Section 31

Section 31 — the law in short

What the courts have decided on section 31, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Sri Mangayarkarasi Mills (P) Ltd Supreme CourtHelps departmentValidity unconfirmed
  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.
• CIT v Saravana Spinning Mills P Ltd Supreme CourtHelps department
  I replaced worn out ring frames in my spinning mill as part of modernisation. Is that current repairs under section 31(i)?
  No. The Supreme Court allowed the Department's appeals and held that replacing whole machines is not current repairs. The test under section 31(i) is not whether the spending is revenue or capital - that is the wrong question - but whether it preserves and maintains an already existing asset without bringing a new asset into existence or obtaining a new advantage. A ring frame is an independent machine with its own function, one of about 25 in a textile mill, and replacing three of them is substitution of an old asset by a new one. The Court also rejected the argument that the whole mill is one continuous process plant.
• Ballimal Naval Kishore v CIT Supreme CourtHelps department
  I spent heavily doing up my premises and plant. Is that 'current repairs', or has the AO rightly called it capital?
  It depends on whether what you did preserved an existing asset or produced a new one. The Court approved the test that current repairs means expenditure whose purpose is not renewal or restoration but only preserving or maintaining an asset that already exists. On the facts — a cinema rebuilt with new machinery, new furniture, new sanitary fittings, new wiring and extensive structural work — it held this was a total renovation and could not be called current repairs.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.