Law: Income Tax Act, 1961

Section: 37

Income-tax---Capital or revenue expenditure---Textile mills---Purchase of new motors replacing worn out motors---Replacement of motors only for continuous production---Expenditure on purchase of, new motors was deductible as revenue expenditure---Indian Income Tax Act, 1961, S.37. The assessee was a manufacturer of textiles. During the assessment, year 1980-81, the assessee replaced certain electric motors within the mill and claimed deduction of expenditure. The Income-tax Officer did not allow the deduction holding that the expenditure was capital in nature. On appeal, the Commissioner of Income-tax allowed the deduction holding-that renewal as distinguished from repair was reconstruction of the entirety. The Tribunal affirmed the Commissioners view. The Revenue contended that the electric motors being items of machinery, which were capable of independent use, could not be regarded as parts of a machinery and the expenditure incurred on purchase of new motors must necessarily be regarded as capital expenditure: On a reference: Held, that it could not be said that a new advantage was gained by the assessee in installing motors, as without the motors the entire productive system would have come to a halt. Replacement of such motors was only for the purpose of keeping the looms and spindles running and making it possible for production to continue. Therefore, it could not be held that the expenditure on the purchase of new motors was capital expenditure and not revenue expenditure. New Shorrock Spinning and Manufacturing Co. Ltd. v. CIT (1956) 30 ITR 338 (Bom.) applied. Ballimal Naval Kishore v. CIT (1997) 224 ITR 414 (SC) and Lurcott v. Wakely and Wheeler (1911) 1 KB 905 (CA) ref. JUDGMENT R. JAYASIMHA BABU, J---The question referred to us at the instance of the Revenue is as to whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding and had valid materials to hold that the expenditure only represents repairs and renewal to replace the worn out motors in the plant and machinery. The assessment year with which we are concerned is 1980-81. The assessee is a manufacturer of taxtiles. It had, during the assessment…

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