TMI Blog1965 (3) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... ot sub-let the premises or any part thereof without the consent in writing of the lessor obtained previous to the subletting . .. 8. That the lessee will keep the premises in good and healthy condition and at the expiry of the lease or sooner determination thereof, the lessee will deliver possession of the premises with all furniture, fixtures, fittings, heating and cooling plants, etc., in the same good order and condition in which they received them, fair wear and tear alone excepted. 9. That the lessor shall carry out annual white and colour washing and repairs to the building hereby demised, when necessary. The building was leased with all furniture, fixtures, fittings, heating and cooling plants, the bar and residential suites attached to it along with new installations of cinema machines, projectors, fans and various other electrical appliances for a period of 10 years from the date of the registration of the deed. The wall of the lounge had cracks at some places and there were also some ugly spots thereon. The assessee, in order to cover up these cracks and ugly spots, panelled the lounge, the staircase and the restaurant. In the lounge, the booking offices, the vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall in order to conceal the cracks which had appeared in the walls. This major expense incurred in panelling of the walls was not allowed by the Income-tax Officer as a revenue expense but the assessee was successful in agitating this point before the Income-tax Appellate Tribunal. The Tribunal held that the panelling was done not only to conceal the cracks which were appearing in the walls but also for the purpose of decoration of the cinema hall. (3)Although under the lease-deed all the repairs were to be undertaken by the landlord, yet, in actual practice, in New Delhi, the landlords are not inclined to undertake any major repairs. It pays the landlord nowadays to get the property vacated from the old tenants because it enables them to rent out the property at exorbitant rent to the new tenants. Because of the scarcity of accommodation in New Delhi, no landlord cares to comply with the request of the tenants for doing major repairs. It is also quite evident that in the earlier years also, the ' landlord ' refused to undertake major repairs and the assessee had to undergo the major repairs himself. (4)According to the lease-deed, the lease of this building will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital asset and the expenditure incurred by the assessee was, therefore, of a capital nature. The Appellate Assistant Commissioner, in our opinion, erred while holding that the expenditure was of a revenue nature. In this view of the matter, the entire expenditure claimed by the assessee will have to be disallowed. The short question that we are called upon to determine in this reference is whether the aforesaid expenditure is a capital expenditure or revenue expenditure . The contention of the assessee is that it is revenue expenditure , while that of the department is that it is capital expenditure . Lot of literature has grown round the question what is capital expenditure and what is revenue expenditure . This question, whenever it has arisen, has ultimately been decided on the facts and circumstances of each individual case. Various learned judges have, at times, made an attempt to give some sort of a working definition for the solution of this vexed question ; but no complete or satisfactory definition has, so far, been evolved. I may, at this stage, for the sake of convenience, quote in extenso from the judgment of Chief Justice Shelat in Jansatta Karyalaya v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that what was money wholly and exclusively laid out for the purposes of the trade was a question which must be determined upon the principles of ordinary commercial trading. It was necessary, accordingly, to attend to the true nature of the expenditure, and to ask oneself the question, was it a part of the company's working expenses? Was it expenditure laid out as part of the process of profit-earning. The distinction there made was between the acquisition of an income-earning asset and the process of the earning of the income. The expenditure in the acquisition of that asset was a capital expenditure and the expenditure in the process of the earning of the profits was revenue expenditure. A similar view was also expressed by Dixon J. in Sun Newspapers Limited and Associated Newspapers Limited v. Federal Commissioner of Taxation [1938] 61 C.L.R. 337, where the learned judge observed as follows: 'But in spite of the entirely different forms, material and immaterial, in which it may be expressed, such sources of income contain or consist in what has been called a profit-yielding subject , the phrase of Lord Blackburn in United Collieries Limited v. Inland Revenue Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract customers, the cinema house had to be kept in certain presentable condition, particularly in keeping with its locality and the clientele. It was essential to keep the building in a tip-top condition. To achieve this object, which is certainly a business object vis-a-vis the assessee, he had to incur the expense in connection with the wooden panels and this expense, in the very nature of things, cannot be said to be an expense of a capital nature, particularly when the assessee's lease was for a short duration and the life of the panels was not such as could be treated as an asset of an enduring nature, for at the end of the lease, the assessee could remove the same, and, on the admitted facts, the wooden panels on removal will not be of much value. It was not disputed before us that if the assessee had whitewashed the building, if would be a revenue expenditure and so also, if he had replastered the walls and applied plastic emulsion to the walls. How does the nature of the expense change when to achieve the same object and also for the same purpose, the wooden panels are fixed. We can see no distinction in putting the wooden panels in a different category than painting ..... 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