IN HIGH COURT OF JUDICATURE AT MADRAS Dated : 06.08.2014 Coram Honourable Mr.Justice R.SUDHAKAR and Honourable Mr.Justice G.M.AKBAR ALI Tax Case(Appeals).Nos.259, 318, 390 and 448 of 2014 Commissioner of Income Tax Coimbatore ... Appellant in above Tax Case (Appeals) -vs- M/s.Prabhu Spinning Mills (P) Ltd 207/86, Mangalam Road Tirupur ... Respondent in Tax Case (A).No.259/2014 M/s.Matha Spinning Mills (P) Ltd 207/86, Mangalam Road Tirupur ... Respondent in Tax Case (A).No.318/2014 M/s.Adhisankara Spinning Mills (P) Ltd., No.207/86, Mangalam Road Karuvampalayam Tirupur - 641 601. ..Respondent in Tax Case (A).No.390/2014 M/s.Vedha Spinning Mills (P) Ltd., No.207/86, Mangalam Road Karuvampalayam Tirupur - 641 601. ..Respondent in Tax Case (A).No.448/2014 2 Tax Case Appeals filed under Section 260A of Income Tax Act, 1961 against order of Income Tax Appellate Tribunal, Chennai D Bench, dated 29.08.2013 in ITA.No.603/Mds/2013 and 30.8.2013 in I.T.A.Nos.606 to 608/Mds/2013. For Appellant : Mr.M.Swaminathan Standing Counsel for Income Tax Dept. For Respondents: Mr.R.Sivaraman COMMON JUDGMENT (Judgment of Court was made by R.SUDHAKAR,J.) These appeals filed by Revenue are directed against orders passed by Income Tax Appellate Tribunal dated 29.08.2013 in ITA.No.603/Mds/2013 and 30.8.2013 in I.T.A.Nos.606 to 608/Mds/2013. 2. respondents/assessees are carrying on business in manufacturing of yarn and electricity generation through wind electric generator. For assessment year 2009-10, assessees filed return of income. assessees also claimed deduction in respect of expenditure towards modernization and replacement of old textile machinery. Assessing Officer following decisions of Supreme Court in case of CIT Vs. M/s.Mangayarkarasi Mills 3 P.Ltd., reported in (2009) 315 ITR 114 and CIT Vs. Saravana Spinning Mills P.Limited reported in (2007) 293 ITR 201 (SC) held that expenditure is neither allowable under Section 31 nor under Section 37 of Act and assessed same to tax in reassessment after allowing depreciation for same. assessees being aggrieved by said order, filed appeals before Commissioner of Income Tax (Appeals). CIT (Appeals), dismissed appeals as against which, assessees filed appeals before Income Tax Appellate Tribunal. 3. Tribunal, following its earlier orders in I.T.A.Nos.1847 & 1848/Mds/2011 allowed appeals holding that expenditure incurred by assessees in introducing 'compact spinning system' in place of 'conventional drafting system' is revenue expenditure and not capital expenditure. Challenging same, Revenue has preferred above Tax Case (Appeals) raising following substantial question of law: "Whether under facts and circumstances of case, Income Tax Appellate Tribunal was right in holding that expenditure incurred by assessee in replacing machineries and introducing 4 'compact spinning system' in place of 'conventional drafting system' is revenue expenditure allowable under section 37 of Income Tax Act?". 4. Both sides agree that issue raised in these Tax Case (Appeals) is covered by decision of this Court dated 08.04.2014 in T.C.(A)Nos.826 and 827 of 2013, wherein this Court following decision reported in (2013) 357 ITR 720 (Mad) in case of Super Spinning Mills Ltd., Vs. Assistant Commissioner of Income-tax held as follows: "8. In case of Super Spinning Mills Vs. Assisstant Commissioner of Income Tax reported in (2013) 357 ITR 720 (Mad), considering decisions of Apex Court in case of CIT Vs. Mahalakshmi Textile Mills Ltd., reported in (1967) 66 ITR 710 (SC), in case of CIT Vs.Ramaraju Surgical Cotton Mills reported in (2007) 294 ITR 328 (SC), in case of Commissioner of Income Tax Vs. Saravana Spinning Mills P. Ltd., reported in [2007] 293 ITR 201 (SC), in case of CIT Vs. Sri Mangayarkarasi Mills P.Ltd., reported in (2009) 315 ITR 114 (SC), this Court held that question as to whether expenditure incurred on replacement of machinery is revenue or capital expenditure, particularly in nature of replacements of parts, thus rests on 5 nature of expenditure incurred, vis-a-vis benefit that assessee derives; to decide applicability of Section 31(i), this Court held that basic test is to find out whether expenditure is incurred to "preserve and maintain" already existing asset and expenditure must not be to bring new asset into existence or to obtain new advantage. Thus elaborating on provisions of Section 31 of Act and Section 37 of Act, this Court held that Authority has to pass order on impact of replaced materials on business as well as functioning of machinery after replacement to result in higher productivity or not. In instant case, Tribunal directed Assessing Officer to find out as to whether machinery that was replaced by assessee resulted in impact of increased productivity. Assessing Officer was directed to ascertain what was machinery that was replaced by assessee and to consider claim of assessee as falling under revenue or capital. 9. Having gone through order of Tribunal, we have no hesitation in confirming order of Tribunal in remitting matter back to Assessing Officer to ascertain facts in respect of replaced machinery whether it was auto-coner, comber and lap former or compact spinning consisting of gadgets fitted to each spindle within ring frames for consideration of claim of assessee." 6 R.SUDHAKAR,J. AND G.M.AKBARALI,J. 5. Thus, following order of this Court dated 08.04.2014 in T.C.(A)Nos.826 and 827 of 2013 and, on hearing learned standing counsel appearing for Revenue and learned counsel appearing for assessee, we set aside order of Tribunal and restore matter back to files of Assessing Officer for fresh consideration of dispute on replacement of machinery. assessee is directed to place necessary materials as regards its claim before Assessing Officer. 6. In result, above Tax Case (Appeals) are disposed of on above terms. No costs. Index: Yes/No (R.S.,J) (G.M.A.,J) Internet:Yes/No 06.08.2014 To 1.The Deputy Commissioner of Income Tax, Company Circle, Tirupur. 2.The Commissioner of Income Tax (Appeals)-II Coimbatore. 3.The Income Tax Appellate Tribunal "D" Bench, Chennai. T.C.(A)Nos.259, 318, 390 and 448 of 2014 Commissioner of Income-tax, Coimbatore v. M/s. Prabhu Spinning Mills (P) Ltd