I replaced worn out machines in my spinning mill. Is that current repairs or at least revenue expenditure, since the mill is one integrated plant?
Neither. The Supreme Court held that each machine in a textile mill is an independent and separate asset with its own function, notwithstanding that all of them form part of one integrated manufacturing process. Replacing an old machine with a new one therefore brings a new asset into existence rather than preserving or maintaining an existing one, so it is not current repairs under section 31. It also gives the assessee an enduring benefit of better and more efficient production, so it is capital and not deductible under section 37. The claim of Rs 61,28,150 for assessment year 1995-96 was disallowed and the Assessing Officer's order restored.
Decided by the Supreme Court (Supreme Court of India, Civil Appellate Jurisdiction - Aftab Alam and Tarun Chatterjee, JJ; judgment by Tarun Chatterjee, J) on 2009-07-21, reported as (2009) 9 SCALE 716; 2009 AIR SCW 5432; (2011) 11 SCC 656; AIR 2009 SC (Supp) 2013. It bears on section 31, section 37(1), section 32 of the Income Tax Act 1961, in Deductions & Disallowances and How Tax Law Is Read matters.
This is the decision that closed the replacement of machinery line of cases in the textile industry and buried the Madras High Court's ruling in Janakiram Mills, which the Court held is not good law. It applies Saravana Spinning Mills and settles two things practitioners need. First, integration in a manufacturing process does not merge separate machines into one asset: the interconnection does not take away the independent identity and distinct function of each machine. Second, sections 31 and 37 operate in different spheres and the tests for one cannot be read into the other, so failing the current repairs test does not automatically send you to section 37 - the expenditure must independently be revenue in nature. The judgment also records the two narrow exceptions Saravana Spinning Mills allowed, where old parts are not available in the market or where the old parts have worked for fifty to sixty years.
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The assessee manufactured and sold cotton yarn. For assessment year 1995-96 it claimed Rs 61,28,150 spent on replacement of machinery as revenue expenditure, treating the outgoing as replacement of spare parts within the spinning mill system. The Assessing Officer disallowed it by order of 31 December 1997, holding that each machine in a spinning mill performs a different function, that output is taken from one machine and fed manually into the next so that the machines are not integrally connected, and that the expenditure was capital, on which depreciation could be claimed. He noted that the assessee had itself capitalised the assets in its books and shown the resulting profit to bankers, financial institutions, creditors and shareholders, while claiming the same amount as revenue in its tax computation. The Commissioner (Appeals) allowed the claim on 12 March 1998, following his own order for 1991-92, and the Tribunal dismissed the Revenue's appeal on 16 June 2004, following Madras High Court decisions that replacement of a ring frame is replacement of part of the machinery of a textile mill. The Madras High Court dismissed the Revenue's appeal on 18 December 2006, relying on Janakiram Mills and Loyal Textile Mills and holding that the accounting treatment did not decide the question. The Revenue appealed.
The appeal was allowed, the High Court's judgment set aside and the Assessing Officer's disallowance restored. Each machine in a textile mill is to be treated independently and not as a mere part of one composite machinery; the mill machinery as a whole cannot be regarded as a single asset whose parts are replaced by way of preservation or maintenance. Replacement of an old machine with a new one brings a new asset into existence and confers an enduring benefit of better and more efficient production, so it is not current repairs under section 31 and not revenue expenditure under section 37. The Court also held that the Madras High Court's decision in Janakiram Mills is not good law, having been set aside in Saravana Spinning Mills on the scope of section 31 and again dealt with in Ramaraju Surgical Cotton Mills. It declined to go into the definitions of asset and block of assets or the concept of depreciation, holding them unnecessary to the question. It rejected the assessee's preliminary objection that only section 37 was in issue, since the parties had litigated throughout on whether replacement was repair of an integrated machine or acquisition of a new one.
On the first question the Court applied Saravana Spinning Mills, which held that each machine in a segment of a textile mill has an independent role and that the output of each division differs, and that a ring frame is an independent and separate machine. Integration in the manufacturing process does not take away each machine's independent identity and distinct function. On section 31 the test from Saravana Spinning Mills and Ballimal Naval Kishore is whether the expenditure preserves and maintains an already existing asset rather than bringing a new asset or a new advantage into existence; whether the outgoing is revenue or capital is not the test under section 31. Since the mill cannot be treated as one asset, replacing a machine is not repair of it, and repair presupposes a malfunctioning part which replacement does not involve - to hold otherwise would make section 31(i) redundant. The two exceptions recognised in Saravana Spinning Mills, where old parts are not available in the market as in Mahalakshmi Textile Mills or where the old parts have worked for fifty to sixty years, were not claimed. On section 37 the Court applied the four conditions from Saravana Spinning Mills and found only the revenue character in dispute; applying Travancore Cochin Chemicals and Lakshmiji Sugar Mills, expenditure that brings a new asset into existence or secures an enduring advantage is capital. Finally, although accounting practice is not the best guide, the assessee's own capitalisation showed what it thought of the outgoing and that the deduction was claimed to reduce the tax burden.
All machines put together constitute the production process and each separate machine is an independent entity. Replacement of such an old machine with a new one would constitute the bringing into existence of a new asset
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Handle my notice → Ask a CA on WhatsAppNeither. The Supreme Court held that each machine in a textile mill is an independent and separate asset with its own function, notwithstanding that all of them form part of one integrated manufacturing process. Replacing an old machine with a new one therefore brings a new asset into existence rather than preserving or maintaining an existing one, so it is not current repairs under section 31. It also gives the assessee an enduring benefit of better and more efficient production, so it is capital and not deductible under section 37. The claim of Rs 61,28,150 for assessment year 1995-96 was disallowed and the Assessing Officer's order restored. This was decided by the Supreme Court (Supreme Court of India, Civil Appellate Jurisdiction - Aftab Alam and Tarun Chatterjee, JJ; judgment by Tarun Chatterjee, J) and bears on section 31, section 37(1), section 32 of the Income Tax Act 1961. It is reported as (2009) 9 SCALE 716; 2009 AIR SCW 5432; (2011) 11 SCC 656; AIR 2009 SC (Supp) 2013. This is the decision that closed the replacement of machinery line of cases in the textile industry and buried the Madras High Court's ruling in Janakiram Mills, which the Court held is not good law. It applies Saravana Spinning Mills and settles two things practitioners need. First, integration in a manufacturing process does not merge separate machines into one asset: the interconnection does not take away the independent identity and distinct function of each machine. Second, sections 31 and 37 operate in different spheres and the tests for one cannot be read into the other, so failing the current repairs test does not automatically send you to section 37 - the expenditure must independently be revenue in nature. The judgment also records the two narrow exceptions Saravana Spinning Mills allowed, where old parts are not available in the market or where the old parts have worked for fifty to sixty years. If it applies to you, the first step is this: Claim depreciation on a replaced machine rather than a revenue deduction, and expect the claim to be tested asset by asset, not plant by plant.
The assessee manufactured and sold cotton yarn. For assessment year 1995-96 it claimed Rs 61,28,150 spent on replacement of machinery as revenue expenditure, treating the outgoing as replacement of spare parts within the spinning mill system. The Assessing Officer disallowed it by order of 31 December 1997, holding that each machine in a spinning mill performs a different function, that output is taken from one machine and fed manually into the next so that the machines are not integrally connected, and that the expenditure was capital, on which depreciation could be claimed. He noted that the assessee had itself capitalised the assets in its books and shown the resulting profit to bankers, financial institutions, creditors and shareholders, while claiming the same amount as revenue in its tax computation. The Commissioner (Appeals) allowed the claim on 12 March 1998, following his own order for 1991-92, and the Tribunal dismissed the Revenue's appeal on 16 June 2004, following Madras High Court decisions that replacement of a ring frame is replacement of part of the machinery of a textile mill. The Madras High Court dismissed the Revenue's appeal on 18 December 2006, relying on Janakiram Mills and Loyal Textile Mills and holding that the accounting treatment did not decide the question. The Revenue appealed. The matter was decided on 2009-07-21 by the Supreme Court (Supreme Court of India, Civil Appellate Jurisdiction - Aftab Alam and Tarun Chatterjee, JJ; judgment by Tarun Chatterjee, J). On those facts the Supreme Court held as follows. The appeal was allowed, the High Court's judgment set aside and the Assessing Officer's disallowance restored. Each machine in a textile mill is to be treated independently and not as a mere part of one composite machinery; the mill machinery as a whole cannot be regarded as a single asset whose parts are replaced by way of preservation or maintenance. Replacement of an old machine with a new one brings a new asset into existence and confers an enduring benefit of better and more efficient production, so it is not current repairs under section 31 and not revenue expenditure under section 37. The Court also held that the Madras High Court's decision in Janakiram Mills is not good law, having been set aside in Saravana Spinning Mills on the scope of section 31 and again dealt with in Ramaraju Surgical Cotton Mills. It declined to go into the definitions of asset and block of assets or the concept of depreciation, holding them unnecessary to the question. It rejected the assessee's preliminary objection that only section 37 was in issue, since the parties had litigated throughout on whether replacement was repair of an integrated machine or acquisition of a new one.
On the first question the Court applied Saravana Spinning Mills, which held that each machine in a segment of a textile mill has an independent role and that the output of each division differs, and that a ring frame is an independent and separate machine. Integration in the manufacturing process does not take away each machine's independent identity and distinct function. On section 31 the test from Saravana Spinning Mills and Ballimal Naval Kishore is whether the expenditure preserves and maintains an already existing asset rather than bringing a new asset or a new advantage into existence; whether the outgoing is revenue or capital is not the test under section 31. Since the mill cannot be treated as one asset, replacing a machine is not repair of it, and repair presupposes a malfunctioning part which replacement does not involve - to hold otherwise would make section 31(i) redundant. The two exceptions recognised in Saravana Spinning Mills, where old parts are not available in the market as in Mahalakshmi Textile Mills or where the old parts have worked for fifty to sixty years, were not claimed. On section 37 the Court applied the four conditions from Saravana Spinning Mills and found only the revenue character in dispute; applying Travancore Cochin Chemicals and Lakshmiji Sugar Mills, expenditure that brings a new asset into existence or secures an enduring advantage is capital. Finally, although accounting practice is not the best guide, the assessee's own capitalisation showed what it thought of the outgoing and that the deduction was claimed to reduce the tax burden. In the words reproduced by the source cited on this page: "All machines put together constitute the production process and each separate machine is an independent entity. Replacement of such an old machine with a new one would constitute the bringing into existence of a new asset"
It was decided by the Supreme Court on 2009-07-21 and is reported as (2009) 9 SCALE 716; 2009 AIR SCW 5432; (2011) 11 SCC 656; AIR 2009 SC (Supp) 2013. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 31, section 37(1), section 32, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeal was allowed, the High Court's judgment set aside and the Assessing Officer's disallowance restored. Each machine in a textile mill is to be treated independently and not as a mere part of one composite machinery; the mill machinery as a whole cannot be regarded as a single asset whose parts are replaced by way of preservation or maintenance. Replacement of an old machine with a new one brings a new asset into existence and confers an enduring benefit of better and more efficient production, so it is not current repairs under section 31 and not revenue expenditure under section 37. The Court also held that the Madras High Court's decision in Janakiram Mills is not good law, having been set aside in Saravana Spinning Mills on the scope of section 31 and again dealt with in Ramaraju Surgical Cotton Mills. It declined to go into the definitions of asset and block of assets or the concept of depreciation, holding them unnecessary to the question. It rejected the assessee's preliminary objection that only section 37 was in issue, since the parties had litigated throughout on whether replacement was repair of an integrated machine or acquisition of a new one. It arises in Deductions & Disallowances and How Tax Law Is Read matters, on section 31, section 37(1), section 32 of the Income Tax Act 1961, and was decided by Supreme Court of India, Civil Appellate Jurisdiction - Aftab Alam and Tarun Chatterjee, JJ; judgment by Tarun Chatterjee, J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If you argue current repairs, show that the expenditure preserves and maintains an existing asset and brings no new asset or advantage into existence; whether the outgoing is revenue or capital is not the test under section 31. Bring yourself within one of the two exceptions if you can - old parts unavailable in the market, or parts that have run for fifty to sixty years - and put the evidence for it on record. Keep the books and the tax computation consistent: capitalising the same expenditure in the accounts while claiming it as revenue in the return told against this assessee.
Still good law. A citator search on the document read returns only 8 later decisions, which understates the position because the judgment sits on more than one page of the source; a second search by case name and subject returns 112. The holding that each machine in a textile mill is a separate asset, so that replacement is capital expenditure and not current repairs, is applied repeatedly by the Madras High Court: CIT-III v Vijayeswari Textiles Limited (30 October 2018), CIT v Prabhu Spinning Mills (P) Ltd (20 November 2018), CIT v TVS Motor Company Ltd (8 March 2022) and CIT v Fenner (India) Ltd (11 February 2022); the Kerala High Court applied it in CIT v Vanaja Textiles Ltd (23 June 2010) and the Andhra Pradesh High Court in CIT, Guntur v Shri Dhanalakshmi Cotton and Rice (23 December 2014). Nothing overruling, doubting or referring it to a larger Bench was found. The Amritsar Bench in Bright Enterprises P Ltd (29 April 2014) reasoned that it did not apply on those facts, which is a distinction on facts. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment does not describe which machines were replaced or in what numbers; it proceeds on the general question of replacement of machinery in a spinning mill. It expressly leaves undecided the effect of the definitions of asset and block of assets and of the depreciation scheme. Circular No. 69 of 27 November 1957 on tube lights was relied on by both sides and the Court does not deal with it in terms. The batch line gives the sections as 31, 37(1) and 32; section 32 is retained because the Assessing Officer held depreciation available, though the Court declined to decide anything about it. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was allowed, the High Court's judgment set aside and the Assessing Officer's disallowance restored. Each machine in a textile mill is to be treated independently and not as a mere part of one composite machinery; the mill machinery as a whole cannot be regarded as a single asset whose parts are replaced by way of preservation or maintenance. Replacement of an old machine with a new one brings a new asset into existence and confers an enduring benefit of better and more efficient production, so it is not current repairs under section 31 and not revenue expenditure under section 37. The Court also held that the Madras High Court's decision in Janakiram Mills is not good law, having been set aside in Saravana Spinning Mills on the scope of section 31 and again dealt with in Ramaraju Surgical Cotton Mills. It declined to go into the definitions of asset and block of assets or the concept of depreciation, holding them unnecessary to the question. It rejected the assessee's preliminary objection that only section 37 was in issue, since the parties had litigated throughout on whether replacement was repair of an integrated machine or acquisition of a new one.
TaxSphere, “CIT v Sri Mangayarkarasi Mills (P) Ltd”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-sri-mangayarkarasi-mills-p-ltd/ (validity last checked 2026-08-29)
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