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CASE NO.: Appeal (civil)  4101 of 2003

PETITIONER: DY.COMMNR.OF INCOME TAX,COCHIN

RESPONDENT: M/S.S.T.N.TEXTILE LTD.

DATE OF JUDGMENT: 25/10/2005

BENCH: B.P.SINGH , S.B.SINHA & P.K.BALASUBRAMANYAN

JUDGMENT: J U D G M E N T

       This appeal by special leave is directed against the  judgement and order of the High Court of Kerala at Ernakulam  in I.T.A. 20 of 1999 dated March 14, 2002. By its aforesaid  judgment and order dated 11th March, 2002 read with revised  order dated 14th March, 2002, impugned herein, out of the two  questions referred to the High Court for its opinion, it  answered the first question in favour of the revenue, and  directed that the second question, together with the question  as to whether the claim of deduction of the amount could be  claimed under Section 37 of the Act, be considered by the  Tribunal.  It accordingly, remitted the matter to the Tribunal  for fresh disposal of the matter on the aforesaid two  questions.           The facts of the case may be briefly noticed :-         The S.T.N. (Respondent herein) is a company  running a  textile mill. We are concerned with the assessment year 1991- 1992.  The assessee claimed a deduction of a sum of  Rs.11,11,600/- which amount it had incurred for replacement of  

                       -2- the electric control panel.  The Assessing Officer took the  view that the said expenditure was in the nature of capital  expenditure and therefore, no deduction was allowable under  Section 31(1) of the Income Tax Act.  It  negatived the claim  of the assessee that the amount was spent on "current repairs"  and therefore, covered by Section 31 of the Income Tax Act.         It, therefore, held that the expenditure was a capital  expenditure on which only depreciation was allowable and  accordingly, allowed depreciation amounting to Rs.2,77,900/-  and added back the balance amount of Rs.8,33,700/-.         The assessee went in appeal to the Appellate  Commissioner who by his Order of September 20, 1994 allowed  the assessee’s appeal holding that the expenditure incurred  did not represent capital expenditure but was revenue in  nature.  He, therefore, directed the assessing officer to  allow the expenditure incurred as revenue expenditure and  withdraw the depreciation allowed.         The matter went in appeal to the Income Tax Appellate  Tribunal which, by its order affirmed the findings of the  appellate authority.  The matter ultimately came up before the  High Court at the instance of the revenue and two questions  were framed for the opinion of the High Court which are as  follows :-         "1.     Whether, on the facts and in the circumstances                  of the case could the expenditure incurred on                  replacing the power panel be considered as

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                       -3-                 current repairs entitled to deduction under                  Section 31 of the  Income Tax Act?         2.      Whether on the facts and in the circumstances                  of the case is not the expenditure of                    Rs.11,11,600/- incurred on replacement of                  electric control panel a capital expenditure?" The High Court, by its order of 11th March, 2002 set aside the  finding of the Appellate Authority and the Tribunal to the  effect that the expenditure was incurred on"current repairs".   In view of this finding, the High Court answered the aforesaid  question in favour of the revenue.  However, the matter was  again brought up before the High Court under the heading "to  be  spoken to" and the attention of the High Court was drawn  to certain issues, which according to the assessee arose for  its consideration.  It was submitted that while answering the  second question as to whether the expenditure was capital in  nature, the High Court was also required to consider whether  the expenditure did not answer the description of any  expenditure under Section 37 of the Income Tax Act and could,  therefore, be treated as revenue expenditure.  The High Court  felt that in the facts and circumstances of the case, the  question as to whether the expenditure fell within the ambit  of Section 37 of the Act may be considered by the Tribunal  afresh alongwith the second question referred to the High  Court for its opinion.  Accordingly, while answering the first  question in favour of the revenue, it remitted the second  

                       -4- question and the additional question, as to whether the  expenditure was one contemplated by Section 37 of the Act, for  fresh consideration by the Tribunal.           Mr. T.S.Doabia, senior counsel appearing on behalf of  the revenue submitted that the High Court having taken the  view that the expenditure was not one within the contemplation  of Section 31(1) of the Income Tax Act, ought to have, as a  consequence, answered the second question in favour of the  revenue holding the expenditure to be a capital expenditure.   There was no question of considering afresh the question as to  whether the expenditure was one contemplated by Section 37 of  the Act.         We find that though the High Court, in its earlier  order observed that the questions  must be answered in favour  of the revenue, there is no discussion in the order of the  High Court on the second question framed for its opinion.  The  High Court, perhaps, proceeded on the basis that in view of  its answer to the first question, the second question must be  answered in the affirmative, i.e. in favour of the revenue.         Having perused Section 37 of the Act, we are of the   view that the High Court has not committed any illegality in  remitting the matter to the Tribunal.  Section 37 of the Act  deals with any expenditure not being an expenditure of the  nature described under Sections 30 to 36 of the Act, and not  being in the nature of capital expenditure or personal  expenditure of the assessee, laid down or extended wholly or  

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exclusively for the purpose of the business or profession.   Such expenses shall be allowed in computing the income  chargeable under the head "Profits and Gains of Business".  In  view of the finding of the High Court it cannot be disputed  that the expenditure incurred in replacing the electric panel

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is not an expenditure contemplated  by Section 31 of the Act  as "current repairs".  The question as to whether it is in the  nature of capital expenditure has not been answered by the  High Court.  The question therefore, arises whether it is an  expenditure of the nature contemplated by Section 37 of the  Income Tax Act.  The High Court has, in its discretion,  remitted both these questions to the Tribunal for fresh  consideration.         In the facts and circumstances of the case, we do not  find this to be a case in which this Court should interfere  with the order of the High Court.  Moreover, in view of the  paucity of the material before this Court, these questions  cannot be answered by this Court in this appeal, and  therefore, these questions must be considered afresh by the  Tribunal.           We, therefore, find no merit in this appeal and the  same is accordingly, dismissed.         We are informed that the matter was remitted to the  Tribunal by its order of 14th March, 2002 and so far no order  

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has been passed.  We expect the Tribunal to take up the matter  with most expedition and dispose it of as early as possible.