TMI Blog1951 (5) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the three boilers were regularly used for the purpose of manufacture of sugar. One of these three boilers deteriorated in its efficiency and during the relevant accounting year the assessee company had to purchase another boiler at a cost of ₹ 86,496. 2. The assessee company claimed this sum as a revenue expenditure. The Income-tax Officer/Excess Profits Tax Officer as well as the Appellate Assistant Commissioner disallowed it on the ground that it was a capital expenditure. In order to establish that the expenditure is of a capital nature one must be satisfied that the new boiler is an improvement on the old one producing bigger outturn of sugar or that it is not a part of the machinery used for the purpose of such production. The claim of the assessee company has always been that it was merely a replacement of the old one having the same pressure which the old one possessed when it was new and which is doing the same work which the old one was doing previous to its deterioration. The Tribunal accepted this. Before the Tribunal it was also stressed by the departmental representative that the boiler should not be treated as part of the sugar manufacturing mac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er is necessary and has to be used when any one of the other boilers have to be cleaned up at intervals and have to be given rest. One of these three boilers deteriorated in its efficiency during the relevant accounting period and the assessee was obliged to purchase another boiler at a cost of ₹ 86,496 and the old boiler was sold for a sum of about ₹ 15,000. The assessee company claimed this sum as a deduction from and out of its profits as expenditure chargeable to revenue. The deduction was not allowed by the Income-tax Officer and the Excess Profits Tax Officer and his decision was confirmed by the Appellate Assistant Commissioner. They held that it was a capital expenditure and not an expenditure chargeable to revenue. On a further appeal, the Appellate Tribunal reversed this decision and upheld the claim of the assessee company. Hence this reference. The question whether the expenditure incurred for the purpose of trade is properly debitable to the incomings of the trade or is capital expenditure is not always easy to decide. The scheme under the Indian Act adopted in Section 10 in computing the profits of a business is the allowances enumerated in sub- s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion must be treated as in the nature of a capital expenditure, while it is equally open to the assessee to show that it is chargeable to the incomings of the business. Bearing these principles in mind, it would be convenient now to consider the decisions cited at the Bar to elucidate the distinction between capital and revenue expenditure. Though in the question formulated and in the arguments before the Income-tax Officer and the other authorities which dealt with this question, the point was considered only from the point of view of clause (xv) to sub-section (2) of Section 10, in the arguments before us, reference was made to sub- clause (v) of that sub-section relating to repairs and also to clause (xv). If the substitution of the new boiler for the old by the assessee can aptly be described as a repair of the machinery, the claim for allowance must be upheld under clause (v) of Section 10(2) and no further question whether it is in the nature of capital expenditure or expenditure which is to come out of revenue arises for consideration. It has been held by this Court very early in Ratan Singh v. Commissioner of Income-tax, Madras*, that these clauses are disjunctive and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... econstruction. Renewal is a repair if it is only restoration by renewal or replacement of subsidiary parts of a whole. If, on the other hand, it amounts to a reconstruction of the entirety or of substantially the whole of the subjectmatter it is not a repair but a reconstruction. The test, therefore, which decides the question whether a thing is a repair or not is to see whether the act actually done is one which in substance is a replacement of defective parts or a replacement of the entirety or a substantial part of the subject-matter. A reconstruction of a wall, it was held in that case, was a repair and was covered by the obligation of the tenant who was under a covenant to repair the leasehold property. The reason given for this conclusion appears at page 927. It was held to be a repair because it merely restored the stability and safety of a subordinate part of the whole like replacing a new floor of a house. The Judicial Committee had occasion to consider a similar question under the Bechuanaland Income Tax Proclamation--see Rhodesia Railways Ltd. v. Income-tax Collector, Bechuanaland*. That case related to a claim by a railway company to take out of its profits a lar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condition and the cost of relaying the line so as to improve it is well brought out in the passage just quoted, and while the former is recognised as a legitimate charge against income the extra cost incurred in the latter case in the improvement of the line is equally recognised as a proper charge against capital. The distinction drawn in Highland Railway Company v. Special Commissioners of Income Tax* was that if what was done was a substitute of one kind of rail for another, steel rails for iron rails, that would have been a material alteration and an improvement in the corpus of the heritable estate of the company and in such a case, the cost of such an improvement would be a charge against capital. If, however, the old rails were replaced by substantially the same kind of rails and no improvement in the corpus was effected, it would follow that there was no creation of any new asset, to use the language of Lord Macmillan, but the expenditure would merely be one incurred to maintain the existing line in a state to earn revenue. It was therefore held that it was both a repair within the meaning of Section 15, sub-section (1)(b), of the Proclamation and also a revenue expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceed with the division further. A fly wheel may be treated as one unit because it performs one function in the larger unit. If such a fly wheel is replaced, the expenditure incurred in that behalf, if the argument is correct, may as well be treated as capital expenditure as it amounts to replacement of a unit. But Mr. Rama Rao Sahib is not prepared to go so far and is driven to accept the position that in such a case the expenditure will be a revenue expenditure as it is a repair and not capital expenditure. The test laid down by Viscount Cave in British Insulated and Helsby Cables Limited v. Atherton** to distinguish an expenditure which is in the nature of a capital expenditure from an expenditure properly debitable against incomings of a trade in computing profits has been adopted and applied in later decisions and that test holds the field even today. Lord Dunedin in Vallambrosa Rubber Co. v. Farmer*** laid down a rough test that capital expenditure was a thing that was going to be spent once for all while revenue expenditure was a thing that was going to recur every year. But as pointed out by Viscount Cave it is not always a decisive test and instances where that test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts in holding that the amount claimed was a revenue expenditure deductible under Section 10(2)(xv) of the Indian Income-tax Act and not a capital expenditure. Our attention was drawn to a decision of the Allahabad High Court in Ramkishen Sundarlal v. Commissioner of Income-tax, U.P.#, where it was held that the expression current repair occurring in Section 10(2)(v) of the Indian Income-tax Act is confined only to petty repairs usually carried out periodically and will not include repair or renewal costing a large sum of money which was spent after the machine has been run for a number of years. The dictionary meaning of the word current is not petty, but it means belonging to the present time, prevailing and with great respect to the learned Judges, it is difficult to accept such a restricted construction of the expression current repair in the clause. The answer to the question referred to us must, therefore, be in the negative and against the Commissioner of Income-tax. As the Commissioner of Income-tax has failed in this reference, he must pay the respondent his costs which we fix at ₹ 250. RAGHAVA RAO, J.--The facts of this case are singularly sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Indian Income-tax Act. After providing in Section 10(1) that The tax shall be payable by an assessee under the head 'profits and gains of business'......in respect of the profits or gains of any business...carried on by him, the statute proceeds in sub-section (2) to provide for specified allowances to be taken into account in computing the profits or gains. Of the allowances so provided for, the one with which we are directly concerned is that contained in clause (xv) of sub-section (2) which runs as follows:- any expenditure (not being in the nature of capital expenditure.....of the assessee) laid out or expended wholly and exclusively for the purpose of such business..... This is the provision with reference to which the matter has been considered so far in all the stages of the case. There is another provision which has also entered into the argument before us and that is the one in clause (v) which runs thus:- in respect of current repairs to such......machinery, plant...... the amount paid on account thereof. It is common ground that if the expenditure incurred in the purchase of the new boiler is in connection with curr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vate as interchangeable terms and annotates one as equivalent to the other. Etymologically repair is derived from O.F. reparer which in its turn is derived from L re (reparare i.e., again to make ready;) while renovate is derived from L re (novare, i.e., make new again). The two terms are therefore not terms of mutual contrast or antithesis but of interchangeableness and equivalence. Repair is a comprehensive word which means to make good defects and which therefore must include renewal where that is necessary: Inglis v. Buttery*. A covenant to repair may well stand satisfied by patching where patching is reasonably practicable, but where it is not, you must put in a new piece (Per Lord Blackburn, Ibid, 579-vide Stroud's Judicial Dictionary, page 1719). In relation to a building as such what a covenant to repair exactly means had to be considered by the Court of Appeal in England in Lurcott v. Wakely and Wheeler**. That was a case of covenant between landlord and tenant which required the latter to substantially repair and keep in thorough repair and good condition the demised premises. Shortly before the expiration of the term the London County Council served ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oiler is a part by a renewal of it, that obviously is tantamount to repair within the meaning of Buckley, L.J'.s exposition, as well as within the dictionary meaning of the word repair as an equivalent of renovate to which I have already adverted. It is true that Buckley, L.J., was not dealing with a case under the Income Tax Act but I see no reason after the careful consideration I have bestowed upon the matter since reservation of judgment why our interpretation of the word repairs occurring in the relevant provision of the Indian Income-tax Act now under consideration should not be guided by Buckley, L.J.'s interpretation of the expression which undoubtedly has been accepted by the Privy Council as a clue to the proper interpretation of the expression in the Bechuanaland Protectorate Income Tax Proclamation in Rhodesia Railways v. Income Tax Collector, Bechuanaland*. Lord Macmillan in delivering the judgment of the Judicial Committee in that case observed as follows, after quoting the passage from Buckley, L.J.'s judgment in Lurcott v. Wakely and Wheeler** just reproduced by me:- The periodical renewal by sections of the rails and sleepers of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bigness or smallness of the repairs, so long as they are current repairs they fall within clause (v), while if they are not that, they fall outside it. If the worn-out boiler became at the time of its replacement something with which it was impossible to run the plant or machinery of which it was a part, it seems to me that the replacement cannot reasonably be regarded as in the nature of current repairs. On the other hand, any repairs to any part of the machinery or plant such as may lie in a patching up during the running of the machinery or plant for the business, must, in my opinion, be regarded as in the nature of current repairs. This meaning of the expression current repairs gains point in my opinion from what Rowlatt, J., has said in O'Grady (H.M. Inspector of Taxes) v. Markham Main Colliery Ltd.*at page 101:- As regards the chimney, I think it is really very clear. Of course, every repair is a replacement. You repair a roof by putting on new slates instead of the old ones, which you throw away. There is no doubt about that. But the critical matter is-as was pointed out in the passage read from Lord Justice Buckley's judgment, in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld arrive at their conclusion that any part of the cost of the reservoir was other than capital expenditure. At page 487 of the report the learned Judge first observes thus as the reasoning of his conclusion:- What strikes one who is familiar with the long line of cases on this sort of subject is that this looks like the plainest case of capital expenditure. If a reservoir is antiquated or worn out and the people responsible, instead of repairing it and letting it go on for a bit longer, discard it or scrap it and build a new, a better and different, reservoir elsewhere, one would have thought that that was, as I say, the plainest possible case of capital expenditure. Then he refers to the case before Rowlatt, J., in O'Grady v. Bullcroft Main Collieries Ltd.**, as a case very close to the one before him. He proceeds next to refer to Rhodesia Railways Ltd. v. Collector of Income Tax, Bechuanaland Protectorate*** and Lurcott v. Wakely Wheeler#. Of the former he says that it does not seem to him to throw any real light on the case before the Court. From the decision in the latter, he quotes the passage of Buckley, L.J., which I have already quoted in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this case that it did not seem to him to throw any real light upon the case before him. There is no reason given by the learned Judge for saying so of the Privy Council decision. Whether right or wrong Lord Macmillan in the Privy Council case does give reasons for his view that the expenditure there in question was not of a capital nature. Apparently, Finlay, J., who could not but be alive to those reasons would not accept them, though he does not say so in so many terms. In order to understand the reasoning of the Privy Council, it is necessary to state the facts of the case before their Lordships. The appellants there were assessed to income-tax under the Bechuanaland Protectorate Income Tax Proclamation, 1922, in respect of profits from 394 miles of their railway line in the Protectorate. It was claimed by them that they were entitled to debit 252,174 pounds which they had expended in the year of assessment in renewing 74 miles of the railway track. The work, which was part of a general scheme of renewal, included the supply of new rails, sleepers, and fastenings, where necessary; steel sleepers were used in place of wooden sleepers for about half the line renewed. The renewal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that they derived no additional revenue from the outlay. The Lord President (Inglis) in rejecting the company's contention said*: It must be kept in view that this is not a mere relaying of line after the old fashion. It is not taking away rails that are worn out or partially worn out and renewing them in whole or in part along the whole line. That would not alter the character of the line ; it would not affect the nature of the heritable property possessed by the company. But what has been done is to substitute one kind of rail for another-steel rails for iron rails. Now, that is a material alteration, and a very great improvement in the corpus of the heritable estate belonging to the company, and so stated, surely is a charge against capital. All that is done, it will be observed from the details given with reference to this matter, is to charge the price of the rails and chairs-that is to say, the weight in addition to what was the original weight of the rails and chairs. That is the whole charge, and that is a charge made entirely for the improvement of the property-the permanent improvement of the property. Now, how that can be anything but a charge against capital, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me time, it is also clear to my mind that as to what capital expenditure means, the test suggested is whether or not it has resulted in the creation of a new asset as distinct from the mere maintenance of an existing asset, in other words, whether or not the expenditure has merely restored the situation to its original condition or improved it by extra quality. Applying to the case on hand this test of the Privy Council ruling, with which I shall have to deal further, later in the course of this judgment, it may seem as clear that the department should fail, as that it should succeed, as already observed by me on the application of Margrett (H.M. Inspector of Taxes) v. Lowestoft Water and Gas Company*. The question is ; between which of these two decisions if indeed irreconcilable have I to choose? That leads me on to a consideration of the basic ideas which underlie capital expenditure . As pointed out in the Concise Oxford Dictionary capital funds or capital stock means the original principal fund or stock with which a company or person enters into business. No business clearly can be started without an initial outlay of expenditure which is generally known as capital. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that applied in the construction of the printing machine itself, which in fact in due course may disappear by wear and tear. So of all machinery and all plant. It wears out sooner or later and may be said sooner or later to ripen into goods that satisfy our wants: (Page 70, ibid). All forms of material wealth wear out in course of time. Some sorts of capital are indeed very durable such as irrigation dams and granite docks; some last a considerable time as buildings and machinery; others are used up very quickly as the coal which is burnt under the boiler. All need to be replaced as time goes on, some slowly in proportion as they last long, some quickly in proportion as they are rapidly used up: (Page 77 ibid). Commonly capital is maintained intact, not in the sense that the same machinery or materials are maintained indefinitely, but in the sense that as they wear out other machinery and materials are regularly produced to take their place. The surpluses which are put aside to balance depreciation are again invested in the same enterprise and the same instruments or in some other: (Page 78 ibid). The repair of capital as well as its complete replacement when worn out calls for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which no deduction had been claimed in the matter of the tax paid in previous years. It is also easy to understand in that light why his Lordship rejects the analogy of a wasting asset relied upon by the Special Tribunal in that case which would really be applicable only to a case where a particular asset got completely exhausted by wear and tear in the process of use, not merely antiquated or worn out just to be repaired and let go on a bit longer , to use the language of Finlay, J., in Margarett (H.M. Inspector of Taxes) v. Lowestoft Water and Gas Company*. In a case reported in Coltness Iron Company v. Black** the question arose whether a tenant of minerals, though he might be under a constant vanishing expense in sinking new pits as the old ones became exhausted, was entitled in computing the profits for assessment of income-tax, to deduct from the gross profits a sum estimated as representing the amount of capital expended in making bores and sinking pits, which had become exhausted by the year's working. It was held that he was not, and that was because as pointed out in the speech of Lord Penzance the Act then in question contemplated the case of a mine as within Sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duce derived from an undertaking after defraying the necessary outlay be insufficient to replace the capital exhausted, a loss has been incurred; if the capital is merely sufficient to replace the capital exhausted, there is no surplus, there is no loss, but there is no annual profit, and the greater the surplus is, the greater the profit.' I do not feel at all inclined to dispute the sufficiency of this definition. It is clear from this passage in the speech of Lord Blackburn that while according to the author of the Work on Political Economy referred to by his Lordship if the produce derived from an undertaking after defraying the necessary outlay is insufficient to replace the capital exhausted it must be considered that a loss has been incurred, the learned Lord is at the same time making a distinction for the purpose of the Income Tax Acts between what may be called the capital charges involved in expenditure over pit-sinking which may be exhausted by the year's working and the working charges deducted and allowed in ascertaining the profits for assessment which include the whole cost of getting and raising the minerals, after the pits are sunk, and of manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o form the nucleus of the fund and to provide the amount necessary in order that past years of service of the then existing staff should rank for pension. This sum was arrived at by an actuarial calculation on the basis that the sum would ultimately be exhausted when the object for which it was paid was attained. On the winding up of the fund the whole amount was to be distributed among the members. The company, having paid the sum of 31,784 out of current profits, claimed that it was an admissible deduction in computing its profits for the purpose of assessment to income-tax for the financial year 1917-18. On these facts it was held (by Viscount Cave, L.C., Lord Atkinson and Lord Buckmaster: Lord Carson and Lord Blaneshburgh dissenting) that the payment was in the nature of capital expenditure and was therefore not an admissible deduction. It will be seen that the kind of expenditure in question in the present case was not what the House of Lords had to deal with in that case. The amount of 31,784 which had been taken out of the current profits was contributed to a pension fund so as to form its nucleus. The expenditure was made not only once and for all which was the test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreements were cancelled in 1922, the agent company agreeing to go into voluntary liquidation and the company agreeing to pay to the agents 300,000 in cash. This sum was in fact paid and the company contended before the Special Commissioners that it was an admissible deduction in computing the company's profits for purposes of income-tax and corporation profits tax. The Special Commissioners rejected this contention and the company appealed. Rowlatt, J., in the first instance and the Court of Appeal presided over by Lord Hanworth, M.R., in confirmation of Rowlatt, J.'s decision held that the payment to the agents was not in the nature of capital expenditure but was an admissible deduction for purposes of income- tax and corporation profits tax. The case in British Insulated and Helsby Cables v. Atherton* is referred to in the judgment of Rowlatt, J., at page 262 of the Report as follows:- But to say that it is a capital expenditure because it secured an enduring benefit by getting rid of an onerous contract is not to state the material thing, and it is completely inconclusive. I think I know where that phrase comes from, and that is from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in the event of a winding up of the company the sum in question could ever form any part of the assets of the company. Then to turn to the speech of Lord Blanesburgh the same considerations are brought out at page 236 of the Report. After pointing out at an earlier page (233) in terms of Lord Loreburn's statement of the law in the case of Usher** that profits and gains must be estimated on ordinary principles of commercial trading by setting against the income earned the cost of earning it, subject to the limitations prescribed by the Act , a statement of the law which is not dissimilar to what has been quoted by me earlier from the House of Lords case of Coltness Iron Company v. Black***, the noble and learned Lord observes thus at page 236:- In no sense of the word 'capital', circulating, working or fixed, did this expenditure involve any withdrawal. It was made out of gross receipts in a year in which, working capital and, a fortiori, fixed capital remaining intact, a large surplus still emerged. Nor, in my judgment, did the expenditure in any relevant sense create a new asset of the company of the nature of a fixed capital asset or any other. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure under the two heads was shown in the account books of the company as capital expenditure. The contention however was that it was in the nature of expenditure chargeable against income. The contention was overruled. The Lord President (Inglis) observes thus with reference to the way in which the account books deal with the expenditure:- I think it is a pretty good indication to the Commissioners upon their part that they could not properly make it a charge against income at all. At the same time, although this is the condition of the appellant's books, I do not by any means say that it is conclusive, if they can show what they have made a charge against capital ought really to have been made against income, and properly constitutes a charge against income, and therefore the question remains for consideration whether these charges as described in their book could with any propriety be dealt with otherwise than they have dealt with them themselves. So, Lord Mure observes at page 489 of the Report:- It is certainly a remarkable fact that these charges are entered against capital in the company's books. I agree with your Lordship that that is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head of revenue expenditure are prima facie, though not conclusive, evidence of the character of the expenditure in question in any particular case. Further it also follows from the quotations that I have made that where the price paid for the acquisition of an asset is something lower than what it would have been, had the asset been in perfect condition, any improvement of the asset in order to repair the deficiencies of the condition in which it was purchased would be in the nature of capital expenditure. Further again where the heritable corpus of a company is so far improved that in quality or calibre something better replaces it, that is a material alteration which is in the nature of capital expenditure. The variety of tests suggested by the case law so far discussed only indicates how true it is-what the Master of the Rolls observed in Golden Horse Shoe (New) Ltd. v. Thurgood*:- The test of circulating as contrasted with fixed capital is as good a test in most cases to my mind as can be found; but that involves the question of fact, was the outlay in the particular case from fixed or circulating capital?... After careful considerations of the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That is only to say once more that the matter really resolves itself in the last resort into a question of fact in each particular case, and there is no sure touch-stone which can be applied universally to solve a problem of the kind involved in the present proceedings. In this connection I may also advert to a case of this court reported in Ratan Singh v. Commissioner of Income-tax# which was originally dealt with by Sir Murray Coutts Trotter, Kt., C.J., and Beasley, J., as an Original Side Appeal from the judgment of Kumaraswami Sastri, J., and later dealt with by those two learned Judges as well as by Curgenven, J., on a reference by the income-tax commissioner. That was a case in which clause (ix) which corresponds to the present clause (xv) of sub-section (2) to Section 10 of the Act came up for consideration and treatment in relation to the facts of the case there thus:- A much more difficult point is raised with regard to the second matter which relates to certain items which were disallowed by the Income-tax authorities as being of the nature of capital expenditure which is excluded from deduction by Section 10(2)(ix). This sub- section allows any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to us must be treated as an expenditure incurred for the purpose of earning the profits or gains of the business, and we do not think that it can properly be treated as capital expenditure which is excluded from the operation of clause (ix). This part of the judgment which deals with the question of the application of Section 10, sub-section (2), clause (v), I need not dilate upon as I have already considered the question in the present case with reference to this statutory provision and come to the conclusion that the repair in question here which is the replacement of the old worn out boiler by a new one cannot be regarded as current repair because the old boiler had not ceased to function altogether by the time that it came to be replaced by the new one. The thing that matters, in this judgment in Ratan Singh v. Commissioner of Incometax* for the further purpose of the present case is really what I have already set forth and remarked about, namely, the passage relating to the first three items which were additions to the machinery and plant used by the firm and which the Court held liable to be classed under the head of capital expenditure. Curgenven, J., the third Judge, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the test of Curgenven, J., irrespective of the superiority of quality of the new boiler as compared with the old. I am not satisfied, I must say, that any change in the identity of the machine has come about within the language of the test of the learned Judge by reason of the sum so spent. The argument of learned counsel that the expenditure has resulted in the kind of substantial improvement or substantial extension of the period of serviceableness contemplated by the learned Judge seems however to stand on a different and stronger footing. The view of the two other Judges who dealt with the matter on the Original Side Appeal and affirmed the opinion therein expressed in their judgment after the reference seems to my mind to be even more favourable to the contention of learned counsel, because dealing with the items relating to additions to machinery and plant, as I have already stated, those learned Judges held that they could be classed under the head of capital expenditure. This view resulting from the application of Ratan Singh v. Commissioner of Income-tax* to the case on hand is also on the whole in accord with the English authorities to which I have already referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of Section 15, sub- section (1)(b), of the Proclamation and the cost of them did not constitute an outgoing of a capital nature within the meaning of Section 15, sub-section (1)(a). In the present case the fact that the cost of the new boiler is not within current repairs of one part of the statute does not necessarily involve that it is or is not of a capital nature within the other part of the Statute. The latter question has to be considered on its own merits, and considering it so, and applying the principles of the English cases in O'Grady (H.M. Inspector of Taxes) v. Markham Main Colliery Ltd.* and Margrett (H.M. Inspector of Taxes) v. Lowestoft Water and Gas Company** as well as of the Madras case in Ratan Singh v. Commissioner of Income-tax***, I am of opinion that the reference at the instance of the Department should succeed. The present case is on the whole, in my opinion, more analogous to the case of chimney in O'Grady (H.M. Inspector of Taxes) v. Markham Main Colliery Ltd.* and to the case of the reservoir in Margrett (H.M. Inspector of Taxes) v. Lowestoft Water and Gas Company**, than to the case of the railway rails and sleepers in Rhodesia Railway ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e part of a unit of the machinery required for the manufacture of sugar and so could not be treated as a separate unit by themselves is of no materiality whatsoever even if well founded. It may be that as Mr. Subbaraya Ayyar has rightly pointed out the entire sugar works is treated as a single unit or class of asset for the determination of the allowance under the head of depreciation contemplated by Section 10, sub-section 2(vi) of the Act. (Vide page 306 of the Income-tax Manual issued by authority of the Central Government, 10th Edition, Parts II and III). But that, in my opinion, does not throw any light on the question whether for the purpose of the applicability of Section 10(2), clause (xv), of the Act the boiler can or cannot be regarded as a separate divisible unit. Nor is it material that as found by the Tribunal the replacement of the old boiler is by a new one just having the same pressure which the old one possessed when it was new and doing the same work which the old one was doing previously to its deterioration. The new boiler has come in substitution for the old boiler which was part of the fixed capital of the company and therefore partakes of the character of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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