Income‑tax‑‑‑

‑‑‑‑Reference‑‑‑Capital or revenue expenditure‑‑‑Finding that expenditure on replacement of certain items forming part of machinery did not enhance capacity of machinery --‑‑Finding of fact‑‑‑Finding not challenged as being perverse‑‑‑Tribunal justified in holding that expenditure was revenue in nature‑‑‑No question of law arose from its order‑‑‑Indian Income Tax Act, 1961, Ss.37 & 256(2).

Held, dismissing the application to direct reference, that the question whether on a given set of facts, replacement of certain items, forming as integral or important part of the machinery would be revenue expenditure or capital expenditure is primarily a question of fact. The Tribunal had reached the conclusion, that the moulds in question did not enhance the capacity of the existing, machines and were mere replacements for the moulds damaged during the process of‑manufacture of glass. It was also evident from the format of the question, proposed by the Revenue, that the finding of the Tribunal to the effect that the expenditure in question was incurred by the assessee on the "replacement" of the moulds was not under challenge. In view of the aforenoted finding recorded by the Tribunal, it was justified in holding that the expenditure was revenue in nature. No question of law arose from its order.

CIT v. Mysore Spun Concrete Pipe (Pvt.) Ltd. (1992) 194 ITR 159 (Kar.) and Empire Jute Co. Ltd. v. CIT (1980) 124 ITR 'l (SC) ref.

R.D. Jolly with Ajay K. Jha for the Commissioner.

JUDGMENT

By this application under section 256(2) of the Income Tax Act, 1961, (for short "the Act")., Revenue seeks a direction to the Income‑tax Appellate Tribunal to state the case and refer the following question, in respect' of the assessment year 1982‑83, for the opinion of this Court:

"On the facts and circumstances of the case and in law, whether the Tribunal has erred to hold that the expenditure incurred on replacement of moulds is a revenue expenditure?"

During the relevant previous year ending on December 31, 1981, the assessee spent a sum of Rs.3,99,580 on the purchase of moulds for manufacturing the glass and debited the same to the profit and loss account. While completing the assessment for the relevant assessment year the Assessing Officer treated the said amount as capital expenditure and accordingly allowed only depreciation on the said amount. The assessee's appeal before the Commissioner of Income‑tax (Appeals) was unsuccessful. Aggrieved, the assessee carried the matter in further appeal to the Appellate Tribunal. The Tribunal, following the decision of the Karnataka High Court in CIT v. Mysore Spun Concrete Pipe (Pvt.) Ltd. (1992) 194 ITR 159, wherein it was held that replacement of moulds was not in the nature of replacement of capital machinery but was for, replacing a part of the. machinery, which does not have the effect of bringing into existence some new asset or increase in production capacity, accepted the claim of the assessee and allowed the said expenditure on replacement of moulds as revenue expenditure., The Revenue's application under section 256(1) of the Act for reference on the aforenoted question to this Court having been dismissed, the present petition has been filed.

We have heard Mr. R.D. Jolly, learned senior standing counsel for the Revenue:

Whether on given set of facts, replacement of certain items, forming as integral or important part of the machinery would be revenue expenditure or capital expenditure is primarily a question of fact, to be decided in the context of the business carried on by an assessee. Merely, because the benefit accruing by the expenditure is of enduring nature, is by itself not a conclusive test to hold it as a capital expenditure (see Empire Jute Co. Ltd. v. CIT (1980) 124 ITR 1 (SC)). Normally initial investment on machinery and their parts will be in the nature of capital expenditure but replacement ofmachinery in the course of their working will be a

In the instant case having regard to the nature of the business of the assessee and applying the principle of law enunciated in Mysore Spun Concrete Pipe (Pvt.) Ltd's case (1992) 194 ITR 159 (Kar.),.the Tribunal has reached a conclusion that the moulds in question do not enhance the capacity of the existing machines and are mere replacements for the moulds damaged during the process of manufacture of glass. It is also evident from the format of the question proposed by the Revenue, that the finding of the Tribunal to the effect that the expenditure in question was incurred by the assessee on the "replacement" of the moulds is not under challenge.

In view of the aforenoted finding recorded by the Tribunal, to which no challenge is laid, we do not find any infirmity in its order declining to refer the proposed question.

There is no merit in the petition, and the same is accordingly

M.B.A./628/FCPetition dismissed