TaxTMI 
TaxTMI 
2011 (8) TMI 1060
X X X X Extracts X X X X
X X X X Extracts X X X X
....issioner of Incometax( Appeals) has failed to appreciate that the expenditure of Rs. 99,33,995/- on electronic yarn clearers cannot be held to be a capital expenditure, 3. The assessee is running a composite textile mill. In the previous year relevant to the assessment year under appeal, the assessee has replaced the old mechanical yarn clearers by electronic yarn clearers. The Assessing Officer found that the old mechanical yarn clearers were in turn refitted into other machines, which does not require better finishing of the products where the products are meant for non export sales. Electronic yarn clearers have been put in those machines producing export oriented products. The Assessing Officer held that by replacing the mechanical device with the electronic device, the assessee has increased its efficiency in production and the replacement has generated an enduring benefit to the assessee company. On the basis of the above finding, the assessing authority treated the replacement cost as capital expenditure. 4. The Commissioner of Income-tax(Appeals) held that the assessee has submitted that the replacement was made in respect of old inefficient yarn clearers by more effi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee had to opt for replacement. The installation of electronic yarn clearers incidentally improved the quality of the product, but that does not mean that the replacement was made for improving the quality and quantum of the out-put. He also rebutted the findings of the lower authorities that the removed mechanical clearers were used by the assessee company to fit in other old machines of the assessee company. There was no such orderly replacement. Certain pieces were used to replace some of the existing mechanical clearers of some units and this was done as a matter of convenience and not as a matter of modification or improvement. 6. The learned counsel for the assessee relied on the principles pronounced by the Hon'ble Supreme Court in the case of CIT vs. Saravana Spinning Mills P. Lyd., 293 ITR 20; in the case of Shreyans Industries Ltd. vs. CIT, 314 ITR 302; in the case of CIT vs. Sri Mangayarkarasi Mills P. Ltd., 315 ITR 114 and the Hon'ble Kerala High Court in the case of Vanaja Textiles Ltd. vs. CIT, 208 ITR 161. 7. Shri K.E.B.Rengarajan, the learned standing counsel appearing for the Revenue, on the other hand, contended that the substantial replacement of mec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....extile mill was deductible as revenue expenditure. 9. Keeping in mind the propositions laid down by the Courts in the above mentioned judgments, we have to see that whether an expenditure amounted to current repair or an expenditure amounted to a revenue expenditure depends upon the facts of each case and has to be ascertained after examining whether the expenditure was incurred to preserve and maintain an already existing asset and the expenditure must not be to bring a new asset into existence or to obtain a new advantage. 10. In the present case the assessee has replaced the mechanical yarn clearers with the electronic yarn clearers. The replacement was not made for the purpose of opting electronic device against the existing mechanical device. The existing mechanical yarn clearers were almost worn out after working for so many years in the past and it had become very essential for the assessee company to go for replacing those worn out yarn clearers. In the old time technology what was available for the assessee in the past was only mechanical yarn clearers. When the assessee company thought of replacement of old and worn out mechanical yarn clearers, a better option was ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....metallic card clothing. The Tribunal found that only unserviceable parts were replaced and the whole system had not been changed and that no new asset was brought into existence. The Court held that the expenditure incurred by the assessee was for better conduct and improvement of the existing business on a scheme of modernization and not for a fresh and new venture and the object of modernization was for facilitating the assessee's trading operations and for the conduct of the assessee's business to be carried on more effectively and to update the facilities on the lines of modern trends in business. The Court held therefore that the expenditure was revenue in nature. 13. When compared to the above case, the present case is absolutely non consequential. Here it is not the case of modernization of the textile mill of the assessee company. The assessee company only changed the old and worn out mechanical yarn clearers and installed new electronic yarn clearers. Therefore, definitely the expenditure incurred by the assessee company takes the character of revenue expenditure. 14. Therefore, in the facts and circumstances of the case we find that the expenditure of Rs. 99,33,995/....
X X X X Extracts X X X X
X X X X Extracts X X X X
....implementation deliverables are part and parcel of an indivisible purchase contract. It is not possible to divide the turnkey project into two, one towards the cost of the software and the other towards the cost of implementation deliverables. In substance and spirit both the parts are integral limbs of the single turnkey project. Therefore, the entire payment was towards purchase of software. The Commissioner of Income-tax(Appeals) is not justified in treating the implementation cost as payment for technical services. Therefore, we find that the entire payment of Rs. 50,50,000/- made by the assessee for installing the software is incurred for the outright purchase of the software and there is no provision for rendering any professional services. Therefore section 194 is not attracted in this case. Consequently section 40(a)(ia) does not apply to the present case. Therefore we delete the disallowance of Rs. 35 lakhs sustained by the Commissioner of Income-tax(Appeals). This issue is decided in favour of the assessee. 21. The third issue raised by the assessee is that the Commissioner of Income-tax(Appeals) has erred in holding that the requirements of provisions of section 36....