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Issues involved: Determination of whether the expenditure incurred for replacing electric motors in a textile mill constitutes revenue expenditure or capital expenditure for the assessment year 1980-81.
Summary: The High Court of Madras considered the question of whether the replacement of electric motors in a textile mill constituted revenue or capital expenditure. The Income-tax Officer initially disallowed the expenditure as capital in nature, but the Commissioner of Income-tax disagreed, distinguishing between repair and renewal. The Tribunal upheld the Commissioner's view that the replacement of motors represented revenue expenditure on repairs by way of renewal. The Revenue argued that the expenditure on new motors should be considered capital expenditure as they are capable of independent use and not parts of machinery. They relied on legal precedents emphasizing that expenditure for repairs should aim to preserve existing assets, not create new ones. However, the Court noted that the replacement of motors was essential for the continued operation of the mill's machinery and production of textiles, indicating revenue expenditure. Ultimately, the Court held in favor of the assessee, ruling that the expenditure on new motors was revenue expenditure, not capital expenditure. The assessee was awarded costs of Rs. 750.
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