TMI Blog1961 (4) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed ₹ 82,796 for New Empire renovation and also disallowed ₹ 2,17,182. The Tribunal also affirmed the decision holding that the renovation was not in the nature of current repairs within the meaning of section 10 (2) (v) of the Income-tax Act. The Appellate Tribunal expressly states that the only question before them was whether renovation was current repair and whether in part it can be allowed as current repairs. It referred to the decision of Ramkishan Sunderlal v. Commissioner of Income-tax, a decision of the Allahabad High Court of Mallick C.J. and Bhargava J., and the Madras decision of Satyanarayana Rao J. and Raghave Rao J. in Commissioner of Income-tax v. Sree Rama Sugar Mills Ltd. The main question on this reference is the interpretation of the words current repairs in section 10 (2) (v) of the Income-tax Act which reads as follows : Such profits or gains shall be computed after making the following allowances, namely : In respect of current repairs to such buildings, machinery, plant or furniture, the amount paid on account thereof. As usual there are a number of conflicting decisions on the meaning and interpretation of the expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailing, 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. Raghava Rao J., who delivered a separate judgment in that case, expressed the view that the replacement of the old boiler by the new boiler was a case of repair but was not current repair within the meaning of section 10 (2) (v) of the Income-tax Act. The next case is of the Punjab High Court in Commissioner of Income-tax v. Ranjit Singh a decision of a Division Bench of Bhandari C.J. and Falshaw J. This was also a hotel repair case. This case, however, as pointed out by Falshaw J., shows that a sum can be allowed as the cost of repairs and can be held at the same time not to be a capital expenditure in spite of the fact that the expenditure in a particular year happened to be specially heavy on account of the fact that it was undertaken to remedy the effect of several years of wear and tear or neglect and also in spite of the fact that such expenditure might not be necessary for some time to come after the repairs have been effected. But at page 22 of the report Falshaw J., dealing with the Allahabad decision constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the right of the assessee to claim deduction in respect of repairs. One or two views are possible of the expression current. It may be said that current is used in contradistinction to heavy and that small petty repairs are the only repairs which can fall within the ambit of section 10 (2) (v). The other view is a view more in fitting with the etymological meaning of the expression current and it is that they are such repairs which are attended to when the need for them arises and are not allowed to fall into arrears or to be accumulated. If a building, machinery, plant or furniture needs some repairs and those repairs are attended to as and when the need arises then the repairs are current repairs. But if the assessee, although the need has arisen, does not attend to that need and allows the repairs to get accumulated, then it could not be said that when he is expending money on these repairs he is expending them on current repairs. Again, it seems to have been the intention of the legislature, that if the assessee could carry on with his building, machinery, plant or furniture without attending to its repairs and spends an amount at a later date when the arrears are a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airs which we have to interpret in section 10 (2) (v) of the Income-tax Act. The English decision of Law Shipping Co. Ltd. v. Commissioners of Inland Revenue deals with the question of an assessees claim for deduction of the cost of repairs in respect of a ship. Lord President Clyde of the Court of Session, Scotland, in delivering the opinion at page 625 of the report observed as follows : The expense laid out in keeping a ship, which is employed in trade, in proper repair is certainly an expense necessary for the purposes of the trade.... Repairs may be executed as the occasion for them occurs; or if they are such as brook delay, they may be postponed to a convenient season : but, in either case, they truly constitute a constantly recurring incident of the continuous employment of the ship which makes them necessary to earn profits, although they have been allowed to accumulate . This view is contrary to the view of the Bombay High Court that due to the special word current in the expression current repairs in section 10 (2) (v) of the Indian Income-tax Act, repairs which could be accumulated and whose need could be postponed, could not be brought under the expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature. Therefore, only 10% of the renovation expenses was allowed as current repairs and as such 90% was disallowed. The word current repairs in section 10 (2) (v) of the Income-tax Act mean first that the expenditure must be on repairs and, secondly, that such repairs must be current repairs. Neither for the word repair nor for the expression current can there be a rigid or any hard and fast formula. To embark on a discussion as to when replacement or renewal is a repair or when replacement of a part can be said to be a kind of repair for the whole, or to attempt to define the quantity of expenditure that can come within the expression current repairs so that above which it will be heavy and below which it will be petty , will be pursuing the controversial task of defining current repairs when the legislature has chosen to leave it undefined. The plain ordinary meaning of the expression current repairs , without attempting to be doctrinaire and pedantic on the subject, should be the governing test in the facts of each case. Only this much is certain that the expression must be construed as not only to mean repairs but current repairs. From this it must fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dically and expenditure actually incurred on them either during the accounting or the assessment year. From that point of view accumulation of repairs will not ordinarily satisfy the test, because ex hypothesi such repairs can be postponed and, therefore, the need is not there. In this case a point was made that the expenses here could not be incurred because no materials were obtainable due to the dearth and shortage caused by the last world war. No evidence is on record to show that it in any way affected the business even to the slightest degree. Therefore, these renovation expenses could not now be claimed on the facts of this case as current repairs. What will happen in a case where current repairs are needed but cannot be attended to for reasons beyond the control of the assessee by such events of international war, and then, when war is over after many years, large and heavy expenditure on the accumulated current repairs is incurred in the accounting year, is a question which cannot be answered as a general proposition of law. It will depend on many facts such as to whether the lack of such repairs and the need for them were such as to affect business, whether the repairs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the expenses on renovation could not be held to be in the nature of repairs within the meaning of section 10 (2) (v) of the Indian Income-tax Act. Upon further appeal to the Appellate Tribunal the latter also found that the expenses under the head of renovation could not be regarded as current repairs which according to the Tribunal necessarily means repairs for the current business of the assessee and not repairs undertaken to renovate the deterioration of assets as a result of use for a number of years. The Tribunal held that the sum of ₹ 2,17,182 had been rightly disallowed, but inasmuch as in the opinion of the Tribunal a question of law arose out of this order, it drew up a statement of case and referred it to the High Court under section 66 (1) of the Indian Income-tax Act. Section 10 (1) of the Indian Income-tax Act is as follows : The tax shall be payable by an assessee under the head profits and gains of business, profession or vocation in respect of the profits or gains of any business, profession or vocation carried on by him. Section 10 (2) is as follows : Such profits or gains shall be computed after making the following allowances, namely :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction from its profits large sums spent by it for renewal of 74 miles of railway track out of 394 miles of the total length of the track. In upholding the claim of the assessee Lord Macmillan made the following observation : The periodical renewal by sections of the rails and sleepers of a railway line as they wear out by use is in no sense a reconstruction of the whole railway and is an ordinary incident of railway administration. The fact that the wear although continuous is not and cannot be made good annually does not render the work of renewal when it comes to be effected necessarily a capital charge. The expenditure here in question was incurred in consequence of the rails having been worn out in earning the income of previous years on which tax had been paid without deduction in respect of such wear and represented the cost of restoring them to a state in which they could continue to earn income. It did not result in the creation of any new asset; it was incurred to maintain the appellants existing line in a state to earn revenue. The attention of this court was also drawn by learned counsel for the respective parties to the cases of Samuel Jones Co. Ltd. v. Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary for some time to come after the repairs have been effected. It seems to me that these principles ought to be applied to the facts of the present case in which obviously the resurfacing of the whole of the roadways of the hotel had become necessary on account of several years wear and tear and neglect and I am inclined to agree with the view of the Appellate Tribunal that the fact that further repairs may not be necessary for some time to come makes no difference. In the case of Commissioner of Income-tax v. Durbhanga Sugar Co. Ltd. a sum of ₹ 17,256 was spent on machinery repairs, namely, for replacing a fire box for locomotive, for replacing a cast iron headstock for rollers and for purchase of a cost iron sublimer for generating sulphur gas and it was claimed that these replacements were necessary because of fair wear and tear. Ramaswami J. (Imam J. concurring) held that a renewal may be a repair or reconstruction. The test is whether the act of replacement that the entire machinery or substantial part of replacement is one which is in substance replacement of defective parts or replacement of entire machinery or substantial part of the entire machinery. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Allahabad High Court as correct. The following observation of the learned Chief Justice may be set out hereunder : But if the assessee, although need has arisen, does not attend to that need allows the repairs to get accumulated, then it could not be said that when he is expending money on these repairs he is expending them on current repairs. In the case of Bansilal Abirchand Spinning Weaving Mills v. Commissioner of Income-tax which is a decision of the Nagpur High Court, the assessee, who owned a spinning mill, incurred in the year of account an expenditure of ₹ 9,330 on the replacement of cylinder in a sizing machine of the mill and spent a sum of ₹ 15,000 on renovation of the wooden flooring of the spinning department of the mill. It was held by V. R. Sen J. and G. P. Bhutt J. that the said amounts were revenue expenditure and could be allowed as expenditure incurred for current repairs under section 10 (2) (v). It was pointed out that the term repair in the expression current repairs occurring in section 10 (2) (v) is to be understood in contradistinction to reconstruction and when the existing asset is only maintained and preserved and no new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), of section 102. I have looked at the specification. There are only one or two small items that it might be suggested are on a rather different footing to the other items. In may view they all come within the term repairs in the broad sense in which the term is used in sub-section (2) (b), and I do not think that having regard to the fact that the legislature has per (as in my opinion it has) expense of repairs and expense of rebuilding on the same footing, it was intended by the legislature to give a restricted meaning to the word repairs. I think that the intention of the Act is to save the trustee from being too meticulous in construing the character of the repairs, whether they are normal current repairs or whether they go beyond that . In the case before us the necessity for executing the repairs arose admittedly during the war period, but the repairs could not be effected for dearth of materials. The further question that arises is whether as a result of the repairs or renovation the existing assets in respect of the said two cinema houses have; been replaced by new assets in their entirety and the identity of the old assets is gone. This is a question of fact. The findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is right in saying that the expenses on renovation could not be held to be in the nature of repairs within the meaning of section 10 (2) (v) of the Income-tax Act. For current repairs to building and plant and machinery the assessee had also debited a considerable amount in the year in question in addition to the debit in renovation. The Income-tax Appellate Tribunal upheld the decision of the department and observed : In the present case the assessee company was unable to execute substantial repairs, as was stated, for dearth of materials during the war. As a result, after several years the assessee renovated the furniture and building and rightly wrote off the amount under the head renovation. In our opinion the circumstances are such that the expenses under the head of renovation could not be called current repairs which necessarily mean repairs for the current business of the assessee and not repairs undertaken to renovate the deterioration of assets as a result of use for a number of years. Therefore, we concur with the department that the amount could not be allowed. So there are these concurrent findings of fact based upon evidence in this case. The assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire statement of case and the order of the Tribunal which is made a part of the statement of the case. It is clear that the question is limited to the consideration of the aspect whether the renovation was current repair or not. It was also argued that this court is not entitled to look into the orders of the Appellate Assistant Commissioner and the Income-tax Officer and the materials or findings contained therein, inasmuch as these orders are not parts of the statement of the case. But the Rules of the High Court require that these orders and records of certain proceedings before the income-tax department have to be printed in the paper book in a reference under section 66 of the Indian Income-tax Act. Moreover in the case of In re Gregory Panckridge J. has pointed out that the pint of law to be decided by a High Court in an income-tax reference is not a hypothetical point but specific point raised by the facts of a particular case and the documents and proceedings annexed to the statements of the case are annexed for the consideration of the High Court which is entitled to look into them even if there be no specific reference to them in the body of the Commissioners ..... 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