Section 31 — Repairs and Insurance of Machinery Plant Furniture

Case Laws & Commentary

SECTION 31 — Repairs and insurance of machinery, plant and furniture

Important Case Laws — 1961 Treatise (FA 2026)

Provision in brief: Allows as deduction (in respect of plant, machinery, furniture used for business): (i) amount paid on account of current repairs (non-capital); (ii) insurance premium against risk of damage/destruction. Explanation makes clear 'current repairs' excludes capital expenditure.

Section Commentary

Mirror of s. 30 for plant / machinery / furniture

Section 31 is the structural twin of s. 30 — current repairs and insurance for plant, machinery and furniture (not buildings, which fall under s. 30). The 2003 Explanation excluding 'capital expenditure' applies identically. The pre-2003 jurisprudence (Mahalakshmi Textile Mills, Modi Spinning & Weaving) — where partial replacement within an integrated plant was allowed as current repair — has been considerably narrowed by Saravana Spinning Mills (SC 2007) and Sri Mangayarkarasi Mills (SC 2009).

The 'each machine is a whole' principle

Post-Saravana Spinning Mills, the AO's first question is: 'Is the replaced item a complete, independent machine or merely a part?' Replacement of a complete machine (e.g., a ring frame, a CNC lathe, a generator) is capital — depreciation u/s 32 is the only avenue. Replacement of a component / sub-assembly within a larger functional unit (e.g., a worn-out bearing in a turbine, a control card in a PLC) can still qualify as current repairs, provided the larger asset itself continues. The earlier 'integrated plant' theory survives only for true integrated systems.

Insurance — beyond fire and burglary

Section 31(ii) allows insurance premium against damage/destruction. Modern manufacturing risk-management includes machinery breakdown insurance, business-interruption cover, marine cargo, transit insurance for movements — all are allowable so long as the underlying risk is to the plant/machinery/furniture used for business. Liability covers (public/professional indemnity) fall under s. 37. Keyman insurance has its own regime — s. 28(vi) charges proceeds, premium is generally allowed.

Common practical trip-wires

(i) AMC / annual-maintenance contracts: fully deductible if they cover routine maintenance; not if they include scheduled overhaul resembling replacement. (ii) Software updates and OEM upgrades: capital if they enhance functionality or extend life; revenue if mere bug fixes. (iii) Spare parts: revenue if consumed in routine maintenance; capital if held as standby for major asset replacement. (iv) Refurbishment of capital equipment: revenue if restoring; capital if enhancing capacity. (v) Tax-audit Form 3CD Cl. 18 disclosure for capex debited to P&L applies.

FA 2026 impact: No FA 2026 amendment. Section continues in original form with the FA 2003 Explanation excluding capital expenditure.

Leading Decisions

1. CIT v. Saravana Spinning Mills (P) Ltd.

Citation: (2007) 293 ITR 201 (SC)

Forum: Supreme Court of India

Facts & Issue: Assessee, a textile mill, replaced an entire ring frame in its spinning unit and claimed the cost as 'current repairs' u/s 31(i). Revenue treated the replacement as capital expenditure on the ground that a new functional asset had been acquired.

Held / Ratio: The Supreme Court laid down the controlling test: 'current repairs' u/s 31(i) means expenditure on preservation and maintenance of an EXISTING asset to keep it in working condition, not replacement of the asset itself. A ring frame is an independent and complete machine in itself; replacing it is not repair of the spinning mill. The Court rejected the 'functional unit' theory propounded by some High Courts. Explanation to s. 31 (inserted by FA 2003) reinforces that capital expenditure is outside 'current repairs'.

Section relevance: Controlling Supreme Court authority on the meaning of 'current repairs' under s. 31; restricts deductibility of replacement of machines.

2. Ballimal Naval Kishore v. CIT

Citation: (1997) 224 ITR 414 (SC)

Forum: Supreme Court of India

Facts & Issue: Renovation of cinema premises — sanitary, flooring, panelling, wiring — claimed as 'current repairs'. While the building dimension goes to s. 30, principles apply equally to s. 31.

Held / Ratio: Held that where renovation is so extensive as to create a new asset / enduring advantage, it ceases to be 'repairs'. The test is whether the expenditure restores the asset to its pre-existing state vs whether it adds to or fundamentally alters the asset. The Court applied the test to deny relief.

Section relevance: Standard cross-reference for s. 31 capital-vs-revenue boundary.

3. CIT v. Sri Mangayarkarasi Mills (P) Ltd.

Citation: (2009) 315 ITR 114 (SC)

Forum: Supreme Court of India

Facts & Issue: Replacement of old machinery with new in a textile mill — assessee claimed under s. 31 as current repairs alternatively under s. 37(1). Revenue denied both.

Held / Ratio: Following Saravana Spinning Mills, the Supreme Court held the replacement was capital expenditure — neither 'current repairs' u/s 31 nor allowable u/s 37(1). Each machine being a separate independent unit, its replacement adds a new asset. Depreciation u/s 32 was the only avenue.

Section relevance: Locks the position that wholesale machine replacement is capital — only s. 32 (depreciation) is available.

4. CIT v. Mahalakshmi Textile Mills Ltd.

Citation: (1967) 66 ITR 710 (SC)

Forum: Supreme Court of India

Facts & Issue: Replacement of part of a 'Casablanca conversion system' in a spinning mill — partial replacement of integrated plant. Claimed as current repairs.

Held / Ratio: Held to be 'current repairs' because the replacement was of a part of an integrated whole, did not result in a new or expanded asset, and merely enabled the existing plant to continue functioning. The principle: replacement of part (not whole) of an integrated plant is current repair. Later constrained by Saravana Spinning Mills which insists each machine is itself a 'whole'.

Section relevance: Foundational authority on partial replacement under s. 31; read with later restrictive decisions.

5. Nathmal Bankatlal Parikh & Co. v. CIT

Citation: (1980) 122 ITR 168 (AP) — Full Bench

Forum: Andhra Pradesh High Court (Full Bench)

Facts & Issue: Repairs to plant — frequent and recurring expenditure — Revenue resisted treating it as 'current' on the ground that some items were renewed.

Held / Ratio: Full Bench held that 'current' qualifies the nature, not the period — it must be repair in the contemporaneous course of using the asset. Periodicity is one indicator but not decisive. Replacement of a worn-out part is current repair unless tantamount to creating a new asset.

Section relevance: Defines 'current' in 'current repairs' under s. 31; followed by several High Courts.

6. Modi Spinning & Weaving Mills v. CIT

Citation: (1973) 89 ITR 304 (Del)

Forum: Delhi High Court

Facts & Issue: Periodic dismantling, re-bushing and reassembling of machinery — claimed under s. 31. Revenue argued it was capital because the asset's life was extended.

Held / Ratio: Held to be current repairs — overhaul of an existing machine to keep it in working order does not amount to capital expenditure even if life is extended. Useful-life prolongation is incidental to good maintenance.

Section relevance: Cited on extending machine life through maintenance — still current repairs under s. 31.

— End of Section 31 Case-Law Note —