The Madras High Court has held that the replacement of the machineries as a whole cannot be held to be current repairs or allowable revenue expenditure.
The ruling was made by a division bench comprising of Members Justice Vineet Kothari and Justice R.Suresh Kumar in the case of Commissioner of Income Tax Salem Vs. M/s.Jawahar Mills Ltd. The appeals are filed by the Revenue against the order of the CIT (Appeals) and relate to the assessment years 1993-94 and 1994-95. The question in consideration is whether the cost of replacement of machinery could be claimed as revenue expenditure. The replaced machineries are an assemble of Motor Rollers, Spindles, gears, etc. The Assessing Officer observed that the machineries under consideration are indigenous products made in India and are nothing but a modernized system of automatic controllers installed to replace manual labor. He, therefore, disallowed the claim of the assessee. The CIT (Appeals), however, allowed the claim of the assessee. The revenue department filed an appeal against the order of CIT (Appeals). The Tribunal relying on the decision of the jurisdictional High Court in the case of CIT v. Salem Co-operative Spinning Mills Ltd. (148 ITR 176) (Mad) upheld the order of the CIT (Appeals).
The Revenue submitted that the said issue was settled by the Hon’ble Supreme Court in the case of Commissioner of Income Tax, Gujarat Vs. Sarangpur Cotton Mfg. Co. Ltd.,  80 taxmann.com 260 (SC), and held that each item for which deduction under the head “current repairs” was sought is a machine by itself and therefore deduction cannot be allowed. If the current repairs related to the independent machine itself instead of repairs of a part of that machine, a deduction cannot be granted under Section 31(i) of the Income Tax Act, 1961.
The Court held that the total replacement cost of three machineries in question purchased by the Assessee amounting to Rs.54,59,149/- came to be allowed by the Tribunal as ‘repairs maintenance expenditure’ or ‘revenue expenditure’. The said findings of the learned Tribunal are clearly contrary to the decision of the Hon’ble Supreme Court and therefore, the view of the Tribunal cannot be sustained and the replacement of the machinery as a whole by the Assessee cannot be held to be current repairs or allowable revenue expenditure. Therefore, respectfully following the binding precedent of the Hon’ble Supreme Court in the case of Commissioner of Income Tax, Gujarat V. Sarangpur Cotton Mfg. Co. Ltd., the present Appeals filed by the Revenue deserves to be allowed.