COMMISSIONER OF INCOME TAX vs. MIDAS RUBBER PVT.LTD

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE WEDNESDAY, THE 6TH DAY OF NOVEMBER 2013/15TH KARTHIKA, 1935 ITA.No. 102 of 2013 -------------------- AGAINST THE ORDER IN ITA 280/2010 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 14-09-2012 ............. APPELLANT/APPELLANT : ----------------------------- COMMISSIONER OF INCOME TAX KOTTAYAM BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENTS : ----------------------------------- MIDAS RUBBER PVT.LTD P JOHN ZACHARIAH BUILDING, KOTTAYAM-686 001. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 06-11-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

Manjula Chellur, C.J. & A.M. Shaffique, J. - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T.A. Nos. 102 OF 2013 - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 6th day of October, 2013 JUDGMENT Manjula Chellur, C.J. Heard on admission. This appeal is filed by the revenue aggrieved by the orders of Tribunal dated 14.09.2012 for the assessment year 2007-08. 2. The respondent assessee is engaged in the business of manufacturing procured tread rubber. When there was sudden increase in the expenses, compared to the previous year, with reference to 90,44,917/- under the head ₹ “repair and maintenance”, assessee was asked to explain the sudden increase in the expenses. According to the assessee, the sudden increase in the expenses was due to replacing of 'Mixing Chamber Assembly', one of the major parts of intermix Machine used for manufacture of rubber compound in the assessee’s establishment. The amount of 90,44,917/- ₹ includes replacement of rotor shaft assembly of the intermix chamber. On account of replacement of old and worn out

ITA No. 102 of 2013 -:2:- Mixing Chamber Assembly/Rotor Shaft Assembly, the assessee claimed it as an amount deductable as 'business expenditure'. The Assessing Officer treated it as a 'capital expenditure' in the assessment which preceeded by a personal visit to the factory of the assessee by the Assessing Officer. Aggrieved by the same, the assessee approached CIT (Appeals) and the First appellate authority did not agree with the assessee’s contention. But the CIT(Appeals) held that the expenditure incurred by the assessee is a repair expense as the machinery is not replaced but only overhauled and the appeal came to be allowed. 3. Aggrieved by the same, revenue approached the Tribunal in I.T.A No.280 of 2010 so far as assessment year 2007-08. By a common order, Tribunal disposed of ITA No.467/09 filed by the assessee pertaining to the assessment year 2006-07 along with ITA No.280 of 2010. However, we are not concerned with the assessment year 2006-07, we are only concerned with the assessment year 2007-08 pertaining to ITA No.280 of 2010. The Tribunal after referring to the decision of Supreme Court in Commissioner of Income Tax v. Saravana

ITA No. 102 of 2013 -:3:- Spinning Mills (P) Ltd. [(2007) 293 ITR 201 SC] held that the first appellate authority ultimately opined that in order to explain whether an expenditure is in the nature of current repair or capital repair, one has to look into the expenditure with reference to the establishment. 4. Tribunal while considering the stand of the assessee and the revenue referred to a technical report which was placed before the Tribunal wherein picture of the intermix machine and the explanation regarding the function of the unit was shown. As per the technical report and the detailed explanation, the mixing chamber (chamber assembly) seems to be one of the integral part of the intermix machine. This chamber assembly is fixed to the bed plate below the top cylinder. The rotors inside the mixing chamber of the internal mixer rotate in opposite directions thereby the ingredients would getmixed and ultimately rubber compound is produced which agains has to pass through a conveyor belt in order to have colling of the rubber compound. The chamber assembly has no independent and separate function unless it is supported with rotars and other parts of the intermix

ITA No. 102 of 2013 -:4:- machine. The rotars inside the mixing chamber of the internal mixer actually mix the mixture, therefore on its own the chamber assembly will not function and has no independent and separate function or activity. The raw rubber is injected into the chamber assembly along with other components. After the process of mixing in the mixing chamber it comes out in the open mill. Therefore, according to the Tribunal, chamber assembly is an integral part of the intermix machine and opines that the decision of the Apex Court in Sharavana Spinning Mills has to be understood with reference to the actual functioning of the unit. Therefore after referring to the relevant paragraph of Sharavan Spinning Mills case that so far as replacement of chamber assembly which is an integral part of intermix machine Tribunal concluded that it is nothing but a current repair and not a capital expenditure. We find no good ground to differ from the opinion of the CIT (Appeals) and Tribunal so far as the assessment year 2007-08 is concerned with regard to the claim of the assessee. So far as the expenditure incurred on replacement of chamber

ITA No. 102 of 2013 -:5:- assembly in the intermix machine, we find no good ground to interfere with the said opinion of the two appellate authorities which have gone into factual aspect of the matter in order to understand the actual functioning of chamber assembly in intermix machine. Accordingly the appeal is dismissed. Manjula Chellur, Chief Justice. A.M. Shaffique, Judge.

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