{"id":153444,"date":"2005-04-29T00:00:00","date_gmt":"2005-04-28T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/the-commissioner-of-income-tax-vs-ms-janakiram-mills-ltd-on-29-april-2005"},"modified":"2017-03-17T06:10:13","modified_gmt":"2017-03-17T00:40:13","slug":"the-commissioner-of-income-tax-vs-ms-janakiram-mills-ltd-on-29-april-2005","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/the-commissioner-of-income-tax-vs-ms-janakiram-mills-ltd-on-29-april-2005","title":{"rendered":"The Commissioner Of Income-Tax vs M\/S. Janakiram Mills Ltd on 29 April, 2005"},"content":{"rendered":"
Madras High Court<\/div>\n
The Commissioner Of Income-Tax vs M\/S. Janakiram Mills Ltd on 29 April, 2005<\/div>\n
       \n\n  \n\n  \n\n \n \n IN THE HIGH COURT OF JUDICATURE AT MADRAS           \n\nDated: 29\/04\/2005 \n\nCoram \n\nThe Hon'ble Mr. Justice P. SATHASIVAM   \nand \nThe Hon'ble Mr. Justice S.K. KRISHNAN  \n\nTax Case (Ref) No. 144 of 1999\nand Tax Case (Ref) Nos., 408, 409\/1999, 70\/2000 and 30\/2001 \nand \nT.C.Appeal Nos. 46\/2000, 231\/2001, 48, 53, 54, 60, 61, 62 to 64, 94,\n95, 96, 124, 138, 156, 214, 215\/2003, 9, 46, 53, 82, 103, 123 to 125,\n195, 202, 212, 224, 250, 262, 277, 285, 312, 317, 327, 342, 363, 364\n, 377, 435, 436, 437, 443, 486, 373, 438, 530, 727, 728, 729, 743,\n745, 746, 750, 769, 951, 952, 1076, 1081, 1101, 1118,\n1120, and 1113\/2004 \nand \nT.C.M.P.Nos. 93, 251\/2003, 457, 468\/2004 etc. \n\n\nTax Case No. 144\/1999 etc., Batch \n\nThe Commissioner of Income-tax, \nMadurai. .. Applicant.\n\n-Vs-\n\nM\/s. Janakiram Mills Ltd.,\nThenkasi Road, Rajapalayam. .. Respondent.  <\/pre>\n
        The above Tax Cases filed under Section 256 (1)  of  Income  Tax  Act,
\n1961  for  Reference; and Tax Appeal Cases filed under Section 260-A of Income
\nTax Act, 1961 against orders of  Income  Tax  Appellate  Tribunal,  Madras  as
\nstated therein.\n<\/p>\n
!Mrs.  Nalini Chidambaram, Senior counsel for
\nMrs.  Pushya Sitaraman (Standing counsel for
\nIncome Tax):- For Appellants in all the T.Cs.\n<\/p>\n
except T.C.Nos.  62 to 64\/2003 and Respondent
\nin T.C.  Nos.  62 to 64\/2003.\n<\/p>\n
Mr.  C.  Natarajan, Senior counsel for Mr.  N.\n<\/p>\n
Inbarajan for Appellant in T.C.No.  62 to 64\/2003
\nand T.C.Nos.  03, 251\/2003.\n<\/p>\n
^Mr.  N.  Quadir Hoseyn:- For Respondent in T.C.\n<\/p>\n
Nos.  144, 408, 409\/99, 231\/2001 and 435\/2004.\n<\/p>\n
Mr.  P.P.S.  Janarthana Raja for M\/s Subbaraya
\nAiyar:-For Respondent in T.C.Nos.  46\/2000,
\n60, 61, 94, 95, 96, 156\/2003, 9,53,82,123 to
\n125, 250, 262, 277, 342 and 436\/2004.\n<\/p>\n
Mr.  T.N.  Seetharaman:- For Respondent in T.C.\n<\/p>\n
30\/2001, 54\/2003 and 443\/2004.\n<\/p>\n
Mr.  R.  Venkataraman, Senior counsel for Mr.
\nJ.  Balachandran:- For Respondent in T.C.Nos.\n<\/p>\n
48 and 124\/2003.\n<\/p>\n
Mr.  J.  Balachandar for Mr.  S.  Sridhar:- For
\nRespondent in T.C.Nos.  53\/2003, 46, 312 and
\n317\/2004.\n<\/p>\n
Mr.  R.  Meenakshisundaram:- For Respondent in
\nT.C.No.  103\/2004.\n<\/p>\n
Mr.  N.  Devanathan:- For Respondent in T.C.Nos.\n<\/p>\n
363 and 364\/2004.\n<\/p>\n
Mr.  R.  Srinivasan:- For Respondent in T.C.No.\n<\/p>\n
224\/2004.\n<\/p>\n
No appearance in T.C.70\/2000, 138\/2003,
\n212\/2004, 285\/2004, 327\/2004, 486\/2004 <\/p>\n
:COMMON JUDGMENT
\n(Judgement of Court was delivered by P.  Sathasivam, J.,)<\/p>\n
        Since the Tax Case reference and Appeals relate to same question to be
\nconsidered  by  this Court, all the above matters are being disposed of by the
\nfollowing common order.\n<\/p>\n
        2.  T.C.No.  144\/199 (Ref) relates to  reference  made  by  Income-tax
\nAppellate Tribunal, Madras Bench-B.  By the Reference Application, wherein the
\nCommissioner  of  Income-tax,  Madurai  is the applicant, and Messrs Janakiram
\nMills Ltd., Tenkasi Road, Rajapalayam is the respondent, the Revenue requested
\nthe Income Tax Tribunal to refer the following questions of law arising out of
\nthe order of the Tribunal dated 19-12-97 to this Court for its opinion.   They
\nare:\n<\/p>\n
“1).   Whether on the facts and in the circumstances of the case, the Tribunal
\nis right in law in holding that  the  expenditure  incurred  by  the  assessee
\nduring  the accounting year on the cost of carding system (Rs.31,22,679\/-) was
\namount paid  on  current  repairs  and  allowable  under  section  31  of  the
\nIncome-tax Act?\n<\/p>\n
2).   Whether on the facts and in the circumstances of the case, the Appellate
\nTribunal was right in law in directing  allowance  of  the  entire  amount  of
\nRs.31,22,679\/- as revenue expenditure?”\n<\/p>\n
        3.  For convenience  we  shall  refer  the facts in T.C.  No.  144\/99.
\nThe assessee in that case had claimed that the expenditure  of  Rs.31,22,679\/-
\non  replacement  of  carding  system  by  high production cards, be treated as
\nrevenue expenditure for the assessment year 1986-87.   The  Assessing  Officer
\nhad negatived  the  assessee’s  claim.   On appeal by the assessee, the C.I.T.
\n(Appeals), following the decision of the Appellate Tribunal in  the  cases  of
\nITO v.   SRI  VARADHARAJA TEXTILES PVT.  LTD., (9 ITR 469) and the decision of
\nthe Supreme Court in the case of CIT v.  MAHALAKSHMI TEXTILE MILLS  LTD.,<\/a>  (66
\nITR  710)  held that the expenditure incurred was only for replacement of part
\nof the textile machinery and therefore was allowable as  revenue  expenditure.
\nAggrieved  by the order of the CIT (Appeals), the department had filed further
\nappeal before the Tribunal.  The Tribunal after noting the  inspection  report
\nand on verifying similar machineries installed in Indira Cotton Mills, Chennai
\nand  after  following  earlier decision of the Tribunal on the same point, has
\ntreated the expenditure on carding machine as  revenue  expenditure  and  thus
\nallowed the  asessee’s  claim.   Inasmuch as the second question raised by the
\nRevenue is covered by the first question, the Tribunal has referred  only  the
\nfirst question, as set out earlier, to this Court for its opinion.\n<\/p>\n
        4.   Heard  Mrs.,  Nalini  Chidambaram, learned senior counsel for the
\nDepartment; Mr.  C.  Natarajan,  learned  senior  counsel  for  appellants  in
\nT.C.Nos.  62 to 64\/2003, 93 and 251\/2003; and Messrs N.  Quadir Hopeyu, P.P.S.
\nJanarthana Raja, T.N.   Seetharaman,  R.    Venkataraman,  J.  Balachandar, R.
\nMeenakshisundaram, N.  Devanathan, and R.  Srinivasan for respondents.\n<\/p>\n
        5.     The    point    for    consideration    is,     whether     the\nmodernisation\/current\/repair    expenditure    is    allowable   as   \"revenue\n<\/pre>\n
expenditure”, as claimed by the assessees or  the  replacement  of  cards\/blow
\nroom  machinery\/combing  machinery  etc.,  are  to  be considered as ” capital
\nexpenditure”, as claimed by the Revenue?\n<\/p>\n
        6.  The materials placed  by  both  sides  show  that  Textile  Mills,
\nlargely in Tamil Nadu, have been claiming the expenses relating to purchase of
\nnew  machinery as current repairs\/revenue expenditure, where the said purchase
\nwas as a part of modernisation programme or replacement of old machinery.   It
\nis  the  claim  of  the  Department that the machinery replaced in most of the
\ncases are complete machinery, capable of independent operation.  The  Tribunal
\nhas  allowed  deduction  as current repairs\/revenue expenditure on the premise
\nthat:\n<\/p>\n
a.  The entire textile mill should be treated as
\none single plant, and each machinery
\ntherefore is only a part of it.\n<\/p>\n
b.  Wherever the spindlage or capacity has not
\nincreased due to the purchase of the new
\nmachinery in the place of the old one,
\nit cannot be said that there is any enduring
\nadvantage.\n<\/p>\n
        7.  Mrs.  Nalini Chidambaram, learned senior counsel appearing for the
\nDepartment, would submit that most of the earlier decisions of this Court have
\ngone on the presumption that what was replaced was a part of a machinery,  and
\nnot the  entire  machine itself.  For example, Ring Frames, which are complete
\nspinning machines  consisting  of  several  spindles,  have  been  erroneously
\nassumed  to  be parts of machinery, and the expenditure on replacement thereof
\nhas been allowed as a revenue expenditure.\n<\/p>\n
        8.  It is also her claim that the fact that replacement  of  worn  out
\nmachinery  with  new  machinery results in an enduring benefit to the assessee
\nhas not been considered either by the  Tribunal,  or  by  this  Court  in  the
\ndecisions rendered  earlier.    According  to  her,  wherever a new machine is
\npurchased, the assessee is granted depreciation spread over a period of  time,
\nsince it  will  result  in  an enduring benefit to him.  This enduring benefit
\nwould be there, regardless of whether the assessee purchases the machinery for
\nthe first time, or purchases it as  a  replacement  of  an  old  or  worn  out
\nmachine.   It  would lead to an absurd result if the purchase of a new machine
\nby a first time user were to be treated as a capital expenditure as it results
\nin enduring benefit, but the purchase of the same  machine  by  some  one  who
\nalready  owned  a similar machine, is treated as a revenue expenditure\/current
\nrepairs.\n<\/p>\n
        9.  The Tribunal has been treating the entire textile mill as a single
\nplant, and all the machinery therein as parts of the plant.  Unlike continuous
\ncasting machinery in the steel industry, or certain other processes where  the
\nraw material is fed in one end and the finished product comes out at the other
\nwithout  any  intervention  in  between, the textile mill, even in the case of
\n“composite mills” consist of distinct sections such  as  blow  room,  carding,
\nginning, spinning,  weaving  and  finishing.    The goods are normally carried
\nmanually after finishing one process to another part of the  factory  for  the
\nnext process.    There are several mills that do only one or some of the above
\nactivities such as carding and ginning or only spinning, or  only  calendaring
\nand finishing  etc.   Thus, according to the Department, can a textile mill be
\ntreated as a single unit with the various machinery being  treated  as  parts.\n<\/p>\n
The  machinery  are  all  capable of independent action, and the fact that the
\nnext process is carried on by another machine would not lead to the conclusion
\nthat both machines are only parts and not complete machinery by themselves.\n<\/p>\n
        10.  Learned senior counsel for the  Department  further  pointed  out
\nthat  relief  has  been  granted in many cases on the basis that where the new
\nmachinery had the same installed capacity as  the  old  machinery  which  were
\nreplaced, there  is  no  increase  in  capacity.   It must be pointed out that
\nalthough in theory the worn out machines may have an installed capacity  of  a
\ncertain  spindlage or certain production capacity, in practice, since they are
\nold and worn out, they would not be able to keep up the  efficiency  of  work.
\nIt  is  further  claimed  by the Department that old and worn out machines are
\nmore prone to breakdowns due to wear and tear, and  thus  cannot  produce  the
\nsame quantity  of  goods  in  a stated time as new machines.  The new machines
\ninstalled are technologically more advanced than the  old  replaced  machinery
\nand more  efficient  in terms of quantity and quality of output.  The stand of
\nthe Department that unless the overall production capacity is  increased,  any
\npurchase  of  machinery  would  only  be  treated  as  revenue  expenditure is
\nerroneous.  The view that any purchase of new machinery in replacement  of  an
\nold  one  would  be  treated as revenue expenditure if there is no increase in
\nproduction capacity would have adverse effects on the concept of  capital  and
\nrevenue expenditure.   It is brought to our notice by the Revenue that in most
\nof these cases,  some  items  of  large  machinery  are  changed  every  year,
\nresulting  in  a  practically  new  plant in the course of two or three years.
\nLarge capital investment in new  machinery,  merely  because  it  is  for  the
\nmodernisation  of  a  factory cannot be treated as anything other than capital
\nexpenditure.\n<\/p>\n
        11.  It is  the  further  claim  of  the  Department  that  after  the
\nintroduction  of  the  concept  of  block  of  assets, any sale of depreciable
\nassets, would result in its value  being  removed  from  the  block,  and  any
\naddition of  new  machinery  would  result  in  addition to the block.  If the
\nremoval from the block is reduced, but the  addition  is  treated  as  revenue
\nexpenditure,  the value of the block of assets would show a really low picture
\nnot in consonance with the real value of the assets.  Whereas depreciation  is
\ngranted  at  a  fixed  percentage  depending on the type of depreciable asset,
\ntaking into account its wear and tear and useful life, the textile mills  have
\nsought  to  take  100%  depreciation  by  a  backdoor method of claiming it as
\ncurrent repairs\/revenue expenditure.  The schedule of  depreciation  given  in
\nthe  Appendix of the Income Tax Rules specifically mentions items of machinery
\nor equipment eligible for 100% depreciation.\n<\/p>\n
        12.  Learned senior counsel for the Department also pointed  out  that
\nthe  textile mills have treated the purchase of new machinery in their balance
\nsheet as addition to fixed assets, whereas  for  the  purpose  of  income  tax
\nalone,  they  are  claiming  it  as  a  revenue  expenditure or expenditure on
\nrepairs.  This shows that it is only for the purpose of  avoiding  payment  of
\ntax that the treatment is given as revenue expenditure, when it is well within
\nthe  knowledge  and  belief  of  the  Mills that the purchase of the machinery
\nresulted in acquisition of new assets.  While the value of fixed assets in the
\nbooks of the company would be high, as it would include the value of the newly
\npurchased machinery, the block of assets on which depreciation would be taken,
\nwould show a very low figure, as the written down value of the  old  machinery
\nsold  would  have been removed, while the value of the new machinery purchased
\nwould not have been included.  It is also  brought  to  our  notice  that  the
\ntextile  mills  obtain  long term loans for the purchase of new machinery from
\nbanks and financial institution against the security  of  such  new  machines.
\nSuch  long-term  finance  will  not  be  provided  against items that could be
\nconsidered only as revenue expenditure.  The sum and substance of the argument
\nof the learned senior counsel for the Department is that if the replacement is
\nof a part of a machinery, it would amount to revenue expenditure and  wherever
\nnew  machinery has been purchased in replacement of an old one, it can only be
\ntreated as a capital expenditure.\n<\/p>\n
        13.  In this connection, the learned senior counsel appearing for  the
\nRevenue,  by drawing our attention to definition ” machinery\/plant”, relied on
\na decision of this Court in the case of MIR MOHAMMED ALI (38  ITR  413)  which
\nwas  upheld  by the Supreme Court in 53 ITR 165, wherein it has been held that
\nmachinery does not cease to be machinery merely because it has to be  used  in
\nconjunction with one or more machines, nor merely because it is installed as a
\npart of  a  manufacturing or industrial plant.  The learned senior counsel has
\nalso brought to our notice a judgement of the  Gujarat  High  Court  in  KIRAN
\nCRIMPERS  (225  ITR 84) wherein it has been held that the term “plant” has not
\nbeen used under section 32 OF THE income Tax Act, 1961 ( hereinafter  referred
\nto  as  “the  Act”)  or the Rules in the wide meaning commonly ascribed to it.
\nThe Gujarat High Court  has  held  that  since  four  different  terms,  viz.,
\nbuildings,  machinery,  plant  and  furniture have been used in section 32, it
\nwould follow that the term “plant” has been used in a  narrow  sense  to  mean
\nwhatever apparatus is used by a person to carry on the business which does not
\nfall under  the  category  of  “building”,  “machinery” or “furniture”.  Thus,
\naccording to the Department, for the purpose of the Income  Tax  Act,  a  view
\ncannot be taken that the entire textile mill is a plant.\n<\/p>\n
        14.   With  regard  to  the  claim that the Department has not gone on
\nappeal in respect of the judgments rendered by this Court,  holding  that  the
\nreplacement of textile machinery amounted to revenue expenditure, it is stated
\nthat  the  Supreme  Court has held in a number of cases that appeals cannot be
\nfiled in one assessee’s case without filing in  respect  of  another  assessee
\nwithout justifiable  cause.    It  is  also  stated that all the cases decided
\nearlier pertained to the period prior to the introduction of  the  concept  of
\nBlock  of  Assets with effect from 1988-89 onwards, during which time the fact
\nof no increase in capacity, and the mill being an integrated unit would have a
\nbearing on deciding if the expenditure is capital or  revenue.    It  is  also
\npointed  out  before  us  that only in 3 cases, i.e., GITANJALI MILLS (265 ITR\n<\/p>\n
681), TUTICORIN SPINNING MILLS LTD.,(261 ITR 291)  and  L.S  Mills(Unreported)
\npertained to the period after 1988-89.  The Department did not file appeals to
\nthe Supreme Court in these cases, as the tax effect in each case was less than
\nRs.5 lakhs.   The Central Board of Direct Taxes has given instructions that in
\ncases where monetary limits are less than Rs.5 lakhs, appeals to  the  Supreme
\nCourt should be avoided except in certain extraordinary circumstances.\n<\/p>\n
        15.   Learned  senior  counsel for the Department has also pointed out
\nthat while the question of whether the replacement of one or more machines out
\nof the several machinery contained in the  mill  would  be  merely  a  revenue
\nexpenditure  or  capital  expenditure  may  have  been acceptable for the past
\nperiod when the concept of block of assets was not there in the statute, i.e.,
\nprior to assessment year 19 88-89, but each and  every  asset  was  looked  at
\nseparately; the  situation  is  now  different.  It is also their case that in
\nview of Section 2 (11) of the Act, the written down value of the  block  as  a
\nwhole has  to  be  taken into account.  In a textile mill, the entire block of
\nmachinery would fall within a single block of assets, resulting in  diminution
\nof  the  value  of  the block by the sale value of the old machinery sold, and
\nincrease in the value of the block by the purchase price of the new machinery.
\nWhen each of the textile machinery in question, such  as  ring  frames,  speed
\nframes, carding  machine, autoconer etc.  are purchased for the first time, it
\nis accepted by both parties that it is a capital asset on  which  depreciation
\nshould be  granted.   The dispute only comes to play when some of the worn out
\nor out dated machines are sold and replaced with new machines.\n<\/p>\n
        16.  It is the argument of the Revenue that while under the law as  it
\nstood  prior to 1988-89, the fact of treating the entire mill as an integrated
\nunit may have had the effect of  treating  the  replacement  of  machinery  as
\nreplacement   of  parts  of  a  larger  whole  and  thus  treated  as  revenue
\nexpenditure, once the concept of block of assets has been brought  in  by  the
\nParliament,  from  assessment year 19 88-89, whether the mill is an integrated
\nwhole or not, whether  the  replacement  of  machines  resulted  in  increased
\ncapacity or not will have no bearing.  When any item belonging to the block is
\nremoved,  its  value  is  reduced, and if any new item comes in its place, its
\nvalue is added to the block.\n<\/p>\n
        17.  The learned senior counsel for the Revenue highlighted  that  the
\nquestion  of  law  in the batch is very wide in scope inasmuch as it questions
\nwhether the Tribunal was right in treating the  replacement  of  machinery  as
\nrevenue expenditure.  The arguments relating to the concept of depreciation on
\nblock  of  assets are only grounds raised to strengthen the contentions of the
\nDepartment that the replacement of machinery  cannot  be  treated  as  revenue
\nexpenditure,  and to point out how the present situation after assessment year
\n1988-89 varies from the law as it stood earlier, and  therefore  none  of  the
\ncase  laws cited by and relied on by respondents would have any bearing on the
\npresent cases, which all relate to assessment years subsequent to 1988-89.  It
\nis also projected by the Revenue that most of the case law  on  the  issue  of
\nreplacement of textile machinery were rendered in the context of the law as it
\nstood prior  to  the  introduction of the concept of Block of Assets.  The few
\ncases that were decided thereafter, were decided on the basis  that  it  is  a
\ncovered  issue, without the fact of the law having been amended being noticed.
\nThus, the judgements should be treated as having been rendered per incuriam.\n<\/p>\n
        18.  Before elaborating the contentions raised by various  counsel  on
\nbehalf  of  the assessees, it is relevant to note that on factual aspect it is
\ntheir main contention that the entire spinning mill right from  Blow  Room  to
\nthe  Cone  Winding  section is an integral plant for which the counsel for the
\nassessees produced several materials and one among them is the report  of  the
\nSouth India  Textile  Research  Association (SITRA), Coimbatore.  Their letter
\ndated 19-12-2003 which was pressed into service before the Tribunal as well as
\nthis Court clearly show that the process of fibre to yarn conversion comprises
\nof various stages and all the processes are inter-linked.  It also shows  that
\nthe  output  from  various intermediate stages of production cannot be sold or
\nmarketed and used for other purposes.  The following is the text of the letter
\ndated 19-12-2003 by SITRA:\n<\/p>\n
“THE SOUTH INDIA TEXTILE RESEARCH ASSOCIATION
\nDecember 19, 2003
\nTO WHOMSOEVER IT MAY CONCERN           <\/p>\n
It is a Textile Spinning Mill, cotton fibres are converted  into  yarn.    The
\nprocess  of  fibre  to yarn conversion comprises of various stages as detailed
\nbelow:\n<\/p>\n
1.  Blow Room:\n<\/p>\n
The raw material (fibres) is opened and cleaned in the Blow Room with the help
\nof various openers and beaters.  During this  process,  the  raw  material  is
\nconverted into  lap  (rolled  sheet  form).    Majority  of  the heavier trash
\nparticles and microdust in raw cotton are removed in Blow Room.\n<\/p>\n
2.  Carding Process:\n<\/p>\n
The blow room laps, are then fed to cards.  In the carding process, the fibres
\nare individualised and converted into sliver (Card Sliver).  In  this  process
\nalso impurities are removed.\n<\/p>\n
3.  Lap Former:\n<\/p>\n
A  specified  number  of Card Slivers are fed into lap preparatory machines to
\nform a spool of lap sheet, which in turn form the feed for  the  next  process
\n(i.e ) Combing.\n<\/p>\n
4.  Combing Process:\n<\/p>\n
Combing  machines  remove  short fibres and produce a clean and uniform sliver
\n(Comber sliver).\n<\/p>\n
5.  Drawing:\n<\/p>\n
In the next sequence, combed slivers are doubled and drafted on machine called
\nDraw Frame.  Draw Frames evenout the irregularities in the sliver.\n<\/p>\n
6.  Fly Frames:\n<\/p>\n
The Draw Frame Slivers, are fed to fly frames  which  draft  and  twist  these
\nslivers into roving, and then wound on Bobbins.\n<\/p>\n
7.  Ring Frames:\n<\/p>\n
Roving bobbins are fed to Ring Frames which draft and twist the roving to form
\nthe final product  i.e.  yarn.  This yarn is wound on cops mounted on spindles
\nin the ring frame.\n<\/p>\n
8.  Cone Winding:\n<\/p>\n
The output of the ring frames in the form of  cops  is  fed  to  Cone  Winding
\nmachines  (conventional  winder  automatic  winder)  which  remove the various
\nfaults in the yearn with the help of Yarn Clearers and convert the yarn in cop
\nform into a convenient form of package called cones.
\nIn the post spinning section, besides the  cone  winding  machines,  depending
\nupon the requirement of the market, reels and doubling machines (Ring Doublers
\nor  TFO Twisters) are also used to convert yarn into suitable packages (Reeled
\nyarn\/Doubled yarn).\n<\/p>\n
        We would therefore like to certify that all the  above  processes  are
\ninter-linked  and  the  output  from various intermediate stages of production
\n(Carding, Combing and Draw Frames  Slivers  and  Roving)  cannot  be  sold  or
\nmarketed and used for other purposes.  The output from Ring Frames in the form
\nof cops  also  cannot  be  sold in the market.  In the absence of any of these
\nprocessing, yarns could not be spun.    Only  after  the  yarn  is  wound  and
\nfinished into  suitable  packages,  can  it  be  sold in the market.  Hence, a
\nspinning mill is considered to be continuous process industry.\n<\/p>\n
Considering these facts, the entire spinning mill, right from Blow Room to the
\nCone Winding section should be considered as a single integrated plant.
\nYours faithfully,
\nSd\/- D.  Shanmuganandam
\nAssistant Director.”\n<\/p>\n
The above conclusion of the SITRA being a specialised body  in  the  field  of
\ncotton textile and spinning cannot be ignored lightly.\n<\/p>\n
        19.  Most of the counsel appearing for the  assessees  contended  that
\nthe  Appellate Tribunal had rendered factual finding that the expenses related
\nto purchase of machinery parts such as ring frames, simplex machines, doubling
\nmachines, cone winder, electronic yarn  cleaner,  card  conversion  equipment,
\nspeed  motors  etc.,  were  allowable  as revenue expenditure by upholding the
\nfinding of the Commissioner of Income Tax Appeals.  It  is  also  their  claim
\nthat  considering  the  factual finding which is same as the one concluded for
\nthe immediate preceding year the same cannot be re-agitated before this  Court
\nin  the absence of any further finding contrary, or material or change of law.
\nThe said contention of the counsel for the assessees cannot be brushed  aside.
\nIt  is  also  brought  to  our notice that the Income-tax Tribunal had allowed
\nsimilar claim after conducting personal inspections  in  the  spinning  mills,
\nwhich replaced  parts.  It is also stated that inasmuch as the question raised
\nnow by the department had been settled by series of decisions of this Court as
\nwell as the Apex Court and where long standing precedents settled the Law, the
\nCourts would be slow to disturb the  said  Law  unless  there  are  compelling
\nreasons to  do  so.  Learned counsel appearing for the assesses have cited and
\ndemonstrated before us number of judgements (decisions)wherein the expenses of
\nsimilar nature were held allowable:\n<\/p>\n
1.  Ten Ring 1.T.C.P.No.499 of 1997 dt.14-12-1998 filed
\nFrames by the department against the order of
\nthe Income Tax Appellate Tribunal in ITA
\nNo.3128\/MDS\/92 dt.  18-8-93 dismissing the
\nCase of the department involving identical
\nclaim.\n<\/p>\n
2.CIT Vs.  GITANJALI MILLS LTD (265 ITR 681)
\n(Mad) <\/p>\n
3.  CIT Vs.  TUTICORIN SPINNING MILLS
\n(249 ITR 695) (Mad)<\/p>\n
4.  CIT Vs.  SRI BHAGAVATHI TEXTILES
\nLTD., (207 ITR 226) (Kerala)<\/p>\n
5.  CIT Vs.  MAHALAKSHMI TEXTILES LTD.,
\n56 ITR 256 (Mad) and 66 ITR 710 (SC) <\/p>\n
2.  Four set of 1.  CIT Vs.  SALEM CO-OPERATIVE
\nCard conversion SPINNING MILLS (148 ITR 176)   <\/p>\n
2.  VANAJA TEXTILES Vs.  CIT (208 ITR 161)  <\/p>\n
3.  Cone Winder 1.  CIT Vs.  SRI RANI LAKSHMI GINNING
\nSPINNING WEAVING MILLS (256 ITR 592)      <\/p>\n
2.  TUTICORIN SPINNING MILLS Vs.  CIT
\n(261 ITR 291)<\/p>\n
3.  CIT Vs.  SRI HARI MILLS (P) LTD.,
\n(237 ITR 188)<\/p>\n
4.  Electronic 1.  TUTICORIN SPINNING MILLS Vs.
\nYarn Cleaner CIT (261 ITR 291)\n<\/p>\n
2.  CIT Vs.  SAKTHI TEXTILES
\n(250 ITR 449).”\n<\/p>\n
20.  In the following judgements, the expenses of  similar  nature  were  held
\nallowable:\n<\/p>\n
“1.  CIT Vs.  GITANJALI MILLS LTD
\n(265 ITR 681) (Mad)<\/p>\n
2.  CIT Vs.  TUTICORIN SPINNING MILLS
\n(249 ITR 695) (Mad)<\/p>\n
3.  CIT Vs.  SRI BHAGAVATHI TEXTILES LTD.,
\n(207 ITR 226) (Kerala)<\/p>\n
4.  CIT Vs.  MAHALAKSHMI TEXTILES LTD.,
\n(56 ITR 256 (Mad) and 66 ITR 710 (SC)<\/p>\n
5.  CIT Vs.  SALEM CO-OPERATIVE SPINNING MILLS
\n(148 ITR 176)<\/p>\n
6.  VANAJA TEXTILES Vs.  CIT (208 ITR 161)  <\/p>\n
7.  CIT Vs.  SRI RANI LAKSHMI GINNING SPINNING
\nWEAVING MILLS (256 ITR 592)    <\/p>\n
8.  TUTICORIN SPINNING MILLS Vs.  CIT
\n(261 ITR 291)<\/p>\n
9.  CIT Vs.  SRI HARI MILLS (P) LTD.,(237 ITR 188)<\/p>\n
10.  TUTICORIN SPINNING MILLS Vs.  CIT (261 ITR 291)   <\/p>\n
11.  CIT Vs.  SAKTHI TEXTILES (250 ITR 449) <\/p>\n
        It is also useful to refer the judgements of this Court in the case of
\nTUTICORIN SPINNING MILLS LTD., CIT (261 ITR 291), CIT Vs.  KARTHIKEYA SPINNING
\nMILLS (265 ITR 285), CIT Vs.  GITANJALI MILLS LTD.,  (265  ITR  681)  and  the
\nrecent judgement  of  the  Rajasthan High Court in CIT Vs.  UDAIPUR DISTILLERY
\nCO., LTD.,(268 ITR 451).  By applying the ratio of the Hon’ble  Supreme  Court<\/p>\n
in CIT  Vs.    MAHALAKSHMI  TEXTILES  LTD.,(66  ITR  710) (SC), and in ALEMBIC
\nCHEMICAL WORKS LIMITED Vs.  CIT (177 ITR 377 (SC), this Court  has  held  that
\nthe expenditure of this nature is revenue expenditure.\n<\/p>\n
        21.   It is also demonstrated before us that Ring frame and Draw frame
\ncannot work  independently.      Likewise,   Carding   machine   cannot   work
\nindependently, but  can  work  only  as part of spinning unit.  Almost all the
\ndecisions cited on the side of the assessees are directly on the issues before
\nthis Court, namely, the replacement of machinery such as Carding machine, Ring
\nframe and Draw frame which are only part of a plant  which  manufactures  yarn
\nand therefore  allowable as revenue expenditure under the Act.  Therefore, the
\nTribunal was right in allowing a deduction of amount spent on  replacement  of
\nmachinery.   This  issue  has  been settled in the following decisions of this
\nCourt:\n<\/p>\n
1) CIT Vs.  TUTICORIN SPINNING MILLS LTD.,
\n(249 ITR 694) (Mad)<\/p>\n
2) CIT Vs.  GITANJALI MILLS LTD., (265 ITR 681) <\/p>\n
3) CIT Vs.  SRI HARI MILLS PVT.  LTD(237 ITR 188
\n(Mad) <\/p>\n
4) VANAJA TEXTILES LTD.,Vs.  CIT (208 ITR 161 (Ker)  <\/p>\n
5) CIT Vs.  SHRI RANILAKSHMI GINNING SPINNING AND
\nWEAVING MILLS LTD (256 ITR 592) (Mad)    <\/p>\n
6) CIT Vs.  SAKTHI TEXTILES LTD (262 ITR 375)(Mad)   <\/p>\n
        22.  Now we shall consider whether the claim is allowable either under
\nSection 31 of Income Tax  Act,  1961  as  “current  repairs”  or  as  “revenue
\nexpenditure”  allowable  under  Section  37  of the Act (similar provisions of
\nSection 10 (2) (v) and Section 10 (2) (xv) of the Indian Income Tax Act, 1922.
\nThe following judgement of the Supreme Court in the case of CIT Vs.   KALYANJI
\nMAJVI & CO., [(1980) 122 ITR 49 at page 53] is relevant:\n<\/p>\n
“…..The  repairs  made  by  the assessee, it is said, cannot be described as
\n“current repairs”.  Now, this contention rests on  the  principle  that  if  a
\nspecial  provision  covers  the  case,  resort  cannot  be  had  to  a general
\nprovision.  It seems to us  that  if  the  renovation  of  the  building,  the
\nreconditioning  of  machinery and the removal of debris cannot be described as
\n“current repairs”- and we assume that to be so-the case would be  entitled  to
\nconsideration under section 10 (2) (xv).  Section 10 (2)(v) deals with current
\nrepairs only.    The subject matter of section 10 (2) (v) is “current repairs”
\nand it appears difficult to agree that repairs which are not “current repairs”
\nshould not be considered for deduction on general principles or under  section
\n10 (2)  (xv).    There  must  be very strong evidence that in the case of such
\nrepairs, the Legislature intended a  departure  from  the  principle  that  an
\nexpenditure,  laid  out or expanded wholly and exclusively for the purposes of
\nthe business, and which expenditure is not capital in nature,  should  not  be
\nallowed in  computing  the  income  from  business.    There is nothing in the
\nlanguage of section  10(2)(v)  which  declares  or  necessarily  implies  that
\nrepairs,  other than current repairs, will not qualify for the benefit of that
\nprinciple.  We must remember that on accepted commercial practice and  trading
\nprinciples an item of business expenditure must be deducted in order to arrive
\nat the  true  figure of profits and gains for tax purposes.  The Rule was held
\nby the Privy Council in CIT Vs.  CHITNAVIS (1932) 2 Comp Case 464 ; LR  59  IA
\n290;  AIR  1932 PC 178 to be applicable in the case of losses, and it has been
\napplied by the  Courts  in  India  to  business  expenditure  incurred  by  an
\nassessee.  MOTIPUR  SUGAR  FACTORY LTD., Vs.  CIT (1 955) 28 ITR 128 (Pat) and
\nDEVI FILMS LTD., Vs.  CIT (1970) 75 ITR 301 (Mad).  The principle found favour
\nwith this Court in BADRIDAS DAGA Vs.  CIT  (1958)  34  ITR  10,  15  (SC)  and
\nCALCUTTA CO., LTD.,  Vs.    CIT  (195 9) 37 ITR 1, 9 (SC).  If the contents of
\nthat rule be true on general principle, there is good reason why the scope  of
\nSection 10  (2)  (xv)  should construed be liberally.  In our opinion, even if
\nthe expenditure made by the assessee in the present case cannot  be  described
\nas  “current  repairs”  he is entitled to invoke the benefit of section 10 (2)\n<\/p>\n
(xv).”\n<\/p>\n
        23.   All  plant  and  machineries  put  together amount to a complete
\nspinning mill which is capable of manufacturing yarn.    Hence  each  replaced
\nmachine  cannot  be  considered  as  an  independent  one, and no intermediate
\nmarketable product is produced.  This is evident from the decision in  CIT  v.
\nCOOPERATIVE SUGARS  LTD.,<\/a>  [235 ITR 343] ( Kerala).  It is also not in dispute
\nthat there is no increase in the production quantity.  Replacement of worn out
\npart does not itself being in a new assets and also there is no replacement of
\nwhole unit.  As rightly argued, purchase as a part of plant and of thing which
\nmay independently be used is not decisive test.  It  must  be  seen  that  the
\nreplacement is  for the purpose of running the mill.  No new assets created in
\nthe process of replacement of worn out machine.\n<\/p>\n
        24.  In ADDL.  CIT v.  INDIA UNITED MILLS LTD.  (Bom), the Court<\/a>  held
\nthat  replacement  of worn out doors by fire proof doors and ordinary lighting
\nby fluorescent tubes is revenue  expenditure  and  no  advantage  of  enduring
\nnature acquired.    In  fact  in Circular No.69 dated 27-11-1957 the Board has
\nstated that the correct procedure is that the initial expenditure on the first
\ninstallation of fluorescent lights, including the expenditure  on  wiring  and
\nfittings  should  be treated as capital expenditure as it creates an asset and
\nthat all subsequent expenditure for replacement of the tubes should be treated
\nas of a revenue nature allowable in toto under Section 37 (1).  This principle
\nsquarely applies to the cases of replacement of worn out  machinery.    It  is
\nalso  pertinent  to note that the Supreme Court in UCO Bank case [237 ITR 889]
\n(SC)] held that Circulars are binding  on  the  department.    Therefore  what
\napplies  for  replacement  of  fluorescent tubes applies to all replacement of
\nmachineries as well.  In CIT v.  UDAIPUR DISTILLERIES CO.  LTD.,<\/a> [268 ITR  451
\n(Raj)] replacement of old transformer by a new one has been held to be revenue
\nin nature.\n<\/p>\n
        25.  As discussed earlier, the issues involved in these references and
\nappeals  relate  to  replacement  of  machineries  done  in one or more of the
\nseveral process of a Textile Industry namely Spinning Mill.  In  the  case  of
\nspinning  mills  cotton fibres are converted into yarn and only after the yarn
\nin wound and finished  into  suitable  packages  the  same  can  be  marketed.
\nConsidering  the  stages of process and the nature of process involved and the
\nfacts that the output of intermediary product is not  marketable  and  further
\nthe  fact that the output of one process becomes the input of the next process
\nthereby making the entire process as an integrated one.  The process  involved
\nin a spinning mill may be briefly summarised as under:\n<\/p>\n
1.  Mixing\n<\/p>\n
2.  Blow Room\n<\/p>\n
3.  Carding\n<\/p>\n
4.  Combing\n<\/p>\n
5.  Drawing\n<\/p>\n
6.  Simplex (Ring frames)\n<\/p>\n
7.  Cone Winding\n<\/p>\n
8.  Reeling\n<\/p>\n
9.  Packing
\nIn  the  above  process  raw  cotton  is mixed in the mixing room and then the
\nimpurities are removed in the Blow room and after entering  further  processes
\ncotton is  converted  into  yarn  and  then packed.  This Court in MAHALAKSHMI
\nMill’s case [56 ITR 256 (Madras)] (supra) has held that  replacement  of  worn
\nout  parts of Textile Machinery by introducing Casablanca High Drafting system
\nis a revenue expenditure.  While doing so, the Court observed at page  262  of
\nthe  judgement  that  “when  it came to the question of replacing the worn out
\nroller stands, the assessee found the old type of replacement parts could not,
\ntherefore be secured, and the Tribunal in the statement of case also refers to
\nthe fact that wherever such parts were available; they were costlier than  the
\nparts  produced  by  a  different manufacturer that is the Casablanca company.
\nThough according to the  manufacturers,  the  provision  of  these  parts  was
\nreferred  as  the  Casablanca,  High Drafting system; it virtually amounted to
\nnothing more than the replacement of  certain  parts,  which  however  were  a
\nmodified version  of  the  older  parts.    The progress of textile technology
\nnecessarily discards and unwieldy parts and seems to replace them with lighter
\nand more efficient parts.\n<\/p>\n
        26.   This  Court in recent times had occasions to decide on the issue
\nof replacement of textile machinery whether it is  in  the  capital  field  or
\nRevenue  field  and  it  has consistently held that the replacement of textile
\nmachinery in a Spinning Mills are revenue expenditure.\n<\/p>\n
        27.  Further this Court in GITANJALI MILLS LTD.,v.    COMMISSIONER  OF
\nINCOME TAX, reported in 265 ITR 681 (Madras) held that the ring frames have no
\nindependent  existence  or utility unless worked with other machines, that its
\nfunction is ancillary, that it is only a supporting machine, used for drafting
\ntwisting and winding the yarn,  that  they  by  themselves  are  not  machines
\ncapable  of independent function, and therefore the cost incurred on such ring
\nframes is not dissimilar in nature and character say to the replacement  of  a
\nradiator or a carburettor in a motor engine.\n<\/p>\n
        28.   Further, the Kerala High Court in the case of VANAJA TEXTILES v.
\nCOMMISSIONER OF INCOME TAX<\/a> [208 ITR 161 (Kerala)] has held that expenditure on
\nmodernisation allowable as revenue expenditure.  In the Textile  industry  old
\nmachineries having functioned for few decades were either worn out or where in
\nthe process of getting worn out and hence necessitated replacement in order to
\nkeep pace with the competing world.  Therefore, the High Court after referring
\nto  various  decisions  of English Courts held that “In these cases also as in
\nthe case of ALEMIC CHEMICAL WORKS (1989) 177 ITR 377 (SC),  the  comprehensive
\nscheme of modernisation and rehabilitation is for improvement in the operation
\nof  an existing business and its efficiency and profitability not removed from
\nthe area of the day-to-day business of the assessee’s established  enterprise.
\nThere  is  no fresh or new venture in the scheme of modernisation envisaged by
\nthe assessee.  Further the Court held that it is not the largeness of the  sum
\nthat it is important but the nature of the expenditure and therefore held that
\nthe expenditure in these field were revenue in nature.\n<\/p>\n
        29.  All the machineries though independent on their own, are all part
\nof an  integrated  whole, namely, the textile plant.  What is fed in as cotton
\nbales, after going through the series  of  processes,  ultimately  results  in
\ncotton yarn  which  alone  is  the  marketable  commodity.  It is convincingly
\nargued before us that the said principle applies to sugar industries as  well,
\nwhere the  ultimate  product  is  sugar.   This proposition has been upheld in
\nRHODESIAN RAILWAYS (1 ITR 227) (PC) (1933) through MAHALAKSHMI TEXTILES  MILLS
\nLTD., (66  ITR  710  ) (SC) (1967) till UDAIPUR DISTILLERY CO.  LTD., (268 ITR\n<\/p>\n
451) ( Rajasthan) (2003) following the Supreme Court decisions in  MAHALAKSHMI
\nTEXTILES 66  ITR  and  ALEMBIC  CHEMICAL  WORKS  (177  ITR  377 (SC).  At this
\njuncture, the letter dated 19-12-2003 of SITRA, being the specialised body  in
\nthe  field  of  cotton textile and spinning is to be taken note of wherein the
\nBody has reported that entire operation right from Blow Room to  Cone  Winding
\nsection is to be considered only as a single plant.\n<\/p>\n
        30.   With  reference to the contentions of the learned senior counsel
\nfor the department, it is stated that whether a particular expenditure  is  in
\nthe  capital  field  or  revenue  field  cannot be decided on the basis of the
\ninclusion in the depreciation schedule.  The  depreciation  schedule  will  be
\nrelevant  only  after  the  question  as  to whether the expenditure is in the
\nrevenue field or capital field.  If the expenditure is  found  to  be  in  the
\ncapital  field  and  is  eligible for depreciation, then only the depreciation
\nschedule is to be looked into for determining the rate at  which  depreciation
\ncan be  granted.  If in the alternative it is found that the expenditure is in
\nthe revenue field, the question of referring to the depreciation schedule  for
\nfinding at  the rate of depreciation will not arise.  In the circumstances, it
\nis the claim of  the  assesses  that  the  reliance  of  the  revenue  on  the
\ndepreciation  schedule  to  support  their contention is misconceived and does
\nnot, in any way, advance the case of the department.  As rightly pointed  out,
\nthe  Revenue  has  not  brought out any error either in law or on facts in the
\ndecision rendered by the Tribunal.\n<\/p>\n
        31.  The department, in the course of their arguments, relied  heavily
\non  MADRAS CEMENTS case, reported in 255 ITR 243 and BALLIMAL NAVAL KISHORE v.
\nCIT (224 ITR 414) (SC).  The following observation in the former  decision  is
\nrelevant:  (page 248)<\/p>\n
“…..Replacement is  different  from repair.  Replacement implies the removal
\nor discarding of the thing that was in  use,  by  a  different  or  new  thing
\ncapable  of  performing  the  same  function  with the same, lesser or greater
\nefficiency.  The replacement of a section in a series of  machines  which  are
\ninterconnected,  in a segment of the production process which together form an
\nintegrated whole may, in some  circumstances,  be  regarded  as  amounting  to
\nrepair  when  without  such  replacement  that  unit  in that segment will not
\nfunction.  That logic cannot be extended to the entire manufacturing  facility
\nfrom the stage of raw material to the delivery of the final finished product.”\n<\/p>\n
In  the  above  case  (Madras  Cements case), what the assessee has done is to
\ndiscontinue the use of four old mills which had been installed about 10 to  15
\nyears  earlier,  and  had  installed at a different location a new cement mill
\nwhich was technologically more advanced, was more energy efficient  and  which
\ncould make  a  qualitatively  superior produce.  What was done by the assessee
\nwas not to repair the cement mill that it had already installed.  The existing
\nmill was completely discarded.  A new mill  was  established  at  a  different
\nlocation.   In such a circumstance, the Division Bench held that the assessees
\nclaim that the installation of the new Combidan cement mill was a “repair”  to
\nthe  whole of the cement factory itself, is not a claim which falls within the
\nscope of Section 31 (i) of the Act.  According to the Division Bench, the  new
\nmill  was  by itself an integrated mill and this new mill was meant to be used
\nat the stage where the clinker had been obtained from the limestone.    It  is
\nonly  after  the  clinker  was  subjected to milling that the final marketable
\nproduct, namely, cement was to be  obtained.    Such  a  new  cement  mill  is
\nincapable  of  being regarded as constituting repair to all the earlier stages
\nin the manufacture of cement.  In such a circumstance, the Division Bench held
\nthat in pursuance of a modernisation programme whereby  four  existing  cement
\nmills which were considered outdated by the assessee and were replaced by this
\nnew  mill,  was  an  amount  paid on ‘current repairs’ and was allowable under
\nsection 31 of the Act.  Accordingly, the Division Bench answered the  referred
\nquestion in  favour  of  the  Revenue  and  against  the assessee.  As rightly
\npointed out by the learned counsel for the assessees, in that case it was  not
\nreplacement  of  machinery  but  setting  up of a unit in a geographically new
\nlocation.  Hence, the factual position in that case is different and it has no
\napplication to the facts of the cases on  hand.    Hence,  the  said  decision
\nrelied on by the Revenue is not applicable to the cases on hand.\n<\/p>\n
        32.  As rightly pointed out, in the case of BILLIMAL NAVAL KISHORE Vs.
\nCIT  (224  ITR  414)  (SC),  the  facts  were totally different that a ginning
\nfactory was converted into a cinema theatre in 1945 , that the theatre had  to
\nbe  closed  during  the  period  from  1960-1961  for  effecting the extensive
\nrepairs, and that what the assessee did was  not  mere  repairs  but  a  total
\nrenovation of  the  theatre.    Hence  the  case  in  that  decision stands no
\ncomparison with the facts of the cases on hand.\n<\/p>\n
        33.  It is the further contention of the  department  that  since  the
\nmachineries are new, have independent function and are of enduring nature, and
\nthat therefore,  the  expenditure is capital in nature.  To substantiate their
\nclaim, they relied on the decision in CIT Vs.  MADRAS  CEMENT  [255  ITR  243]
\n(Madras) (cited  supra)  which  we have already discussed.  As rightly pointed
\nout by the learned counsel for the assesses, the argument of the  counsel  for
\nthe  Department that the machineries are new and have independent function and
\nare of enduring benefit are no longer relevant  in  view  of  the  categorical
\ndecision of the Supreme Court in ALEMBIC CHEMICAL WORKS CO.  LTD., Vs.  CIT [1
\n77 ITR 377] SC) wherein it has been held:  (page 390 & 391)<\/p>\n
“The  rapid  strides  in  science and technology in the field should make us a
\nlittle slow and circumspect in too readily pigeon-holing  an  outlay  such  as
\nthis as capital…..\n<\/p>\n
…There  is  also  no  single  definitive  criterion  which,  by  itself,  is
\ndeterminative as to whether a particular outlay is capital or  revenue.    The
\nonce for  all  payment  test  is  also  inconclusive.  What is relevant is the
\npurpose of the outlay and its intended object  and  effect,  considered  in  a
\ncommon sense  way  having  regard to the business realities.  In a given case,
\nthe test of ‘enduring benefit’ might break down”.\n<\/p>\n
The Supreme Court has also held at page 386 that “The idea of “once  for  all”
\npayment  and  “enduring  benefit”  are  not to be treated as something akin to
\nstatutory conditions; nor are the notions of “capital” or “revenue” a judicial
\nfetish.  What is capital expenditure and  what  is  revenue  are  not  eternal
\nverities  but must needs be flexible so as to respond to the changing economic
\nrealities of business.  The expression “asset  or  advantage  of  an  enduring
\nnature”  was  evolved  to  emphasise  the  element  of  a sufficient degree of
\ndurability appropriate to the context.\n<\/p>\n
        34.   The  learned counsel for the respondents drew our attention to a
\ndecision of the Supreme Court in CIT v.  PODAR CEMENTS LTD.,<\/a> [226 ITR 625 (SC)
\nand submitted that it is now  well  settled  that  an  ongoing  Act  like  the
\nIncome-tax Act has to be interpreted taking note of the advancement in science
\nand technology  and  not  by the old views.  Their Lordships have held at page
\n647:\n<\/p>\n
“At this juncture, we can also refer to the  judgment  cited  by  Mr.    Syali
\nregarding updating  construction  of  the words used in the statute.  In State
\n(through CBI New Delhi) v.  S.J.  Choudhary AIR<\/a> 1996 SC  1491,1494;  (1996)  2
\nSCC  428, this Court has quoted the following passage with approval in support
\nof updating construction:  (page 433 of [1996] 2 SSCC):
\n“Statutory Interpretation by Francis Bennion, 2nd Edn.  Section 288  with  the
\nheading “Presumption that updating construction to be given” states one of the
\nrules thus:  (p.  617) xxx xxx
\n(2)  It  is  presumed that Parliament intends the Court to apply to an ongoing
\nAct a construction that continuously updates its wording to allow for  changes
\nsince the  Act  was  initially  framed  (an  updating construction).  While it
\nremains law, it is to be treated as always speaking.  This means that  in  its
\napplication  on any date, the language of the Act, though necessarily embedded
\nin its own time, is nevertheless to be construed in accordance with  the  need
\nto treat it as current law.\n<\/p>\n
xxxx <\/p>\n
In  the comments that follow it is pointed out that an ongoing Act is taken to
\nbe always speaking.  It is also further, stated thus (p 618-619)<\/p>\n
In construing an ongoing Act, the interpreter is to  presume  that  Parliament
\nintended  the  Act  to  be applied at any future time in such a way as to give
\neffect to the true original intention.  Accordingly the interpreter is to make
\nallowances for any relevant  changes  that  have  occurred,  since  the  Act’s
\npassing,  in  law,  social  conditions,  technology, the meaning of words, and
\nother matters.   Just  as  the  US  Constitution  is  regarded  as  ‘a  living
\nconstitution’, so  an ongoing British Act is regarded as ‘a living Act’.  That
\ntoday’s construction involves the supposition  that  Parliament  was  catering
\nlong ago for a state of affairs that did not then exist is no argument against
\nthat construction.    Parliament, in the wording of a n enactment, is expected
\nto anticipate temporal developments.  The drafter  will  try  to  foresee  the
\nfuture, and allow for it in the wording.\n<\/p>\n
An  enactment of former days is thus to be read today, in the light of dynamic
\nprocessing received over the years, with  such  modification  of  the  current
\nmeaning  of  its  language as will now give effect to the original legislative
\nintention.  The reality and effect of dynamic processing provides the  gradual
\nadjustment.   It  is  constituted by judicial interpretation, year in and year
\nout.  It also comprises processing by executive officials.”
\nIn this  connection,  the  learned  counsel  for  the  assessees  invited  our
\nattention  to  the observations of the Supreme Court in (1987) 1 SCC 3 95 M.C.
\nMEHTA v.  UNION OF INDIA<\/a>:\n<\/p>\n
“As new situations arise the law has to  be  evolved  in  order  to  meet  the
\nchallenge of such new situations.  Law cannot afford to be Static.  We have to
\nevolve  new principles and lay down new norms which would adequately deal with
\nthe new problems which arise in a highly industrialized economy”.
\nIn the cases under consideration by the Hon’ble Bench,  it  is  admitted  that
\nthere is  no capacity addition.  The replacement has been made only to restore
\nthe machinery  to  its  original  state  of  efficiency  so  that  the  entire
\nintegrated manufacturing unit which is considered as a profit-making apparatus
\nfunctions efficiently and produces quality products.  Therefore the concept of
\n‘current  repairs’,  ‘modernisation’  and  ‘expenditure  laid  out or expended
\nwholly and exclusively for the purpose of the business’ have to be interpreted
\nfollowing the principle of updating construction taking note of  the  business
\nneeds   and   commercial  expediency  especially  in  a  competitive  business
\nenvironment created by the globalization and not by applying old  concepts  of
\nwhat is  capital  and  what is revenue.  The path-breaking decisions in Empire
\nJute (supra) and Alembic Chemicals (supra) have paved  the  way  for  such  an
\ninterpretation.\n<\/p>\n
        35.  In CIT v.  COOPERATIVE SUGARS LTD.<\/a>  [235 ITR 343 ( Ker)]  it  has
\nbeen held in Para 9 and 10 as under:\n<\/p>\n
“The sugar  mill  is  a gigantic plant.  The AO should not have been swayed by
\nthe extent of expenditure incurred on major components purchased for replacing
\nthe old ones.  The vital question is whether the sugar mill can  work  in  the
\nabsence  of  machinery,  expenditure  incurred  on  which  is  claimed  by the
\nassessee.  The question  has  to  be  answered  in  the  negative.    For  the
\nmanufacture of  sugar,  all the machinery claimed are necessary.  No doubt the
\nexpenditure was incurred on the principal components of the sugar mill, still,
\nhowever, it would be wrong to hold each machinery as an independent unit.  All
\nmachinery put together completes the sugar plant.  We therefore entirely agree
\nwith the view taken by the Tribunal.\n<\/p>\n
…No doubt, expenditure was incurred on substantial replacement, but the fact
\nremains that the sugar plant was there and the same plant existed  even  after
\nreplacement  and,  therefore it is wrong to say that any new asset of enduring
\nnature has come into existence.  Whether or not a  new  asset  has  come  into
\nexistence  this  question  has to be considered vis-a-vis the integrated sugar
\nplant and not vis-a-vis each integral part of it.  When  expenditure  incurred
\non  technical know-how on consideration of “once for all payments” was held to
\nbe the expenditure as revenue in nature in the case of Alembic Chemical  works
\n(supra),  we  see  no  reason  why  expenditure  incurred  on  purchase of new
\nmachinery to ensure sound functioning of the sugar mill  to  replace  the  old
\nones, should not be held as revenue expenditure.”\n<\/p>\n
The  above  decision  was  dissented from in the MADRAS CEMENT’s Case ( supra)
\nbecause Their Lordships felt that the language of section 31 would not support
\nsuch a construction.    It  is  relevant  to  submit  that  though  the  words
\n‘machinery  maintenance’  was  used  there, nowhere in the Kerala decision any
\nparticular section was mentioned to  support  its  conclusion.    It  is  also
\nrelevant  to submit that this Court subsequent to Madras Cement’s case, in CIT
\nv.  GITANJALI MILLS LTD.,<\/a> [265 ITR 68 1 (Madras)] allowed the  expenditure  on
\nreplacement  of  worn out machineries as revenue in nature after reframing the
\nquestion by substituting Section 37 instead of Section 31.    This  will  show
\nthat  the  expenditure  under  consideration  can  fall to be considered under
\n‘current repairs’ or as an  ‘expenditure  laid  out  or  expended  wholly  and
\nexclusively for the purpose of the business’.\n<\/p>\n
        36.   It  is  brought to our notice that various High Courts have held
\nthat expenditure incurred in the replacement of a Petrol engine  by  a  Diesel
\nengine is  revenue  in  nature.    Though  the  Diesel  engine  is independent
\nmachinery with an independent function replacement of it has been held  to  be
\nrevenue expenditure in the following decisions:\n<\/p>\n
1.  HANUMAN MOTOR SERVICE v.  CIT (66 ITR 88) (Mys)\n<\/p>\n
2.  CIT v.  KHALSA NIRBHAI TRANSPORT CO.  (P) LTD.<\/a>  (82 ITR
\n741 (P & H).\n<\/p>\n
3.  ADDL.CIT v.  DESAI BROS<\/a> (108 ITR 14 (Guj)\n<\/p>\n
4.  NATHMAL BANKATLAL PARIKH &CO.  v.CIT (122 ITR 168
\n(AP-FB)\n<\/p>\n
5.  CIT v.  POLYOLEFINS INDUSTRIES LTD<\/a> (169 ITR 538)(Bom)\n<\/p>\n
6.  CIT v.  HINDUSTAN SANITARYWARE INDUSTRIES LTD.<\/a>\n<\/p>\n
(106 CTR 268) (Cal)\n<\/p>\n
7.  CIT v.  TEA ESTATE (P) LTD.,<\/a> (198 ITR 535 (Cal)\n<\/p>\n
8.  CIT v.  MOHD.    ISHAQUE,  MOHD.    GULAM  (210  ITR  817)(MP)  9.  CIT v.
\nJAFARBHAI AKBARALI & BROS<\/a> (211 ITR 496)(Bom)        <\/p>\n
        37.   Regarding  the argument relating to “block of assets”, it is the
\nclaim of the learned counsel for the  assesses  that  the  said  principle  or
\nobject of introduction of the above concept is totally not applicable relating
\nto the  nature  of  expenditure  incurred by the respondent.  These provisions
\nwere introduced from 2-4-1987 as defined under Section 2 (11)  of  the  Income
\nTax Act, 1961 and they are in operation on different field.  It is stated that
\nthey  were  intended  to  replace  the  provisions  on depreciation of capital
\nassets.  The block of assets concept were introduced with view  to  streamline
\nthe excess  depreciation allowed and to allow terminal depreciation.  When the
\nblock of assets concept were introduced, the provisions relating  to  terminal
\ndepreciation  and the profit result from sale of assets, which were originally
\nconsidered under section 32 (1) (iii) and 41 (2),  were  suitably  amended  to
\nfall  in  line  with  the  proposed  simplification of the concept of block of
\nassets.  The circular describing the concept of block of assets  is  explained
\nby the  Centra  l  Board of Direct Taxes by Circular No.  469 dated 23-09-1996
\nreported in 162 ITR St.24.  In the instant case, no  acquisition  of  any  new
\nasset,  much  less  capital of any enduring advantage resulted to the assessee
\nrespondent.  The assessees replaced the worn out part of  machineries  without
\ndiscontinuing its  production  activities.  No claim for depreciation was ever
\nmade before any authorities either by the  assessees  or  by  the  revenue  to
\nconsider the question as block of assets nor was there any necessity to do so.
\nThe  department  did not raise any objection before the Tribunal regarding the
\nclaim of allowance on the premise of block of  assets  of  concept.    It  is,
\ntherefore  stated  that  such  question does not arise out of the order of the
\nAppellate Tribunal for considering the same by this Court under Section  260A.
\nIt is submitted that no such question was also raised in the Tax Case App eal.
\n(Vide DEPUTY  COMMISSIONER  OF INCOME TAX v.  VELLORE CO-OPERATIVE SUGAR MILLS
\nLTD.,<\/a> (242 ITR 170) (Mad), CIT v.  TATA CHEMICALS LTD.,<\/a> (256 ITR 395  at  398)
\n(Bom), CIT  v.    DINERS  CLUB  INDIA  LTD., (248 ITR 679 at 680) (Bom) and M.
\nPAPPU PILLAI v.  ITO (243 ITR 726 at 730) (Ker).    It  is  submitted  by  the
\nrespondents  that  they  incurred  expenditure  for  replacing  the  worn  out
\nmachineries of its Textile Mill in order to maintain its  production  activity
\nwithout  break  down  and  keep  pace  with  the requirements of the industry.
\nFurther by incurring the said expenditures it will be evident from  the  facts
\nthat  the  installed capacity of the mill has not enhanced or increased in any
\nmanner and hence the question of the respondents getting any enduring  benefit
\ndoes not  arise.   The revenue has accepted that the machineries replaced in a
\ntextile mill are part of an integrated process  in  the  unit.    It  will  be
\npertinent  here  to note that the question of the depreciation allowance comes
\nunder the ambit of section 32 of the Income Tax Act, 1961, whereas  the  claim
\nmade by  the assessees falls under section 31 or 37.  It is submitted that the
\njudgments of various High Courts dealing with this question is uniform falling
\nin line with the decisions of this Court.  Hence the interpretation of an  All
\nIndia Legislation like the Income Tax Act being an uniform one the revenue had
\nnot  placed  any  fresh  material or evidence to take a fresh look on the self
\nsame issue.    Further,  the  machineries  replaced   were   not   independent
\nmachineries   capable   of   function   independently   and   that   they  are
\ninter-dependent in an  integrated  process.    This  factual  finding  is  not
\nrebutted  by the revenue, and hence this fact is undisputed and binding on the
\nDepartment.  In this connection, it is to be noted that the  law  relating  to
\nthe  block  of assets concept, which was introduced in the year 1987, remained
\nsame even during the assessment year under consideration in view of the  legal
\nposition  that  the  nature  of the claim was to be considered as allowable as
\nexpenditure.\n<\/p>\n
        38.  It is also relevant to note  that  in  the  Scheme  of  the  Act,
\nSection  31  deals with ‘current repairs’, Section 32 deals with ‘depreciation
\non assets used for the  purposes  of  business’  and  Section  37  deals  with
\nallowance  of  ‘business expenditure’ not in the nature of capital or personal
\nexpenditure.  The contention  of  the  Department  seems  to  revolve  on  the
\nfallacious ground  that  these  three sections operate alternatively.  Rather,
\nthey have been conceived in a manner that they function  independent  of  each
\nother.   Hence,  this argument of the Department would fall like nine-pins the
\nmoment the operation of the  Sections  are  considered  in  their  own  right.
\nAssuming  for  a  moment,  that  the  learned  senior counsel’s arguments were
\ncorrect, then Sections 31 and 37 exists even after the introduction of  ‘block
\nof assets’  concept  and have not become otiose or redundant.  In other words,
\nwith the introduction of ‘block of assets’, Sections 31 and  37  according  to
\nthe Department  has  become  non-existent.    Even  otherwise,  this  Court in
\nGITANJALI MILL’s case [265 ITR 681], accepted the claim of  the  assessee  for
\nthe assessment year 1990-91, i.e., subsequent to the introduction of ‘block of
\nassets’ concept.\n<\/p>\n
        39.  The question whether an item of expenditure is capital or revenue
\nis  not  determined  by  the  treatment  given  in books of accounts or in the
\nbalance sheet.  The claim has to be determined only by the provisions  of  the
\nAct and  not  by the accounting practice of the assessee.  It has been held in
\nthe following cases for the purpose of income  tax  which  is  concerned  with
\ndetermining  the  real  income,  the entries in a balance sheet required to be
\nmaintained in the statutory form is not conclusive:\n<\/p>\n
1) UCO BANK v.  CIT (240 ITR 355) (SC) <\/p>\n
2) KEDARNATH JUTE MFG CO.  LTD.  Vs.  CIT
\n(82 ITR 363) (SC)\n<\/p>\n
3) CIT vs.  SOUTHERN ROADWAYS LTD., (265 ITR 404)(Mad)\n<\/p>\n
4) CHEMICALS & PLASTICS LTD.,v.  CIT (2002) (125)
\nTaxman 648 (Mad).\n<\/p>\n
        40.  Finally, almost all the counsel appearing for the assessees  have
\nbrought to our notice that the department having accepted similar decisions on
\nearlier  occasions,  particularly  in the case of same assessees, they are not
\njustified in challenging the same without just cause.  It is also contended on
\nthe side of the assessees that the revenue has not  appealed  to  the  Supreme
\nCourt  in  several  cases including Jayaram Mills Limited and Geetanjali Mills
\nLtd., and also stated that any of the  cases  where  this  Court  has  decided
\nagainst them,  the  Revenue has not filed any appeal to the Supreme Court.  By
\ndrawing our attention to the decision of the Supreme Court  in  BERGER  PAINTS
\nINDIA LIMITED  v.   Commissioner of Income Tax<\/a> [266 ITR 99](SC), it was argued
\nthat the present set of appeals by the Revenue is not maintainable.  In DEPUTY
\nCOMMISSIONER OF INCOME TAX v.    VELLORE  COOPERATIVE  SUGAR  MILLS<\/a>  [242  ITR
\n170](Mad),  this  Court  has  allowed  that  where a question has already been
\nsettled by Court, appeal arising out of the same question is not maintainable.
\nIn UNION OF INDIA v.  SATISH PANALAL SHAH<\/a> [249 ITR 221],  the  Supreme  Court,
\nwhile depricating the revenue in not filing appeal against the previous orders
\nand challenging the same in one year, held:  (page 222)<\/p>\n
“If the Revenue did not accept the correctness of the judgment in the case  of
\nPRADIB  RAMANLAL  SHETH  [1993] 204 ITR 866 (Guj), it should have preferred an
\nappeal thereagainst and instructed counsel as to what the fate of that  appeal
\nwas or  why no appeal was filed.  It is not open to the Revenue to accept that
\njudgment in  the  case  of  the  assessee  in  that  case  and  challenge  its
\ncorrectness in the case of other assessees without just cause…”\n<\/p>\n
Similar view has been expressed by the Supreme court in CIT v.  NARENDRA DOSHI
\n[254 ITR 606]  (SC);  and  CIT  v.  SHIVSAGAR ESTATE [257 ITR 59] (SC).  It is
\nalso worthwhile to refer a decision of the  Supreme  Court  in  BERGER  PAINTS
\nINDIA LTD.,  v.    C.I.T [266 ITR 99] (SC), wherein the Supreme Court has held
\nthat the Revenue has not challenged the correctness of the law  laid  down  by
\nthe High Court and has accepted it in the case of one assessee, then it is not
\nopen  to  the  Revenue  to  challenge  its  correctness  in  the case of other
\nassessees, without just cause.  It is  not  in  dispute  that  the  very  same
\nissue\/point  has  been considered by this Court in various decisions in favour
\nof the assessees and against the Revenue, admittedly, those decisions have not
\nbeen taken up by way of appeal to the Supreme Court.  In such a  circumstance,
\nthe objection of the learned counsel for the assessees is wellfounded.\n<\/p>\n
        41.  Under these circumstances, in the light of the factual details as
\ndemonstrated  before  us,  supported by acceptable documents and the report of
\nthe  specialised  Body  like  SITRA  and  also  considering  various  judicial
\npronouncements  on  the  issue and in view of the time-tested law laid down in
\nMAHALAKSHMI TEXTILE’s case [Vol.66 ITR 7 10] (SC), we hold that the  claim  of
\nthe assessees that replacement of parts of textile mill is revenue expenditure
\nis justified  and  deserves  to  be  upheld.    Based  on  the submissions and
\narguments and in consonance with the decisions of the Supreme Court  and  this
\nCourt,  as  discussed  above,  we  answer all the questions raised against the
\nRevenue in favour of the assessees.  Consequently, the References are answered
\naccordingly and dismiss all the Appeals filed by the Revenue and allow the Tax
\nAppeals filed by  the  assessees.    No  costs.      Consequently,   all   the
\nmiscellaneous petitions are closed.\n<\/p>\n
R.B.\n<\/p>\n
Index:- Yes.\n<\/p>\n
Internet:- Yes.\n<\/p>\n
To:-\n<\/p>\n
1.  The Income-tax Appellate Tribunal, Madras.\n<\/p>\n
2.  The Commissioner, Income-tax, Madurai.\n<\/p><\/p>\n","protected":false},"excerpt":{"rendered":"
Madras High Court The Commissioner Of Income-Tax vs M\/S. Janakiram Mills Ltd on 29 April, 2005 IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 29\/04\/2005 Coram The Hon’ble Mr. Justice P. SATHASIVAM and The Hon’ble Mr. Justice S.K. KRISHNAN Tax Case (Ref) No. 144 of 1999 and Tax Case (Ref) Nos., 408, 409\/1999, 70\/2000 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[8,13],"tags":[],"class_list":["post-153444","post","type-post","status-publish","format-standard","hentry","category-high-court","category-madras-high-court"],"yoast_head":"\nThe Commissioner Of Income-Tax vs M\/S. Janakiram Mills Ltd on 29 April, 2005 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/the-commissioner-of-income-tax-vs-ms-janakiram-mills-ltd-on-29-april-2005\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Commissioner Of Income-Tax vs M\/S. 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