Recent order of Delhi HC -whether replacement of moulds of exisiting machinery constitutes capital or revenue expenditure

Please find enclosed herewith the recent order of the Delhi High Court in the case of  SUPER CASSETTES INDUSTRIES LTD. : ITA No. 197 & 626  of 2010 (dated 17.10.2011), wherein the Court  while examining whether replacement of moulds of existing machinery constitutes capital or revenue expenditure, held that

·         the depreciation schedule or rate of depreciation cannot decide whether a particular expenditure in the hands of an assessee is revenue or capital expenditure. Same asset can be stock in trade in the hand of one assessee and a capital asset in hands of another assessee. The schedule does not decide whether an asset purchased is a  capital asset. Merely because moulds have been classified and mentioned  in the schedule relating to depreciation in the Income Tax Rules, it does  not mean that the purchase price of the moulds in all cases has to be

treated as a capital expenditure.

·         In the facts of the case, purchase price of moulds cannot be regarded as a capital expenditure if the replaced mould is an integral part of an existing injection moulding machine. In such cases a new asset does not come into existence but the expenditure incurred is towards purchase of parts for repair or maintenance of existing   machinery. No new or fresh advantage of enduring  benefit materializes but the purpose is to preserve and maintain an already existing asset. The expenditure incurred on replacement of the moulds is in the nature of replacement of parts of the old machines which  continues to exist and remains the capital asset.

super cassets_reapir_capital or revenue.asp.htm