COMMISSIONER OF INCOME TAX, MADURAI versus M/S. SRI MANGAYARKARASI MILLS (P) LTD.

Citation: [2009] 10 S.C.R. 1187 · Decided: 21-07-2009 · Supreme Court of India · Bench: TARUN CHATTERJEE · Disposal: Appeal(s) allowed

Judgment (excerpt)

[2009] 10 S.C.R. 1187 
COMMISSIONER OF INCOME TAX, Ml\DURAI 
A 
' 
v. 
M/S. SRI MANGAYARKARASI MILLS (P) LTD. 
(Civil Appeal No. 4579 of 2009) 
JULY 21, 2009 
B 
[TARUN CHATTERJEE AND AFTAB ALAM, JJJ 
,I 
Income Tax Act; 1961: Expenditure incurred on 
replacement of machinery in a textile/spinning mill system -
Held: Is capital expenditure - It is neither deductible under c 
s.37 as revenue expenditure nor under s.31 as current 
repairs. 
The question which arose for consideration in the 
present appeal was whether the expenditure incurred on 
D 
replacement of machinery in a textile/spinning mill 
system amounts to capital expenditure or revenue 
expenditure deductible under Section 37 of the Income 
Tax Act, 1961 or current repairs deductible under Section 
31 of the Act. 
E 
• 
Allowing the appeal, the Court 
HELD: 1.1. 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. Each 
F 
machine in a textile mill is part of the integrated process 
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 G 
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. 
[Para 14] [1106-F-H; 1107-A] 
1187 
H 
-' 
1188 
SUPREME COURT REPORTS (2009] 10 S.C.R. 
A 
CIT v. Saravana Spinning Mills (P) Ltd. (2007) 7 SCC 
298, relied on. 
Ballimal Naval Kishore and Another v. CIT 224 ITR 414; 
CIT v. Loyal Textile Mills Ltd. 284 ITR 658; Commissioner 
8 of Income Tax vs. Madras Cements Ltd., 255 ITR 245 and 
CIT v. Mahalakshmi Textile Mills Ltd. AIR 1968 SC 101, 
referred to. 
1.2. In order to determine whether a particular 
expenditure amounts to 'current repairs' the test is 
C "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 expenditure is 
revenue or capital is not the proper test." The entire 
D textile mill machinery cannot be regarded as a single 
asset, replacement 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 process and each separate machine is an 
E independent entity. Replacement of such an old machine 
with a new one would constitute the bringing into 
existence of a new 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 
F gives the purchaser an enduring benefit of better and 
mcire efficient production over a period of time. Thus, 
replacement of assets cannot amount to 'current repairs' . 
. The expenditure made by the assessee cannot be 
allowed as a deduction under section 31 of the Income 
G Tax Act. [Para 15] [1197-8-H] 
H 
1.3. The expenditure is deductible under section 37 
only if it (a) is not deductible under sections 30-361 (b) is 
of a revenue nature, (c) is incurred during the current 
accounting year and (d) is incurred wholly and 
COMMNR. OF INCOME TAX v. SRI MANGAYARKARASI 1189 
MILLS (P) LTD. 
exclusively for the purpose of the business. The 
A 
assessees' 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. The expenditure is of a capital nature 
when it amounts to an enduring advantage for the 
B 
business and repair is different from bringing a new 
asset for the business. 
Bringing into existence a new 
asset or an enduring benefit for the assessee amounts 
to capital expenditure. The expenditure of the assessee 
in this case is capital in nature. 
Since replacement, in c 
this case, amounts to bringing into existence a new asset 
and also an enduring benefit for the assessee, 
expenditure is not of a revenue nature and thus, cannot 
be claimed as a deduction under section 37 of the Act. 
[Para 16 and 17] [1198-F-G; 1199-A-C] 
D 
Travancore Cochin Chemicals Ltd. v. CIT (1997) 2 SCC 
20; Lakshmiji Sugar Mills (P) Co. v. CIT AIR 1972 SC 159, 
relied on. 
CIT v. Janakiram Mills Ltd. 275 ITR 403, disapproved. 
E 
2. It is clear on re

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