COMMISSIONER OF INCOME TAX Vs. MADRAS SPINNERS LIMITED

JUDGEMENT

(1.) THE same question arises for consideration in these three cases. In these original petitions, the Revenue is the petitioner. THE same assessee is the respondent in all the cases. THE matter relates to the assessment years 1974-75, 1978-79 and 1979-80. THE assessee claimed expenditure during the relevant assessment years on modernising its machinery. It was claimed as revenue expenditure. THE assessing authority took the view that the expenditure incurred for all the years constituted cost of conversion of materials which would be either major renovation of the existing machinery or installation of new assets. Either way, it was for an enduring benefit. So it is capital expenditure. In appeal, the Appellate Assistant Commissioner, relying on the decision of the Supreme Court in CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 allowed the claim of the assessee in full. In further appeals to the Tribunal, a remit was ordered. After remit, the Commissioner of Income-tax (Appeals) again allowed the claim of the assessee in full. THE Revenue again appealed to the Tribunal. THE Appellate Tribunal held that the decision of the Commissioner of Income-tax (Appeals) did not call for any interference. THE Revenue filed applications under Section 256(1) of the Income-tax Act, for all the three years. Briefly stated, the question which the Revenue wanted the Tribunal to refer to this court was whether the expenditure incurred by the assessee on modernising its machinery by replacing worn out and unserviceable parts in order to run the business smoothly and efficiently is allowable as a revenue expenditure. THE Tribunal declined to refer the questions desired by the Revenue for the decision of this court. THEreafter, these three original petitions have been filed by the Revenue praying that the Appellate Tribunal may be directed to refer the question of law formulated in paragraph 8 of the original petition for the decision of this court.

(2.) WE heard counsel for the Revenue, Mr. P. K. Ravindranatha Menon, as also counsel for the respondent-assessee. In paragraph 4 of its appellate order, dated September 17,1985, the Appellate Tribunal held as follows :