Replacement of machinery as current repairs requires proof it is not a capital asset; matter remanded for fresh scrutiny.

Expenditure on replacement of machinery is not automatically allowable as current repairs merely because it relates to the manufacturing process. The assessee must prove on acceptable material that the replacement falls within the permissible scope of repairs and does not create an independent capital asset. Applying the prevailing legal test after the earlier jurisdictional precedent was overruled, the HC held that the Tribunal could not rely on the reversed precedent and that the claim required fresh examination on proper materials. The Tribunal's order was set aside and the matter remitted to the appellate authority for reconsideration under the correct legal position.

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Issues: Whether expenditure incurred for replacement of machinery was allowable as revenue expenditure under the head of current repairs, or was capital expenditure requiring separate treatment.

Analysis: The Tribunal had allowed the assessee's claim by following an earlier jurisdictional precedent, but that precedent had since been overruled. The governing test, as applied by the Court, is that replacement of machinery cannot automatically be treated as current repairs merely because it relates to the manufacturing process. The assessee must establish with material that the replacement falls within the permissible scope of repairs and does not amount to bringing into existence an independent capital asset. The Court applied the later Supreme Court-guided position and held that the matter required fresh examination on proper materials rather than acceptance of the Tribunal's conclusion based on the reversed precedent.

Conclusion: The Tribunal's order allowing the claim was set aside and the issue was remitted to the appellate authority for fresh consideration in the light of the prevailing legal position.

Final Conclusion: The dispute on allowability of replacement expenditure was not finally decided on merits in favour of the assessee, and the matter was sent back for reconsideration under the correct legal test.

Ratio Decidendi: Expenditure on replacement of machinery is not allowable as current repairs unless the assessee proves, on acceptable material, that the claim satisfies the legal test for repairs and does not result in the acquisition of an independent capital asset.

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