The Commissioner of Income Tax vs Sri Karthikeya Spinning and Weaving Mills Limited

N.V. Balasubramanian, J.—The Income Tax Appellate Tribunal has stated the case and referred the following question of law in relation to

the assessment years 1986-87 of the assessee for our consideration.

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 drawn

frame is revenue expenditure ?

During the assessment year in question, the assessee had replaced three ring spinning frames costing Rs.12.21 lakh and claimed the same as

revenue expenditure. The Assessing Officer held that it was a capital expenditure. But the Commissioner of Income Tax (Appeals) as well as

Income Tax Appellate Tribunal held that the expenditure incurred by the assessee was a revenue expenditure. The Revenue has challenged the

order of the Tribunal by filing a reference application and the Tribunal has stated the case and referred the question of law stated earlier for our

consideration.

It is unfortunate that the Appellate Tribunal has not enclosed its earlier order in the statement of the case as part of the statement of case, when

the Tribunal has relied on its earlier order. This Court time and again has directed the Tribunal to enclose its earlier order, when the Tribunal has

relied upon its earlier order in considering the issue that arose in disposing the appeal. The Tribunal in the present case has also not given any

independent reason but, merely relied on its earlier order. When the Tribunal relies upon its earlier order, we make it clear that it is incumbent upon

the Tribunal to enclose its earlier order as part of the statement of the case so that the reason for coming to its conclusion can be discernible by this

Court. However, it is seen from the order of the Assessing Officer that the assessee has only replaced certain parts of the machinery and it is not a

case that the machinery was replaced wholly or new machinery was installed. This Court in Commissioner of Income Tax Vs. Sri Hari Mills Pvt.

Ltd., has held, in similar circumstances that the expenditure incurred on replacement of worn out parts of the machinery would be revenue

expenditure and it could not be treated as a capital expenditure .

Learned counsel for the Revenue however relied on the decision in Commissioner of Income Tax Vs. Madras Cements Ltd., , wherein the

Court considered the case of installation of new cement mill for an existing mill and held that the expenditure incurred for installing a new mill would

not come under the head current repairs. The issue that arose before the Court in Madras Cements Limited case is far different from the case we

are considering, as the question that arises before this Court is whether the expenditure incurred on replacement of worn out parts is revenue

expenditure or not.

We are of the view that the expenditure is revenue in nature and the decision of this Court in Commissioner of Income Tax Vs. Sri Hari Mills

Pvt. Ltd., supports the case of the assessee.

Accordingly, following the decision in Commissioner of Income Tax Vs. Sri Hari Mills Pvt. Ltd., and for the reasons stated therein, we answer

the question of law referred to us in the affirmative in favour of the assessee and against the Revenue. No costs.