The Commissioner of Income Tax vs Raju Spinning Mills Ltd.

K. Raviraja Pandian, J.—The revenue on appeal against the order of the Income Tax Appellate Tribunal MADRAS ''C'' Bench, Chennai dated 17.06.2005 passed in ITA. Nos. 276/587/Mds/2000 by formulating the following questions of law.

Whether in the facts and circumstances of the case, the Tribunal was right in allowing a deduction of the amounts spent n replacement of machinery as revenue expenditure?

Whether in the facts and circumstances of the case, replacement of independent complete machinery can be treated as revenue expenditure?

Whether in the facts and circumstances of the case, the Tribunal was right in deciding the issue without going into the concept of Block of asset?.

It is submitted across the bar by the Counsel appearing on either side that the above questions of law, are covered by the decision of the Supreme Court in the case of Commissioner of Income Tax Vs. Ramaraju Surgical Cotton Mills, , wherein the Judgment of this Court in India Cine Agencies Vs. Deputy Commissioner of Income Tax, was considered by the Supreme Court with reference to the contention of the assessee that replacement of assets without increasing the production capacity would amount to revenue expenditure. The Supreme Court remanded the matter by observing that there are a number of tests which are required to be considered while deciding whether the expenditure was revenue or capital in nature. In the absence of the requisite details regarding the production capacity remaining constant even after replacement, the matter could not be decided on merits and require to be remitted back to the Commissioner (Appeals) for consideration of that particular issue with reference to the production capacity. In this case also, there is no material available as to the increase or otherwise of the production capacity in replacement of the machineries. Without the factual details, the questions of law cannot be decided. Hence this case also require to be remitted back to the Commissioner of Appeals as done by the Supreme Court in the aforesaid decision.

Hence, the order of the Tribunal is set aside and the matter is remitted back to the Commissioner of Appeals to redo the exercise as directed by the Supreme Court in the case of Commissioner of Income Tax Vs. Ramaraju Surgical Cotton Mills, . With the above observations, the appeals are disposed of. No costs.