Commissioner of Income Tax vs Sri Karthikeya Spinning and Weaving Mills Ltd.

K. Raviraja Pandian ,J.

The question referred is :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the expenditure on purchase of

drawn frame is revenue expenditure ?

The assessment year is 1987-88.

The assessee is a closely held company engaged in the manufacture and sale of yarn and its by-products. During the assessment year in

question, the assessee claimed the cost of replacing draw frames of Rs. 6,14,790 as revenue expenditure. The Assessing Officer negatived the

assessee''s claim. On appeal the Commissioner of Income Tax (Appeals) held that the expenditure on draw frame is only a replacement and hence

allowable as revenue expenditure. On appeal by the Revenue, the Tribunal following the earlier order in the case of Nagammal Mills Limited,

upheld the order of the Commissioner of Income Tax (Appeals). Hence the reference u/s 256(1) of the Income Tax Act before us.

As seen from the statement of facts and also from the order of the Commissioner of Income Tax (Appeals), the replacement has neither

changed the installed capacity of the assessee nor brought into existence any new assets of enduring nature. The replacement of draw frame has

not also brought any substantial improvement on the installed capacity of the textile unit. The reasoning given by the authorities below so as to

conclude that the cost of replacement of draw frame should only be treated as revenue expenditure, in our view, is correct, which warrants no

interference in this reference.

The reference is answered against the Revenue and in favour of the assessee.