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TMI Blog1970 (12) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... nge in the outlook as well as the standard of living of the public at large and also to attract the foreigners etc., it became very necessary for the assessee-firm to give the cinema building a modern shape and to improve it with all types of modern amenities". With this end in view the lessor of the building agreed to reimburse the assessee to the extent of Rs. 16,000. A sum of Rs. 6,000 had already been received by the assessee in the year relevant to the immediately preceding assessment year. During the relevant previous year, the assessee had to receive a further sum of Rs. 10,000. He, however, was only paid Rs. 5,000. Regarding the balance the dispute was taken to law courts. The break-up of the amount claimed as capital amount is as follows : Rs. (i) Cost of frames for chairs 14,971 (ii) Cost of cloth, etc., for chairs including Rs. 600 for cloth, rexin and sewing charges of screen 2,478 (iii) Cost of sanitary fitting 6,415 (iv) Cost of electricity fitting 885 (v) Cost of oils and paints 3,955 (vi) Cost of cement, bajri & other expenses 20,393 ------------ Total 49,097 ------------ The Income-tax Officer rejected the assessee's contention that the above amount was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pense claimed is capital or revenue. The decided cases are only useful for they help one to clear one's mind. It may be that sometimes they also tend to confuse the issue. However, we may refer to a few decisions which, in our opinion, are relevant to solve the present tangle. Lord Macmillan in Rhodesia Railways Ltd. v. Income-tax Collector, Bechuanaland Protectorate approved the following passage in Highland Railway Co. v. Balderston. " '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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly attributable to capital and is of the nature of capital expenditure. If, on the other hand, it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence, it would be immaterial whether the source of the payment was the capital or the income, of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital." Reference may also be made to the observations in Henriksen (Inspector of Taxes) v. Grafton Hotel Ltd., wherein du Parcq, Lord Justice, referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and brand new chairs were put in." and thereafter held as follows : " Repairs and replacements are only those which restore the asset to its original condition or near about that. If the entire asset is replaced by new one, it cannot be a case of replacement or repair." The only relief that the Tribunal gave to the assessee was in the enhancement of permissible deduction, that is, from Rs. 4,555 to Rs. 6,555. We may further observe that in basing its decision on In re L.H. Sugar factories and Oil Mills Ltd., the Tribunal went off the mark. We have already observed that cases like the present cannot be decided on the analogy of other decided cases. However, in spite of this, the Tribunal came to a correct decision. It cannot be denied that the amount spent for the construction of the verandah, office room, side room and bath rooms brought into existence an asset of an enduring nature. It is no one's case that only the existing verandah, office, side room or bath rooms were repaired. What appears is that these constructions were brought into being for the purpose of modernising the cinema hall. Therefore, the amount spent for the construction of the same can in no sense be treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in order to attract 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 white-washed the building, it would be a 'revenue expenditure' and so also, if he had re-plastered 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 ..... 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