REVENUE IN NATURE AS THE SAID EXPENDITURE WAS INCURRED ONLY TO SET RI GHT THE EXISTING MACHINE. 3.0 AGGRIEVED WITH THE ORDER OF THE CIT (APPEALS) F OR ASSESSMENT YEAR 1999-2000 DT.27.7.2011, REVENUE IS NOW IN APPEAL BEFORE US. I N THE GROUNDS OF APPEAL RAISED, REVENUE HAS CONTENDED AS UNDER : 1. THE ORDER OF THE LEARNED CIT (APPEALS) IS OPP OSED TO LAW AND FACTS OF THE CASE. 3 ITA NO.933/BANG/11 2. THE CIT (APPEALS) ERRED IN DELETING THE ADDITI ON OF RS.173.44 LAKHS BEING THE DISALLOWANCE OF EXPENDITURE ON REPAIRS TO PLANT AND MACHINERY TREATING IT AS CAPITAL EXPENDITURE. THE CIT (APPEALS) ERRED IN HOLDING T HE SAID EXPENDITURE AS REVENUE EXPENDITURE ALTHOUGH SUBSTANTIAL EXPENDITURE HAS BE EN INCURRED BY THE ASSESSEE WHICH IS AS MUCH AS 20% OF THE OPENING WDV OF PLANT AND MACHINERY AND HAS BROUGHT INTO EXISTENCE AN ALMOST NEW MACHINERY AND AVERTED REPLACEMENT BY A NEW MACHINERY AND HAS RESULTED IN ENDURING BENEFIT TO THE ASSESSE E'S BUSINESS. 3. FOR THESE AND OTHER GROUNDS THAT MAYBE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT (APPEALS) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THAT OF THE ASSESSING OFFICER MAY B E RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 4. ON PERUSAL, WE FIND THAT THE GROUNDS RAISED A T S.NOS.1, 3 AND 4 ARE GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 5.1 THE GROUND RAISED AT S.NO.2 IS THE ONLY ISSUE OF DISPUTE IN THIS APPEAL. THERE IN, REVENUE CONTENDS THAT THE LEARNED CIT (APPEALS) ERRED IN HO LDING THAT THE EXPENDITURE OF RS.173.44 LAKHS INCURRED IN RENOVATION, RESTORATION AND REPLA CEMENT OF MACHINERY PARTS OF THE GAZETTE OFFSET PRESS WAS REVENUE IN NATURE, WHEN THE SAID EXPENDITURE WAS ACTUALLY SUBSTANTIAL VIZ. ALMOST 20% OF THE WDV OF PLANT AND MACHINERY AND RE SULTED IN ENDURING BENEFIT TO THE ASSESSEE'S BUSINESS. THE LEARNED DEPARTMENTAL REP RESENTATIVE WHILE REITERATING THE GROUND RAISED PLACED RELIANCE ON THE FINDING OF THE ASSESS ING OFFICER IN THE ORDER OF ASSESSMENT THAT THE EXPENDITURE OF RS.173.44 LAKHS INCURRED ON RENO VATION AND REPLACEMENT OF MACHINERY GAZETTE OFFSET PRINTER HAS RESULTED IN THE BUSINE SS OF THE ASSESSEE GETTING A NEW ADVANTAGE OF ENDURING BENEFIT WHICH HE SUBMITTED WAS IN ACCORDAN CE WITH THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF BALLIMAL NAVAL KISHORE AND ANO THER VS. CIT REPORTED IN 224 ITR 414 (1997). THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO PLACED RELIANCE, FOR THE PROPOSITION PUT FORWARD BY REVENUE, ON THE RECENT DECISIONS OF THE HON'BLE APEX COURT WHEREIN THE ISSUE OF CURRENT REPAIRS HAS BEEN EXAMINED COMPREHENSIVELY. THESE ARE, 4 ITA NO.933/BANG/11 I) CIT VS. SARAVANA SPINNING MILLS P. LTD REPORTED IN (2007) 293 ITR 201 (SC) AND II) CIT VS. SRI MANGAYARKARSAI MILLS P. LTD. REPORT ED IN (2009) 315 ITR 114 (SC). IN VIEW OF THESE DECISIONS OF THE HON'BLE APEX COUR T, THE LEARNED DEPARTMENTAL REPRESENTATIVE PRAYED THAT THE ORDER OF THE LEARNED CIT (APPEALS) ON THIS ISSUE BE REVERSED AND THE APPEAL OF REVENUE BE ALLOWED. 5.2 FROM A PERUSAL OF THE ASSESSMENT ORDER, SOME O F THE RELEVANT DETAILS IN RESPECT OF THE GAZETTE OFFSET PRESS AND THE EXPENDITURE INCURRED ON ITS REPAIR / RECONDITIONING / REPLACEMENT / RESTORATION ETC. IS AS UNDER : (I) THE MACHINE (GAZETTE OFFSET PRESS) WAS PURCHAS ED IN THE YEAR 1981-82 AT A COST OF RS.1,25,14,892. (II) THE MACHINE REQUIRED MAJOR REPAIRS IN THE YEA R 1998-99 AS IT ENCOUNTERED REGISTRATION PROBLEM, WHICH REQUIRED REPLACEMENT OF GEAR TRAINS DUE TO WORN OUT GEARS AND THE EXPENDITURE INCURRED FOR THE SAME WAS RS.173.44 LAKHS. (III) IF THE REPAIRS / RESTORATION / REPLACEMENTS / HAD NOT BEEN UNDERTAKEN, THE MACHINE WOULD HAVE BEEN RENDERED USELESS THEREBY REQUIRING PURCHA SE OF A NEW MACHINE WHICH AS PER THE ASSESSEE WOULD COST APPROX. RS. 9.40 CRORES. (IV) AFTER REPAIR OF THE MACHINE, IT HAS BEEN WORK ING SATISFACTORILY FOR THE NEXT 9 YEARS AND NO MAJOR EXPENSES FOR REPAIR THEREON HAS BEEN NECESSAR Y SINCE 1998-99. (V) THE NORMAL LIFE OF THE MACHINE IS ABOUT 25 YE ARS AND THE MACHINE IS STILL WORKING AFTER 27 YEARS AND IS EXPECTED TO WORK FOR SOME MORE YEARS. IN THE LIGHT OF THE ABOVE FACTS, THE ASSESSING OFFI CER WAS OF THE VIEW THAT THE REPAIRS UNDERTAKEN HAD ENHANCED THE LIFE OF THE MACHINE AS IT IS WORKING WELL BEYOND ITS NORMAL LIFE SPAN. 5 ITA NO.933/BANG/11 THE ASSESSING OFFICER, THEREFORE, CONCLUDED THAT TH E REPAIRS HAD RESULTED IN AN ENDURING BENEFIT TO THE ASSESSEE AND HENCE THE SAID EXPENDIT URE OF RS.173.44 LAKHS WAS CAPITAL IN NATURE. 5.3 IN THE ORIGINAL ORDER OF ASSESSMENT DT.28.3. 2002, THE ASSESSING OFFICER PLACED RELIANCE ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF BALLIMAL NAVAL KISHORE AND ANOTHER VS. CIT REPORTED IN 224 ITR 414 TO SUPPORT HIS FINDING THAT SINCE THE EXPENDITURE OF RS.1,73,44,000 INCURRED ON REPAIRS FOR RECONDITIONING THE GAZETTE OFFSET PRESS RESULTED IN AN ENDURING BENEFIT BEING DERIVED BY THE ASSESSEE, THIS EXPENDITURE IS CAPITAL IN NATURE. THE TRIBUNAL IN ITS ORDER IN ITA NO.390/BANG/05 DT.6.7.2006 HAS NOTICED THE RELI ANCE PLACED BY THE ASSESSING OFFICER ON THIS CASE AND AT PARA 4 ON PAGE 3 OF ITS ORDER HAS OBSERVED THAT : IN THE CASE OF BALLIML NAVAL KISHORE AND ANOT HER (SUPRA), THE HON'BLE SUPREME COURT HAS PLACED THE TERM CURRENT REPAIRS. IN THA T CASE, THE THEATRE WAS TOTALLY RENOVATED BY REPLACING SOME NEW MACHINERIES, ELECTR ICAL AND SANITARY FITTINGS ETC. IT WAS HELD BY THE APEX COURT THAT SUCH EXPENDITURE CA NNOT BE TREATED AS CURRENT REPAIRS. IT WAS HELD THAT IF THE AMOUNT SPENT WAS FOR THE PURPOSE OF BRINGING INTO EXISTENCE A NEW ASSET OR OBTAINING NEW ADVANTAGE, I T WOULD BE CAPITAL IN NATURE. THEREFORE, EACH CASE HAS TO BE CONSIDERED, CONSIDER ING THE PURPOSE OF EXPENDITURE INCURRED BY THE ASSESSEE. IN THE ABSENCE OF DETAIL S OF SUCH EXPENDITURE, THE ISSUE CANNOT BE DECIDED EFFECTIVELY BY THE TRIBUNAL. . FROM THE ABOVE OBSERVATION OF THE TRIBUNAL, IT IS C LEAR THAT THE MATTER WAS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDE RATION TO EXAMINE THE ISSUE AS TO WHETHER THE AMOUNT WAS SPENT FOR THE PURPOSE OF BRINGING INTO E XISTENCE A NEW ASSET OR A NEW ADVANTAGE, AS ENVISAGED IN THE CASE OF BALLIMAL NAVAL KISHORE AND ANOTHER (SUPRA). HOWEVER, THE ASSESSING OFFICER IN THE FRESH ORDER OF ASSESSMENT PASSED UND ER SECTION 143(3) R.W.S. 254 DT.26.12.2007 IS TOTALLY SILENT ON THE APPLICABILITY OF THE FINDI NGS OF THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF BALLIMAL NAVAL KISHORE AND ANOTHER (SUP RA). WHILE THE ASSESSING OFFICER HAS ANALYSED AND DISTINGUISHED THE CASE LAWS CITED BY T HE ASSESSEE, HIS ORDER IS TOTALLY SILENT ON THE 6 ITA NO.933/BANG/11 APPLICABILITY OF THIS DECISION OF THE HON'BLE APEX COURT FOR WHICH THE MATTER WAS REMITTED BACK TO HIS FILE. EVEN THE ORDER OF THE LEARNED CIT (AP PEALS) DT.27.7.2011 IS SILENT ON THE APPLICABILITY OF THE PARTICULAR CASE OF THE HON'BLE APEX COURT, T HOUGH SEVERAL OTHER CASES ARE DISCUSSED THEREIN. THE ORDER OF THE LEARNED CIT (APPEALS) HA S BEEN ON WHETHER THE SAID EXPENDITURE IS CAPITAL OR REVENUE IN NATURE. IT HAS NOT EXAMINED THE EXPENDITURE AS TO WHETHER IT CAN BE CONSIDERED AS CURRENT REPAIRS AS ENVISAGED UNDER SECTION 31(1) OF THE ACT IN THE LIGHT OF THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF B ALLIMAL NAVAL KISHORE AND ANOTHER (SUPRA). 5.4 THE ISSUE ON WHICH THE MATTER WAS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER WAS TO EXAMINE WHETHER THE AMOUNT SPENT ON REPAIRS WILL QUALIFY AS CURRENT REPAIRS AND WHETHER IT WAS FOR THE PURPOSE OF BRINGING INTO EXISTENCE A NEW ASSET OR FOR OBTAINING A NEW OR FRESH ADVANTAGE. BEFORE GOING INTO THE ISSUE, IT WOULD BE RELEVANT TO PERUSE AND ANALYSE THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF BALLIMAL NAVAL KI SHORE AND ANOTHER (SUPRA). IN THIS CASE, THE ISSUE WAS RENOVATION OF A CINEMA THEATRE WHICH THE ASSESSEE EXTENSIVELY REPAIRED BY EXPENDING SUBSTANTIAL SUMS OF MONEY ON MACHINERY, NEW FURNITU RE, SANITARY FITTINGS AND REPLACEMENT OF ELECTRICAL WIRINGS, BLADES EXTENSIVELY REPAIRS TO W ALLS, FLOORING, ROOFING, ETC. THE HON'BLE APEX COURT WHILE NOTING THE DIFFERENCE BETWEEN REPAIRS AND CURRENT REPAIRS USED IN SECTION 10(2)(V) OF THE INCOME TAX ACT, 1922 OBSERVED THAT IN THE CA SE OF NEW SHORROCK SPINNING & MANUFACTURING CO. LTD. (1956) 30 ITR 338 (BOM) THE HON'BLE CHIEF JUSTICE AT PAGE 343 HAD OBSERVED THAT THE SIMPLE TEST THAT MUST BE CONSTANTLY BORNE IN MIND IS THAT AS A RESULT OF THE EXPENDITURE WHICH IS CLAIMED AS EXPENDITURE FOR REP AIRS, WHAT IS REALLY BEING DONE IS TO PRESERVE AND MAINTAIN AN ALREADY EXISTING ASSET. THE OBJECT OF THE EXPENDITURE IS 7 ITA NO.933/BANG/11 NOT TO BRING A NEW ASSET INTO EXISTENCE, NOR ITS OB JECT THE OBTAINING OF A NEW OR FRESH ADVANTAGE .. FURTHER, THE HON'BLE APEX COURT APPLYING THE TEST S PECIFIED IN NEW SHORROCK SPINNING & MANUFACTURING CO. LTD. (SUPRA) TO THE FACTS OF THE CASE HELD THE EXPENDITURE TO BE OF TOTAL RENOVATION AND THEREFORE CAPITAL IN NATURE. 5.5 IN NEW SHORROCK SPINNING & MANUFACTURING CO. LT D (SUPRA), IT WAS OBSERVED THAT THE EXPRESSION CURRENT REPAIRS MEANS EXPENDITURE ON B UILDINGS, MACHINERY, PLANT OR FURNITURE WHICH IS NOT FOR THE PURPOSE OF RENEWAL OR RESTORATION BU T WHICH IS ONLY FOR THE PURPOSE OF PRESERVING OR MAINTAINING AN ALREADY EXISTING ASSET AND WHICH DOES NOT BRING A NEW ASSET INTO EXISTENCE OR DOES NOT GIVE THE ASSESSEE A NEW OR DIFFERENT ADVAN TAGE. IT WAS FURTHER OBSERVED THAT CURRENT REPAIRS ARE SUCH REPAIRS AS ARE ATTENDED TO AS AND WHEN THE NEED ARISES AND THAT THE QUESTION AS TO WHEN A BUILDING ETC. REQUIRED REPAIRS AND WHEN T HE NEED ARISES MUST BE DECIDED NOT BY ANY ACADEMIC OR THEORETICAL TEST BUT BY THE TEST OF CO MMERCIAL EXPEDIENCY. FROM A PERUSAL OF THE ORDER OF ASSESSMENT, THE DETAILS OF REPAIRS CARRIED OUT ARE AT PARA 7 THEREOF. THE AMOUNT IN DISPUTE I.E. RS.173.44 LAKHS FORMS PART OF THE TOTA L EXPENDITURE OF RS.288.10 LAKHS CLAIMED ON ACCOUNT OF REPAIRS AND IS RELATED TO EXPENDITURE SP ENT ON RECONDITIONING, RENOVATION, RESTORATION AND REPLACEMENT OF PARTS OF THE GAZETTE OFFSET PRE SS THE DETAILS OF WHICH ARE AS UNDER : I) REPLACEMENT OF THE GEARS AND CONNECTED PARTS TO ELIMINATE REGISTRATION PROBLEMS DUE TO WORN OUT GEARS. THESE ITEMS WERE IMPORTED FROM M/S.GOSS SYSTEMS GRAPHIQUES NANTES, SA, FRANCE AT A COST OF RS.156.50 LAKHS (RS.105 LAKHS PLUS DUT Y OF RS.51.50 LAKHS). II) RESTORATION OF BORES OF THE MACHINE TO ELIMINAT E SKEW AND VIBRATIONS WORK DONE BY M/S.METRASURE INTERNATIONAL, FRANCE AT A COST OF RS .11.65 LAKHS. III) REPLACEMENT OF CYLINDER BEARERS, WORN OUT BEA RINGS AND SEALS COST OF RS.3.10 LAKHS. 8 ITA NO.933/BANG/11 IV) CHEMICALS REQUIRED FOR BORE REBUILDING WORK C OST OF RS.2.19 LAKHS. THE ASSESSEE HAD ALSO SUBMITTED THAT : (I) IF THE REPAIRS HAD NOT BEEN CARRIED OUT, THE MACHIN E WOULD HAVE BEEN RENDERED USELESS AND (II) THERE HAS BEEN NO CAPACITY ADDITION AND THE REPLACE MENT HAS BEEN MADE TO RESTORE THE MACHINERY TO ITS ORIGINAL STATE OF EFFICIENCY. 6.1 WE HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, PERUSED THE MEANING OF THE NUANCES INVOLVED IN THE MEANING OF CURRENT REPAIRS USED I N THE STATUTE VIS--VIS THAT OF REPAIRS. THE NATURE OF REPAIRS CARRIED OUT IN THE INSTANT CASE H AS ALREADY BEEN LISTED OUT ABOVE AT PARA 5.2 OF THIS ORDER. IT IS NECESSARY FOR US TO REFER TO THE LEGAL POSITION IN ORDER TO FIND THE ANSWER AS TO WHETHER SUCH REPAIRS AS CARRIED OUT BY THE ASSESSEE IN THIS CASE WOULD CONSTITUTE CURRENT REPAIRS AS ENVISAGED IN SECTION 31(1) OF THE ACT A ND THUS BE REVENUE IN NATURE OR WHETHER IT SHOULD BE TREATED AS CAPITAL EXPENDITURE. 6.2 THE LEGAL POSITION IN THIS REGARD HAS BEEN DISC USSED AND ELABORATED EXHAUSTIVELY IN THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF M/S. BHARAT GEARS LTD. VS. CIT IN ITA NO.14/2005, 1600 & 1670/2010 DT.3.6.2011 IN WHICH THE FINDINGS OF THE HON'BLE APEX COURT IN THE CASE OF SARAVANA SPINNING MILLS PVT LTD (SUPRA) AND SRI MANGAYARKARSAI MILLS PVT LTD ON THE ISSUE OF CURRENT REPAIRS UNDER SECTION 31(1) OF T HE ACT HAVE BEEN FOLLOWED. THEIR LORDSHIPS HAVE ELABORATELY DISCUSSED THE LEGAL POSITION ON TH E ISSUE OF CURRENT REPAIRS AS LAID OUT IN SECTION 31(1) OF THE ACT AT PARAS 11 TO 18 OF THE O RDER WHICH IS EXTRACTED AND REPRODUCED HEREUNDER TO CLARIFY THE LEGAL POSITION : 11. . ANY EXPENDITURE INCURRED BY AN ASSESSEE CAN QUALIFY FOR DEDUCTION UNDER SECTION 37 OF THE INCOME TAX ACT, 1961 (HEREIN AFTE R REFERRED TO AS 'ACT') ONLY IF IT 9 ITA NO.933/BANG/11 IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF HIS BUSINESS. HOWEVER, AT THE SAME TIME, FULFILLMENT OF THIS REQUIREMENT WOULD NO T BE ENOUGH TO QUALIFY FOR DEDUCTION. IT IS ALSO TO BE SHOWN THAT THE EXPENDI TURE IN QUESTION IS REVENUE IN NATURE AS DISTINGUISHED FROM CAPITAL EXPENDITURE. OVER A PERIOD OF TIME, THROUGH CASE LAWS, COURTS HAVE DELINEATED CERTAIN YARDSTICK S TO FIND OUT WHETHER THE EXPENDITURE WOULD BE OF A NATURE OR OF A CAPITAL NA TURE. IT HAS NOW BECOME AN ACCEPTED PRINCIPLE THAT IF AN AMOUNT IS SPENT FOR T HE PURPOSE OF BRINGING INTO EXISTENCE A NEW ASSET OR OBTAINING A NEW ADVANTAGE, THEN SUCH EXPENDITURE WOULD BE CAPITAL IN NATURE. ANOTHER YARDSTICK, WHICH IS ADOP TED IS TO FIND OUT WHETHER THE EXPENDITURE IS INCURRED FOR OBTAINING AN ADVANTAGE OF ENDURING BENEFIT. IF IT IS SO, THEN THE EXPENDITURE SHOULD NORMALLY BE TREATED AS CAPITAL IN NATURE. HOWEVER, AT THE SAME TIME IT IS NOT EVERY ADVANTAGE OF ENDURING NATURE ACQUIRED BY AN ASSESSEE THAT WOULD BRING THE CASE WITHIN THE FOLD OF CAPITA L EXPENDITURE. IN EMPIRE JUTE CO. LTD. VS. CIT (1980) 124 ITR 1, THE SUPREME COURT FO RMULATED THE FOLLOWING PRINCIPLES ON THIS ASPECT : (I) IT IS NOT A UNIVERSALLY TRUE PROPOSITION THAT WHAT MAY BE A CAPITAL RECEIPT IN THE HANDS OF THE PAYEE MUST NECESSARILY BE CAPITAL EXP ENDITURE IN RELATION TO THE PAYER. THE FACT THAT A PAYMENT CONSTITUTES INCOME OR CAPIT AL RECEIPT IN THE HANDS OF THE RECIPIENT IS NOT MATERIAL IN DETERMINING WHETHER TH E PAYMENT IS REVENUE OR CAPITAL DISBURSEMENT QUA THE PAYER. (II) THERE MAY BE CASES WHERE EXPENDITURE, EVEN IF INCURRED FOR OBTAINING AN ADVANCE ENDURING BENEFIT, MAY, NONETHELESS, BE ON REVENUE A CCOUNT AND THE TEST OF ENDURING MAY BREAK DOWN. IT IS NOT EVERY ADVANTAGE OF ENDUR ING NATURE ACQUIRED BY AN ASSESSEE BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN THIS TEST. WHAT IS MATERIAL TO CONSIDER NATURE OF THE ADVANTAGE IN A COMMERCIAL SENSE AND IT IS ONLY WHERE THE ADVANTAGE IS CAPITAL FIELD THAT THE EXPENDITURE WOU LD BE DISALLOWABLE ON AN APPLICATION OF THIS TEST. IF THE ADVANTAGE CONSISTS MERELY IN FACILITATES ASSESSEE'S TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT O F THE ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHIL E LEAVING THE CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANCE MAY ENDURE FOR AN INDEFINITE FUTURE. THE TEST OF ENDURING BEN EFIT IS, THEREFORE, NOT A CERTAIN OR CONCLUSIVE TEST AND IT CANNOT BE APPLIED BLINDLY AN D MECHANICALLY WITHOUT REGARDING PARTICULAR FACTS AND CIRCUMSTANCES OF A GIVEN CASE. (III) WHAT IS AN OUTGOING OF CAPITAL AND WHAT IS A N OUTGOING ON ACCOUNT OF REVENUE DEPRECIATION WHAT THE EXPENDITURE IS CALCULATED TO EFFECT FROM A PRACTICAL AND BUSINESS POINT OF VIEW THAN UPON THE JURISTIC CLASS IFICATION OF THE LEGAL RIGHTS, IF ANY, SECURED, EMPLOYED OR EXPENDITURE IN THE PROCESS. T HE QUESTION MUST BE VIEWED IN THE LARGER CONTEXT OF BUSINESS NECESSITY OR EXPEDIENCY. 12. WHEN THE EXPENDITURE IS INCURRED ON THE REPAIR S OF A MACHINERY, PLANT OR FURNITURE USED FOR THE PURPOSES OF BUSINESS OR PROF ESSION, SPECIFIC PROVISION IS MADE IN SECTION 31 OF THE ACT. THIS SECTION, INTER ALIA , PROVIDES THAT IF THE AMOUNT PAID IS ON ACCOUNT OF CURRENT REPAIRS THEN DEDUCTION IN R ESPECT OF THE SAID AMOUNT IS TO BE ALLOWED. WE MAY POINT OUT AT THIS STAGE ITSELF THA T EXPLANATION TO THIS SECTION WAS INSERTED BY THE FINANCE ACT, 2003 WITH EFFECT FROM 1 ST APRIL, 2004, WHICH IS TO THE 10 ITA NO.933/BANG/11 EFFECT THAT SUCH CURRENT REPAIRS SHALL NOT INCLUDE ANY EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE. THIS EXPLANATION READ AS UNDE R : [EXPLANATION - FOR THE REMOVAL OF IT IS HEREBY DE CLARED THAT THE AMOUNT PAID ON ACCOUNT OF CURRENT REPAIRS SHALL NOT INCLUDE EXPEND ITURE IN THE NATURE OF CAPITAL EXPENDITURE.] 13. WE WILL ADVERT TO THE ISSUE AS TO WHETHER T HIS EXPLANATION IS ONLY CLARIFICATORY IN NATURE OR IT IS TO OPERATE PROSPECTIVELY. THIS ISSUE ARISES IN THE PRESENT CASE FOR THE REASON THAT WE ARE CONCERNED WITH THE ASSESSMEN T YEAR 1994-95. WHAT IS DISCUSSED AT THIS STAGE IS THAT THE EXPENSES IN RES PECT OF THOSE REPAIRS QUA MACHINERY, PLANT OR FURNITURE USED FOR THE PURPOSES OF BUSINESS OR PROFESSION IS ALLOWED WHICH IS ON ACCOUNT OF CURRENT REPAIRS AN D NOT EXPENSE ON EVERY KIND OF REPAIRS. THE MEANING WHICH IS TO BE ASSIGNED TO C URRENT REPAIRS HAS COME UP FOR CONSIDERATION BEFORE THE COURTS ON SEVERAL OCCASION S. HOWEVER, IT IS NOT NECESSARY TO TAKE NOTE OF AND DISCUSS ALL THOSE DECISIONS. IN T WO RECENT DECISIONS RENDERED BY THE SUPREME COURT IN SARAVANA SPINNING MILLS PVT LTD. ( SUPRA) AND SRI MANGAYARKARSAI MILLS PVT. LTD. (SUPRA) THE ENTIRE GAMUT OF CASE LA W HAS BEEN REVISITED AND THE PRINCIPLE STATED IN A MOST LUCID MANNER. THEREFORE , DISCUSSION ON THESE TWO JUDGMENTS MUST SUFFICE OUR PURPOSE. 14. IN SARAVANA SPINNING MILLS PVT LTD. (SUPRA) (WHICH WAS ALSO A CASE PERTAINING TO ASSESSMENT YEARS 1993-94 AND 1994-95) THE SUPREME C OURT EXPLAINED THE MEANING OF CURRENT REPAIRS. IT WAS CLARIFIED THAT TEST WAS NOT THE SAME AS THE TEST FOR EXPENDITURE BUT DIFFERENT THEREFROM. THE COURT TOO K NOTE OF ITS EARLIER JUDGMENT IN BALLIML NAVAL KISHORE AND ANOTHER VS. CIT (1997) 2 SCC 449 (224 ITR 414) WHEREIN THE TEST FORMULATED BY CHAGLA, C.J., IN THE CASE OF NEW SHORROCK SPINNING AND MANUFACTURING CO. LTD. (1956) 30 ITR 338 (BOM) WAS APPROVED. THE BOMBAY HIGH COURT IN THE SAID JUDGMENT HAD LAID DOWN THE FOLLOW ING TEST :- THE SIMPLE TEST THAT MUST BE CONSTANTLY BORNE IN MIND IS THAT AS A RESULT OF THE EXPENDITURE WHICH IS CLAIMED AS AN EXPENDITURE FOR REPAIRS WHAT IS REALLY BEING DONE IS TO PRESERVE AND MAINTAIN AN ALREADY EXISTING ASS ET. THE OBJECT OF THE EXPENDITURE IS NOT TO BRING A NEW ASSET INTO EXISTENCE, NOR IS ITS OBJECT THE OBTAINING OF A NEW OR FRESH ADVANTAGE. THIS CAN BE THE ONLY DEFINITION OF REPAIRS BECAUSE IT IS ONLY BY REASON FOR THIS DEFINITION OF REPAIRS THAT THE EXPE NDITURE IS A REVENUE EXPENDITURE. IF THE AMOUNT SPENT WAS FOR THE PURPOSE OF BRINGING INTO EXISTENCE A NEW ASSET OR OBTAINING A NEW ADVANTAGE, THEN OBVIOUSLY SUCH AN E XPENDITURE WOULD NOT BE AN EXPENDITURE OF A REVENUE NATURE BUT IT WOULD BE A C APITAL EXPENDITURE, AND IT IS CLEAR THAT THE DEDUCTION WHICH THE LEGISLATURE HAS PERMI TTED UNDER SECTION 10(2)(V) IS A DEDUCTION WHERE THE EXPENDITURE IS A REVENUE EXPEND ITURE AND NOT A CAPITAL EXPENDITURE. 15. AFTER EXTRACTING THE AFORESAID, THE SUPREME COURT IN SARAVANA SPINNING MILLS PVT LTD (SUPRA) ELUCIDATED THIS TEST FURTHER IN THE FOLLOWING MANNER :- IN THE SAID JUDGMENT, IT HAS BEEN FURTHER OBSERVE D BY CHAGLA, C.J. THAT THE DEFINITION OF WORD REPAIR DOES NOT CREATE MUCH DI FFICULTY, BUT THE DIFFICULTY IS ITA NOS.14/2005, 1670/2010 PAGE 12 OF 25 CREATED BY THE WORD CURRENT WHICH QUALIFIES 11 ITA NO.933/BANG/11 THE EXPRESSION. THIS ADJECTIVE, NAMELY, CURRENT IS PUT IN BY THE LEGISLATURE. IT INDICATES THAT THE LEGISLATURE DID NOT INTEND THAT THE LEGISLATURE DID NOT INTEND THAT THE ASSESSEE SHOULD BE PERMITTED TO CLAIM ALLOWANCE FOR ALL KINDS OF REPAIRS, EVEN THOUGH CONCEPTUALLY THE EXPENDITURE MAY BE REVENUE EXPENDITURE. THE LEGISLATURE INTENDED TO STRESS THAT UNDER SECTION31(I)THE PERMI SSIBLE 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 AS TO WHETHER SUCH AN EXPENDI TURE COMES WITHIN THE ETYMOLOGICAL MEANING OF THE EXPRESSION CURRENT REP AIRS. IN OTHER WORDS, EVEN IF THE EXPENDITURE IS REVENUE, IT MAY NOT FALL IN THE CONN OTATION OF CURRENT REPAIRS IN SECTION 31(I). THE TEST FORMULATED ABOVE APPLIES TO CASES WHERE THE ASSESSEE CLAIMS ALLOWANCE UNDER SECTION 31(I). 16. IN THAT CASE THE FACTS REVEALED THAT DURING T HE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEARS 1993-94 AND 1994-95, THE ASSESSEE, A TEXTILE MILL ENGAGED IN THE MANUFACTURE OF YARN, SPENT CERTAIN AMOUNTS FOR REPL ACEMENT OF RING FRAMES WHICH HAD WORN OUT. IT CLAIMED DEDUCTION OF THE AMOUNTS S PENT FOR REPLACEMENT UNDER SECTION 31(I) OF THE INCOME TAX ACT, 1961, AS CURRE NT REPAIRS. ACCORDING TO THE ASSESSEE THE WHOLE TEXTILE MILL WAS A PLANT AND T HE RING FRAMES WERE ONE OF THE 25 MACHINES WHICH CONSTITUTED ONE SINGLE PROCESS AND, THEREFORE, REPLACEMENT OF THE FRAMES HAD TO BE TREATED ONLY AS A REPLACEMENT OF O LD PARTS WHICH HAD BECOME DERELICT AND NOT REPLACEMENT OF A MACHINE. THE ASS ESSING OFFICER HELD THAT BY THE REPLACEMENT THE ASSESSEE HAD OBTAINED AN ENDURING B ENEFIT AND THE EXPENDITURE INCURRED CONSTITUTED CAPITAL EXPENDITURE AND NOT C URRENT REPAIRS. THIS DECISION OF THE ASSESSING OFFICER WAS REVERSED BY THE CIT (APPE ALS) WHICH VIEW WAS UPHELD BY THE ITAT AS WELL AS THE HIGH COURT. HOWEVER, THE S UPREME COURT SET ASIDE THE ORDER OF THE HIGH COURT AND RESTORED THE OPINION OF THE A SSESSING OFFICER HOLDING THAT THE EXPENDITURE CONSTITUTED CAPITAL EXPENDITURE AND NOT CURRENT REPAIRS. AFTER DISCUSSING THE TEST WHICH IS TO BE LAID DOWN (WHICH WE HAVE ALREADY EXTRACTED ABOVE), THE SUPREME COURT APPLIED THE SAME ON THE AFORESAID FACTS IN THE FOLLOWING MANNER : IN THE PRESENT CASE, THE HIGH COURT HAS LOST SIGH T OF THE TEST TO BE APPLIED FOR AN EXPENDITURE TO FALL UNDER SECTION31(I) AS CURRENT REPAIRS. IT HAS EMBARKED ON THE TEST WHICH WAS NOT APPLICABLE, VIZ., WHETHER THE EX PENDITURE IS REVENUE OR CAPITAL IN NATURE. THE ABOVE TEST WAS NOT RELEVANT DURING THE ASSESSMENT YEARS IN QUESTION AS THE EXPLANATION TO SECTION31(I) WAS INSERTED LATER ON. IN OUR VIEW, APPLYING THE TEST LAID DOWN BY CHAGLA,C.J. IN THE CASE OF NEW SHORROC K SPINNING AND MANUFACTURING CO. LTD. (1956) 30 ITR 338 (BOM) THE ASSESSEES WERE NOT ENTITLED TO CLAIM ALLOWANCE UNDER SECTION 31(I) FOR CURRENT REPAIRS. IN OUR VI EW, THE RING FRAME BY ITSELF CONSTITUTED AN INDEPENDENT MACHINE WITH AN INDEPEND ENT FUNCTION, WHICH WAS REPLACED BY A NEW RING FRAME GIVING ENDURING ADVANTAGE TO TH E ASSESSEE AND, THEREFORE, THE EXPENDITURE INCURRED IN THAT REGARD CANNOT COME WIT HIN THE EXPRESSION CURRENT REPAIRS. IN OUR VIEW, REPLACEMENT OF THREE RING F RAMES CONSTITUTED SUBSTITUTION OF AN OLD ASSET BY A NEW ASSET AND THEREFORE, THE EXPE NDITURE INCURRED DID NOT CONSTITUTE CURRENT REPAIRS. 12 ITA NO.933/BANG/11 17. IT WOULD BE SIGNIFICANT TO POINT OUT THAT ANOTH ER JUDGMENT OF THE SUPREME COURT IN CIT V. MAHALAKSHMI TEXTILE MILLS LTD., [1967] 3 SCR 957 RELIED UPON BY THE COUNSEL FOR THE ASSESSEE WAS HELD NOT APPLICABLE AND DISTIN GUISHED ON THE FOLLOWING BASIS:- 'ON BEHALF OF THE ASSESSEE, RELIANCE WAS PLACED ON THE JUDGMENT OF THIS COURT IN THE CASE OF CIT V. MAHALAKSHMI TEXTILE MILLS LTD. REPORTED IN [1967] 3 SCR 957. IN THAT CASE, THE ASSESSEE CARRIED ON THE BUSINESS OF MANUF ACTURE AND SALE OF COTTON YARN. IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 1956- 57, THE ASSESSEE SPENT RS.93,000 APPROXIMATELY FOR INTRODUCTION OF 'CASABL ANCA CONVERSION SYSTEM' IN ITS PLANT. THE INCOME-TAX OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE. THE APPELLATE AUTHORITY AGREED WITH THE INCOME-TAX OFFICER. BEFOR E THE TRIBUNAL, THE ASSESSEE CONTENDED THAT THE AMOUNT EXPENDED FOR INTRODUCING CASABLANCA CONVERSION SYSTEM WAS CURRENT EXPENDITURE UNDER SECTION 10(2)(V) OF T HE INDIAN INCOME-TAX ACT, 1922 (SECTION 31(I) OF THE 1961 ACT). THE TRIBUNAL INSPE CTED THE SPINNING FACTORY OF THE ASSESSEE. IT STUDIED THE WORKING OF THE MACHINERY W ITH THE CASABLANCA CONVERSION SYSTEM. IT ALSO STUDIED THE LITERATURE PUBLISHED BY THE MANUFACTURER OF CASABLANCA CONVERSION SYSTEM. AFTER A DETAILED STUDY, THE TRIB UNAL HELD THAT ON ACCOUNT OF THE STRESS AND STRAIN OF PRODUCTION OVER A LONG PERIOD THERE WAS A NEED FOR CHANGE AND THAT THE ASSESSEE HAD REPLACED OLD PARTS BY INTRODU CING THE SAID SYSTEM. ACCORDINGLY, THE TRIBUNAL TREATED THE EXPENDITURE I NCURRED FOR INTRODUCING THE CASABLANCA CONVERSION SYSTEM AS ALLOWANCE UNDER SEC TION 10(2)(V) OF THE INDIAN INCOME TAX ACT, 1922. THE HIGH COURT ACCEPTED THE F INDINGS RECORDED BY THE TRIBUNAL SAYING THAT BY THE INTRODUCTION OF THE CAS ABLANCA CONVERSION SYSTEM NO NEW MACHINERY OR PLANT WAS INSTALLED, BUT THE INTRODUCT ION OF THE SYSTEM AMOUNTED TO FITTING OF IMPROVED VERSION AND THE EXPENDITURE IN THAT BEHALF WAS OF REVENUE NATURE. THE HIGH COURT OBSERVED THAT CERTAIN PARTS OF THE M ACHINERY ITA NOS.14/2005 & 1600, 1670/2010 PAGE 15 OF 25 HAD WORN-OUT, THEY NE EDED REPLACEMENT, AND WHEN IT WAS FOUND THAT THE OLD TYPE OF REPLACEMENT PARTS WE RE NOT AVAILABLE IN THE MARKET, THE ASSESSEE HAD TO INTRODUCE THE CASABLANCA CONVER SION SYSTEM. THIS FINDING WAS ACCEPTED BY THIS COURT IN THE ABOVE JUDGMENT. IN OU R VIEW, THE SAID JUDGMENT HAS NO APPLICATION WITH THE FACTS OF THE PRESENT CASE. AT THE OUTSET, WE MAY STATE THAT REPLACEMENT GENERALLY MAY NOT FALL UNDER THE EXPRES SION 'CURRENT REPAIRS' BUT, IN CERTAIN CASES, WHERE THE OLD PARTS WERE NOT AVAILAB LE IN THE MARKET OR WHERE THE OLD PARTS HAD WORKED FOR 50 TO 60 YEARS, REPLACEMENT CA N, IN SUCH CASES OF EXCEPTION, FALL WITHIN THE EXPRESSION 'CURRENT REPAIRS'. IN MA HALAKSHMI TEXTILE MILLS CASE [1967] 3 SCR 957 THE FINDING RECORDED BY THE TRIBUNAL AND THE HIGH COURT WAS THAT OLD TYPE OF REPLACEMENT PARTS WERE NOT AVAILABLE IN THE MARK ET AND, THEREFORE, THE EXPENDITURE CAME WITHIN THE EXPRESSION 'CURRENT REP AIRS'. THAT IS NOT THE CASE BEFORE US, HENCE, THE SAID JUDGMENT HAS NO APPLICAT ION TO THE FACTS OF THE PRESENT CASE. MOREOVER, THE JUDGMENT OF THIS COURT IN MAHAL AKSHMI TEXTILE MILLS [1967] 3 SCR 957 HAS NOT DEFINED THE WORD 'ASSET' TO MEAN TH E ENTIRE PRODUCTION SYSTEM IN THE TEXTILE MILL. IN THE SAID JUDGMENT, IT IS NOWHE RE STATED THAT THE ENTIRE TEXTILE MILL IS ONE SINGLE ASSET AND THAT IT REPRESENTS ONE SING LE INTEGRATED PROCESS.' 13 ITA NO.933/BANG/11 18. IN SRI MANGAYARKARSAI MILLS PVT. LTD. (SUPRA) T HE SUPREME COURT RENDERED BEAUTIFUL ANALYSIS OF SARAVANA SPINNING MILLS (P) L TD. (SUPRA) AND THE FOLLOWING PASSAGE IN THIS BEHALF NEEDS TO BE REPRODUCED:- 'MOVING ON TO THE ISSUE OF `CURRENT REPAIRS' UNDER SECTION 31 OF THE ACT, THE DECISION OF THIS COURT IN CIT V. SARAVANA SPINNING MILLS (P) LTD. (SUPRA) IS AGAIN RELEVANT. THIS COURT HAS LAID DOWN THAT IN ORDER TO DETERMINE WHETHER A PARTICULAR EXPENDITURE AMOUNTS TO `CURRENT REPAIRS' THE TEST I S 'WHETHER THE EXPENDITURE IS INCURRED TO `PRESERVE AND MAINTAIN' AN ALREADY EXIS TING ITA NOS.14/2005 & 1600, 1670/2010 PAGE 16 OF 25 ASSET AND NOT TO BRING A NE W ASSET INTO EXISTENCE OR TO OBTAIN A NEW ADVANTAGE. FOR `CURRENT REPAIRS' DETER MINATION, WHETHER EXPENDITURE IS REVENUE OR CAPITAL IS NOT THE PROPER TEST.' IT IS O UR OPINION THAT THE ENTIRE TEXTILE MILL MACHINERY CANNOT BE REGARDED AS A SINGLE ASSET, REP LACEMENT OF PARTS OF WHICH CAN BE CONSIDERED TO BE FOR MERE PURPOSE OF `PRESERVING OR MAINTAINING' THIS ASSET. ALL MACHINES PUT TOGETHER CONSTITUTE THE PRODUCTION PRO CESS AND EACH SEPARATE MACHINE IS AN INDEPENDENT ENTITY. REPLACEMENT OF SUCH AN OL D MACHINE WITH A NEW ONE WOULD CONSTITUTE THE BRINGING INTO EXISTENCE OF A NEW ASS ET 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. TH US, 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 BA LLIMAL NAVAL KISHORE (SUPRA) THIS COURT HAS HELD THAT A NEW ASSET OR NEW/DIFFERENT AD VANTAGE CANNOT AMOUNT TO `CURRENT REPAIRS', WHICH HAS BEEN SUBSEQUENTLY APPR OVED IN THE SARAVANA MILLS (SUPRA) CASE. FOR THESE REASONS, THE EXPENDITURE MADE BY TH E 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: 'WHERE OLD PARTS ARE NOT AVAILABLE IN THE MARKET (A S SEEN IN THE CASE OF CIT V. MAHALAKSHMI TEXTILE MILLS LTD., AIR 1968 SC 101, OR WHERE OLD PARTS HAVE WORKED FOR 50-60 YEARS.' 6.3 THE ABOVE LEGAL PRINCIPLES AS LAID DOWN BY THE IR LORDSHIPS IN THE CASES CITED SUPRA, APPLY SQUARELY TO THE FACTS OF THE INSTANT CASE OF THE AS SESSEE. IN THE INSTANT CASE, THE DISPUTE IS WITH REGARD TO EXPENDITURE AMOUNTING TO RS.173.44 L AKHS OUT OF TOTAL EXPENDITURE OF RS.288.10 LAKHS INCURRED FOR CURRENT REPAIRS CLAIMED BY THE A SSESSEE. IN THE CASE ON HAND, THE ASSESSEE HAS CARRIED OUT REPAIRS TO PARTICULAR MACHINERY, NA MELY, GAZETTE OFFSET PRESS. FROM THE DETAILS 14 ITA NO.933/BANG/11 ON RECORD, THE EXPENDITURE INCURRED ON REPAIRS INVO LVED THE REPLACEMENT AND RENOVATION OF VITAL COMPONENTS THEREOF. ACCORDING TO THE ASSESSEE, THI S EXPENDITURE WAS MERELY FOR RESTORING THE MACHINERY TO ITS ORIGINAL STATE OF EFFICIENCY AND T HERE HAS BEEN NO CAPACITY ADDITION AND AS IT WAS INCURRED ESSENTIALLY FOR REPLACEMENT OF PARTS I N THE EXISTING MACHINERY, IT AMOUNTED TO REVENUE EXPENDITURE. 6.4 THE ASSESSEE'S CONTENTION CANNOT BE ACCEPTED AS IT IS NEGATIVED IN THE LIGHT OF THE PRINCIPLE STATED IN SARVANA SPINNING MILLS (P) LTD (SUPRA) IN THE FOLLOWING MANNER AT PARA 19 OF THE DECISION IN THE CASE OF BHARATI GEARS LTD (SUPR A) : .. THE SARAVANA SPINNING MILLS (P) LTD. (SUPRA) CASE ALSO REITERATES THE SCOPE OF CURRENT REPAIRS TO REPAIRS MADE TO MACHINERY, PL ANT AND/OR FURNITURE FURTHER THIS COURT HAS ALSO OBSERVED IN SARAVANA MILLS (SUP RA) CASE THAT IF REPLACEMENT WAS TO BE HELD AS CURRENT REPAIRS IN SUCH CASE, SECTION 31(1) WILL BE COMPLETELY REDUNDANT AND ABSURDITY WILL CREEP IN BECAUSE REPAIR IMPLIES EXISTENCE OF A PART OF THE MACHINE WHICH HAS MALFUNCTIONED, 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 SARVANA MILLS (SUPRA) CASE. IT MUST ALSO BE MENTIONED, AS EXPLAINED EARLIER, TH AT THE LAW DOES NOT ENVISAGE THE ENTIRE PRINTING PRESS AS A SINGLE MACHINERY AND REPLACEMEN T OF CRUCIAL COMPONENTS THEREOF ALSO RESULT IN A NEW OR FRESH ADVANTAGE OR THE OBTAINING OF AN END URING BENEFIT AND THEREFORE THE SAID EXPENDITURE OF RS.173.44 LAKHS WOULD NOT BE ALLOWAB LE UNDER SECTION 31(1) OF THE ACT. 7.1 NOW HAVING HELD THAT SECTION 31(1) OF THE ACT IS NOT APPLICABLE TO THE SAID EXPENDITURE OF RS.173.44 LAKHS, INCURRED BY THE ASSESSEE, THE NEXT ISSUE IS WHETHER IT CAN BE CONSIDERED AS REVENUE EXPENDITURE AS ENVISAGED UNDER SECTION 37 OF THE ACT. EXPENDITURE IS DEDUCTIBLE UNDER SECTION 37 OF THE ACT ONLY IF : (A) IT IS NOT DEDUCTIBLE UNDER SECTIONS 30 TO 36 O F THE ACT; (B) IT IS OF A REVENUE NATURE; 15 ITA NO.933/BANG/11 (C) IT IS INCURRED DURING THE CURRENT ACCOUNTING Y EAR AND (D) IT IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE P URPOSE OF BUSINESS. WHILE THE ASSESSEE SATISFIES THE THREE CONDITIONS A T (A), (C) AND (D) ABOVE, THE DISPUTE IS IN RESPECT TO THE NATURE OF EXPENDITURE, THAT IS, WHET HER IT IS REVENUE OR CAPITAL IN NATURE. 7.2 TAKING INTO ACCOUNT THE FACTS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED ABOVE AND THE JUDICIAL DECISIONS CITED SUPRA, WE ARE OF THE CONSI DERED OPINION THAT THERE IS NO DOUBT THAT THE EXPENDITURE OF THE ASSESSEE IN THIS CASE IS CAPITAL IN NATURE AND THERE IS SUFFICIENT JUDICIAL PRECEDENT TO SUPPORT THIS VIEW. IN THE CASE OF TRA VANCORE COCHIN CHEMICALS LTD. VS. CIT (1997) 2 SCC 20, IT WAS HELD THAT EXPENDITURE IS OF CAPITA L NATURE WHEN IT AMOUNTS TO AN ENDURING ADVANTAGE FOR THE BUSINESS AND REPAIR IS DIFFERENT FROM BRINGING A NEW ASSET FOR THE BUSINESS. FURTHER, IN THE CASE OF LAKSHMIJI SUGAR MILLS (P) CO. VS. CIT (AIR 1972 SC 59) IT WAS HELD BY THE HON'BLE APEX COURT THAT BRINGING INTO EXISTENCE A NEW ASSET OR AN ENDURING BENEFIT FOR THE ASSESSEE AMOUNTS TO CAPITAL EXPENDITURE. IT IS CLE AR THAT THE EXPENDITURE OF THE ASSESSEE IN THIS CASE IS NOT REVENUE IN NATURE AND THUS CANNOT BE CL AIMED AS A DEDUCTION UNDER SECTION 37 OF THE ACT. WHEN WE APPLY THESE TESTS TO THE PRESENT CAS E OF THE ASSESSEE, ACCORDING TO US, THE ANSWER IS THAT THE EXPENDITURE IN QUESTION INCURRED IS CLEARLY CAPITAL IN NATURE AND CANNOT BE TREATED AS CURRENT REPAIRS. IT IS A MATTER OF REC ORD THAT THE MACHINE IN QUESTION, WHICH WAS PURCHASED IN THE YEAR 1981-82, WOULD NOT HAVE WORKE D AT ALL WITHOUT THE SAID REPAIRS BEING CARRIED OUT. THE MACHINERY HAD, THUS, OUTLINED ITS UTILITY AND HUGE EXPENDITURE WAS INCURRED BY REPLACING MANY VITAL PARTS AND COMPONENTS IN ORDER TO RENDER IT FUNCTIONAL. IN ANY CASE, THE EXPENDITURE WAS UNDOUBTEDLY FOR THE PURPOSE OF SECU RING A BENEFIT OF ENDURING NATURE. EVEN IF TECHNICALLY A NEW ASSET HAD NOT COME INTO EXISTENCE OR THE CAPACITY OF THE OVERHAULED / 16 ITA NO.933/BANG/11 RENOVATED / RESTORED MACHINE AFTER RECONDITIONING W AS NOT ENHANCED, THE UNDISPUTED FACT IS THAT AFTER PROLONGED USE, THIS MACHINERY REQUIRED EXTENS IVE REPAIRS IN ORDER TO GET IT INTO A WORKING CONDITION. WE ARE, THEREFORE, OF THE VIEW THAT THE EXPENDITURE OF RS.173.44 LAKHS INCURRED FOR SUBSEQUENT RECONDITIONING THAT WAS CARRIED OUT HAD RESULTED IN IMPARTING USEFUL LIFE INTO A HITHERTO OLD AND UNFIT MACHINERY THEREBY RESULTING IN A BENEFIT OF ENDURING NATURE BEING OBTAINED BY THE ASSESSEE. THIS BENEFIT OF ENDURING NATURE W OULD CLEARLY FALL IN THE CAPITAL FIELD. 7.3 WE WOULD ALSO CLARIFY HERE THAT, AS NOTED ABOVE , THIS CASE WILL NOT FALL IN THE EXCEPTION STIPULATED IN SARAVANA MILLS CASE (SUPRA) AS UNDER : WHERE THE OLD PARTS ARE NOT AVAILABLE IN THE MARKET (AS IS SEEN IN THE CASE OF CIT VS. MAHALAKSHMI TEXTILE MILLS LTD. AIR 1968 SC 101) OR WHERE THE OLD PARTS HAVE WORKED FOR 50 60 YEARS. FROM THE FACTS OF THE CASE AS EMANATE FROM THE RECO RD, IT IS NOT THE CASE OF THE ASSESSEE THAT OLD PARTS WERE NOT AVAILABLE IN THE MARKET AND ADMI TTEDLY, THE OLD PARTS OF THE SAID GAZETTE OFFSET PRINTING PRESS HAVE NOT WORKED FOR 50 60 YEARS IN THE PRESENT CASE. WE, THEREFORE, HOLD THAT THE INSTANT CASE OF THE ASSESSEE WOULD NO T BE COVERED BY THE EXCEPTIONS CARVED OUT BY THE HON'BLE APEX COURT IN THE CASE OF SARVANA SPINN ING MILLS PVT LTD (SUPRA). IN THE CASE OF SARVANA SPINNING MILLS LTD (SUPRA) ITSELF THE HON'B LE APEX COURT HAD DISTINGUISHED MAHALAKSHMI TEXTILE MILLS LTD (SUPRA) CASE WHICH WE HAVE ALREAD Y TAKEN NOTE OF ABOVE. AS NOTED THEREIN, IN THE CASE OF MAHALAKSHMI TEXTILE MILLS LTD (SUPRA), A SPECIFIC FINDING WAS RECORDED THAT OLD TYPE OF SPARE PARTS WERE NOT AVAILABLE IN THE MARKET AND THEREFORE EXPENDITURE CAME WITHIN THE EXCEPTION OF CURRENT REPAIRS. THE HON'BLE APEX COU RT NOTED THAT IT WAS NOT THE POSITION IN THE CASE OF SARVANA SPINNING MILLS PVT LTD (SUPRA) AND WE HOLD THAT IT IS UNDOUBTEDLY ESTABLISHED THAT THE SAME SITUATION PREVAILS IN THE ASSESSEE'S CASE AS WELL. 17 ITA NO.933/BANG/11 8. WE, THUS, HOLD THAT THE ISSUE IN DISPUTE IN THIS APPEAL IS TO BE ANSWERED IN FAVOUR OF REVENUE ON BOTH COUNTS I.E. ON CURRENT REPAIRS U NDER SECTION 31(1) OF THE ACT AND ON REVENUE EXPENDITURE UNDER SECTION 37 OF THE ACT AND ACCORDI NGLY REVERSE THE FINDING OF THE LEARNED CIT(APPEALS) ON THIS POINT. 9. IN THE RESULT, REVENUES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH DEC., 2012. SD/- SD/- (P. MADHAVI DEVI) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, - C BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDE R SR. PRIVATE SECRETARY, ITAT, BANGALORE