Durairaj Mills Ltd. Vs. Deputy Cit - Court Judgment

Excerpt:

counsels: t.n. seetharaman, for the assessee arun bhatnagar, for the revenue in the itat, madras b bench n.d. raghavan, v.p. & n. bharatvaja sankar, a.m. - constitution of india article 141; [a.p. shah, c.j., f.m. ibrahim kaliffulla &v. ramasubramanian, jj] reference to larger bench - precedent - full bench decision held, it is binding on the division bench. only if the full bench comes to conclusion that earlier full bench decision is incorrect, there is scope for making reference to larger bench. division bench doubting correctness of full bench decision cannot direct registry for placing papers before chief justice to make reference to larger bench. .....ltd. : [1999]238itr351(mad) .while rendering the decision in sree narasimha textiles ltd.s case, the madras high court has referred to the supreme court decision in the case of ballimal naval kishore (supra); applying the tests laid down in new shorrock spinning & mfg. co. ltd. v. cit : [1956]30itr338(bom) approved by the supreme court in ballimal naval kishores case, the honble madras high court has allowed replacement of electric motors in a textile mill as revenue expenditure. hence the order of the commissioner (appeals) is contrary to law and facts of the case.4. on the other hand, the learned representative for the revenue countered. by supporting the orders of the authorities below and also by submitting that replacement of new machinery substituted in place of old machinery is never to be allowed as revenue expenditure. in the light of the changed legal environment from assessment year 1970-71 wherein plant and machinery itself is the unit for consideration of allowances under sections 31 and 32 of the act, replacement of defective parts of a machinery with the objective of preserving and maintaining the machinery, though involving a substantial value is a revenue.....

Judgment:

ORDER

N.D. Raghavan V.P.

This is an appeal of the assessee challenging the order dated 6-8-1999 of the Commissioner (Appeals) as erroneous.

2. Facts of the case as gathered from the record are briefly these : The assessee is a spinning mill and during the year in question it purchased machineries at its Unit I and II in an amount of Rs. 1,50,55,849 and Rs. 15,81,856 respectively. Out of the above, Rs. 90,74,581 has been considered as capital expenditure and Rs. 75,62,854 has been considered as revenue expenditure. The cost of revenue expenditure has been claimed in respect of 8 combers and one lap former out of 12 combers and 2 lap formers purchased during the year, These machines are second-hand items and are imported from abroad. The old combers now replaced were purchased in 1990 and they are being replaced after 4 years. The assessing officer following the Supreme Courts decision in Ballimal Naval Kishore v. CIT : [1997]224ITR414(SC) did not allow the claim of revenue expenditure of Rs. 75,62,854, since the assessee has increased its spindlage capacity from 12,960 to 13,440 thereby increasing its production capacity. As the new machineries replaced give enduring benefit to the assessee, the assessing officer capitalised the same and due depreciation allowed thereon.

On appeal the Commissioner (Appeals) after considering the matter in a detailed order dismissed the appeal of the assessee. Aggrieved, the assessee is in appeal before us.

3. The learned counsel for the assessee submitted that the Commissioner (Appeals) erred in upholding the disallowance of expenditure of Rs. 75,62,854 incurred by the assessee on replacement of combers and lap formers as capital expenditure. He erred in not following the principles laid down in several decisions of the Supreme Court, various High Courts and the Tribunal relied on before him. The certificate from sitra furnished by the assessee and companys own report bring out that the replacement of the combers and lap formers had only contributed to the improvement in the quality of the yarn produced by the assessee and did not represent increase in capacity. The various points summed up at pp 6 and 7 of the Commissioner (Appeals)s order do not singly or cumulatively support his finding that the replacement of the combers and lap formers and resulting improvement in quality of the assessees product is an enduring benefit accruing to the assessee in the capital field. The decision cited by the Commissioner (Appeals) at p 8 of his order are distinguishable. The Commissioner (Appeals) erred in overlooking the direct decisions with reference to the textile industry and replacement of textile machinery relied on by the assessee. The reference to the Budget Speech of 1986-87 by the Finance Minister and liberalisation of depreciation of commercial vehicles have no relevance to the point at issue and is completely out of context. The Commissioner (Appeals) erred in referring to certain observations of the Tribunal in the case of Nagammal Mills. The subsequent decision in Harendra Raja Textiles Ltd.s case the Tribunal after considering its decision in Nagamall Mills case, has following several other decisions of the Madras Benches of the Tribunal and the ratio decidendi of the decision of the jurisdictional High Court in Bharathi Cotton Mill (P) Ltd. allowed the cost of replacement of speed frames as revenue expenditure. In support of its stand, the assessee relied on the decisions followings :

(a) CIT v. Shri Bharathi Cotton Mills (P) Ltd. (TCP No. 28/1997 dt 19-12-1997);

(b) CIT v. Co-operative Sugar Mills Ltd. : [1999]235ITR343(Ker) ; and

(c) CIT v. Sree Narasimha Textiles (P) Ltd. : [1999]238ITR351(Mad) .

While rendering the decision in Sree Narasimha Textiles Ltd.s case, the Madras High Court has referred to the Supreme Court decision in the case of Ballimal Naval Kishore (supra); applying the tests laid down in New Shorrock Spinning & Mfg. Co. Ltd. v. CIT : [1956]30ITR338(Bom) approved by the Supreme Court in Ballimal Naval Kishores case, the Honble Madras High Court has allowed replacement of electric motors in a textile mill as revenue expenditure. Hence the order of the Commissioner (Appeals) is contrary to law and facts of the case.

4. On the other hand, the learned representative for the revenue countered. by supporting the orders of the authorities below and also by submitting that replacement of new machinery substituted in place of old machinery is never to be allowed as revenue expenditure. In the light of the changed legal environment from assessment year 1970-71 wherein plant and machinery itself is the unit for consideration of allowances under sections 31 and 32 of the Act, replacement of defective parts of a machinery with the objective of preserving and maintaining the machinery, though involving a substantial value is a revenue expenditure allowable under section 31 as current repairs whereas replacement or renewal of the entire machinery or substantial replacement of parts of the entire machinery amounts to creation of new asset and the expenditure incurred is capital expenditure which cannot be allowed under section 31. The question is whether there is an option available to the assessee regarding whether to claim depreciation and other capital allowance or whether to claim replacement as repairs. In view of the observations of the Honble Madras High Court in CIT v. Southern Petro Chemical ( : [1998]233ITR400(Mad) such an option is not available to the assessee. The principle of res judicata and estoppel do not apply to income-tax proceedings (See Namdang Tea Co. Ltd. v. CIT & Ors. : [1982]138ITR326(Cal) and CIT v. Brijlal Lohia & Mahabir Parsad Khemka (1977) 84 ITR 273 .

5. The learned counsel for the assessee replied that it is erroneous to have disallowed the sum of Rs. 75,62,854 being cost of replacement of 8 combers and one lap former by imported combers and lap former of the same capacity. The entire manufacturing process in a textile industry is an integrated process and the machineries replaced forms part of the integrated process. Increase in installed capacity of 480 spindles by way of installation of one spinning frame is not directly related to the aforesaid replacement. The disallowance being replacement cost of combers, which is in the nature of revenue expenditure, is not in accordance with the provisions of the Income Tax Act and also on the facts of the case. Reliance is placed on the decisions following :

(a) CIT v. Mahalskhmi Textile Mills Ltd. : [1967]66ITR710(SC) .

(b) ITO v. Sri Varadaraja Textiles Mills Ltd. (1984) 9 ITD 469

(c) Inspecting Assistant Commissioner v. Kasturi Mills Ltd. in ITA No. 105/Mad/1985;

(d) CIT v. Madras Spinners Ltd. : [1989]177ITR495(Ker) ,. and

(e) CIT v. Salem Co-operative Spinning Mills Ltd. : [1984]148ITR176(Mad) .

Under those circumstances, the amount of Rs. 75,62,854 has to be allowed as revenue expenditure and justice rendered to the assessee.

6.1. The learned representative for the revenue issued a rejoinder by submitting that the concept of replacement and modernisation is in-built in the concept of depreciation. That is the reason why there is no separate deduction available for replacement and modernisation. If the claim of the assessee is to be accepted, it will be necessary to scrap section 32 itself. It is also worth noting that upto assessment year 1969-70, plant and machinery of certain mills like sugar, cement etc. did not have any individual identity and they formed part of the concern as a whole. Certain machineries like rollers in sugar works were not entitled to any depreciation but their cost of replacement was specifically allowed in the schedule. From the assessment year 1970-71, by the Income Tax (Sixth Amendment) Rules the scheme of allowing special rates for all plant and machinery used in a factory as a whole was given up. The provisions of allowing cost of replacement in respect of certain machinery in the depreciation schedule was also given up. This vital change in the law was not brought to the notice of the judicial authorities in many of the decided cases.

6.2. When the government wanted to encourage replacement and modernisation through the Income Tax Act, the same is specifically provided. For example, with effect from 1-4-1989, the rates of depreciation in respect of commercial vehicle have been increased. The same is now 40 per cent and if a new vehicle is acquired in replacement of condemned vehicle of over 15 years, the rate of depreciation is 60 per cent.

6.3. This view is also supported by the observations of the Honble Supreme Court in a recent decision in Mysore Minerals Ltd. v. CIT : [1999]239ITR775(SC) . Explaining the nature of depreciation, it was, inter alia, observed :

'An overall view of the above said authorities shows that the very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset, is utilising the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time.'

6.4. The Income Tax Act of 1961 is based mainly on the recommendations of the Report of the Taxation Enquiry Commission of 1955. The Commission received various representations and expressed its views in this regard. It is interesting to note that the commission had dealt with the issue of repairs as follows :

'25(i) Repairs-Section 10(2)(v) of the Indian Income Tax Act permits a deduction in the computation of taxable income in respect of the amount paid on account of current repairs to buildings, machinery, plant or furniture used for the purposes of business. It has been represented to us that the word current in the phrase ¤t; repairs used in the section should be deleted and that the allocation made between revenue and capital by the management and the Chartered Accountants in respect of expenditure on repairs should be accepted by the Income Tax Department. The use of the word current adds precision to the ordinary connotation of the term repairs as contra-distinguished from alterations, etc. which are chargeable to capital and on which depreciation is allowed. We do not think, however, that it is appropriate that the decision of the management and of accountants in this respect should be binding on the Income Tax Department.'

7.1. Now the learned counsel for the assessee reiterated that the departments contention that the Bench should take a view different from the view expressed in several decisions of the Tribunal that replacement of machinery in a textile mills is revenue expenditure is clearly improper and unsustainable. Among the judicial decisions relied in support of the assessees claim are the decisions of the Honble Madras High Court in : (1) CIT v. Shree Bharathi Cotton Mills (P) Ltd. (order dated 19-12-1997, in TRP No. 29/1997) and (2) CIT v. Sree Narasimha Textiles (P) Ltd. (supra). These decisions of the jurisdictional Madras High Court are binding on the Tribunal.

7.2. In deciding the issue against the assessee in the present case the Commissioner (Appeals) has heavily relied on the decision of the Supreme Court in Ballimal Naval Kishore v. CIT (supra). This decision was cited by the counsel for the revenue in Sree Narasimha Textiles (P) Ltd.s case. After considering the decision of the Supreme Court, the Madras High Court has held that the expenditure on replacement of electric motors in the textile mill was revenue expenditure.

7.3. It must be mentioned here that the Commissioner (Appeals) has also relied on the decision of the Madras High Court in CIT v. Southern Petrochemical Industries Corpn. Ltd. (supra). This decision has been overruled by the Supreme Court in CIT v. Mahendra Mills (judgment dated 15-3-2000) and is no longer good law.

7.4. In the assessees submissions, to reiteration reference may be made to the decision of the Tribunal Pune Bench in Eagle Flask Industries Ltd. v. Deputy CIT and the extract at pp 458 & 459 from the decision of the Supreme Court in Kamalakshi Finance Corporation Ltd.s case (supra) wherein the Supreme Court has emphasised that the orders of the Tribunal should be followed by the assessing officer and the first appellate authority and that utmost regard should be paid by the assessing and appellate authorities to the requirements of judicial discipline.

7.5. Reference may also be made in this connection to the following observations in C.D. Thadani, ITO v. Universal Ferro & Allied Chemicals Ltd. : [1988]172ITR30(Bom) :

'Take for example, the High Court considers and interprets the decision given by the Supreme Court on a certain issue. Now, is it permissible for the District Court to ignore the High Court judgment by claiming that the High Court has not properly interpreted the decision of the Supreme Court? If the District Court is permitted to do so it would make chaos in the administration of justice and this must be prevented at any cost.'

7.6. In CWT v. Labh Kavar Bai : [1999]236ITR872(Mad) the Honble Madras High Court has gone further to hold that in a case in which a judgment of a High Court was available, the difference of opinion expressed by the Tribunals various Benches was settled by the aforesaid decision of the High Court, as the decision of a High Court is binding on the Tribunal wherever it is located in the country.'

7.7. In the light of the aforesaid observations of the Supreme Court and the Bombay and Madras High Courts it is submitted that the assessing officer and the Commissioner (Appeals) in the present case should have followed the various decisions of the Tribunal cited before them on identical issue.

7.8. The assessee relies on the following further judicial decisions in support of its case :

(a) CIT v. Madras Spinners Ltd. : [1994]207ITR35(Ker) holding that the expenditure of Rs. 9,69,563 incurred by the assessee on modernising its machinery is revenue expenditure.

(b) Vanaja Textiles Ltd. v. CIT (1994) 208 ITR 161 holding that the comprehensive scheme of modernisation and rehabilitation was for improvement in the operation of the existing business and its efficiency and profitability not resolved from the area of the day-to-day business of the assessees established enterprise. There was no fresh or new venture in the scheme of modernisation envisaged by the assessee. The expenditure on modernisation was deductible as revenue expenditure.

(c) CIT v. Mysore Spun Concrete Pipe (P) Ltd. : [1992]194ITR159(KAR) holding that replacement of moulds was not in the nature of replacement of a capital machinery but in the nature of replacing a part of the machinery especially in the context of the entire set up being treated as one unit. The replacement of moulds was in the nature of maintenance of the machinery installed in the factory. It could be termed loosely as rebuilding of the machinery as a whole used in the productive process of the assessee. Therefore, the expenditure on replacement of damaged moulds and replacement of runners and the rings was revenue in nature.

(d) Co-operative Sugars v. Inspecting Assistant Commissioner holding that in respect of machinery used for the manufacture of sugar it was apparent that each machinery though doing distinct functions was only an integral part of the whole plant and they did not have independent existence. Further, the manufacturing operation itself was a continuous process in the case of sugar mills and the final product, the sugar crystal and by-product molasses emerged at the final stage. There was no scope for taking out the products in between. Therefore, the repairs and replacements done by the assessee were but only repairs and replacements of parts of an integrated machinery. By such repairs and replacements, no advantage of an enduring nature had come into existence. The profit status of the assessee was only maintained by doing such repairs and replacements. Hence, the repairs and replacements of machines were revenue in nature.

7.9. In view of the above cited direct decisions on replacement of machinery in textile mills, it is submitted that the discussion in the departments paper book III on the meaning of plant and machinery, fixed and circulating capital, capital and revenue expenditure are purely academic and do not deserve any consideration on the present case.

7.10. The department has attempted a distinction based on the IT (Sixth Amendment) Rules, 1969 and stated that under the new rules each plant and machinery is considered as an independent unit itself and not part of any productive unit, mill, works, concern or profit-earning apparatus. The department has also referred to the block of assets concept which is brought in by the Taxation Laws (Amendments and Miscellaneous Provisions) Act, 1986. Based on these changes in the pattern of grant of depreciation allowance, the department contends that the statutory intent is to treat a particular plant and machinery as a unit itself and not to consider it as part of a larger productive unit. The department has also referred to the grant of higher rates of depreciation to encourage modernisation by replacing old machinery.

7.11. The assessee submits that the question involved in the present case, as in the cases of all textile mills decided by the Tribunal and courts, relates to the nature of the expenditure, whether capital or revenue. The classification of industry or plant and machinery or variations in the rates of admissible depreciation under the Income Tax Rules have no relevance whatsoever to the question involved in the present case.

7.12 In Titanium Equipments & Anodes Mfg. Co. Ltd. v. Union of India : [1994]207ITR566(Mad) , the Madras High Court has observed that :

'Parliament has the freedom to select and classify goods for purposes of different rates of depreciation having regard to the wide variety of diverse economic criteria that go into the formulation of fiscal policy, the legislature enjoys a wide latitude in the matter of selection of persons, subject-matter, etc., and within that latitude a classification could be made; when the power to tax and grant exemptions and benefits of depreciation exists the extent of the benefit is a matter for the discretion of the law makers and is within the exclusive province of the legislature.'

7.13. In the light of the above observations the assessee submits that the classification of machinery and rates of depreciation as per the Income Tax Rules which are matters of policy, ought not to be confused with the basic question of capital and revenue expenditure and do not constitute relevant criteria.

7.14. In conclusion, the assessee submits that if the departments grievance is that the various High Courts including the jurisdictional High Court and the Tribunal have not considered the matter in the light of the statutory intention the proper forum to agitate the issue is the Apex Court and until the matter is reviewed by the Apex Court the binding decisions of the courts have to be followed by the assessing and appellate authorities as per the requirements of judicial discipline.

8.1. In turn, the learned representative for the revenue highlighted that it has become a common feature in the cases of many of the spinning mills that the substantial sum is spent in buying and installing items of new machinery under the guise of 'modernisation and replacement' of old machinery and claiming the expenditure as revenue, though in many cases it is capitalised in the books. One of the cases often quoted in support of the above claim is that of CIT v. Mahalakshmi Textiles Mills (supra). The Supreme Court in that case was ruling on the jurisdiction of the Appellate Tribunal.

8.2. In the case of CIT v. Mahalakshmi Textile Affairs cited supra, what was essentially decided by the Apex Court was the jurisdiction of the Tribunal. In that case, the assessee had originally claimed development rebate on casablanca conversion system and subsequently for the first time before the Tribunal claimed that in the alternative, it was entitled to claim deduction under Current repairs. The jurisdiction of the Tribunal to allow a plea inconsistent with the plea raised before the departmental authorities was questioned and answered by the Honble Supreme Court. As regards the allowability of the amount as current repairs, the Supreme Court had only this to say :

'The Tribunal had evidence before it from which it could be concluded that by introducing the Casablanca Conversion system the assessee made current repairs to the machinery and plant. The High Court observed that certain moving parts of the machinery had, because of wear and tear to be periodically replaced, and when it found that the old type of replacement were not available in the market, the assessee introduced the Casablanca Coversion system, but thereby there was merely replacement of certain parts which were a modified version of other parts. Counsel for the Commissioner had not challenged these findings and the answer for the second question recorded in the affirmative by the High Court must be accepted.'

The above decision, therefore, certainly does not lay down the law relating to current repairs.

8.3. Upto assessment year 1969-70 depreciation on plant and machinery was granted depending upon the purpose for which they were used and not on the basis of the capacity of the characteristics of the machinery vide CIT v. Vasan Publications (P) Ltd. : [1986]159ITR381(Mad) . From assessment year 1970-71 there was total departure from the past method. The Income Tax (Sixth Amendment) Rules, 1969 brought in a new scheme under which special rates are provided only for particular kinds of machinery and plant. Even after the introduction of the concept of block of assets vide Taxation Laws (Amendment of Miscellaneous Provisions) Act, 1986 the individual assets do retain their separate individual identity even though they form part of the block of assets. Present provisions of section 32 and the rule 5 clearly indicate the plant and machinery have distinct independent identities as individual assets forming part of the block of assets with distinct rates of depreciation. Thus the unit/subject-matter for consideration of depreciation. Thus the unit/subject-matter for consideration of depreciation, and current repairs is the plant and machinery itself and not the plant and machinery of the mill, works, factory plant and concern as a whole.

8.4. From assessment year 1970-71 the provisions of section 32 read with rule 5 of the Income Tax Rules do not have any provision granting replacement of machinery as revenue expenditure. This is in contrast with the earlier provision (1922 Act with rule 8 and rule 5 upto assessment year 1969-70), wherein replacement cost of certain machineries were granted allowance by way of revenue expenditure. For example rollers used in flour mills and sugar works, rolling mill, rolls, etc. Under the new provision, these items get 100 per cent depreciation and not any allowance by way of revenue expenditure. The provision allowing replacement cost of machinery as revenue expenditure had been totally removed effective from 1-4-1970 i.e. assessment year 1970-71.

8.5. The computation of written down value under the scheme of block of assets envisages that the value of all new replacing machinery be added to the opening WDV and that the value of old replaced machinery be reduced from the WDV. Provisions of section 50 by which capital gains is computed on the net sale consideration of plant and machinery is further elucidation of the above concept.

8.6. Section 37(1) clearly states only revenue expenditure and not capital expenditure is allowable in arriving at business profits. The expenditure incurred on a capital asset at the time of inception of a business, extension of the business or on replacement of old capital asset is a capital expenditure not allowable under section 37. The legislature allows interest on borrowed capital utilised for acquiring a capital asset under section 36(1)(iii). If the cost of capital asset itself is to be allowed as revenue expenditure on account of replacement, then there is no need for a specific provision under section 36(1)(ii) and the extra cost of the asset including the interest could have been allowed under section 37(1). This is not the intention of the legislature.

8.7. From a perusal of the stringent Accounting Standards 1, 10 and 6 issued by the Institute of Chartered Accountants of India also it is clear that replacement of new machinery substituted in place of old machinery is never to be allowed as revenue expenditure.

8.8. In CIT v. Mir Mohd. Ali : [1964]53ITR165(SC) it was held that 'machinery' means some mechanical contrivances which by themselves or in combination with one or more contrivances by the joint movement and interdependent operation of their respective parts generate power or evoke, modify, apply or direct natural forces with the object in each case of effecting so definite and specific a result.

8.9. Machinery does not cease to be machinery because it has to be used in conjunction with one or more machines, nor does it cease to be machinery merely because it is, for instance, installed as part of a manufacturing or industrial plant (See Aruna Mills Ltd. v. CIT : [1966]59ITR507(Guj) and CIT v. Indian Textile Paper Tube Co. Ltd. : [1998]234ITR47(Mad) .

8.10. In Assam Bengal Cement Co. Ltd. v. CIT : [1955]27ITR34(SC) the Supreme Court has held that expenditure incurred on capital asset at the time of the initiation of business extention and substantial replacement of assets in the course of the business is clearly capital expenditure. A capital aset of the business is either required or extended or substantially replaced and that outlay whatever be its source whether it is drawn from the capital or the income of the concern is certainly in the nature of capital expenditure.

8.11. There are a number of decisions, e.g. Mysore Minerals Ltd. v. CIT (supra) and P.K. Badiani (P) Ltd. v. CIT : [1976]105ITR642(SC) wherein it was held that the concept of replacement is inbuilt in depreciation. The principle underlying grant of deduction until the original cost is recovered is to provide a fund for replacing the machinery and plant at the end of the term.

8.12. In Ballimal Naval Kishore v. CIT (supra) the Supreme Court has approved the test laid down by the Bombay High Court in the case of New Shorrock Spg & Mfg. Ltd. v. CIT (supra).

8.13. Thus in the light of the changed legal environment from assessment year 1970-71 wherein plant and machinery itself is the unit for consideration of allowances under sections 31 and 32 of the Act, replacement of defective parts of a machinery with the objective of preserving and maintaining the machinery, though involving a substantial value is a revenue expenditure allowable under section 31 as current repairs whereas replacement/renewal of the entire machinery or substantial replacement of parts of the entire machinery, amounts to creation of a new asset and the expenditure incurred is capital expenditure which cannot be allowed under section 31.

In conclusion, the purpose of granting highly liberal rates of depreciation on the various blocks of assets had been elucidated by the Honble Finance Minister in his Budget Speech for 1986-87 in the context of Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1968 as under :

'96. As promised in the long-term Fiscal Policy Statement, I propose to introduce a system of allowing depreciation in respect of block of assets instead of the present system of depreciation on individual assets. Simultaneously, I propose to rationalise the rate structure by reducing the number of rates as also by providing for depreciation at higher rates so as to ensure that more than 80 per cent of the cost of the plant and machinery is written off in a period of 4 years or less. This will render replacement easier and help modernisation. Apart from those items which are eligible for 100 per cent depreciation in the initial year itself, there are at present different rates for plant and machinery. I propose to have only two rates of depreciation at 33-1/3 per cent and 50 per cent. Plant and machinery used as anti-pollution devices and those using indigenous know-how are proposed to be placed in a block carrying the higher rate of depreciation of 50 per cent. Buildings meant for low-paid employees of industrial undertakings will be entitled to depreciation at 20 per cent as against the general rate of 5 per cent for residential buildings and 10 per cent for non-residential buildings.'

8.14. This view is also supported by the observation of the Honble Supreme Court in a recent decision in Mysore Minerals Ltd. v. CIT (supra). Explaining the nature of depreciation, it was, inter alia, observed :

'An overall view of the above said authorities shows that the very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset and thereby losing gradually investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time.'

8.15. The question is whether there is an option available to the assessee regarding whether to claim depreciation and other capital allowance or whether to claim replacement as repairs. It does not seem that such an option is available to the assessee. In this connection the observation of the Honble Madras High Court in the case of CIT v. Souther Petro Chemical (No. 2) (supra) is worth noting :

'The option of the assessee in the matter of grant of depreciation after the particulars were available is practically nil and it is the duty of the Income Tax Officer to determine the total income under the Act and if he finds there are particulars for the grant of depreciation, as an officer to determine the correct income of the assessee, he has jurisdiction to grant the depreciation even where the assessee has not desired the deduction for reasons of its own and there is no question of bargain in the grant of statutory allowances. If the choice is granted to the assessee in the matter of grant of statutory allowances, it would in effect distort the determination of the total income and it will contort the priorities in the matter of granting statutory deduction available under the Act.'

8.16. Principle of 'Generalia specialibus non derogant' is a well settled principle of interpretation that a statute must be read an a whole and every provision must be construed with reference to the context and other clauses in the statute so as to make a consistent enactment of the whole statute. It is equally well-settled that the sub-sections or sub-clauses must be read as parts of an integral whole and as being interdependent and an attempt should be made in construing them to reconcile them if it is reasonably possible to do so, and to avoid repugnancy. If there are two conflicting provisions in the same section or clause, the courts should find out which of the two provisions is more general and which is more specific and construe the more general one as to exclude the more specific. The principle is expressed in the maxim generalia specialibus non derogant and generalibus specialia derogant. If a special provision is made on a certain subject-matter, that matter is excluded from the general provision-Forbes Forbes Compbell & Co. Ltd. v. CIT : [1994]206ITR495(Bom) .

8.17. The provisions of section 153(2) of the Income Tax Act, 1961 are special provisions and are applicable only in respect of proceedings under section 147 whereas section 153(1) is applicable in respect of assessments under section 143/144 and, therefore, they are provisions of general nature. The maximu generalia specialibus non derogant has to be made applicable where special provisions exist-Bhagyawanti Devi v. CIT .

8.18. Section 50 of the Income Tax Act contains the special provision of computation of capital gains in the case of depreciable assets. Briefly, as per this section on the sale of a capital asset, which is an asset forming part of block of depreciable assets capital gains is attracted when the sale consideration of that capital asset exceeds the written down value of the entire block of asset to which it belongs at the beginning of the year, the actual cost of any asset purchased during the year relating to that block and the expenditure incurred on the transfer. The surplus is deemed as capital gains arising from the transfer of short-term capital assets. A similar treatment is also given when the entire block of assets are sold. However, these capital gains/capital profits are not subjected to tax under the head Income from business or profession.

8.19. Upto assessment year 1969-70, besides the general category, plant and machinery of mills, works like sugar cement, etc. did not have an individual identity and they only formed part of mills, works, concerns, which was the unit entitled for depreciation and certain machinery of the mills, works, concerns like rollers in sugar works, rolling mill rolls in iron and steel industry were not entitled for any depreciation but their cost of replacement was allowed entirely as a revenue expenditure. There were certain other category of machinery like textile machinery used for manufacture of cotton, paper manufacturing machinery, newspaper production plant and machinery, machine tools, etc. which statutorily retained their separate individual identity even though they were utilised in the mill/concern for manufacture of the final marketable product-cotton yarn, paper, etc. Depreciation at special rates in this category was specifically granted to the individual asset depending upon the purpose for which it was utilised. It is pertinent to point out at this juncture that depreciation on plant and machinery was granted depending upon the purpose for which they were used and not on the basis of capacity or the characteristics of the machinery. The Honble Madras High Court in CIT v. Vasan publications (P) Ltd. (supra) had held that 'the grant of a higher special depreciation allowance was with reference to the purpose for which the machinery was used and not with reference to its capacity or the character of the machinery'.

8.20. However from assessment year 1970-71 there was a total break from the past methods. From assessment year 1970-71 onwards, all plant and machinery, wherever and for whichever purpose they were utilised, retained their separate individual identities and they constituted the unit for allowances of depreciation and current repairs. The Income Tax (Sixth Amendment) Rules, 1969, enacted based on the recommendations of the Administrative Reforms Commission, 1968, and the Boothalingam Committee Report, had highlighted the changes brought about as follows :

'The old scheme provided (i) a general rate of 7 per cent for machinery and plant, (ii) Special rates applicable to all the machinery and plant used in factory in respect of the various kinds of factories, with an option to the assessee to adopt the special rates prescribed for particular kinds of machinery and plant viz. 2.5, 5, 6, 7, 7.5, 8, 9, 10, 12, 15, 18, 20, 25, 30, 40, 100. Under the new scheme (i) the general rate is increased to 10 per cent, (ii) The scheme of allowing special rates for all plant and machinery used in factory is given up. Special rates are provided only for particular kinds of machinery and plant.

8.21. This shift in focus also gained judicial recognition from the Honble Madras High Court in CIT v. Vasan Publications (P) Ltd. & Co. cited supra, wherein the court after delivering a verdict that Newspaper production plant and machinery has got to be construed as referring to a unit engaged in the production of newspaper and a unit or plant producing a weekly or other periodicals is not the same thing as a plant producing newspaper; that the expression newspaper production plant and machinery must be taken to refer to a plant as such engaged in newspaper production, in all its aspects and in all its comprehensive whole; that the whole productive apparatus of a newspaper production plant is to be taken as a unit for the purpose of grant of higher depreciation, had on an oral application made by the learned counsel for the assessee for leave to appeal to Supreme Court against the majority judgment rendered in the case, rejected the leave and stated that 'having regard to the fact that the questions may not recur in view of the subsequent amendment of the depreciation schedule in the Rules, we are not satisfied that this is a fit case for the grant of leave. Therefore, the oral application for leave is rejected.'

8.22. Furthermore, even after the introduction of concept of block of assets, the individual assets do retain their separate individual identity even though they form part of the block of assets. This is statutorily recognised by the fact that section 38(2) of the Income Tax Act empowers an assessing officer to restrict the depreciation on an asset building, plant, machinery, or furniture to a fair proportionate part in case the asset had not been put to use for the purposes of the business. The present provisions of section 32 and the rule 5 clearly indicate that plant and machinery have distinct independent identities as individual assets forming part of block of assets with distinct rates of allowances. The Tribunal (Special Bench) Chandigarh in Gulati Saree Centre v. Assistant and Bansal Contractors (India) Ltd. & Anr. v. Union of India & Ors : [2000]241ITR97(Delhi) had held that the present provisions relating to depreciation 'stipulate the concept of various individual assets entering or going out of the block of assets and that the individual assets retain their identity.'

8.23. Both the statute and the judiciary/appellate authorities have given recognition to the dissection of the plant and machinery of the mills, works, factory machinery and concern, into several dependent identifiable units of plant and machinery in various blocks of assets with varying rates of depreciation. The unit/subject-matter for consideration of depreciation, and current repairs is the plant and machinery itself and not the plant and machinery of the mill, works, factory plant and concern as a whole.

8.24. From assessment year 1970-71 onwards, the provisions of section 32 of the Income Tax Act read with rule 5 of the Income Tax Rules, 1962, do not have any provisions granting replacement of machinery as a revenue expenditure in the 1922 Act read with rule 8, and in the 1961 Act read with rule 5 upto assessment year 1969-70, however, replacement cost of certain machineries were granted allowance by way of revenue expenditure. For example, rollers used in flour mills and sugar works, rolling mills rolls used in iron and steel industry were entitled for the allowance of revenue expenditure to the extent of the cost of replacement thereof. Under the new existing provisions, the legislature had not granted any allowance by way of revenue expenditure but depreciation, had been granted to these plant and machinery at the rate of 100 per cent in the year of acquisition and use in the business. The concept of allowance of replacement cost of machinery as a revenue expenditure had been expurgated from the statute effectively from 1-4-1970, i.e., assessment year 1970-71.

8.25. Consequent to the shift in focus from industrial plant as a whole to the individual plant and machinery per se from assessment year 1970-71 onwards, the entire catena of decisions based on concept of industrial plant/productive unit/mills/works/factory plant/profit apparatus being a whole unit for purposes of allowance on capital asset like depreciation, current repairs and replacement lose their judicial interpretative value since they are no more valid and relevant to the changed legal scenario brought about initially by the Income Tax (Sixth Amendment) Rules, 1969, and subsequently by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986. In this context, it is significant to note the caution given by the Honble High Court in CIT v. Vasan Publications (P) Ltd. & Co. cited supra when it had granted approval to the decision of the Honble Gujarat High Court in CIT v. Satellite Engineering Ltd. : [1982]136ITR607(Guj) 'that in a matter of tax relief, it is for the legislature to decide which particular industry producing which particular articles needs special treatment by way of special benefits and that, in such a matter, it would not be possible for the court to place an elastic interpretation and enlarge the scope of the relief, for, in that event, the court will be legislating in fiscal sphere and granting relief which the legislature did not expressly grant by a process of interpretation.'

8.26. Further one should also bear in mind the caution sounded by the Supreme Court in CIT v. N.C. Budharaja & Co. : [1993]204ITR412(SC) . Speaking for the Supreme Court, his Lordships, B.P. Jeevan Reddy J. observed :

'The principles of adopting a liberal interpretation which advances the purpose and object of beneficent provisions cannot be carried to the extent of doing violence to the plain and simple language used in the enactment. It would not be reasonable or permissible for the court to rewrite the section or substitute words of its own for the actual words employed by the legislature in the name of giving effect to the supposed underlying object. After all, the underlying object of any provision has to be gathered on a reasonable interpretation of the language employed by the legislature.'

In the light of the changed law and the note of caution sounded by the above mentioned courts, it is mandatory upon all the authorities mentioned in the Indian Income Tax Act, 1961 to interpret law taking into account of shift in focus mentioned above.

8.27. The learned authorised representative for the assessee has quoted various case laws which cannot be applied directly to this case without ascertaining the correct factual position in this case vis-a-vis in those quoted by the learned counsel for the assessee. Moreover, he has not submitted the material in respect of the following aspects :

(i) the treatment given to these purchases in the audited annual accounts and how it was placed before the shareholders;

(ii) Items of machinery and the cost of each item comprised in the total amount of expenditure claimed;

(iii) role and description of these machineries.

8.28. On the other hand, the learned Commissioner (Appeals) has considered all the facts in detail and summed up as follows :

(i) The claim of replacement during the year is Rs. 75,62,854. This has been charged to revenue for income-tax purposes.

(ii) The replacements have been treated as capital expenditure in the books of the assessee.

(iii) From the copy of the literature relating to machines, is found that they are independent machines and are not assessories.

(iv) The old machineries when purchased were also treated as capital expenditure in the books.

(v) It is not the case of the assessee that all the replaced machines were purchased in one lot or replaced in one lot.

(vi) There is no single rate of depreciation in the case of a textile mill as such unlike in the case of sugar works as it existed earlier. Depreciation has been claimed at different rates in the past.

(vii) Large amounts are spent on regular repairs of machinery each year. The amount debited to the repairs and maintenance account was Rs. 22,06,897.68 out of which Rs. 11,00,067. 10 was on machinery alone. This has been allowed.

(viii) These replacements are not repairs to any machinery by way of replacement. Whole independent machine were taken out and replaced.

(ix) By its own admission, there is a qualitative improvement in the products as a result of the replacements. Enduring benefits accrues to the appellant in the capital field.

8.29. Reliance is also placed on the decisions following :

(a) Distributors (Baroda) (P) Ltd. v. Union of India : [1985]155ITR120(SC) ;

(b) Smt. C. Krishnammal v. Deputy CIT (1998) 66 ITD 83; and

(c) Shriram Transport Finance Co. Ltd. v. Assistant Commissioner (1999) 70 ITD 406 (Mad).

8.30. The Honble Madras High Court in Mir Mohammed Ali v. CIT (1960) 38 ITR 413, whose judgment has been affirmed by the Honble Supreme Court in CIT v. Mr Mohammed Ali (supra) adopted the following steps to decide the issue of machinery and allowance of depreciation :

(a) Machinery must be given the same meaning with reference to each of the statutory provisions in section 10(2)(vi) and section 10(2)(via) of Income Tax Act, 1961.

(b) A diesel engine (fitted in a bus) is machinery the test laid in the case of Corporation of Calcutta v. Chairman, Cossipore and Chitpore Municipality.

(c) Machinery does not cease to be machinery merely because it has to be used in conjunction with one or more machines. Nor does it cease to be machinery merely because it is, for instance, installed as part of manufacturing or industrial plant.

(d) The statutory provision for depreciation is in the alternative. Whether it is plant or whether it is machinery without its being itself a plant, the assessee is entitled to claim the statutory allowance for depreciation.

8.31. The spindles in respect of which the aforesaid expenditure was incurred and for which the development rebate was claimed by the assessee are clearly machinery and when installed in the ring-frames, would constitute as self-contained unit for spinning. Though, therefore, they by themselves may not be said to be a self-contained unit, they must be held to be machinery and the spindles must also be held to have been installed for the purposes of the second paragraph of clause (vi) and clause (via) and, consequently, the expenditure incurred in their purchase and in substituting them for the old spindles would be entitled to development rebate. The Honble Madras High Court in the case of CIT v. Indian Textile Paper Tube Co. Ltd. : [1998]234ITR47(Mad) had held that machinery must mean more than a collection of tools.

8.32. A machinery forming part of another machinery is a machinery. A machinery forming part of another machinery which in turn is part of a manufacturing plant is also machinery. A machinery part of a manufacturing plant is a machinery. A plant by itself is a plant. All these items retain their character and identity as per the Apex Courts decisions cited supra and are entitled for the allowances of current repairs and depreciation on the strength of their separate identity.

8.33. It is clear that the expenditure incurred on the source (fixed capital assets) from which the goods emanated is clearly capital expenditure and hence not allowable under section 37(1) of the Act. The Honble Supreme Court in Assam Bengal Cement Co. Ltd. v. CIT : [1955]27ITR34(SC) had categorically held that expenditure incurred on capital assets at the time of intimation of business; extension of business, and substantial replacement of assets in the course of business, is clearly capital expenditure. The four Judge Bench of the Supreme Court referred to several English decisions and the court approved the opinion of the Full Bench of the Lahore High Court in Benarsidas Jagannath, In re , where Mahajan J. speaking for the court, had successfully attempted a synthesis. Bhagwati, J. speaking for the court observed (p. 45) :

'This synthesis attempted by the Full Bench of the Lahore High Court truly enunciates the principles which emerge from the authorities. In cases where the expenditure is made for the initial outlay or for extension of a business or for a substantial replacement of the equipment, there is no doubt that it is capital expenditure. A capital asset of the business is either acquired or extended or substantially replaced and that outlay whatever be its source whether it is drawn from the capital of the income of the concern is certainly in the nature of capital expenditure.'

From this judicial dictum, it is obvious that expenditure incurred on replacement of old machinery/capital assets by new machinery/capital assets is a capital expenditure and hence not allowable under section 37(1) of the Act. The Supreme Court like the statute never envisaged a situation of transmogrification of a capital asset into a revenue asset in the guise of an allowance under section 37(1) of the Act.

9.1. Rival submission heard and relevant orders read including the various case laws torrentially showered by both the parties before us as well as the concerned provisions of law over the issue in question, besides the contents of the paper book in detail filed by both the parties before us. Before we proceed further, we have to record our appreciation of the strenuous efforts put forth by both the learned representatives before us, particularly of the revenue sustaining to give life to the stand of the department. We really appreciate the sporting spirit with which each party before us, we would rather say patiently, argued the matter at length so as to see their respective stand not only gets our attention but our confirmation too. We may say that laudable effort has been taken particularly by the revenue before us with extraordinary care and preparation. However, both the learned representatives for the assessee as well as the revenue deserve compliments in this regard.

9.2. We have given out due and careful consideration to all the aspects of the matter highlighted and put forth before us by both the parties by hearing the case for considerable length of time and also accordingly taking more than sufficient time for our analysis of the respective submissions made before us over the issue in question. Ultimately, we are of the considered opinion that the stand of the assessee has substantial force outweighting the submissions of the department for the reasons following.

9.3. The only question involved in the instant appeal relates to treatment of the expenditure incurred by the assessee-company in replacement of old combers and lap former by similar machinery of the same capacity. The machinery so replaced consisted of eight combers and one lap former and the expenditure incurred was Rs. 75,62,854. This amount was claimed by the assessee in its return of income as revenue expenditure, but in vain. The assessing officer viewed that the new machineries replaced gave enduring benefit to the assessee and capitalised the same by relying on the decision in the case of Ballimal Naval Kishore v. CIT (supra). The Commissioner (Appeals) has set out the facts relating to the machinery replaced and also noted the assessees contention that the comber and lap former cannot exist as a separate machinery and that cost of replacement of worn out machinery is revenue expenditure. Referring to certain decisions mentioned in the appellate order, the Commissioner (Appeals) concluded that the assessees claim for expenditure as revenue could not be entertained. Against it this appeal has been filed by the assessee before us.

9.4. In the decision of the Tribunal dated 4-2-2000 in ITA No. 1756/Mad/1998 in the case of Kalaivani Spinners (P) Ltd. v. Deputy CIT(supra) as well as dated 19-3-1999 in ITA No. 1757/Mad/1998 in the case of Sri Narendraraja Textiles Ltd. v. Deputy CIT, the Tribunal has followed the earlier order of the Tribunal in the case of Nagammal Mills Ltd.s case. Nagammal Mills Ltd.s case has also been relied upon by the Commissioner (Appeals) which is a decision in favour of the assessee on the question of expenditure on replacement of textile machinery, but has expressed the contrary view that the expenditure is capital in nature. In our considered view, such order of the Commissioner (Appeals) insofar as it contains a different finding while relying upon the Tribunals decision referred to earlier is apparently wrong.

9.5. Regarding the decision in the case of Ballimal Naval Kishore (supra), which has been relied upon by the order impugned, is a binding decision which has been considered duly by the decision of the Madras High Court in Sree Narasimha Textiles (P) Ltd.s case (supra). The test laid down in the case of New Shorrock Spinning & . v. CIT (supra), has been applied by the Madras High Court and has also been applied and approved by the Supreme Court in the case of Ballimal Navalkishore. The assessee, a manufacturer of textiles, replaced certain electric motors and claimed the expenditure as revenue but was disallowed by the assessing officer viewing it as capital in nature. The Honble Madras High Court has held that it cannot be said that a new advantage was gained by the assessee in installing the motors, looms and spindles used for manufacture of yarn which had been installed at the time of establishment of mills having become worn out needed replacement. Replacement of such motors is only for keeping the looms and spindless running and making it possible for the production to continue. It cannot be held that the expenditure on the purchase of new motors was capital expenditure and not revenue expenditure. The decision of the Madras High Court in Sree Narasimha Textiles (P) Ltd.s case (supra), which is a decision rendered in the case of a textile mill with reference to replacement of machinery applying the principles laid down in Ballimal Navalkishores case (supra) should have been followed by the authorities below being the decision of jurisdiction High Court which has also been approved by the Supreme Court.

9.6. The stand of the revenue that each case has to be examined in the light of the circumstances of the case and that the principle of res judicata is not applicable to income-tax proceedings including appeals before the Tribunal and those cases relied upon by the department in this regard, are not convincing to us and being those case laws not directly relevant. We may state in this regard that worthy of being quoted is the decision of the jurisdiction High Court in the case of CIT v. L.G. Ramamurthi : [1977]110ITR453(Mad) as below :

'No Tribunal of fact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. It may be that the members who constituted the Tribunal and decided on the earlier occasion were different from the members who decided the case on the present occasion. But what is relevant is not the personality of the officers presiding over the Tribunal or participating in the hearing but the Tribunal as an institution. If it is to be conceded that simply because of the change in the personnel of the officers who manned the Tribunal, it is open to the new officers to come to a conclusion totally contradictory to the conclusion which had been reached by the earlier officers manning the same Tribunal on the same set of facts, it will not only shake the confidence of the public in judicial procedure as such, but it will also totally destroy such confidence. The result of this will be conclusions based on arbitrariness and whims and fancies of the individuals presiding over the courts or the Tribunals and not reached objectively on the basis of the facts placed before the authorities.

If a Bench of a Tribunal on the identical facts is allowed to come to a conclusion directly opposed to the conclusion reached by another Bench of the Tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. That is the reason why in a High Court, if a single Judge takes a view different from the one taken by another Judge on a question of law, he does not finally pronounce his view and the matter is referred to a Division Bench. Similarly if a Division Bench differs from the view taken by another Division Bench it does not express disagreement and pronounce its different views, but has the matter posted before a Fuller Bench for considering the question. If that is the position even with regard to a question of law, the position will be a fortiori with regard to a question of fact. If the Tribunal wants to take an opinion different from the one taken by an earlier Bench, it should place the matter before the President of the Tribunal, so that he could have the case referred to a Full Bench of the Tribunal consisting of three or more members for which there is provision in the Income Tax Act itself.'

In the light of the ratio decidendi above we are of the considered opinion that no varying decisions on the similar or identical facts or circumstances in the instant case is there deserving us to refer this matter to the Honble the President for reference to a larger Bench and, therefore, the ratio decidendi rendered by the earlier orders of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. That is why while rendering the decision in the case of Magammal Mills Ltd. the Tribunal has adopted judicial computation and discipline.

9.7. In the case of Nagammal Mills Ltd. the Tribunal at para 8 thereof though agreed with the conclusion of the Commissioner (Appeals) that each machinery in a spinning mill as described earlier, operates by itself and is an independent functional unit and they cannot be described as a part of a bigger machinery, as well as in para 10 thereof the Tribunal concluded that the object of incurring expenditure on such machineries was not repair of old machineries : but installation of new machineries because some old machineries/assets were sold by the assessee, however, the Tribunal had ultimately decided to treat the expenditure of Rs. 26,10,650 incurred on replacement of 110 KVA diesel generator, cone winder and spinning frames as revenue expenditure after duly considering and accordingly following the decisions of the Tribunal in the cases following : (all of which have duly followed the decisions of the jurisdictional High Courts as well as of the Supreme Court, relied upon by the assessee since those decisions relied upon by the revenue being distinguishable) :

(a) ITA No. 3151/Mad/1992 in the case of Sundaram Textiles Ltd. (B.Bench, Madras, dated 30-7-1993);

(b) ITA Nos. 2676 and 2775/Mad/1992 dated 16-7-1993 in the case of Janakiram Mills Ltd. (C-Bench, Madras); and

(c) ITA No. 1518/Mad/1993 dated 16th Sept., in the case of Shree Bharati Cotton Mills Ltd., pertaining to C-Bench, Madras.

The Tribunal has given a categorical finding in the case of Nagammal Mills Ltd. that in the aforesaid cases the Tribunal allowed similar expenditure incurred by the assessees on replacement of ring frames, etc. as revenue expenditure and that, therefore, despite the Tribunals finding given at paras 8 to 10 of that order, the expenditure on replacement of cone winder, spinning frame and 110KVA diesel generator is allowed as revenue expenditure by respectfully also following the earlier decisions of the Tribunal cited supra. Thus the concerned ground raised by the assessee in that case was allowed by Tribunal in favour of the assessee. In other words, paras 8 to 10 thereof are only obiter dicta which have no binding force like the ratio decidendi at para 11 thereof.

9.8. In the case of Janakiram Mills Ltd. the Tribunal by its order dated 16-7-1993 on similar issue has decided in favour of the assessee after duly considering the decisions relied upon by both the sides, the relevant submissions and the materials on record on both the sides. It would be worthwhile to further state that in support of the assessees contention the assessee relied upon the decision of the Supreme Court in the case of CIT v. Mahalakshmi Textiles Mills Ltd. (supra), and the Tribunal stated that in that case the Apex Court had considered the introduction of 'Casablanca Conversion system' in the spinning plant for the purpose of treating the expenditure as current repairs. The Supreme Court held that the introduction of Casablanca Conversion system involving replacement of certain roller stands and fluted rollers fitted with rubber aprons to the spinning machinery, removal of ring frames from certain existing parts, introduction of ball-bearing, jockey-putteys for converting the original band-drivers to type drivers and other additions and alterations in the drafting mechanism should be treated as current repairs and that the expenditure incurred thereunder is allowable under section 10(2)(v) of the Indian Income Tax Act, 1922. The assessee therein has also relied upon the decision of the Tribunal in the case of Varadaraja Textile Mills (P) Ltd. (supra), which was also a textile mill manufacturing cotton yarn, wherein some ring frames and doubling frames were replaced without disturbing the total spindlage. The Tribunal held therein that mere replacing a part of the entire machinery would not bring into existence a new asset, because the original asset, namely, the entire machinery continued to be present and maintained. It was also further held therein that no additional spindlage was created by replacing a part of the machinery. Hence it was held that the expenditure incurred was revenue expenditure. The replacement was intended to improve the quality of working of the assessees textile machinery and not to increase the quantity of the production and that as a similar issue was already considered by the Tribunal in the assessees own case decided earlier by the Tribunal that similar expenditure was allowable as revenue deduction, such earlier decision was followed and the assessees claim was allowed in the case of Janakiram Mills Ltd. Thus the order of the Commissioner (Appeals) was set aside and the assessing officer was directed to treat the expenditure incurred under the scheme of modernisation in a sum of Rs. 20,64,868 therein as revenue deductible. That apart, subsequently on 16-9-1993, the Tribunal further decided in the case of Shree Bharathi Cotton Mills (P) Ltd., cited supra, in ITA No. 1518/Mad/1993, holding that the Commissioner (Appeals) did not follow the decision of the Tribunal in the case of ITO v. Varadaraja Textiles (P) Ltd. (supra), as well as the decision of the Supreme Court in the case of Mahalakshmi Textile Mills Ltd. (supra), where similar expenditure had been allowed as revenue expenditure. The argument of the revenue that the ring frames should be regarded as independent machinery and should be considered as capital outlay was rejected by the Tribunal. The Tribunal further observed that it was not disputed by the revenue that even if it is regarded as a machine, it was in fact replaced as part of the system and such replacement expenditure fell within section 31 as current repair. The Tribunal found that there was no justification for the authorities below in disregarding the decision of the Tribunal which was on all fours with the facts of that case. Hence it had no hesitation in deleting such disallowance, besides also further observing that at least hereafter the authorities below would maintain judicial discipline in accordance with the decision in the case of Union of India v. Kamalakshi Finance Corporation Ltd., (1991) (55) ELT 43 (SC). Similar is the position in the case of Sundaram Textiles Ltd. cited supra.

9.9. The revenue seems to have accepted the finality of those decisions, since no opinion of the Honble High Court has been sought or relied upon before us in the instant case by the department to reverse the earlier orders of the Tribunal. Under the circumstances, if a decision in favour of the revenue would be given in the instant case contrary to those earlier decisions of the Tribunal, it would cause violence to the judicial discipline and propriety. In fact and indeed in Nagammal Mills Ltd.s case despite the observations of the Tribunal in favour of the revenue rendered in paras 8 to 10 of the Tribunals order, after a long, careful and due deliberation over the issue, the Bench has maintained judicial discipline in accordance with the decision of the Apex Court inter alia in the case of Union of India v. Kamalakshi Finance Corporation as well as the sound principle of jurisprudence and judicial decorum and dignity. Therefore the Bench has demonstrated unambiguously it is not only sufficient to be independent of others but also it is necessary to be independent of its own self while the Bench takes its view. For it, it requires a large heart, which the Bench, particularly the Honble A.M. the author of the order, in the case of M/s. Nagammal Mills Ltd. possessed, rightly deserving appreciation. We may state here that the Bench had neither a revenue-approach nor an assessees approach on the issue but certainly a judicious approach coupled with the judicial compulsion followed by the Tribunal in that case. If the decision in Nagammal Mills Ltd.s case would have been taken as differing from the earlier decisions of the Tribunal, there would be necessity to refer this case to the Honble the President for constitution of a Full (Special) Bench. Now the earlier orders of the Tribunal only having been followed in accordance with the said fundamental principle of law and jurisprudence, reference for larger Bench does not arise. Hence this is not referred to the Honble the President for such constitution.

9.10. The principle of stare decisis is that the courts must always hesitate to overrule decisions which are not machievous. The principles underlying the judgments are binding, possessing a law creating power which is constitutive and not abrogative. Courts must follow the law. The use of precedent is an indispensable foundation upon which to decide what is the law and its application to individual cases. It provides some degree of certainty upon which individuals can rely on in the conduct of their affairs, as well as a basis for orderly development of legal rules. The judgment of any court is authoritative only as to that part of it, i.e., para 11 of the order in the case of Nagammal, which is called the ratio decidendi, the reason or ground of decision of the actual issue between the litigants. It is the principle/s denied from authority on which the court reached its decision, or, negatively, the principle/s without which the court would not have reached the decision that in did reach, as said by Allen at p 259 in his Treatise on 'Law in the Making'. It is for a court whatever degree which is called upon to consider a precedent to determine what the true ratio was. The doctrine of precedents means merely that precedents which may be cited and the followed by the courts when it is squarely applied to similar situation with identical issues. Hence, weight has to be attached to them. Precedent can be urged as an authority where the circumstances of the case to which it is sought to be applied are precisely similar to the circumstances of that case. This is the legal proposition laid down per Lord Chelmsford, L.C. in the case of Dundee Magistrates v. Morris fortifying our view.

9.11. The case law rests primarily on the principle that a court is bound by the pronouncements of courts superior to it in the hierarchy. Uniformity is an essential feature in the administration of justice. It would be a grave injustice to decide the same question one way between one set of litigants and the opposite way between another. Adherence to precedents is, therefore, the guiding rule in the administration of justice. In fact, the authority of a precedent lies in human nature itself. One of the objects of justice is to provide maximum satisfaction to the community and this can more readily be provided by doing the same thing which was also done in the past. Something unheard of is often intolerable unless the intrinsic value as an instrument of common good is too apparent. A precedent may not be binding only when there is an ignorance of a statute or inconsistency with earlier decisions of a higher forum unlike in the instant case. Therefore often the principle of stare decisis, which means to stand by past decisions, is pressed before superior courts to compel them to adhere to precedents. The principle underlying the doctrine of stare decisis is that it is often more important that the law should be certain rather than that it should be ideally perfect, because whenever a decision is departed from, the certainty of the law is sacrificed. According to this doctrine, justice requires that the decision though found in error should stand inviolate nonetheless. This is aptly expressed by the Latin maxim Communis error facit jus, i.e. common error sometimes makes law-vide Salmond Jurisprudence p 217 (11th Edn.). The only thing is that the error should not be of such a magnitude as to offend the sense of justice and that the considerations of certainty in law outweigh those of legal accuracy.

9.12. Judicial precedents are of three kinds, viz., absolutely authoritative, conditionally authoritative and persuasive. Absolutely authoritative are the decisions of the Supreme Court as well as of the jurisdictional High Court where there is no decision of the Apex Court. An absolutely authoritative precedent, as the Nagammal and the like cases, is one when the court to which it is cited is bound to follow it quite irrespective of even in the opinion of the court as to whether it is a right decision or a wrong one, for the Judges discretion is altogether excluded. Our view taken in the instant case on the judicial compulsion is also fortified by the decision in the case of Produce Brokers Company v. Plympia Oil & Cake Company Ltd. in 1916 IAC 314, wherein Buckley L.J. remarks, 'I am unable to adduce any reason to show that the decision which I am about to pronounce is right. On the contrary, if I were free to follow my own opinion, my own powers of reasoning such as they are, I should say that it is wrong. But I am bound by the authority, which of course it is my duty to follow and following authority, I feel bound to pronounce the judgment which I am about to deliver.' Hence these decisions cannot be disregarded by the lower courts including Tribunals.

9.13. While so, a persuasive precedent may be disregarded, not being of binding nature like those of non-jurisdictional High Courts and of foreign courts. Conditionally authoritative precedent may be disregarded only if two conditions are satisfied, viz. that the maxim cessante ratione legis cessat lex ipsa, i.e., when the reason for any particular law ceases, so does the law itself, should be applicable. Further, that the maxim communis erro facit jus, i.e. common error makes law, should be inapplicable.

9.14. A decision of jurisdictional High Court has binding force unlike the decision of other Higher Courts having persuasive force. A decision of the Apex Court is binding on all the authorities in the country as per Article 141 of the Constitution of India. A Division Bench is bound by its own decision. This view is also fortified by the decision in the case of Hudersfield Police Authority v. Watson in (1947) 2 All ER 193 and Younghusband v. Luftig (1949) 2 All ER 72.

9.15. When the court of appeal was invited to overrule its own earlier decisions, while declining to do so, Greene M.R. remarked, 'On a careful examination of the whole matter, we have come to the clear conclusion that this court is bound to follow previous decisions of its own as well as those of courts of coordinate jurisdiction. The only exceptions of this rule are : (a) The court is entitled and bound to decide which of the two conflicting decisions of its own it will follow. (b) The court is bound to refuse to follow a decision of its own which though not expressly overruled, cannot in its opinion, stand with a decision of the House of Lords. (c) The court is not bound to follow a decision of its own if it is satisfied that the decision was given per incuriam, i.e. the earlier decision was given in ignorance of the terms of a statute or a rule having the force of a statute and which would have affected the decision'. In the instant case before us, none of the above exceptions prescribed are attracted.

9.16. Further fortification of our view is by the decision in the case of Attorney General v. Dean of Windsor in (1860) H.L.C. 369 wherein Lord Campbell in advising the House said, 'The decisions of the House of Lords are authoritative and conclusive declarations of existing state of law and are binding upon itself when sitting judicially, as much as upon all inferior Tribunals. Our view is also strengthened further by the decision of the jurisdictional High Court itself, i.e. Poomalai Padayachi v. Annamalai Padayachi in 56 Law Weekly 494 (Mad), wherein Sommayya, J has held, 'It is not open to the lower courts not to follow a direct decision on this court and to rely upon what appeared to the lower court as some ground of equity and follow the decision of another court. This has been repeatedly pointed out and it is strange even in these days the lower courts are found to violate this principle and follow decisions of other High Courts. This can be too strongly condemned'.

9.17. Blackstone propounded the theory in Jurisprudence that the function of the Judge is 'Jus dicere et non jus dare', i.e. to declare the law and not to make law. In the instant case also, the law has been only declared and not made by the Tribunal, by following its own decisions as well as particularly the decisions of the jurisdictional High Court and especially of the Supreme Court. The great jurist Salmond is of the view that judicial precedents are original and these original precedents give rise to new law. Hence, judicial precedent is a material source of law which has necessarily to be followed. England follows the principle of stare decisis. Past decisions are binding upon courts in similar future cases. So in England judicial precedent is a legal material source of law. The doctrine of stare decisis has been accepted in India and USA as well as in the legal system based upon that of England. Thus and therefore a judicial precedent is accepted by all these legal systems as a legal material source. Only in the continental countries this doctrine of stare decisis is not followed. Hence, in many European legal systems judicial precedent is not regarded as a legal material source.

9.18. In the instant case we do not find any invalid reason or any flow in following the earlier decisions in the light of the detailed discussions made above, especially when the revenue has erroneously been arguing that following the judicial compulsion is not correct as it results in not bringing out the truth to surface.

9.19. In the case of Narendraraja Textiles Ltd. (supra), the Tribunal, after referring to Nagammal Mills case and following the judgment in the case of Bharathi Cotton Mills (P) Ltd. (supra) rendered by the Honble Madras High Court directed that cost of replacement of simplex speed frames be allowed as revenue expenditure. Being there could be justification in relation to textile mill and replacement of textile machinery, it cannot be said that such jurisdictional High Court decisions are not binding on the authorities including the Tribunal within the territorial jurisdiction of the Madras High Court. Indeed and in fact the decision rendered by the Apex Court in the case of Union of India v. Kamalakshi Finance Corpn. Ltd. (supra) would be very relevant in this regard. The Honble Supreme Court has emphasised therein that the orders of the Tribunal should be followed by the authorities falling within its jurisdiction so that judicial discipline, would be maintained in order to give effect to orders of the higher appellate authorities. The Apex Court has observed that utmost regard must be had by the adjudicating authorities and the appellate authorities to the requirement of judicial discipline. In the light of this decision, the stand of the revenue has become weak and break.

9.20. The Tribunal has observed in the case of Co-operative Sugars Ltd. v. Inspecting Assistant Commissioner (supra) that it is apparent that each machinery though doing distinct functions is only an integral part of the whole plant and they do not have independent existence. In other words, the several machineries form an integral part of the same plant. This decision has also been upheld by the Kerala High Court in CIT v. Co-operative Sugars Ltd. (supra). The relevant portion from p 350 would be worthwhile to be extracted as below :

'To doubt expenditure was incurred on substantial replacement, but the fact remains that the sugar plant was there and the same plant existed even after replacement and, therefore, it is wrong to say that any new asset of enduring nature has come into existence. Whether or not a new asset has come into existence-this question has to be considered vis-a-vis the integrated sugar plant and not vis-a-vis each integral know how on consideration of once for all payments was held to be the expenditure as revenue in nature in the case of Alembic Chemical Works Co. Ltd. v. CIT : [1989]177ITR377(SC) we see no reason why expenditure incurred on purchasing of new machinery to ensure sound functioning of the sugar mill to replace the old ones should not be held as revenue expenditure.'

The Apex Court has also dismissed special leave petition filed by the department against the judgment of the Kerala High Court as reported in (1998) 234 ITR (St) 31.

9.21. Our attention has also been invited to the decision in the case of Assistant CIT v. Shree Datta Dairy (1998) 67 ITD 357 at 364 to 366 at paras 8 to 11. The revenue before us repeatedly emphasised that the assessee treated the replacement as capital expenditure in the books of account. The treatment in the books cannot determine the nature and taxability of a receipt as income or the nature and allowability of outgoing as revenue or capital nature. In this regard, it would be worthwhile to extract the relevant portion from the treatise on The Law and Practice of Income Tax by Kanga and Palkhivala, Vol. 1, Eighth Edn. at p 657 :

'Traders frequently prefer to debit to revenue account payments which are in their nature proper to be carried to capital account. If they do so, it means nothing more than that they have a conservative taste in the matter of accountancy. Conversely, an assessee may be entitled to a revenue deduction in respect of expenditure which is capitalised in the accounts. Revenue expenditure can be claimed in its entirety in the year in which it is incurred though it is written off in the books over a period of years.'

9.22. Even in the cases of Kalaivani Spinners (P) Ltd. and Sree Narendraraja Textiles Ltd., (supra) the assessees have capitalised the value of machinery in the books of account but claimed them as revenue expenditure in the assessment.

9.23. The revenue before us stressed the points relating to capitalisation in the accounts, the finding that machineries replaced are independent machines and are not accessories to the old machinery when purchases were treated as capital expenditure in the books and qualitative improvement in the product as a result of replacement. All these aspects of the matter have been suitably dealt with by us in the aforesaid discussions of ours as well as over several case laws cited supra besides the fact that old machineries when purchased it refers to only initial purchase and not replacement. In regard to qualitative improvement in the product as a result of replacement, the expenditure incurred for better quantitative improvement of the existing business or a claim of modernisation to facilitate the assessees business being carried no more efficiently did not amount to a fresh or a new venture and the expenditure is deductible as revenue expenditure vide Vanaja Textiles Ltd. v. CIT (supra).

9.24. In the case of Kalaivani Spinners (P) Ltd. in ITA No. 1756/Mad/78 decided on 4-2-2000 by the Madras Bench of the Tribunal it has extracted from para. 10 of its order dated 31-10-1997 as below :

'After considering the various judicial pronouncements mentioned in the earlier paragraph and after inspecting similar machinery in Indira Cotton Mills, Chennai we are of the opinion that : (a) cone winders, spinning frame and 110 KVA diesel generator are independent new machines and they are in the nature of assets; (b) investments in these machineries are also in the nature of fixed capital and the nature of advantage to the assessee is in the capital field. (c) investment in these machineries brings enduring benefit to the assessee mills(d) some assessees have also shown such machinery and plant as addition to the assets in their balance sheet and therefore, keeping in view the sound accountancy principles the installation of these machineries forms part of the addition to the assets in the balance sheet. The possession of such machinery is necessary for carrying on manufacturing and business operations; and (e) the object of incurring expenditure on these machineries was not repair of old machineries but installation of new machineries because some old machinery/assets were sold by the assessee.'

The above finding of fact have been held to be applicable to the case of Kalaivani Spinners (P) Ltd. (supra) wherein also assessee has capitalised value of the above plant and machinery in the books of account and shown such value of machinery and plant as addition to their assets in the balance sheet. Hence, the finding of fact recorded in the case of Nagammal Mills were held to be applicable to the case of that assessee also. Similarly in the case of Sri Narandraraju Textiles Ltd. the Madras Bench of the Tribunal on 19-3-1999, followed not only the aforesaid decision in Nagammal Mills Ltd.s case (supra) but also in particular the decision of the jurisdiction High Court in Bharathi Cotton Mills (P) Ltd. (TCP No. 28/1997, dated 19-12-1997) in the case of Varadhalakshmi Mills Ltd. in ITA No. 3169/Mad/89 the Tribunal on 24-11-1995, has held that replacement of a part of the machinery cannot be said to be capital in nature and that the individual machines engaged in spinning of yarn are to be considered as part and parcel of the entire machinery under the simplex frame or draw frames. It is only a change of the part of the whole machinery and further that the change has effected only to preserve the profit-earning capacity and does not result in any benefit of enduring nature. Thus, it was held that decision of Supreme Court in the case of Mahalakshmi Mills clearly applies to the issue in question. That apart, as has been correctly held by the Madras Bench of the Tribunal in the case of Bharathi Cotton Mills, in the instant case too we see no justification to disregard the decisions of the Tribunal which are on all fours with the facts of the instant case.

9.25. We, therefore, have no hesitation to decide the issue accordingly in favour of the assessee so that as has been laid down by the decision of the Apex Court in the case of Kamalakshi Finance Corpn. judicial discipline and decorum is compulsorily maintained. In the case of Bharathi Cotton Mills the Madras High Court has held that replacement of rings and doubling frames to the existing machineries cannot be another one than current repairs and no new machinery is created or coming into existence for the purpose of earning revenue and that this sort of position had beer duly settled by the Apex Court in more than one decision. Similar in the position in the instant case too in adjudication before us. Rather the view is also well supported, as has been already stated, by the decision in the case of Sree Narendra Textiles Ltd. (supra) rendered by the jurisdictional High Court after duly discussing the decision in the case of New Sherrock Spinning & Mfg. Co. (supra) besides Ballimal Navalkishore (supra). The ratio decidendi of all these decisions clearly supports the stand of the assessee and it sustained the earlier decisions of the Tribunal on the similar set of facts and circumstances.

9.26. Thus on the totality of the facts and the entirety of the circumstances of the instant case and in the light of the several provisions of law, case laws discussed above, we are unable to sustain the defence of the revenue in spite of its vehement and laudable efforts taken for our appreciating the stand. We are also of the opinion that for the reasons furnished in the aforesaid discussion, there is no compelling necessity for us also to reconsider the decision taken by us on the question of replacement of textile machinery in the case of Nagammal Mills Ltd. (supra) which squarely applies to the instant case too.

10. In the result, the appeal of the assessee is allowed hereby.