COMMISSIONER OF INCOME TAX Vs. JAWAHAR MILLS LIMITED

JUDGEMENT

(1.) In accordance with the directions given by this Court the Tribunal referred the following question for the opinion of this Court under s. 256(2) of the IT Act, 1961 :

(2.) The assessee is a public limited company engaged in the manufacture of cotton yarn at Salem. For the asst. yr. 1977-78 in respect of which the previous year ended with 31st March, 1977 the assessee had to replace a false ceiling covered by hardboard. There was a ceiling of about 60478 sq. ft., all covered by hardboard which was replaced by asbestos cement sheet over a period of three years. The work of replacement commenced from 1974. The total outlay was Rs. 2,86,024. According to the IAC, this expenditure was of capital in nature while the assessee claimed it to be a revenue expenditure. Considering that the expenditure in question was capital in nature a sum of Rs. 1,16,168 relating to this year under appeal was treated as capital expenditure. Accordingly it was disallowed. In arriving at this conclusion that this was capital expenditure what prevailed with the IAC mostly was that the life of the replaced ceiling by asbestos cement sheets could be of 15 to 20 years and it amounted to a material alteration resulting in substantial improvement of the asset providing enduring benefit and, therefore, capital expenditure.

(3.) On appeal, the CIT (A) held that the cost of replacement was allowable as revenue expenditure and there was nothing to suggest in it that it was capital expenditure. He relied on the principles laid down by the Supreme Court in the case of CIT vs. Sheikpura Transport Co. Ltd. (1961) 41 ITR 336 (SC) : TC 15R.352 and CIT vs. Mahalakmi Textile Mills Ltd. .