Case: Commissioner of Income Tax Vs. Sarangpur Cotton Mfg. Co. Ltd

Briefly stated the facts, which give rise to this appeal, are as follows:2. The Respondent-Assessee is a public limited company and is engaged in the business of manufacturing cotton yarns and textile. During the assessment year 1974-75, the Respondent-Assessee has claimed deduction of Rs. 35,49,011 as repairs and replacement of machinery expenditure on conversion material etc. The assessing authority disallowed a sum of Rs. 27,71,270 out of the aforesaid revenue expenditure claimed by the Respondent on the ground that it related to installation of the above machinery and is in the nature of outlay of capital expenditure3. Feeling aggrieved, the Respondent-Assessee preferred appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) vide order dated September 29, 1983 allowed Rs. 26,84,235 as admissible revenue expenditure and at the same time directed the Assessing Officer to withdraw the depreciation and development rebate granted on these capitalized items, as they have been treated as revenue expenditure4. The Revenue preferred an appeal before the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal vide order dated September 12, 1985 agreed with the order passed by the Commissioner of Income-tax (Appeals) and dismissed the appeal5. Still feeling aggrieved, the Revenue Department preferred a reference application before the Gujarat High Court. The High Court by the impugned order had answered the question of law raised by the Appellant herein in favour of the Respondent-Assessee.

Court's reasoning:
In Saravana Spinning Mills (P.) Ltd. (supra) this Court has held that in a textile mill there are several Departments/divisions. In each Department/division there are several machines and perform different functions. Therefore, when each of the Department/Division perform different functions, repair/substitution of an old machine will not come within the definition of the word "current repairs" and deduction cannot be claimed thereunder.