COMMISSIONER OF INCOME TAX Vs. JAGAJIT INDUSTRIES LIMITED

JUDGEMENT

(1.) BY this application under Section 256(2) of the Income -tax Act, 1961 (for short 'the Act'), the Revenue seeks a direction to the Income -tax Appellate Tribunal to state the case and refer the following question, in respect of the assessment year 1982 -85, for the opinion of this court :

(2.) DURING the relevant previous year ending on December 31, 1981, the assessed spent a sum of Rs. 3,99,580 on the purchase of moulds for manufacturing the glass and debited the same to the profit and loss account. While completing the assessment for the relevant assessment year the Assessing Officer treated the said amount as capital expenditure and accordingly allowed only depreciation on the said amount. The assessor's appeal before the Commissioner of Income -tax (Appeals) was unsuccessful. Aggrieved, the assessed carried the matter in further appeal to the Appellate Tribunal. The Tribunal, following the decision of the Karnataka High Court in CIT v. Mysore Spun Concrete Pipe Put Ltd. : [1992]194ITR159(KAR) , wherein it was held that replacement of moulds was not in the nature of replacement of capital machinery but was for replacing a part of the machinery, which does not have the effect of bringing into existence some new asset or increase in production capacity, accepted the claim of the assessed and allowed the said expenditure on replacement of moulds as revenue expenditure. The Revenue's application under Section 256(1) of the Act for reference on the afore noted question to this court having been dismissed, the present petition has been filed.

(3.) WHETHER on given set of facts, replacement of certain items, forming an integral or important part of the machinery would be revenue expenditure or capital expenditure is primarily a question of fact, to be decided in the context of the business carried on by an assessee. Merely, because the benefit accruing by the expenditure is of enduring nature, is by itself not a conclusive test to hold it as a capital expenditure (see Empire Jute Co. Ltd. v. CIT ). Normally initial investment on machines and their parts will be in the nature of capital expenditure but replacement of parts of an existing machinery in the course of their working will be a revenue expenditure.