IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 18.12.2006 CORAM THE HONOURABLE MR.JUSTICE P.D.DINAKARAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.(A) No.727 of 2005 The Commissioner of Income Tax Madurai. ..Appellant Vs. M/s.Rani Lakshmi Ginning, Spinning and Weaving Mills LTD. Sitalakshmi Premises Madurai 625 006. ..Respondent Appeal under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Madras 'B' Bench dated 21.9.2004 made in ITA No.1150/Mds/1998 for the assessment year 1994-95. For Appellant : Mrs.Pushya Sitaraman, Sr.Standing Counsel (Taxes) For Respondent : No appearance J U D G M E N T
(Delivered by P.D.DINAKARAN, J.)
The above tax case appeal is directed against the order of the Income-tax Appellate Tribunal dated 21.9.2004 made in ITA No.1150/Mds/1998 for the assessment year 1994-95.
2. The Revenue is the appellant. The issue raised in this appeal relates to the assessment year 1994-95. The Assessing Officer, on completing the assessment, disallowed the claim of the assessee in respect of replacement cost of machineries and treated the same as capital expenditure. Aggrieved, the assessee went on appeal and the Commissioner of Income-tax (Appeals) confirmed the order of the Assessing Officer. The assessee preferred further appeal before the Appellate Tribunal and the Tribunal held the issue in favour of the assessee. Hence, this appeal by the Revenue raising the following question of law:
“Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that cost of replacement of 4 Nos. of Ring Frames, One No. Draw Frame and 4 Nos. of Peneuma-Fil Unit has to be treated as revenue expenditure under Section 31 of the Income Tax Act, 1961”
3. Mrs.Pushya Sitaraman, learned Senior Standing Counsel for the appellant fairly concedes that the issue raised in this appeal is covered against the Revenue in view of the decision of this Court in COMMISSIONER OF INCOME-TAX v. JANAKIRAM MILLS LTD., [2005] 275 ITR 403.
4. The question whether the expenditure on replacement of machinery is capital or revenue is not determined by the treatment given in the books of account or in the balance sheet. The claim has to be determined only by the provisions of the Act and not by the accounting practice of the assessee. In the instant case, the Appellate Tribunal, finding that replacement of machinery is revenue expenditure, held that the claim of the assessee cannot be disallowed.
5. This Court, in COMMISSIONER OF INCOME-TAX v. JANAKIRAM MILLS LTD., referred supra, held that all plant and machinery put together amounts to a complete spinning mill which is capable of manufacturing yarn and hence, each replaced machine could not be considered as an independent one and no intermediate marketable product was produced.
6. The above view was also taken by this Court in Commissioner of Income Tax v. Loyal Textile Mills Ltd., [2006] 284 ITR 658.
In view of the ratio laid down by this Court in the decisions cited supra, the substantial question of law is answered in favour of the assessee and against the Revenue and accordingly, the appeal is dismissed. No costs.
sasi
To:
1. The Assistant Registrar,
Income Tax Appellate Tribunal
Madras Bench “B”
Chennai.
2. The Secretary,
Central Board of Direct Taxes,
New Delhi.
3. The Commissioner of Income Tax (Appeals),
Madurai.
4. The Commissioner of Income Tax,
Madurai.
[PRV/9126]