Replacing Dies and Moulds Is Not Capital Spend: Madras HC Upholds Relief to TVS Motor

The Madras High Court has dismissed a long-pending income tax appeal filed by the Income Tax Department against TVS Motor Company Ltd., affirming multiple reliefs granted to the automobile major for the Assessment Year 2005–06. The Bench of Justice Anita Sumanth and Justice Mummineni Sudheer Kumar upheld the findings of the Income Tax Appellate Tribunal (ITAT), ruling consistently in favour of the assessee on all seven substantial questions of law raised by the Revenue. The appeal, filed under Section 260A of the Income-tax Act, challenged deductions and tax treatments relating to replacement of dies and moulds, depreciation on temporary structures, weighted deduction on R&D work-in-progress, entry tax set-off, settlement of sales tax deferral loans, upfront fees paid for ECB loans, and commission paid to foreign agents. The Court rejected the department’s contention that expenditure on replacement of dies and moulds was capital in nature. Relying on earlier judgments in the assessee’s own case and Supreme Court precedents, the Bench held that dies and moulds are integral parts of machinery and their replacement does not bring into existence a new asset. Such expenditure, the Court ruled, qualifies as “current repairs” under Section 31, even if depreciation had earlier been claimed. The Court upheld the allowance of 100% depreciation on temporary interior structures at the company’s Delhi and Coimbatore area offices. Observing that the constructions were in the nature of partitions, interior works and wallpapers with no enduring benefit, the Bench found no justification to treat them as capital assets. The Court also noted that similar relief granted in earlier years had been accepted by the Department. The High Court confirmed the Tribunal’s decision allowing weighted deduction under Section 35/35(2AB) on research and development expenditure, including work-in-progress. The issue was held to be squarely covered by earlier rulings in favour of the assessee, which had attained finality. Rejecting the Revenue’s argument of double deduction, the Court held that entry tax paid is allowable as a deduction under the Income-tax Act, even if the same is adjusted against sales tax liability under state law. The Bench clarified that the treatment under sales tax law cannot be imported into income-tax provisions, and Section 43B would not bar the claim once actual payment is established. A significant issue related to the discount arising from prepayment of Karnataka Sales Tax Deferral Loan on Net Present Value (NPV) basis, amounting to nearly ₹37 crore. Upholding the Tribunal’s view, the Court ruled that the benefit did not amount to remission or cessation of liability under Section 41(1). Following Supreme Court precedent, the Bench held that the prepayment merely represented the present value of future liability and was rightly treated as a capital receipt. On the disallowance of upfront fees paid to UK and Singapore entities for facilitating External Commercial Borrowings (ECB), the Court agreed that while the services were technical in nature, they did not satisfy the “make available” test under the applicable Double Taxation Avoidance Agreements (DTAAs). Since no technical know-how or expertise was transferred to TVS Motor, the payments were held not taxable in India, and no tax was required to be deducted at source. The final issue concerning commission paid to foreign agents was also decided against the Revenue. The Court noted that identical issues had been settled in favour of the assessee in earlier assessment years and had attained finality. In the absence of any change in facts or law, the disallowance could not be sustained. The High Court dismissed the tax appeal in full, answering all seven substantial questions of law in favour of TVS Motor Company Ltd. The Bench found no merit in the department’s challenges and observed that many issues were already covered by binding precedents or accepted positions from earlier years. Case Details Case Title: Commissioner of Income Tax-I Versus M/s.TVS Motor Company Ltd. Case No.: T.C.(A).No.330 of 2011 Date: 05.01.2026 Counsel For Petitioner: Dr.S.Sathiya Narayanan, Senior Standing Counsel Counsel For Respondent: Vikram Vijayaraghavan Click Here To Read Order Read More: Factual Disputes Must Be Decided by AO: Delhi High Court Refuses to Quash Reassessment Notice

Replacing Dies and Moulds Is Not Capital Spend: Madras HC Upholds Relief to TVS Motor

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