1. The Income Tax Appellate Tribunal, Allahabad Bench, Allahabad, referred the following question relevant to the assessment year 1979-80 for the opinion of this court:

Whether, on the facts and circumstances of the case, the Tribunal was legally correct in holding that the expenditure by the assessee on replacement on one turbine rotor amounting to Rs. 1,05,44,904 was on account of current repairs and as such, it was revenue account expenditure

2. The facts of the case in brief are as follows:

The respondent-assessee is a captive power plant for M/s. Hindustan Aluminium Corporation Ltd. (Hindalco). It is a hundred per cent, subsidiary company of Hindalco. During the relevant assessment year 1979-80 it had two thermal power plants of generating capacity of 67.5 MW each. During the assessment year in question, the assessee claimed revenue expenditure to the extent of Rs. 1,05,44,904 as cost of turbine rotor. The said expenditure was disallowed by the assessing authority as it was treated as a capital expenditure. The order of the assessing authority was confirmed by the first appellate authority. In second appeal, the Tribunal after making analysis of facts has recorded a finding that the assessee incurred the expenditure in the ordinary course of business for replacement of the turbine rotor. The Tribunal has also found that the replacement of turbine rotor is not a separate and distinct machinery. The Tribunal has further noted that it was only a part of the machine of turbo generator set which is used for generating electricity. The Tribunal treated it a case of repair having been carried out by the assessee by replacing damaged and unserviceable turbine rotor by a new rotor. On these facts the Tribunal accepted the claim of the assessee.

3. Shri R.K. Upadhyaya, learned standing Counsel in support of the reference has placed reliance upon a judgment of the House of Lords in Hinton (Inspector of Taxes) v. Maden and Ireland Ltd. [1960] 39 ITR 357. He submits that turbine rotor is a plant and therefore the expenditure incurred by the assessee in its replacement is a capital expenditure.

4. In contra, Shir R.K. Morarka, learned Counsel for the assessee submits that on the facts recorded by the Tribunal in its order, it is a case of repair and has placed reliance upon a Division Bench judgment of this Court in the case of CIT v. Kanodia Cold Storage : [1975]100ITR155(All) .

5. In the present case, the Tribunal has recorded a finding that the turbine rotor is an essential part of the turbo generator set. It is not an independent machinery or plant. The turbine rotor on its own independent functioning cannot generate electricity. It is being used in the turbo generator set as its essential part. On these findings recorded by the Tribunal a question arises—Whether the expenditure incurred on the change/replacement of turbine rotor is a revenue expenditure or capital expenditure.

6. Considered the respective submissions of learned Counsel for the parties.

We find that the controversy stands concluded by the judgment of this Court in the case of CIT v. Kanodia Cold Storage : [1975]100ITR155(All) wherein it has been held as follows (headnote):

Replacement of worn out parts does not by itself bring in a new asset. In considering the nature of an expenditure one should consider the productive unit as a whole and not pick out parts therein which are new. If the productive unit to the assessee remains the same but a part of it which has become unsuitable for its use is replaced by something which makes it possible for the existing set up to function efficiently, the cost incurred on such replacement would be revenue expenditure.

7. The CIT v. Saravana Spinning Mills P. Ltd. : [2007]293ITR201(SC) , while interpreting the words "current repairs" in Section 31 of the Income Tax Act, it has been held as follows (page 208):

...If an autoleveler is to be repaired then that repair would come within the connotation of the words current repairs because it is a part of the carding machine. Even if in a given case, replacement of an autoleveler could come within the connotation of the words current repairs if the old part is not available in the market. It is a current repairs because the carding machine remains an asset without any change even after repair or replacement of the autoleveler. To give an example, a compressor is an important part of an air-condition machine. Repair of the compressor will come in the connotation of the words current repairs in Section 31(i) of the said Act because the assessee does not replace the air-condition machine. At the highest, he replaces a part of the air-condition machine. So is the case of the picture tube in a television set, when the picture tube is replaced the television set is not replaced, therefore, such repairs alone can come within the connotation of the words current repairs in Section 31(i) of the said Act as it stood at the material time. They are effected to preserve and maintain the asset, viz., air-conditioner or carding machine....

The basic test to find out as to what would constitute current repairs is that the expenditure must have been incurred to preserve and maintain an already existing asset and the object of the expenditure must not be to bring a new asset into existence or to obtain a new advantage.

8. So far as the decision relied upon by learned standing counsel for the Department is concerned, the same is distinguishable on the facts. In that case, the question whether certain expenditure incurred by the assessee on knives and loses in the material period qualified for capital allowance under Section 16(3) of the Finance Act, 1954. On the facts it was found that the knives are not parts of the machine. Each knife is a separate tool or implement designed to be used in conjunction with the machine. On these facts it was held that replacement of knives was the capital expenditure. In the case on hand the factual position is quite different. It has been found by the Tribunal as a fact that turbine rotor is a part of turbo generator set. The turbine rotor does not function independently. It is a part of turbo generator set.

9. In view of the above discussion, we do not find any error in the order of 5 the Tribunal. The Tribunal was justified in holding that the expenditure by the assessee on the replacement of one turbine rotor amounting to Rs. 1,05,44,904 was on account of current repairs and as such it was revenue expenditure.

10. Therefore, we answer the question referred to us in the affirmative, i.e., against the Revenue and in favour of the assessee.