COMMISSIONER OF INCOME TAX Vs. MADRAS SPINNERS LTD

JUDGEMENT

(1.) THE assessee, a Company engaged in the business of manufacture and sale of yarn, for the assessment year 1991-92,claimed an amount of Rs.1,38,27,772/- as revenue expenditure towards replacement of machinery. The Assessing Officer conducted a survey under Section 133A of the Income Tax Act, 1961, hereinafter referred to as "the Act", and found that the assessee had replaced a machinery called the "Cone Winder" by an "Auto Coner 238". The replacement of such machinery was in addition to the existing plant and machinery and the claim of revenue expenditure was rejected on the premise that the same was capital in nature.

(2.) THE assessee successfully challenged the order of the Assessing Officer before the first appellate authority. The first appellate authority relied on a decision of the Hon'ble Supreme Court in Commissioner of Income Tax v. Mahalakshmi Textile Mills Ltd. (1965) 56 ITR 256, to hold that the expenditure incurred by the assessee on modernization by replacing old worn out machinery with new machines could only be treated as a revenue expenditure. The Tribunal, on an appeal by the Revenue, confirmed the findings of the first appellate authority.

(3.) MAHALAKSHMI Textile Mills case (supra) was a case in which parts of the textile machinery owned by the assessee had become worn out and replacement was impossible since the old type parts were not available in the market. The assessee, hence, replaced the worn out parts with new parts manufactured by another manufacturer; thus modifying the machinery to a new system. In the instant case, the Tribunal has clearly found that the new machinery was one which reduced the man power requirement substantially and increased production. The facts are clearly distinguishable.