M/S ELGI EQUIPMENTS LIMITED vs. THE JOINT COMMISSIONER OF IN

T.C.A.Nos.10 and 11 of 2019 IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on : 21.09.2020 Pronounced on : 25.09.2020 Coram THE HONOURABLE Mr. JUSTICE T.S.SIVAGNANAM AND THE HONOURABLE Mrs. JUSTICE V.BHAVANI SUBBAROYAN T.C.A.Nos.10 and 11 of 2019 M/s. Elgi Equipments Limited Elgi Industrial Complex, Trichy Road, Singanallur, Coimbatore - 641 005 .. Appellant in both the appeals Vs. The Joint Commissioner of Income Tax, Range-1, Coimbatore ..Respondent in T.C.A.No.10 of 2019 The Deputy Commissioner of Income Tax, Corporate Circle - 1, Coimbatore ..Respondent in T.C.A.No.11 of 2019 1/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 Tax Case Appeals filed under Section 260-A of the Income Tax Act, 1961, are directed against the Common Order passed by the Income Tax Appellate Tribunal, Chennai Bench “C” Bench in I.T.A Nos.2769/Mds/2014 and 2943/Mds/2014 dated 28.06.2016 for the assessment years 2010-2011. For Appellant

: Mr.R.Sivaraman

For Respondents : Mr.T.R.Senthilkumar Senior Standing Counsel and Mrs.K.G.Usha Rani

C O M M ON J U D G M E N T T.S.SIVAGNANAM, J. These appeals have been filed by the assessee under Section 260-A of the Income Tax Act, 1961 [the 'Act' for brevity] challenging the common order dated 28.06.2016 in I.T.A.No.2769/Mds/2014 and I.T.A.No.2943/Mds/2014 passed by the Income Tax Appellate Tribunal, Chennai 'C' Bench, [hereinafter referred to as 'Tribunal'] for the assessment year [for brevity 'AY'] 2010-2011. 2/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 2. The appeals were admitted on 08.01.2019 to decide the following substantial questions of law:- T.C.A.No.10 of 2019: (1) Whether on facts and circumstances of the case the Appellate Tribunal was right in law in holding that the Foreign Travel expenditure incurred by the appellant amounting to Rs.17,42,595/- cannot be stated as wholly and exclusively for the business of the appellant and thus not allowable under Section 37 of the Act? 2) Whether on the facts and circumstances of the case the Appellate Tribunal was right in law in holding that the expenditure and overseas payment of Rs.19,55,555/- paid to M/s Stehlin & Associates, Paris in connection with acquisition of M/s. Belair, France is a capital expenditure and therefore, not an allowable expenditure under Section 37 of the Act? T.C.A.No.11 of 2019: (1) Whether on the facts and circumstances of the cases the Appellate Tribunal was right in law in remitting the issue with regard to the disallowance of expenditure incurred under the head Repairs and Maintenance without any finding or conclusion? (2) Whether on the facts and circumstances of the case the Appellate Tribunal was right in law in not considering the fact that what was replaced is only the 3/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 operating system of the machine and not a replacement of a new machine and hence the expenditure is a revenue expenditure? 3. The assessee is in the business of manufacturing air compressors and engines. For the assessment year under consideration, AY-2010-2011, the assessee filed its return of income on 14.10.2010 with total income of Rs.88,06,76,132/-. The return was processed under Section 143(1) of the Act. Subsequently, the case was selected for scrutiny and notice under Section 143(2) of the Act dated 26.08.2011 was issued. 4. In TCA No.10 of 2019, two issues arises for consideration. One pertaining to foreign travel expenditure incurred by the assessee to the tune of Rs.17,42,595/- and whether it is allowable as a deduction under Section 37 of the Act and the second issue is, with regard to the expenditure incurred by the assessee in effecting overseas payment to M/s Stehlin Associates, Paris, France in connection with acquisition of M/s Belair, France and whether it is a capital expenditure and therefore, not an allowable expenditure under Section 37 of the Act?. 4/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 5. In T.C.A.No.11 of 2019, though two substantial questions of law have been framed for consideration, both are interconnected pertaining to the disallowance of expenditure incurred by the assessee under the head 'repairs and maintenance' and whether the Tribunal was justified in remanding the matter for fresh consideration to the assessing officer?. 6. The assessing officer upon perusal of the profit and loss account, disallowed foreign travel expenditure of subsidiary companies. With regard to the legal and professional charges paid by the assessee in connection with the acquisition of the French Company, M/s. Belair, France was disallowed holding that the expenditure incurred towards acquisition of the French Company is not related to the assessee's business earnings and income. The assessing officer concluded that such expenditure was incurred in connection with a new unit's feasibility and acquisition of a capital asset and hence not allowable as deduction under Section 37(1) of the Act. With the above finding, the assessment was completed under Section 143(3) of the Act by order dated 13.03.2013. 5/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 7. The assessee filed appeal before the Commissioner of Income Tax Appeals - I, Coimbatore [for brevity 'CITA']. The CITA by order dated 04.09.2014 partly allowed the appeal. With regard to the foreign travel expenses, the expenses for vendor development related travel and expenses for production and gear sourcing for Elgi India was allowed. With regard to the balance amount of Rs.17,42,595/-, the same were disallowed stating that the same was to promote the business of the subsidiary company and not of the assessee. With regard to the addition made by the assessing officer for legal and professional charges, the CITA sustained the disallowance of expenditure of Rs.19,55,555/-, but deleted the addition of Rs.1,77,984/-. Aggrieved by the order passed by the CITA dated 04.09.2014, the assessee preferred appeal before the Tribunal. The appeal was dismissed by the impugned order. 8. With regard to the claim made by the assessee regarding expenses incurred towards 'repairs and maintenance' of machinery, which is subject matter of T.C.A.No.11 of 2019, the assessing officer came to the conclusion that the expenditure incurred for importing and 6/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 erecting the Holroyd Dual Type PC Technology is a capital expenditure and disallowed the same. However, depreciation was allowed by the assessing officer. 9. Before the CITA, the assessee provided details with regard to the said machine and after considering all the material, the CITA found on facts, that the operating system of the machine was only replaced and there is no replacement of a new machine with an existing machine. Therefore, the CITA, allowed the assessee's appeal holding that the said expenditure is a revenue expenditure. The revenue filed appeal before the Tribunal, which was allowed by setting aside the finding of the CITA and the matter stood remanded to the assessing officer to decide the issue afresh. 10. We have elaborately heard Mr.R.Sivaraman, learned counsel appearing for the appellant / assessee and Mr.T.R.Senthilkumar, learned senior standing counsel assisted by Mrs.K.G.Usharani, learned junior standing counsel for the respondents / revenue. 7/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 11. In the profit and loss account filed by the assessee along with the return of income, they have debited a sum of Rs.1,76,97,063/- being expenses incurred towards foreign travel during the financial year 2009- 2010. The assessee was called upon to furnish the complete details of foreign travel expenses including name of the employee, designation in the company etc., The details were furnished in full and the assessing officer came to the conclusion that the middle and senior level management personnel were sent to the countries for executing the work relating to the subsidiary. The assessing officer put the assessee on notice to explain as to why the expenditure incurred / related to subsidiary companies should not be disallowed, as the same are not related for earning of the income by the assessee company. Though the assessee had given a elaborate reply, the assessing officer opined that the reply was not satisfactory and the assessee has not proved as to how the expenses are related to earning the assessee's income?. 12. Before the CITA, the assessee, once again explained as to how the foreign travel expenditure was necessitated to develop the business of the assessee and it did not pertain to the subsidiary 8/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 company at China. Upon considering the materials placed before the CITA by the assessee, it was held that the vendor development related travel is definitely in the interest of the holding company, since procurement of components for the holding company was also done from China. Accordingly, the expenditure incurred under the said head to the tune of Rs.1,11,80,255/- was allowed. 13. With regard to the expenditure for import purchase, production and gear sourcing for Elgi India, the CITA held that it is in interest of the assessee company and it has to be treated as expenditure incurred for the business of the assessee company amounting to Rs.15,04,203/-. With regard to the other expenditure amounting to Rs.17,42,595/-, the CITA stated that those expenditure cannot be stated as exclusively and wholly for the business of the assessee and it is more in the interest of the subsidiary company at China and the assessee should have apportioned the major expenditure of foreign travel to the subsidiary. We find that the CITA did not give any specific reasons as to how he came to the conclusion that the other expenditure amounting to Rs.17,42,595/- cannot be stated as 9/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 exclusively and wholly for the business of the assessee. The finding is cryptic as it is not borne out by any reasons or based on factual analysis. If the CITA was of the opinion that a few of the expenses incurred by the assessee were permissible and allowable as deduction, then, reason should have been set out as to why the other expenses should not be also allowed as a deduction?. This would be sufficient for us to interfere with the finding of the CITA. The CITA failed to note that the following expenses, which were incurred by the assessee company towards foreign travel:- Particulars Amount (Rs.) ERP Implementation related travel amounts to 4,36,063/- Business Review Related Travel 2,63,995/- Dealer Review & After Sales 3,80,817/- For Business Strategy & Market Study Strategy 4,36,653/- Production Process Implementation work 2,25,067/- 14. It is important to note that the CITA did not express any doubt or genuineness with regard to the above business expenditure, namely, the foreign travel expenditure incurred by the assessee's employees, if such is the factual position, then, the CITA should have allowed the expenditure in its entirety. 10/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 15. It is note worthy to point out at this juncture that the subsidiaries in the foreign country were exclusive companies, which dealt only with the products of the assessee. The products, which were manufactured by the assessee were shipped to the subsidiaries in the foreign country in the knock down condition and they were to reassemble the same and the products were marketed under the Trade mark 'Elgi'. Therefore, there was no reason as to why the CITA had disallowed a portion of the expenditure without noting the fact that the expenditure was incurred by the assessee to safeguard the interest of the assessee, the holding company and its normal business expenditure of the holding company. 16. Furthermore, the CITA failed to note that all those expenditure incurred by the assessee, the holding company was to keep the subsidiary companies in the foreign country to continue to do their business. The Tribunal, which tested the finding of the CITA did not assign any reasons as to why the expenditure was not for the benefit of the assessee, the holding company. The order passed by the Tribunal is devoid of reasons. 11/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 17. Though the assessee was able to produce their annual report along with accounts prepared in accordance with AS-18 that there was a gradual increase in sales compare to the early years by the subsidiary companies in the foreign country, the Tribunal in a single stroke held that it is not convinced with the stand taken by the assessee. 18. As pointed out earlier, the bonafides and genuineness of the expenses incurred by the assessee towards foreign travel was never in doubt before the assessing officer or before the CITA or before the Tribunal, thus, we have no hesitation to hold that the disallowance done by the CITA, as affirmed by the Tribunal, is erroneous. 19. With regard to the second issue pertaining to expenses paid to M/s Stehlin and Associates, Paris, France in connection with acquisition of M/s Belair, France, the assessee furnished breakup details before the assessing officer with regard to payments made to M/s Stehlin & Associates, for the services rendered by them which included translation, documentation, corporate matters and associated filing, the assessing officer opined that the expenditure was incurred 12/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 towards acquisition of a French company and it is not related to the assessee's business earnings and income and the expenditure was incurred in connection with the new unit feasibility and acquisition of a capital asset and not allowable under Section 37(1) of the Act. 20. Before the CITA, the assessee contended that they paid the fees to the Overseas Consultancy Firm towards services and market survey in Asia and Southafrica incurred by the foreign company in India. The details regarding legal and professional charges were also onceagain placed before the CITA and submitted that these expenditures being part of regular business expenditure to facilitate the acquisition and smooth conduct of business in Europe has to be treated as revenue expenditure. However, the CITA came to the conclusion that the expenditure is nothing to do with regular business and expenditure was incurred for acquisition of shares of M/s Belair, France and the assessee was not able to establish that the acquisition was in the course of carrying on the assessee's business and sustained the addition to the tune of Rs.19,55,555/-. Before the Tribunal, the assessee reiterated that the said expenditure was incurred in 13/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 connection of acquisition of Belair, France, towards expansion of assessee's business in Europe and incurred wholly and exclusively in connection with business. Several decisions were relied on by the assessee. The Tribunal noted that the expenditure is in the nature of legal and professional fee paid for various services. However, dismissed the assessee's appeal on the ground that the necessity for incurring the expenditure and overseas payment was in connection with acquisition and it is in the capital field and cannot be permitted as a deduction. 21. The Tribunal, in our considered view lost sight of a very important issue, namely, that the expenditure was incurred for the expansion of the global operations of the assessee and the assessee was in the process of acquiring shares in a foreign company, namely, M/s Belair, France and had to incur expenditure in the nature of legal and professional fee for various services rendered by M/s Stehlin & Associates and this expenditure ought to have been treated as wholly and exclusively for business purposes. In this regard, it is relevant to refer to the decision of Hon'ble Supreme Court in the case of S.A.Builders Limited V. CIT reported in [2007] 288 ITR Page 1, in the 14/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 said decision while interpreting the words "for the purpose of business" used in Section 37(1) of the Act, while computing the income chargeable under the head "Profits and Gains of business or Profession", it was held that such expenditure is to be tested in the light of the commercial expediency, which is one of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. This decision was referred by the Division Bench of this Court in the case of Commissioner of Income-Tax, Chennai Vs. Sabena Detergents (P.) Ltd., reported in [2008] 303 ITR 320 (Madras). In the Judgment of the Division Bench, reliance was placed on the decision of the Full Bench of the Hon'ble Supreme Court in CIT Vs. Malayalam Plantations Ltd., reported in [1964] 53 ITR 140 (SC), the Judgment of the House of Lords in Southern (H.M.Inspector of Taxes) Vs. Borax Consolidated Ltd., reported in [1942] 10 ITR Page 1 (King's Bench Division), the decision of Hon'ble Supreme Court in Travancore Titanium Product Ltd., Vs. CIT reported in [1966] 60 ITR 277 (SC), CIT Vs. Walchand & Co., (P.) Ltd., reported in [1967] 65 ITR 381 (SC) and Sassoon J.David & Co., (P) Ltd., Vs. CIT reported in [1979] 118 ITR 261. The relevant portion of the Judgment is quoted herein below:- 15/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 '6.2. Justice.Shah, as he then was, speaking for the Full Bench of the Apex Court in Travancore Titanium Product Ltd. v. Commissioner of Income-tax [1966] 60 I.T.R. 277, held that to claim the expenditure incurred as a permissible deduction under Section 10(2)(xv) of the old Act, (now under Section 37(1) of the Act), there must be a direct and intimate connection between the expenditure and the business, i.e., between the expenditure and the character of the assessee as a trader, and not as owner of assets even if they are assets of the business. It is thus held that the nature of the expenditure or outgoing must be adjudged in the light of accepted commercial practice and trading principles and the expenditure must be incidental of the business and must be necessitated or justified by commercial expediency and that it must also be directly and intimately connected with the business and be laid out by the taxpayer in his character as a trader. 6.3. In applying the test of commercial expediency for determining whether the expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the point of view of the businessman and not of the revenue, vide Commissioner of Income-tax v. Walchand and Co. Private Ltd. [1967] 65 I.T.R. 381. 6.4. In Sassoon J.David and Co.P.Ltd. v. Commissioner of Income-tax, [1979] 118 I.T.R. 261, while interpreting the words "any expenditure laid out or expended wholly and exclusively for the purposes of the business or profession" to assail that the expression "wholly and exclusively" used in Section 10(2)(xv) of the old Act (now Section 37(1) of the Act), does not mean "necessarily", the Apex Court has held that ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business and such expenditure may be incurred voluntarily and without any necessity and if it is 16/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 incurred for promoting the business and to earn profits, the assessee can claim deduction under section 10(2)(xv) of the old Act, even though there was no compelling necessity to incur such expenditure. It was further held that the fact that somebody other than the assessee (like in the instant case, the sister concerns) is also benefitted by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv) of the old Act (now Section 37(1) of the Act), if it satisfies otherwise the tests laid down by law, referred to above. 6.5. Recently, the Apex Court, in S.A.Builders Ltd. v. Commissioner of Income-tax (Appeals), [2007] 288 I.T.R. Page 1, interpreting the words "for the purpose of business" used in Section 37(1) of the Act, while computing the income chargeable under the head "Profits and gains of business or profession", reiterated its earlier views referred to above and held that such expenditure is to be tested in the light of the commercial expediency, which is one of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as business expenditure if it was incurred on grounds of commercial expediency. It is further held that the expenditure incurred for the purpose of business meant in Section 37(1) of the Act includes the expenditure voluntarily incurred for commercial expediency and it is immaterial if a third party also benefits thereby. It is not for the authorities or the Court to examine the purpose for which the assessee incurred the expenses for its commercial expediency. What is relevant is whether the amount was advanced as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profits. Once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the 17/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 arm-chair of the businessman or in the position of the Board of Directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case and no businessman can be compelled to maximize his profit. 22. In Commissioner of Income Tax Vs. Bombay Dyeing & Manufacturing Company Limited reported in (1996) 219 521 (SC), the question which fell for consideration was whether the Tribunal was right in holding that professional charges paid by the assessee company to its solicitors for effecting amalgamation of the company, was of revenue nature and should be allowed as a deduction in computation of its total income. We find the facts in the said case is identical to that of the case on hand where the assessee had incurred expenditure by way of professional fees to M/s Stehlin and Associates, Paris, France. The said question was answered in favour of the assessee and it was held that expenditure incurred towards professional charges of the solicitor's firm was deductable as revenue expenditure. The relevant portion of the Judgment reads as follows:- '…..The Tribunal was of the opinion that “as both the companies were carrying on complementary business and their amalgamation was necessary for the smooth and efficient conduct of the business”, it is an expenditure laid out wholly and exclusively for the purpose of the business of the assessee. In 18/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 view of the said finding and also in view of the decision of this Court in Bombay Steam Navigation Co. (1953) (P) Ltd. v. CIT 1965 56 ITR 52, we are of the opinion that the Tribunal was right in its conclusion. The decision in Bombay Steam Navigation also pertains to amalgamation of two shipping companies. The assessee-Company took over the assets of the other company and part of the price was treated as a loan secured by a promissory note and hypothecation of all moveable properties of the assessee-Company. The loan was to carry simple interest at 6 per cent. The question that arose in the said case was whether the interest paid upon the said loan was deductible as revenue expenditure. It was held by this Court that it was an expenditure deductible under Section 10(2)(xv) of the Income Tax Act. It was held that transaction of acquisition of the asset was closely related to the commencement and carrying on of the assessee's business and, therefore, interest paid on the unpaid balance of the consideration for the assets acquired had, in the normal course, to be regarded as expenditure for the purpose of the business which was carried on in the accounting periods. In the course of the judgment this Court referred to the earlier decision of this Court in State of Madras v. G.J Coelho 1964 53 ITR 186 wherein it was held that the interest on the amount borrowed for acquiring a capital asset is deductible as revenue expenditure.....' Thus by taking note of the factual position and the above referred decisions, the substantial questions of law in T.C.A.No.10 of 2019 are to be answered in favour of the appellant / assessee. 23. With regard to the substantial questions of law in T.C.A.No.11 of 2019, reference was made to the decision of the High Court of Bombay in Cresent Organics (P.) Ltd., Vs. Deputy Commissioner of 19/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 Income-Tax, Range-8(1), Mumbai [2014] 49 Taxmann.com 128 [Bombay]. We find that the said decision to be wholly on the factual position prevailing to the said case and the Court came to the conclusion that the order of the Tribunal restricting the disallowance of the foreign travel expenses to 10% of the amount, was a reasonable approach. We have in the preceding paragraphs noted the facts and we found that the assessing officer the CITA and the Tribunal did not dispute the genuineness, bonafides of the expenditure incurred by the assessee for foreign travel. That apart, the CITA granted partial relief to the assessee, did not assign any reasons as to why the other expenditure is not allowable as a deduction, therefore, we find that on facts, the decision in Cresent Organics (P.) Ltd.,is distinguishable. In the light of the above decision, the first question of law in TCA No.11 of 2019 is decided in favour of the assessee. 24. The assessee had debited a sum of Rs.5,26,35,475 being expenses incurred towards Repairs and Maintenance towards machinery. The assessee furnished breakup details for the various expenditure. The assessing officer on examining the materials placed 20/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 before him held that the assessee had incurred expenditure for purchasing a new Dual Type PC Technology base controlling system with CAN [Control Area Network] by replacing the existing CNC [Computer Numerical Control] drive system. 25. The assessee was called upon to explain as to why the expenditure should not be treated as a capital expenditure? We find that the assessee had given a detailed submission along with catalogues and photographs. However, the assessing officer disallowed the expenditure and held it to be capital expenditure on the ground that the replacement of the CAN System instead of the existing CNC system is a major replacement of the existing machine with a new machine, consequence thereof, the efficiency of the machine will improve resulting in increased production. Furthermore, the old machinery had become obselete and the installation of the equipment in the machine resulting in increase production will give an enduring benefit to the assessee. 21/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 26. On appeal before the CITA, an elaborate examination of the facts was done and it was held that CNC system was part of the machine and this technology has become obsolete was replaced by 'modified electronic system' and it did not amount to replacement of an existing machine with new machine and the expenditure was treated as 'revenue expenditure'. The Tribunal which examined the correctness of this finding, at the instance of the revenue, after noting the contention of the department representative and the authorised representative of the assessee, held that considering the apparent facts, functional test, submissions and judicial decisions, the order of the CITA was to be set aside and remanded to the assessing officer to decide the entire disputed issue. The Tribunal has recorded that the assessee has submitted the photographs and materials before it, which needs to be examined by the assessing officer. We find that the tribunal has not given any reasons to set aside the finding of the CITA. That part, materials which were placed before the Tribunal were already on record, as it had been placed before the assessing officer with detailed explanatory note as well as before CITA, hence we find that there is no justifiable reason for remanding the matter to the assessing officer. 22/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 27. The learned senior standing counsel for the revenue placed reliance on the decision of Hon'ble Supreme Court in Ballimal Naval Kishore Vs. Commissioner of Income Tax reported in [1997] 90 Taxman 402 (SC). The case arose under Section 31 of the Act and on facts, the Court found that the assessee, who was carrying on business of exhibiting films in the theatre, purchased a building, converted it into a cinema theatre, installed new machinery, furniture, sanitary fittings and electrical wiring and spent substantial amount on repairs to walls, flooring, roofing, doors, windows and to the stage sides etc., Considering this factual position, it was held that by no stretch of imagination, it could be said that the said repairs qualify as 'current repairs' within the meaning of Section 10(2)(v) of the Act. In the case on hand, the CITA has noted that the replacement done by the assessee was not the entire machine, but one component of the machine, as the earlier technology had become obsolete. Therefore, the decision in the case of Ballimal Naval Kishore cannot be applied to the case on hand. 28. Further, reliance was placed on the decision of the Hon'ble Supreme Court in Commissioner of Income Tax, Gujarat Vs. Sarangpur 23/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 Cotton Mfg. Co., Ltd., reported in [2017] 393 ITR 108. In the said case also, the assessee had incurred expenditure on 'repairs and replacement of old machinery' and following the decision in CIT V. Saravana Spinning Mills (P.) Ltd., reported in [2007] 293 ITR 201, the case was decided against the assessee. We find that the expenditure incurred by the assessee in the said case was towards replacement of the machinery with new machinery, which is not the case of the assessee on hand. 29. Also, reliance was placed on the decision of this Court in Commissioner of Income Tax III, Coimbatore Vs. M/s Vijayeswari Textiles Limited, Coimbatore in T.C.(Appeal) Nos.1316 to 1322 of 2008 dated 30.10.2018. The said case also pertain to replacement of old machinery by purchasing and installing new machinery and following the decision in CIT Vs. Saravana Spinning Mills Pvt. Ltd., reported in MANU/SC/3308/2007; Commissioner of Income Tax, Madurai Vs. Mangayarkarasi Mills (P) Ltd., reported in 2009 (315) ITR 114 (SC) and Super Spinning Mills Ltd., Vs. Assistant Commissioner of Income Tax reported in 2013 (357) ITR 0720 (Mad.), the case was remanded to the 24/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 CITA for fresh consideration. As noted in the said Judgment, the expenditure incurred was for replacement of old machinery with that of new machinery and the said decision would not assist the revenue. 30. While dealing with this issue, it will be beneficial to refer to the decision of the Division Bench of this Court in Commissioner of Income Tax Vs. Neyveli Lignite Corporation Ltd., reported in (2016) 388 ITR 0172 (Mad), one of the substantial questions of law, which was considered in the said case was whether the Tribunal is correct in concluding that each machine in Thermal Power Station is not capable of generating power independently and hence to be viewed as a composite asset, contrary to the decision of the Hon'ble Supreme Court in the case of Mangayarkarasi Mills (P) Ltd., reported in [315 ITR 114], wherein, it is held that each machine should be treated independently as such and not as mere part of an entire composite machinery of the spinning mill?. The said question was answered in favour of the assessee on the following terms:- '17. A careful look at the above decisions would show that though different tests had been formulated by Courts, the application of those tests had posed lot of difficulties, depending upon the facts and circumstances of each case. 25/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 This is why the Supreme Court pointed out in Saravana Spinning Mills that the answer to the question would depend upon the facts and circumstances of each case. Therefore, we shall now get back to the facts of the case. 20. On the basis of the nature of the repairs and replacement carried out by the assessee to the boiler as well as to BWE, it is contended by Mr.Vijayaraghavan, learned counsel for the assessee that the expression "current repairs" denotes the repairs for the purpose of preserving or maintaining an already existing asset. It does not bring about a new asset into existence, nor does it give a new or different advantage. Therefore, he contends that the test of improvement or advantage is not relevant to determine whether the repair was current repair or not. It is his further contention that the magnitude of the expenditure cannot also determine whether something is current repair or not. 21. In order to test the correctness of the above contention, it is necessary to have a look at the provisions of Sections 31 and 37. 22. Under Section 31, the amount paid on account of current repairs to plant or furniture used for the purpose of business or profession shall be allowed as deduction. But, the Explanation to Section 31 qualifies the general rule by stating that the amount paid on account of current repairs shall not include any expenditure in the nature of capital expenditure. 23. Though the Act defines the expression "income", it does not define either the expression "expenditure" or the expression "repairs or current repairs". However, several heads of expenditure are separately dealt with under Sections 35 and 35A to 35E. 24. Section 37(1) states that any expenditure laid out or expended wholly and exclusively for the purpose of business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". But, Section 37 (1) excludes three items of expenditure. They are (i) expenditure of the nature described in Sections 30 to 36, (ii) expenditure in the nature 26/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 of capital expenditure, and (iii) expenditure in the nature of personal expenses of the assessee. 25. Therefore, if an item of expenditure falls within any of the categories indicated in Sections 30 to 36, the same is entitled to deduction as per the provisions of those Sections. But, any expenditure which does not fall within the scope of Sections 30 to 36, but which may still qualify while computing the income chargeable under the head "Profits and gains of business or profession", will be covered by Section 37(1). 26. But, what is important to note is that under both provisions, namely Section 31 as well as Section 37(1), capital expenditure is excluded. If an amount paid on account of current repairs is in the nature of capital expenditure,Section 31 cannot be invoked. Similarly, Section 37(1) cannot also be invoked. 31. On the contention of Mr.T.Ravikumar, learned Standing Counsel that the assessee originally capitalised the expenditure, but reversed the same later, we have to point out that there cannot be any estoppel in such cases. The question whether a particular expenditure would fall within the definition of the expression "current repairs" under Section 31(i) or not, does not depend upon what the assessee did or did not. After all if the expenditure is capitalised, the assessee takes the benefit of depreciation. If the expenditure is treated as revenue expenditure, it is either taken as an expenditure under Section 37(1) for computing income chargeable under the head "Profits and gains of business or profession" or treated as "current repairs" entitled to deduction under Section 31(i). Therefore, the contention of the learned Standing Counsel cannot be accepted.' 31. Bearing the above legal principle in mind, if we examine the facts of this case, as rightly noted by the CITA, who has gone into the 27/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 working of the various parts of the Holyroid machine and examining the photos, it was held that the CNC control can only be termed as part of the machine and cannot be itself a machine. Further, the CITA noted that the manufacturer had recommended to the assessee to go for electronic systems modification without modifying the machine technology and machine specifications. The CITA perused the literature, the design of the CNC system, which was furnished in the form of a floppy disk and held in favour of the assessee. Further, one more important fact which needs to be noted is the cost of the full machine, was Rs.534 Lakhs in the year 1985 and the cost of the same machine, full machine, at the time when CITA decided the appeal, i.e., in the year 2014, was Rs.1250 Lakhs. This is also a very relevant factor, which needs to be borne in mind while approving the finding rendered by the CITA. 32. As noted by us, the Tribunal had erroneously stated as if the assessee for the first time had placed photographs and materials and held that the matter has to be remanded to the assessing officer, when the fact remains that the entire material along with the detailed write-up 28/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 was placed before the assessing officer and also before the CITA, who had done a thorough factual examination and granted relief to the assessee. Therefore, the order of the Tribunal in remanding the matter to the assessing officer was wholly unjustified. For all the above reasons, both the Tax Case Appeals are allowed and the substantial questions of law are answered in favour of the assessee. No costs. (T.S.S.J.) (V.B.S.J.) 25.09.2020 Index :Yes / No Internet :Yes / No Speaking Judgment / Non Speaking Judgment ssd 29/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 To The Income Tax Appellate Tribunal “C” Bench 30/31 http://www.judis.nic.in T.C.A.Nos.10 and 11 of 2019 T.S.SIVAGNANAM,J., AND V.BHAVANI SUBBAROYAN, J., ssd Pre-delivery Common Judgment in T.C.A.Nos.10 and 11 of 2019 25.09.2020 31/31 http://www.judis.nic.in