LexTHE COMMISSIONER OF INCOME TAX, MADURAI ETC. ETC. versus M/S. SARAVANA SPININNG MILLS PVT. LTD.
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THE COMMISSIONER OF INCOME TAX, MADURAI ETC. ETC.
v.
MIS. SARA V ANA SPININNG MILLS PVT. LTD.
AUGUST 10, 2007
[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.]
Income Tay Act, 1961; Sections 3/(i) and 37:
Deduction-Expenses incurred for modernization and replacement of
parts of machinery etc. in a textile mill--Such expenses whether amounts to
current repairs in terms of Section 31 {i) of the 196 I Act for claiming
deductions-Held: Term 'current repairs' denotes repairs which are attended
to when its need arises from the view point of a businessmen-Object behind
Section 3 J(i) is to preserve and maintain the asset and not to bring a new
asset-Section 3 I (i) limits the scope of al/owability of expenditure as
deduction in respect of repairs made to macHinery, plant or furniture by.
restricting it to current repairs-To decide the applicability of Section 3(i),
the test is not whether the expenditure is revenue or capital in nature but
whether the expenditure amounts to current repairs-Expenditure in order
to qualify as expenditure towards current repairs must have been incurred
to preserve and maintain the already existing asset and not to bring a new
asset into existence-Jn the present case, assessee claiming deduction for the
expenditure incurred for purchase of a new asset-Jn fact, Assessing Officer
was right in holding that each of such asset/machine is capable of independent
and specific function, therefore, such an expenditure could not be covered
as "current repairs" in terms of Section 31 (i)-However, High Court has lost
sight of the test to be applied for an expenditure to fall uls. 31 (i) as current
repairs-Replacement of the assets in question constituted substitution of an
old asset by a new asset and hence the expenditure incurred does not
constitute current repairs-Hence, the assessees not entitled to claim
allowance uls. j I (i) of the Act.
Words and Phrases:
'Current repairs'-Meaning of in the context of Section 3/(i) of the
Income Tax Act, 1961.
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COMMNR. OF INCOME TAX, MADURAI ETC. v. SARAVANA SPJNINNG MILLS PVT. LTD.
945
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Respondent-assessee is a textile mill engaged in the manufacture of yarn. A
For the accounting year ending 31.3.1993, it claimed deduction on account ot
"modernization and replacement expenses" amounting to Rs. 97,95,755.00'
whereas in the year ending 31.3.1994 it has claimed Rs'.77,84,047.00 as
deduction under the same head. The questions which arose for determination'
in this appeal and other connected appeals were about the scope of Section. B
3l(i) of the Income Tax Act as it stood during the accounting years ending
31.3.1993 and 31.3.1994 and as to whether the assessee was entitled to claim
the aforestated amounts as "current repairs" under Section 3l(i) of the Act.
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Allowing the appeals filed by the Revenue, the Court
HELD: 1.1. It cannot be said that the iextile mill constitutes a plant as c
it is one continuous process of manufacture beginning from 'Blow Room' to
the 'Winding Section'. Different Outputs flow from different Segments of
production like Blow Room, Carding, Combing, Roving, Winding etc. In the
case of a textile mill there is no process whereby raw-material is fed on one
end and the finished product comes out at the other end without intervention D
in-between. Therefore, the Tribunal and the High Court erred in holding that
the manufacturing process in the textile mill is one continuous integrated
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process. (Para 10) (953-D, E, F, G)
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2.1. An allowance is granted by clause (i) of Section 31 of the Income
Tax Act in respect of amount expended on current repairs to machinery, plant E
or furniture used for the purposes of business, irrespective of whether the
assessee is the owner of the assets or has only used them. The expression
"current repairs" denotes repairs which are attended to when the need for
them arises from the viewpoint of a businessman. The word "repair" involves
renewal. However, the words used in Section 3l(i) are "current repairs". The F
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object behind Section 3l(i) is to preserve and maintain the asset and not to
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bring in a new asset. Section 3l(i) limits the scope of allowability of
expenditure as deduction in respect of repairs made to machinery, piant or
furniture by restricting it to the concept of "current repairs". All repairs
are not current repairs. Section 37(1) of the Act excludes those items of
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