1983 (3) TMI 16

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....lothing by metallic card clothing should be allowed as revenue expenditure for the year 1976-77 ? " As seen from the question sought to be referred, the point for consideration is whether the expenditure towards replacement of conventional card clothing by metallic card clothing in the carding section of the assessee-mills is a revenue expenditure or whether it is capital in nature, not exigible for deduction under s. 37 of the I.T. Act, 1961. The Tribunal, following the decision of the Mysore High Court in Hanuman Motor Service v. CIT [1967] 66 ITR 88, has taken the view that the said expenditure should be taken to be expenditure incurred for repairing the existing machinery and it cannot be taken to be expenditure incurred for substant....

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....idered as a replacement or renewal of a capital asset. The Mysore High Court also pointed out that the replacement of worn out parts of a machinery does not by itself bring a new asset into existence and that the fact that an old part of a machinery was replaced by new part did not mean that a new asset has been brought into existence. In CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC), it has been held by the Supreme Court that the cost of introduction of system called " Casablanca conversion system " was expenditure towards current repairs to the machinery and plant and allowable as an expenditure under s. 10(2)(v) of the Indian I.T. Act, 1922. In that case, the assessee was carrying on the business of manufacture and sale....

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....t parts were not available in the market, the assessee introduced the Casablanca conversion system, but thereby there was merely replacement of certain parts which were modified version of the older parts and, therefore, the expenditure should be taken as one for repairs. The said decision of this court was canvassed before the Supreme Court in the decision referred to above and the Supreme Court affirmed the decision of this court aforesaid. We are inclined to accept the reasoning of this court in CIT v. Mahalakshmi Textile Mills [1965] 56 ITR 256. On the facts before us, there has been only a replacement of the conventional card clothing by metallic card clothing in the carding section of the mills and this has been done with a view to....