TMI Blog1973 (7) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... to justify the finding of the Tribunal that any portion of the expenditure incurred by the assessee in respect of the items of Rs. 29,366 in the year 1956-57 and of Rs. 27,377 in the year 1958-59 was of a capital nature ? " From the question framed it is clear that it refers to the assessment years 1956-57 and 1958-59, for which the corresponding accounting periods were Samvat year 2011 and Samvat year 2013, respectively. The assessee was manufacturing match boxes in its factory at Kurla and selling them in the market. It owned several godowns, sheds, etc., and they formed part of the said business assets. The business of manufacturing matches was stopped from Samvat year 2009 and the godowns once used for that business were let out to different people and rent was received therefrom by letting out the same. Some time prior to Samvat year 2011 the machinery once used for the manufacture of matches was dismantled, collected together and stored in a part of the factory shed. In Samvat year 2011 the Food and Agriculture Ministry, Government of India, took a portion of the factory sheds on lease from January 7, 1955, on a monthly rent of Rs. 1,763. In Samvat year 2011 the assessee r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence any new asset or any new or fresh advantage. According to him the repairs executed during the relevant accounting periods constituted permissible deductions either under section 10(2)(v) or section 12(2) of the Act for the respective assessment years. In the appeal preferred by the revenue the Income-tax Appellate Tribunal partially allowed the appeal. The Tribunal took the view that the provisions of section 12 of the Act alone were applicable ; that part of the expenditure incurred was of a revenue nature and the remaining part was of a capital nature being in the nature of alteration or improvement or both. Rather than going into the details of the quantum of the amount spent on revenue account or on capital account, it took into account the amounts spent by way of expenditure for repairs during the other years and for Samvat year 2011 it allowed 30% of the receipts of Rs. 24,133 and for Samvat year 2013 it allowed 20% of the receipts of Rs. 58,178 as revenue expenditure. The rest of the amount claimed was treated as being one of a capital nature and no deduction in respect thereof was allowed. As upon an application by the assessee the Tribunal declined to refer the case t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance for any expenditure not being in the nature of capital expenditure incurred solely for the purpose of making or earning such income, profits or gains. Under the provisions of sub-section (2) an expenditure will be a permissible allowance only if two conditions are fulfilled : (1) that it is incurred solely for the purpose of making or earning income, profits or gains, and (2) the expenditure is not in the nature of capital expenditure. Large number of cases have been cited before us but before we refer to them it will be necessary to refer to the terms of the contract that subsisted during the time when a part of the property was rented out to the Food and Agriculture Ministry in Samvat year 2011 and to Messrs. Mahindra and Mahinda Ltd. during Samvat year 2013. While the property was being occupied by the Food and Agriculture Ministry, more than one letter was written requesting the assessee to carry out the repairs. On February 3, 1955, the Regional Director (Food) wrote to the assessee informing it that at the time of taking over the godown it had promised to repair the godown with dammer and make the roof rain proof ; that the said repairs were not carried out till the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase. There was also a covenant on the part of the lessors to carry out all heavy and major repairs including plumbing work and any repairs to roof and repairs to all drains, sewers and gutters. Sub-paragraphs (a) and (b) of clause 2 of this indenture of lease are as under : " (a) The joint Lessees shall carry out the repairs mentioned in the second schedule hereunder written within a period of one month from the date of execution of these presents and for this purpose will be entitled to appropriate and use the sum of Rs. 22,500 (rupees twenty-two thousand and five hundred) deposited as security with the joint lessors by the lessees as aforesaid. (b) The joint Lessors shall carry out at their cost all the heavy and major repairs including plumbing work and any repairs to the roof and repairs to all drains, sewers and gutters on and loading from the demised premises required to be carried out to the demised premises, provided that the Lessees shall have given reasonable notice in writing requiring the joint lessors to carry out such repairs. The cost of such repairs shall be borne by the joint lessors in proportion to their respective shares in the demised premises and in the ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Tribunal the various items specified in the second schedule to the indenture of lease were scrutinised. Upon scrutiny of that schedule it took the view that it was not possible to take the view that all the repairs therein mentioned were of a capital nature. The Tribunal, however, took no pains to find out which of the items contained in this schedule can be regarded as repairs of a revenue nature and which can be regarded as repairs of a capital nature. Only items Nos. 2, 4, 6 and 7 in this schedule were referred to by way of illustration and it was observed that by no stretch of imagination the expenditure on these items could be said to be capital in nature. As regards the remaining items in the schedule, there is no precise or detailed findings, but there is a passing observation to the effect : " There may be some force in the contention of the department as far as the removal of corrugated sheets from the roofs and their replacement by asbestos cement sheets and construction of weather sheds is concerned." According to the Tribunal this expenditure prima facie is of a capital nature being in the nature of alteration or improvement or both. Without precisely find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t denotes 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 the assessee, although the need has arisen, does not attend to that need and allows the repairs to get accumulated, it could not be said that when he is expending money on these repairs he is expending them on current repairs. But, if the need for repairs had not arisen before they were actually effected, even repairs done long after the acquisition of the asset would be " current repairs ". The expression " current repairs " used in section 10(2)(v), therefore, means expenditure on buildings, machinery, plant or furniture which is not for the purpose of renewal or restoration, which is only for the purpose of preserving or maintaining an already existing asset which does not bring a new asset into existence or does not give to the assessee a new or different advantage, and they must be repairs which are attended to as and when the need for them arises. The question as to when a building, machinery, plant or furniture requires repairs and when the need arises must be decided by not any academic or theoretical test but must be decided by the te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated iron sheets. Thus, there is no material on record even to come to a conclusion that there is any new or fresh advantage or improvement by reason of replacement of old corrugated iron sheets by asbestos cement sheets. So far as the weather sheds are concerned, there is nothing to show of what nature they are or of what materials they were to be built or in fact built. Mere quantum of the amount spent for repairs is by itself not decisive of the question whether it is an expenditure of a revenue nature or a capital nature. A sum can be allowed as the cost of repairs and can be held not to be a capital expenditure even though the expenditure in a particular year is heavy on account of the fact that it is undertaken to remedy the effect of several years of wear and tear or neglect and also in spite of the fact that such expenditure may not be necessary for several years to come after the repairs have been effected. See Commissioner of Income-tax v. S. B. Ranjit Singh. In this case an expenditure amounting to Rs. 24,904 incurred by the assessee in resurfacing with concrete the approach roads fallen into a bad state was allowed as a permissible deduction. A similar view is taken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent disallowed the deduction of pound 252,174. The track was laid down in 1896-1897 and was maintained in the ordinary way but in 1929 the track was in a worn and dangerous state, requiring heavy repairs beyond what could be dealt with in the ordinary way, and in 1930, new rails had to be put in a over a large part of the track and new sleepers which did no more than bring the track back to normal condition and did not render the line capable of giving more service. The question arose whether the outgoing was of a capital nature and whether the work was one of reconstruction and not of repair. Their Lordships of the Privy Council took the view that the sum so expended was an outgoing not of a capital nature and was expended for the repairs of property occupied for the purpose of trade, and as such was rightly deductible from the income assessable to income-tax. Their Lordships of the Privy Council referred to the observations of Buckley L.J. in Lurcott v. Wakeley and Wheeler : " ' Repair ' and ' renew ' are not words expressive of a clear contrast and " Repair is restoration by renewal or replacement of subsidiary parts of a whole. Renewal, as distinguished from repair, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on the corpus of the heritable estate belonging to the company, and so stated is surely a charge against capital. " So far as the principle goes, there cannot be any dispute that if there is an improvement effected or a material alteration caused in the corpus of the property, that may be a charge against capital. In Highland Railway's case it was not even open to dispute that, apart from the weight of the new rails that were substituted, steel rails were automatically costlier than the iron rails. We have pointed out earlier that there is no material to indicate that asbestos cement sheets are costlier than corrugated iron sheets. So far as corrosion is concerned, it may be said that they are likely to be less corrosive when compared to corrugated iron sheets, but at the same time they are brittle and are likely to break in case any heavy article falls over them. When such is the position, it is difficult to see how by substituting worn out corrugated iron ..... X X X X Extracts X X X X X X X X Extracts X X X X
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