COMMISSIONER OF INCOME TAX Vs. JAWAHAR MILLS LTD

JUDGEMENT

(1.) IN accordance with the directions given by this court, the Tribunal referred the following question for the opinion of this court under section 256(2) of the INcome-tax Act, 1961 :

(2.) THE assessee is a public limited company engaged in the manufacture of cotton yarn at Salem. For the assessment year 1977-78 in respect of which the previous year ended with March 31, 1977, the assessee had to replace a false ceiling covered by hardboard. THEre was a ceiling of about 60,478 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 Inspecting Assistant Commissioner, this expenditure was 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 the year under appeal was treated as capital expenditure. Accordingly, it was disallowed. In arriving at the conclusion that this was capital expenditure what prevailed with the Inspecting Assistant Commissioner 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 a substantial improvement of the asset providing enduring benefit and, therefore, capital expenditure.

(3.) ON the other hand, learned counsel for the assessee pointed out that the Tribunal recorded a finding that the false ceiling put up in hardboard had become old and worn out having been in existence for more than twenty years and the replacement of such ceiling even by the asbestos sheets did not bring in any new asset or advantage of enduring nature.