COMMISSIONER OF INCOME TAX Vs. MADRAS SPINNERS LIMITED

JUDGEMENT

(1.) THIS is a reference at the instance of the Revenue. The reference is under Section 256(1) of the Income-tax Act, 1961. The questions are these :

(2.) THE assessee is a textile manufacturing company. THE assessee/company claimed expenditure of Rs. 9,69,563 incurred by it on modernising its machinery. THE Income-tax Officer was of the view that this amount having been incurred by the assessee for installation of new machinery was of capital nature. He disallowed the claim. On appeal, the Commissioner of Income-tax (Appeals) did not agree with the Income-tax Officer and held that the expenditure incurred by the assessee on modernising its machinery was allowable as revenue expenditure. He allowed the claim. THE Revenue filed an appeal before the Appellate Tribunal.

(3.) WE may also refer to CIT v. Madras Spinners Ltd. [1989] 177 ITR 495 (Ker). This case was in respect of the same assessee for the assessment years 1974-75, 1978-79 and 1979-80. The nature of expenditure incurred was identical to the expenditure incurred in the case at hand. This court held that the expenditure incurred by the assessee is just to replace the old and worn out parts in order to make the unit function more effectively, that no new machinery or plant was installed and no new asset came into existence, and further found that the conclusion is inescapable that the expenditure incurred by the respondent assessee for modernising its machinery by replacing old, worn out and unserviceable parts in order to run its business smoothly and efficiently is only revenue expenditure. Further, the court said that the conclusion of the Tribunal is in accord with the decision of the Supreme Court in CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710. Finally, the Division Bench observed that no referable question of law arises out of the order of the Appellate Tribunal. Of course, the case decided by the Division Bench is an original petition for compelling a reference.