Commissioner of Income Tax vs Jeyabharath Textiles P. Ltd.

K. Raviraja Pandian, J.—The appeal is filed by the Commissioner of Income Tax u/s 260A of the Income Tax Act, 1961, against the order passed by the Income Tax Appellate Tribunal "A" Bench, Chennai, dated June 29, 2004, in I.T.A. No. 2489/Mds/1996 raising the following questions of law:

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that replacement of one carding machinery was revenue expenditure ?

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is right in law in allowing a deduction of Rs. 10,10,728 being the amount spent on replacement of one carding machinery deductible as current repairs u/s 31 of the Income Tax Act?

The facts of the case are as follows:

The assessee is engaged in manufacture and sale of cotton yarn. For the assessment year 1995-96, a total income of Rs. 9,64,360 was admitted by the assessee whereas the Assessing Officer determined the total income of Rs. 17,22,410. In that process, a sum of Rs. 10,10,728 being the cost of machinery claimed by the assessee as revenue expenditure was added back. It was found by the Assessing Officer that the assessee had claimed replacement cost of one carding machinery during the year as revenue expenditure. On going through the profit and loss account of the earlier year and also for the current year the cost of replacement was not shown as having been debited to the profit and loss account. It was further found that the replacement of one carding machinery in the place of the existing old one, was nothing but a capital expenditure. The Assessing Officer held that the machinery capacity had increased and had provided an enduring benefit and advantage in the production. Further, relying on the decision of the Calcutta High Court in the case of CIT v. Hindustan Pilkington Glass Works Ltd. reported in [1994] 73 Taxman 631, wherein it was held that replacement of old one with a new carding machine was nothing but a capital expenditure, the Assessing Officer disallowed the claim of the assessee and allowed depreciation. Aggrieved by the same, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) who allowed the same and held that the addition made by the Assessing Officer was to be deleted and was to be treated as revenue expenditure and the depreciation granted was to be withdrawn. Aggrieved by the same, the Revenue filed an appeal before the Income Tax Appellate Tribunal and the Tribunal dismissed the appeal of the Revenue. Aggrieved by the said order, the present appeal is filed.

Learned counsel appearing on either side submitted that the issue 4 involved in this appeal is covered by the decision of the Supreme Court in the case of Commissioner of Income Tax Vs. Ramaraju Surgical Cotton Mills, wherein it was contended by the assessee that replacement of assets without increasing the production capacity would amount to revenue expenditure and by the Department that expenditure for replacing an old machine by a new machine constituted an advantage of an enduring nature and would be capital in nature. Without expressing any opinion on the merits, the Supreme Court remanded the matters to the Commissioner (Appeals) to decide them uninfluenced by the decision of the Madras High Court in The Commissioner of Income Tax Vs. Janakiram Mills Ltd., by setting aside the same.

Therefore, we remand the matter to the Commissioner of Income Tax 5 (Appeals) with a direction to consider the matter again afresh in accordance with the abovesaid judgment of the Supreme Court in the case of Commissioner of Income Tax Vs. Ramaraju Surgical Cotton Mills, .

Accordingly, the appeal is disposed of.